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McGill University
Centre for Continuing Education
Career and Management Studies
Graduate Programs, Diplomas and Graduate Certificates
North America and Global Economy
CPL-561-781
Regional Trade Report
Canada – South America
Presented to:
Professor K. Matziorinis
Prepared By:
Sergio Valente
260012071
Siragan Makdissian
119112602
February 13, 2003
Table of Contents
Abstract
3
Introduction
4
Historical background
5
The debt crisis
6
ISI (Import Substitution Industrialisation)
6
Country specific coverage
8
Conclusion
25
References
27
Appendix
28
2
Abstract
International trade is an important form of international business—over $7.4
trillion of goods and services were traded between residents of different countries in the
world in 2001. Most of this trade involved the wealthy Quad (Canada, EU, Japan and the
United States) countries.
Because of trade’s importance to business and governments worldwide, scholars
have offered numerous explanations for its existence. The first theories of international
trade developed with the rise of great European nation-states in the sixteenth century. The
earliest theories—Adam Smith’s absolute and Ricardo’s comparative advantage—relied
on characteristics of countries to explain patterns of exports and imports. Coincident with
the rise of the multinational corporation (MNC), post World War II research focused on
firm-based explanations for international trade. International investment in the form of
portfolio investment and foreign direct investment (FDI) became a major way in which
firms participate in international business.
This report looks at trade relations between Canada and South America in terms
of trade, investment, and general economic indicators. It gives a historical background
and a concise viewpoint as to how the South American continent as a whole became
burdened heavily with debt, high inflation, widespread poverty, economic stagnation, and
macroeconomic instability.
3
Introduction
International business today has a new name and face. Globalization has become
the buzzword for the past decade both in print media and the news, but it is hardly a trend.
The architects of this phenomenon have been the MNCs that have become true global
players. They are backed by international organizations such as the International Bank for
Reconstruction and Development (IBRD) a.k.a. the World Bank, and its affiliated
organizations. At a top political and economic level, globalization is the process of
denationalization of markets, politics and legal systems, i.e., the rise of the so-called
global economy. The consequences of this political and economic restructuring on local
economies, human welfare and environment are the subject of an open debate among
international organizations, governmental institutions and the academic world.
4
Historical Background
Before getting into the particulars of trade and investment relations between
Canada and South America (Exhibits 1 & 2), it is of great importance to understand the
characteristics and history of the economic development of South America. It is difficult
to analyze the status of South America’s economy in the present (Exhibit 3), without
looking at some key issues that occurred in the past. For example, the Debt Crisis of the
eighties along with ISI (Import Substitution Industrialisation) have greatly effected and
shaped today’s economy. Indicators such as inflation and unemployment from the past
can provide useful insight for the present and the future.
During the Twentieth Century, the nations of South America shared most
economic experiences. The great Depression of the 1930s, for example, caused most
nations to shift their policies away from an outward, export orientation toward an inward,
targeted industry strategy. This new strategy eventually developed its own theoreticians
and came to be known as “Import Substitution Industrialization”. More recently, most
nations were borrowers in the 1970s, only to experience severe debt problems in the
1980s. Continuing through the 1990s, the region has embarked on a wide-range set of
economic policy reforms, equal in scope to the transformations that began in Central and
Eastern Europe with the collapse of communism.
5
The Debt Crisis of the 1980s
In the 1970s, few countries had abstained from the borrowing binge, when banks
in the United States, Europe, and Japan offered easy access to the funds they had
accumulated from deposits by rich oil-producing countries. There was no memory in the
banking community of the Latin American debt crisis of the 1930s, when many countries
defaulted on their debts.
The motivation to increase the borrowings varied from country to country.
Venezuela borrowed because they had valuable oil in the ground that future generations
could use to pay the debt; oil importers such as Brazil and Chile borrowed to avoid
cutting government expenditures; and some countries such as Peru, borrowed because
they had chronic trade deficits that they had to finance with capital inflows.
There is no indication that the IMF or the World Bank, or the world banking
community realized that a crisis was brewing. When it broke in August of 1982, it caught
everyone off guard. Lending to Latin America ceased, and the ‘Lost Decade’ began.
ISI (Import Substitution Industrialisation)
For nearly forty years, ISI was important for foreign investors who financed most
of the ventures. Essentially, it involved high production economic strategy for South
America’s economy. In an attempt to have a positive trade balance, the Latin American
plan was to raise capital at the expense of in specialized goods, produced by South
America. This included: agricultural commodities such as tropical fruits, cotton, coffee,
and grains as well as minerals like petroleum and copper, to be exported to developed
countries for consumption, and to earn foreign revenue.
In areas where the export sector was domestically owned, the problem would lie
in the fact that only a small number of the population would reap the benefits and would
6
add greatly to the inequality and wealth that is usually associated with South America.
However, the goal of ISI was to direct developing countries in producing and focusing on
those industries that produce substitutes for imported goods. Their main goal was to
reduce the need for foreign exchange that was used to buy goods that could be made at
home.
The main problems associated with ISI are the result of government misallocation
of resources because of their involvement in production decisions, as well as an
overvaluation of exchange rates that would cause uncertainty in the real value of money.
Other problems included a worsening of income inequality which—as discussed before—
is a serious issue in South America, as well an over biased policy in favor of areas that
were more urbanized. Many feared that market failure was inevitable due to ISI policies.
7
Country Specific Coverage
ARGENTINA
Economic Data (2001)
GDP: $272.6 billion
Real GDP Growth Rate: 3.3%
GDP Per Capita: $US 6,391
Inflation Rate: -0.9%
Unemployment Rate: 18.5%
Total External Debt: $150.3 billion
Canadian Foreign Direct Investment: C$5.5 billion
Trade with Canada
(C$Million)
1997
1998
1999
2000
2001
EXP. to Argentina*
409.0
342
211.4
244.2
132.1
IMP. from Argentina*
231.4
259
303.9
367.1
350.0
2-Way Trade
640.5
601
514.3
611.3
482.1
Balance
177.6
83.3
-92.5
-122.1
-217.9
*(Exhibit 8)
Major Canadian Imports from Argentina:
Ores, fruit and nuts, iron and steel products, leather products, agri-food products.
Major Canadian Exports to Argentina: Machinery, mechanical and electrical
appliances, plastics, newsprint, chemicals, optical equipment, vegetables.
8
Canada-Argentina Relations
Political
Bilateral relations continually improved throughout the 1990s and have taken on
an increasingly broad and sophisticated character. Canadian investment in Argentina,
complemented by close cooperation and a congruence of views on hemispheric and
global issues, was a key factor driving the relationship forward. The Team Canada
mission in January 1998 underlined the growing priority Canada accords to Argentina,
both commercially and politically, in efforts to consolidate Canada's ever-expanding
interest in Argentina as a key hemispheric and multilateral partner.
The Canada-Argentina relationship will continue to grow and mature in the years
ahead, despite Argentina's present difficulties. Promising areas of bilateral cooperation
include academic relations, legal matters and education, parliamentary affairs, defense
and peacekeeping, science and technology, and fisheries and natural resources.
Commercial
The commercial relationship also continues to mature steadily, although during
the last year there has been a dramatic decrease in activity due to the worsening economic
situation in Argentina. Canadian investment, notably in the oil and gas, mining and
energy sectors, reached $3.6 billion in 2000, making Canada one of the most important
foreign investors in Argentina.
During the last several years, several memorandums of understanding have been
signed and cooperative efforts have covered a wide range of sectors, most recently
agriculture, environment and science and technology. Specifically, in October 2000,
Canada and Argentina signed a Bilateral Reciprocity Agreement on Fixed Satellite
Services, thereby opening the Argentine market to Canadian satellite services.
9
Canada-Argentina Trade and Investment Relations
Bilateral Trade
The Canada-Argentina commercial relationship grew steadily through the 1990s,
but the last year has witnessed a dramatic drop in activity due to the deteriorating
economic situation in Argentina, which has entered its fourth year of continued economic
recession. In 2001, bilateral trade totaled $482.1 million, down from $611.4 million in
2000. Canadian exports shrank to $132.1 million (down 45.9% from 2000), while imports
leveled off at $350.0 million (down 4.7% from 2000).
According to Statistics Canada, Argentina registered a $217.9 million trade
surplus with Canada in 2001. Because of trans-shipments through the United States,
Canadian statistics significantly understate exports to South America. For the same
reason, South American statistics routinely understate exports to Canada. Approximately
45% of current Argentine exports to Canada are agri-food products; a further 20% are
copper ores and concentrates; almost 20% are steel mill products; and the balance
includes leather products, fish and seafood, machinery, metals, automotive parts, wood
products, plastics, minerals and chemicals.
Current Canadian exports to Argentina include electrical machinery (e.g.
telecommunications equipment), machinery, newsprint, plastics, optical and medical
instruments, dried vegetables (lentils including seeds), fertilizers, synthetic fibers, and
cosmetics. In addition, during the last several years, there have been discussions on
cooperation between Canada and Argentina on common interests in the areas of nuclear
energy, geo-science, mining, fisheries, space, agriculture, environment, and information
and communications technologies.
10
Investment
Major Canadian investments are in oil and gas, power, mining, agro-industry,
banking and telecommunications. While additional investment opportunities exist for
these sectors, the extent to which they can be explored is dependent on Argentina's
recovery from its ongoing economic crisis.
A Canada-Argentina Foreign Investment Protection Agreement was signed in 1991. It
follows the Organization for Economic Cooperation and Development model, which has
minimal obligations and few transparent exceptions. Canada also has a Double Taxation
Agreement with Argentina and a Trade and Investment Cooperation Arrangement
(TICA) with MERCOSUR. The TICA establishes a framework for discussion designed to
enhance trade and investment cooperation and encourage collaboration on the FTAA and
WTO work programs.
11
BRAZIL
Economic Data (2001)
GDP: $502.5 billion
GDP Growth Rate: 1.5%
GDP per Capita: $3,523
Inflation Rate: 6.8%
Unemployment Rate: 6.2%
Total External Debt: $235.7
Canadian Direct For Inv: C$ 5.564 billion
Trade with Canada (C$ millions)
1997
1998
1999
2000
2001
EXP. to Brazil*
1674.9
1381.8
1042.8
1051.9
914.8
IMP. from Brazil*
1314.1
1377.0
1374.6
1501.7
1531.0
Two Way Trade
2989.0
2758.8
2417.4
2553.6
2445.8
Balance
360.8
4.8
-332.2
-449.8
-616.2
*(Exhibit 9)
Major Canadian Imports from Brazil:
Vehicles, iron and steel, electrical machinery, sugars, preserved food, machinery, wood
pulp.
Major Canadian Exports to Brazil:
Newsprint, fertilizers, machinery, mineral fuels, electrical machinery; sulphur, optical
equipment.
12
Canada-Brazil Relations
Political
The bilateral relationship has expanded and diversified significantly over the last
several years, despite some ongoing trade disputes, demonstrating Canada's interest in
having Brazil as a key partner in South America. In regional and global terms, both
countries recognize the other as a valued partner with whom it often shares similar
objectives. Formal bilateral consultations are being held regularly on political,
international and defense security issues.
Commercial
Brazil is traditionally Canada's largest trading partner in South America. Canadian
exports to Brazil experienced an unparalleled seven years of exponential growth, starting
in 1991 when Brazil opened its market to imports. During the seven-year period exports
more than tripled, reaching a peak of C$1.68 billion in 1997. Successive economic crises
in Southeast Asia and Russia had a negative impact on emerging markets.
Statistics Canada indicated official figures were C$5.56 billion in 2001.
According to informal estimates, the current value of Canadian investment in Brazil is
approximately C$7 billion. Brazil is one of the primary destinations for Canadian foreign
direct investment in the hemisphere. Brazil was the world's third largest recipient of
foreign direct investment in 1999, behind China and the United States.
Canada-Brazil trade and investment relations
Bilateral Trade
With a population of 170 million and a gross domestic product estimated at
US$492 billion in the year 2001, Brazil is, by far, the most powerful economy and
Canada's largest trading partner in South America. Trade between Brazil and Canada
13
increased significantly during the 1990s. From C$1.7 billion in 1989, two-way trade
peaked at C$3.0 billion in 1997 and totaled C$2.8 billion in 1998. However, reflecting
significant currency devaluation in Brazil in January 1999, trade retracted to C$2.4
billion (exports of $1.04 billion and imports of $1.36 billion) in 1999. In 2000, two-way
trade was C$2.5 billion, showing a modest increase (6%) over 1999. In 2001, two-way
trade totaled C$2.4 billion (Canadian exports of C$914.5 million and imports of
C$1.5 billion), representing a decrease of 4.3% from 2000.
Although there had been cautious optimism that Brazil would enjoy strong
economic growth in 2001, the financial crisis in Argentina, a de facto devaluation of the
currency (the real) by 20% in 2001 and an energy crisis in Brazil led to a more
conservative estimate for economic growth and trade prospects. Despite these setbacks,
Canada continues to export almost three times as much to Brazil as it does to Chile and
currently exports seven times as much to Brazil as to Argentina.
Until recently, commodities dominated Canadian exports to Brazil. While
commodities are still significant, Canada now exports larger quantities of value-added
and manufactured goods. The Brazilian government's trade liberalization efforts have
increased export opportunities for these products, and Canadian suppliers have carved out
a significant market presence in mobile cellular systems, telecommunications and
informatics equipment and services, environmental equipment and services, aircraft
engines, leisure watercraft, automotive industries, advanced manufacturing equipment,
value-added foods, remote sensing and geographic information systems (GIS). From
Brazil, Canadians are importing a wide range of products, including coffee, fruit juices,
automotive parts and accessories, metals and minerals, shoes and chemicals.
Investment
Total foreign direct investment (FDI) in Brazil reached US$30 billion in 2000,
making Brazil the world's third largest recipient of FDI after the United States and China.
In 2001, Canadian official direct investment in Brazil totaled $5.5 billion, making Brazil
14
Canada's 14th destination for foreign investment (unofficial estimates put this at
approximately $7 billion). The largest recipient of Canadian direct investment is the
telecommunications sector. The Brazilian government continues to move forward with its
privatization program in various sectors, including petrochemicals, transportation and
utilities. Canada and Brazil have a Double Taxation Agreement.
CHILE
Economic data (2001)
GDP: US$ 70 Billion
GDP per capita:US$ 4,938
Canadian Direct Investment in Chile $US 11.932 billion GDP Growth: 2.9%
Inflation Rate: 2.8%
Unemployment Rate:8.0%
Canadian Trade Statistics with Chile (C$ Million)
Source:
Statistics
Canada
1992 1993 1994 1995 1996 1997 1998 1999
2000
EXPORTS*
154.7 212.9 314.4 387.4 417.9 392.4 339.0 360.4
444.2
%
Change
00/01
358.6 -19.27
IMPORTS*
202.5 209.3 238.1 278.9 342.2 325.0 359.8 421.6
555.4
640.6
15.34
BILATERAL 357.2 421.8 552.5 665.3 760.1 704.0 683.2 776.0
TRADE
999.6
999.2
0
(20.8) (60.5) (111.2) (282.0)
-
BALANCE
(47.8)
3.6 76.3 108.5 75.7 67.4
Major Cdn. Exports 2001
($million)
2001
Major Cdn. Imports 2001
($million)
1. Machinery 51.42 (65.43)
1. Ores (copper) 222.74 (209.72)
2. Cereals 45.70 (58.47)
2. Fruit 158.24 (145.36)
3. Elec. Machinery 40.91 (74.70)
3. Wine 57.97 (66.51)
4. Paper 39.19 (44.73)
4. Copper articles 45.28 (6.34)
5. Coal 31.73 (35.20)
5. Wood 33.32 (28.69)
In brackets: figures for 2000
*(Exhibit 10)
15
Canada-Chile Relations
Political
Canada-Chile relations have been steadily growing since Chile's return to
democracy in 1990, and today they are excellent. A series of high-level political visits
both ways, expanding multilateral cooperation, and Canada's important presence in the
dynamic Chilean economy have made Chile one of Canada's key partners in Latin
America. As evidence of the deepening bilateral relationship, the last few years have
been witness to many high-level Canadian visits to Chile.
Commercial
Total two-way trade has increased dramatically, nearly doubling from
$357 million in 1992 to $776 million in 1999. It verged on the billion-dollar mark in
2000 and 2001. In 2001, Canadian exports totaled $358.58 million, while imports from
Chile amounted to $640.60 million. Canada is now the second largest foreign investor in
Chile. The cumulative total of actual Canadian foreign investment is estimated at
$5.63 billion in 2001.
The Canada-Chile Free Trade Agreement, which was signed in November 1996
and came into effect in July 1997, provided for immediate elimination of the 11%
Chilean duty on the vast majority of Canadian industrial and resource-based exports,
representing 80% of Canada's exports to Chile. Tariffs on the remainder of these goods
were reduced immediately to 5.5% and will be completely phased out by 2003. Side
agreements on environment and labor enhance cooperation in those areas.
16
Canada-Chile Trade and Investment Relations
Bilateral Trade
The Canada-Chile Free Trade Agreement (CCFTA), covers trade in goods and
services and investment, and includes dispute settlement mechanisms. The CCFTA
provided significantly improved access to the Chilean market for Canadian exporters.
A Double Taxation Agreement, effective January 1, 2000, has contributed to a
more stable and fair taxation regime, easing the flow of commerce for individuals and
business in both countries. With the primary objective of establishing a free trade area by
progressively eliminating tariffs, Canada and Chile also signed an agreement to
accelerate the elimination of tariffs under the CCFTA.
Total two-way trade between Canada and Chile has nearly doubled over the past
decade, from $357 million in 1992 to $999 million in 2000. However, Canadian exports
declined by 19% in 2001, to $358 million, after having risen by 27% to $441 million
during the previous year.
The major sectors of opportunity for Canadian companies in the medium term
include equipment and services in the following areas: mining and metals, energy,
environment, information technology, and telecommunications, construction and building
products, transportation and infrastructure, and plastics. Many Canadian companies
consider Chile a gateway to neighboring markets.
Investment
International rating agencies such as Standard & Poor's have given Chile an
"A minus" investment grade, the highest ever reached by a Latin American country.
Canadian investment in Chile has increased sharply, making Canada Chile's second
largest investor, after the United States, for approved investment. Canadian investments
in Chile reached a cumulative total of over C$11 billion in 1999 (making Chile Canada's
seventh largest foreign direct investment destination). Although primarily concentrated in
17
the mining sector, there have been a number of important investments in energy, financial
services, equipment manufacturing and communications.
The negative effects generated by the Asian crisis in emerging nations such as
Chile did not dampen the confidence of foreign investors overall, and foreign capital
continues to flow steadily into Chile. Moreover, Chile dealt with the economic downturn
in 2001 with much less difficulty than its neighbors in the southern cone, due to sound
macroeconomic policies and the fact that Chilean exports were (and remain) almost
evenly divided between Asian, European and North American markets.
The CCFTA and the Canada-Chile Double Taxation Agreement significantly
improve the legal regime applying to Canadian investors in Chile by providing them with
benefits and guarantees unprecedented outside the NAFTA context. The CCFTA ensures
that Canadian investors will be treated similarly to Chilean firms and will receive benefits
equivalent to those Chile may grant to other countries in future agreements.
18
VENEZUELA
Economic Data (2001)
GDP: $129.2 billion
Real GDP Growth Rate: 2.7%
GDP per Capita: $5,115
Inflation Rate: 12.5%
Unemployment Rate: 14.6%
Total External Debt: $34.7 billion
Canadian Direct Foreign Investment: C $210M
Trade with Canada
$C Millions
1997
1998
1999
2000
2001
Exports to Venezuela*
953.5
704
524 636.4
810.6
Imports from Venezuela*
972.3
841.4
1014 1412
1353.2
Two Way Trade
1926
1545
1538 2048
2,163.80
Balance
-18.8
-137
-490 -775
-542.6
*(Exhibit 11)
Major Canadian Imports from Venezuela:
Petroleum (crude and non-crude); iron & steel (semi-finished); aluminum oxide;
aluminum; motor vehicle parts; machinery.
Major Canadian Exports to Venezuela:
Motor vehicle parts; wheat; machinery; newsprint; wood pulp; vegetables; electrical
machinery.
19
Canada-Venezuela Relations
Political
Relations between Canada and Venezuela have traditionally been sound and
friendly. Canada-Venezuela relations are focused on commerce and trade issues.
However, they have been expanding in other areas, which include institutional support,
fight against narco-trafficking, education. Recent bilateral initiatives have included
assistance in state reform, in particular the modernization of the judicial system and the
promotion of human rights. Our programs include grassroots human rights initiatives
through the Canada Fund for Local Initiatives.
Commercial
Venezuela, with a population of 24 million, continues to be an important
commercial partner in South America. It is Canada's second largest trading partner in
South America after Brazil. Petroleum products account for 94% of Canadian imports
from Venezuela.
Canadian investments, totaling $210 million in 2001, are mostly concentrated in
the telecommunications, energy, mining and banking sectors. In addition, Canadian
exporters and investors are pursuing opportunities in the agri-food, environment and
forestry sectors.
Canada-Venezuela Trade Relations
Trade
Venezuela is an important commercial partner for Canada in South America. It is
Canada's second largest trading partner in South America and third largest in Latin
America behind Mexico and Brazil. Bilateral trade in 2001 amounted to $2.14 billion.
Preliminary figures indicate that exports in 2001 were $792 million, a 24.4 % increase
20
over 2000, and imports were $1.352 billion, a 4.2 % decrease. Petroleum products
account for 94% of Canadian imports from Venezuela.
The main Canadian exports to Venezuela include motor vehicle parts and
accessories, telecommunications equipment, wheat, newsprint, wood pulp, potatoes,
oilfield equipment, computers and components, beans and lentils, malt, motor vehicles
and papers. Canada's imports from Venezuela consist of petroleum products,
bitumen/asphalt, semi-finished iron for motor vehicle parts, iron and steel products,
chemicals, rubber and plastics.
Agreements
The Foreign Investment Protection Agreement between Canada and Venezuela
was signed in 1997 and came into force in January 1998. A double taxation agreement
was signed in July 2001, and is expected to be ratified in 2002 so that it may come into
force for the 2003 tax year. As a member of the Andean Community, Venezuela signed
the Canada-Andean Community Trade and Investment Cooperation Agreement (TICA)
in May 1999. The TICA establishes a framework for pursuing stronger commercial and
economic cooperation and calls for periodic consultative group meetings.
21
COLOMBIA
Economic Data (2001)
GDP: $80.8 billion
GDP. Growth Rate: 1.5%
GDP per Capita: $2,021
Inflation Rate: 7.6%
Unemployment Rate: 16.7%
Total External Debt: $37.6 billion
Canadian Direct Foreign Investment: C$869 million
Trade with Canada:(C$ millions)
1997
1998
1999
2000
2001
Exports to Colombia*
473
471.4
254.8
309.3
361
Imports from Colombia*
314
364.2
280.1
332.2
416
Two Way Trade
787
835.6
534.9
641.5
777
Balance
158
107.2
-25.3
-22.9
-55
*(Exhibit 12)
Major Canadian Imports from Colombia:
Coal; coffee; bananas; cut flowers; petroleum; yarn; sugar.
Major Canadian Exports to Colombia:
Cereals; vegetables; newsprint; copper; machinery; vehicle parts.
22
Canada-Colombia Relations
Political
Canada and Colombia have had unbroken bilateral relations since 1953. Canadian
involvement has intensified in recent years through high-level visits, an evolving
development assistance program, a growing source-country refugee program, security
sector cooperation, cooperation in the area of landmines, connectivity initiatives, and a
healthy trade relationship.
Over the next five years, Canada will be allocating approximately $60 million to
Colombia through our development assistance programs. This represents the historical
level of assistance (i.e. no increase). Objectives of Canadian development assistance in
Colombia will include: (1) increasing Colombian capacity to meet the basic human needs
and protect the human rights of people affected by the armed conflict; (2) supporting
equitable participation in establishing the foundations for peace; and (3) improving
Colombian capacity to address some of the key factors that cause and intensify violence.
Canada-Colombia Trade and Investment Relations
Trade
Colombia is Canada's fourth largest trading partner in South America after Brazil,
Venezuela and Chile. Imports from Colombia in 2001 were $415.5 million, a 25%
increase over 2001. Canada supplies approximately 3% of Colombia's imports. Two-way
trade in 2001 surpassed $772 million, with Canadian exports to Colombia totaling $357
million, a 15% increase over the previous year.
Major Canadian exports are wheat, newsprint and paper, pulses, motor vehicles
and parts, chemicals, telecommunications and electronic equipment, and processed foods
and beverages. Significant export opportunities exist in sectors such as environment,
telecommunications, oil and gas, mining, transportation, agriculture and processed foods.
23
Coffee, bananas, coal, cut flowers, cane sugar and molasses, petroleum products, yarn
and steel tubing for the oil and gas industry lead Canadian imports from Colombia.
Canadian companies enjoy an excellent reputation in Colombia, and the Canadian
private sector has taken a leading role in opening the discussion within Colombia on
issues relating to ethical business practices and corporate social responsibility. The
Canada Colombia Chamber of Commerce (CCCC), with the full cooperation of the
Canadian Embassy has organized much of this effort.
Investment
Canada has been a leading foreign investor in Colombia, primarily in the oil and
telecommunications sectors, with current direct investment (planned and actual) totaling
$4 billion. As a member of the Andean Community, Colombia signed the CanadaAndean Community Trade and Investment Cooperation Arrangement in May 1999.
24
Conclusion
From the data and analysis, it is quite clear that Canada and South America have
good trade and political relations, albeit the volume and dollar amount of trade is not
significant (Exhibits 5, 6, & 7). That is why, most statistical papers and reports clump
Canadian data with that of the behemoth south of the border called the US. Canada has
the potential to increase its trade with the rest of the Latin American countries; however,
it will still be considered a satellite-trading partner with the US. Therefore, it is important
for Canada to see where it can position itself, when the hemispheric trade zone does
become a reality.
Looking at the Canadian involvement with the North American Free Trade
Agreement (NAFTA) deal, it is clear on many levels that this particular lab experiment
that had started, in essence, with the Auto Pact between Canada and the US, has been—
on the whole—beneficial to Canada, although it has its staunch critics. At the moment,
about 86% of our exports go to the US. The ambition is to replicate the model with more
countries involved from the Americas, and therefore widen the circle.
Experts feel that Canada has to move very cautiously and strategically as it has
done in the past—when it was negotiating the NAFTA deal with Mexico—so as not to
lose ‘market share’ to other “Mexico wannabes”. Latin American countries have a lot to
do in terms economic reforms, in order to be able to trade with the rest of North America
a la Mexico (Exhibit 4). However, micro and macroeconomic reforms alone are not
sufficient to make the cut. Political stability, judicial recourse, and a transparent
democratic electorate process is paramount for trade, since MNCs would face the risk of
expropriation and therefore would not be encouraged to commit capital or invest in
infrastructure locally.
The United States is eager to go ahead with the ministerial meetings to hasten the
process of economic integration. One reason for the eagerness on the part of the US is
that the EU is quickly becoming the World’s largest economy, and therefore a direct
competitor with the US. Another concern is that, the US economic growth has slowed
25
down post the dot.com debacle, the stock market bubble, and information technology—
while at the forefront of human advancement—has not been the economic catalyst that
most observers expected. What it has done is make a lot of industries more efficient.
On January 31, 2003, the United States announced that the Free Trade Area of the
Americas (FTAA) Ministerial Meeting would take place on November 20-21, 2003, in
Miami, Florida. The negotiations among the 34 FTAA nations to remove tariffs, trade
barriers, and promote regional economic integration and development throughout the
Western Hemisphere are scheduled to be completed by January 2005, with Brazil and the
United States co-chairing this final phase. With more than 800 million people throughout
the Western Hemisphere, the FTAA will be the largest free-trade area in the world. It
would be very interesting to see if the ambitious FTAA will be able to materialize by the
set deadline.
26
References
Third Annual Report on Canada’s State of Trade, Trade Update May 2002
Department of Foreign Affairs and International
www.dfaiy-maeci.gc.ca/eet/state-of-trade-e.asp
The Financial Times
www.ft.com
Statistics Canada
www.statscan.ca
STAT-USA
www.stat-usa.gov
Griffin, Ricky W. and Pustay, Michael W., International business: A Managerial
Perspective Second Edition, Addison Wesley, 1999
Department of Foreign Affairs and International Trade
www.dfait-maeci.gc.ca
Office of the United States Trade Representative
www.ustr.gov
World Trade Organization
www.wto.org
International Monetary Fund
www.imf.org
World Bank
www.worldbank.org
The Economist
www.economist.com
Export Development Corporation
www.edc.ca
27
APPENDIX
Exhibit 1: Countries
Argentina*
Brazil*
Colombia*
Venezuela*
Chile*
Uruguay
Paraguay
Peru
Ecuador
Bolivia
Surinam
Guyana
French Guiana
* Major regional economies
28
Exhibit 2: Map of South America
Fourth largest continent on the planetPopulation: 450 Million
Area: 6.9 Million sq. miles
29
Exhibit 3: South America Economic Indicators, 1995 - 2001
1995
1996
1997
1998
1999
2000
2001
409.9
3,864
1,584
1.6
7.7
-3.7
416.2
4,142
1,724
3.7
7.1
-2.8
422.6
4,482
1,894
5.2
6.9
-3.0
428.9
4,428
1,899
2.0
7.5
-4.4
435.3
3,820
1,663
0.1
7.8
-4.7
441.7
4,184
1,848
4.0
6.8
-2.7
448.8
4,085
1,833
0.1
7.7
-2.9
24.9
32.9
1085.0
15.0
16.3
21.4
14.1
542.0
6.0
9.4
26.3
25.9
471.8
5.7
8.3
27.1
-38.1
936.6
9.8
8.7
16.6
57.1
592.7
12.6
7.0
15.1
-16.7
705.8
5.0
5.2
11.2
-5.9
1239.1
4.4
-2.2
0.5
-34.1
7.5
209.2
201.7
22.9
11.8
130.9
7.8
535.3
33.8
-2.1
0.5
-36.5
8.8
236.3
227.5
13.5
12.8
151.9
8.0
567.4
32.9
-3.1
-0.4
-59.1
-7.8
262.3
270.2
11.5
18.8
165.9
7.4
602.2
31.8
-4.4
-1.5
-83.2
-27.7
257.2
284.9
-1.7
5.4
156.1
6.6
693.1
36.5
-3.0
0.0
-49.3
0.8
273.5
272.7
7.3
-4.3
147.1
6.5
712.5
42.8
-2.2
0.7
-40.1
12.7
331.1
318.4
21.6
16.7
151.1
5.7
694.1
37.6
-2.7
0.5
-49.0
9.8
318.6
308.8
-3.9
-3.0
152.9
5.9
679.9
37.1
Real Sector
Population (million)
GDP per capita (US$)
GDP (US$ billion)
GDP (annual variation in %)
Unemployment (%)
Fiscal Balance (% of GDP)
Monetary Sector
CPI (%-change)
Interest Rate (%)
Stock Market (US$-terms, %)
Bonds (EMBI+ Latin)
Exchange rate depreciation
External Sector
Current Account (% of GDP)
Trade Balance (% of GDP)
Current Account (US$ bn)
Trade Balance (US$ bn)
Exports (US$ bn)
Imports (US$ bn)
Exports (%-change)
Imports (%-change)
Int. Reserves (US$ bn)
Int. Reserves (months of imports)
External Debt (US$ bn)
External Debt (% of GDP)
30
Exhibit 4: Percentage of exports for select South American countries (2001)
31
Exhibit 5: Merchandise Trade by Region
Table III.20
Merchandise trade of Latin America by region
and by major product group, 1999
(B illio n do llars and percentage)
Value
Exports
Total
297
Region
North Am erica
183
Latin Am erica
47
Wes tern Europe
38
C./E. Europe/Baltic States /CIS
3
Africa
3
Middle Eas t
3
As ia
18
Share
Exports
Im ports
100.0
100.0
61.6
16.0
12.9
0.9
1.0
1.0
6.0
49.5
16.1
19.3
1.4
1.1
0.8
11.8
20.2
18.9
60.3
9.6
9.1
78.0
Product group
Agricultural products
Mining products
Manufactures
60
56
179
Not e: Import shares are derived f rom t he Secret ariat 's net work of world
merchandise t rade by product and region.
32
Exhibit 6: Merchandise Trade of Exports
Merchandise trade of Canada by region and economy, 1999
(Billion dollars and percentage)
Exports
Destination
Value
Region
World
North America
Western Europe
Asia
Latin America
Africa
Middle East
C./E. Europe/
Baltic States/CIS
Economies
Brazil
Venezuela
Chile
Colombia
Argentina
Annual
percentage
change
Share
1999
1990
1999
1998
1999
238.45
205.08
14.44
12.89
3.83
1.09
1.05
100.0
75.1
9.8
10.9
1.8
0.8
0.7
100.0
86.0
6.1
5.4
1.6
0.5
0.4
-1
3
1
-28
-12
-9
-38
11
13
17
-1
-12
-24
16
0.41
0.8
0.2
-13
-29
0.70
0.35
0.24
0.17
0.14
0.3
0.2
0.1
0.1
0.0
0.3
0.1
0.1
0.1
0.1
-24
-31
-20
-7
-22
-25
-26
7
-46
-39
33
Exhibit 7: Merchandise Trade of Imports
Merchandise trade of Canada by region and economy, 1999
(Billion dollars and percentage)
Imports
Origin
Value
Region
World
North America
Asia
Western Europe
Latin America
Africa
C./E. Europe/
Baltic States/CIS
Middle East
Economies
Brazil
Venezuela
Chile
Argentina
Colombia
Annual
percentage
change
Share
1999
1990
1999
1998
1999
215.56
144.44
29.35
24.92
10.00
1.37
100.0
64.6
14.4
14.5
3.4
0.8
100.0
67.0
13.6
11.6
4.6
0.6
2
3
6
-4
0
-10
7
5
9
13
14
1
0.94
0.82
0.4
0.7
0.4
0.4
14
-39
-9
10
0.92
0.68
0.28
0.21
0.19
0.6
0.4
0.1
0.1
0.1
0.4
0.3
0.1
0.1
0.1
-3
-19
3
4
5
-2
20
17
17
-17
34
Exhibit 8: Argentina Trade Balance, 1995 - 2003
35
Exhibit 9: Brazil Trade Balance, 1995 - 2003
36
Exhibit 10: Chile Annual Trade Balance, 1995 - 2002
37
Exhibit 11: Venezuela Trade Balance, 1996 - 2002
38
Exhibit 12: Colombia Trade Balance, 1995 – 2002
39