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Private jets are seen at the Embraer headquarters in Sao Jose dos Campos, Brazil. (NACHO DOCE/REUTERS)
Private jets are seen at the Embraer headquarters in Sao Jose dos Campos, Brazil. (NACHO DOCE/REUTERS)

Canada and Brazil's economic relationship at standstill Add to ...

Feuds between Canada and Brazil about jets and beef may be over.

But Canada’s aspirations of forging deeper economic ties with the emerging South American powerhouse remain largely unrealized, and may be further out of reach in the wake of allegations that Canada’s electronics surveillance agency has been spying on Brazil’s Ministry of Mines and Energy. Denouncing what they branded “industrial espionage,” Brazilian officials said they would closely scrutinize the activities of Canadian mining companies and other investors in Brazil.

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Canada, which is eager to diversify its trade beyond the U.S., has targeted Brazil as the “nexus” of its strategy for deepening ties in Latin America.

And yet Canada lags the United States and most Group of Eight countries in expanding trade to emerging markets, including the so-called BRIC countries – Brazil, Russia, Indian and China. Canada does as much trade with the United States in about three days as it does in a year with Brazil, the world’s sixth-largest economy.

“Trade has been growing, but it hasn’t been growing at rates that some people had hoped,” acknowledged Carlo Dade, director for the Centre for Trade and Investment Policy at the Canada West Foundation. “Brazil has other interests and other markets. We have other interests, other markets.”

Canada and Brazil are not joined in a free-trade deal. And a plan to create a Canada-Brazil CEO council – a means of fostering closer economic ties – has so far failed to get off the ground.

Part of the problem is that Canada and Brazil are economic rivals in several key export industries, including agriculture, energy, mining and aerospace.

“Brazil sees no reason for a having a free-trade deal with Canada,” Mr. Dade said. “They are having no trouble investing here and the market is not that big. We would like to see [a free-trade agreement], but they have other priorities.”

Canadian mining companies active in Brazil include Yamana Gold Inc., Kinross Gold Corp., Luna Gold Corp., Aura Minerals and Eldorado Gold Corp.

In 2012, Canadian exports to Brazil totalled $2.5-billion, or roughly what they were in 2008. Brazil’s exports to Canada reached $3.9-billion last year, up from $2.6-billion in 2008.

The two-way trade figures likely understate the true volumes because many products are trans-shipped through third countries, pointed out Dan Ciuriak, former deputy chief economist at the Department Foreign Affairs and International Trade.

Brazil also has an edge in foreign direct investment, with $15.8-billion invested in Canada, highlighted by Vale Ltd.’s 2006 purchase of Inco. Vale took some heat in 2009 for breaking its commitment not to lay off workers for at least three years. Canadian companies have $9.8-billion worth of investments in Brazil.

Brazil has embraced a “Greater Brazil” model of industrial development to accelerate economic growth and fill gaps where the private sector isn’t yet active. “They are more willing to use private sector industry and businesses as a tool for national ends than we are in Canada,” Mr. Dade said. “That causes some friction.”

Mr. Ciuriak said Brazil’s industrial policies are largely outward rather than inward-looking. “It’s not old industry protectionism, but it is interventionist.” Brazil, he said, can’t afford to be overly protectionist because it needs to import so many of the components used by its nascent industries, such as aerospace.

Brazil and Canada were locked in a bitter decade-long trade dispute at the World Trade Organization over subsidies to Embraer and Bombardier Inc., as both companies were breaking into the regional jet market in the 1990s.

Follow on Twitter: @barriemckenna

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