BUSINESS

COMMON INTEREST

A sharp hike in U.S. rates could slow Canada down

BRENDA DALGLISH November 28 1994
BUSINESS

COMMON INTEREST

A sharp hike in U.S. rates could slow Canada down

BRENDA DALGLISH November 28 1994

Southern exposure

Canada is pushing to include Chile in NAFTA

The numbers are beyond extraordinary. Among them, the 18 member countries of the organization that calls itself the Asia-Pacific Economic Co-operation (APEC) account for 42 per cent of world trade, and their combined gross national product of $16.6 billion represents half the economic production of the entire world. So, when Prime Minister Jean Chrétien and 17 other APEC leaders signed the Bogor Declaration in Jakarta last week and committed their nations to free trade, it signalled the conception of what could soon become the world’s most powerful trading bloc. “This is the biggest and fastest-growing market in the world,” said Chrétien. And there was no doubt that Canada was happy to be included. “Membership,” the Prime Minister quipped, “has its privileges.”

But membership in another trade club is also high on the Liberal government’s agenda as it pursues its stated goal of including Chile in the year-old North American Free Trade Agreement (NAFTA). Chile, one of the fastestgrowing economies in the world, is pushing for better access to North American markets, and Canada wants to stretch its international trade ties even further. The issue of Chile’s imminent inclusion in NAFTA was reportedly raised at the APEC summit, where Chrétien met privately for almost an hour with Chilean President Eduardo Frei Ruiz-Tagle. “Of course, the topic of NAFTA was present in the conversation,” said Luis Palma, counsellor and second-in-command of Chile’s embassy in Ottawa. Frei and Chrétien will be seeing considerably more of each other in the coming months. They will meet in Miami early next month at the Summit of the Americas, and Chrétien will make the first official visit to Chile by a Canadian prime minister in the last week of January as part of a trade mission that will also include stops in Brazil and Argentina.

On the surface, there is little to suggest that Chile and Canada would have anything

other than a cordial—but distant—connection. For one thing, the geographic distance between the two nations is an obvious impediment to trade. Furthermore, although Canada’s bilateral trade with Chile has grown, it amounted to only a modest $422 million last year. Canadian exports in the first six months of this year were valued at $143 million, a 28-per-cent increase. But Brazil, Colombia and Venezuela are all more significant Latin American markets for Canada than Chile.

The investment picture, however, is quite a different matter. Canadian mining companies, attracted by rich, unexploited ore reserves, have made Canada the secondlargest source of foreign investment for Chile. “The level of Canadian investment is incredible,” Marc Lortie, Canada’s ambassador in Santiago, told Maclean’s. Canadian companies now expect to invest about $4 billion over the next few years. “That compares with an investment,” Lortie said, “of about $80 million only five years ago.” (There is even a joke in Canadian mining circles that sums up the new direction: What do you get with five Canadian geologists in one room? A Spanish class.) Says Ed Dosman, executive director of the Canadian Foundation for the Americas, an Ottawa-based think-tank that promotes closer ties with Latin America: “We really are very large players in Chile even if we don’t know it.”

That may soon change as investments expand beyond the mining sector. Among other deals, CanWest Global Communications has bought a 50-per-cent interest in a Chilean television network, and the Bank of Nova Scotia has a 30-per-cent stake in Banco Sud Americano, the country’s seventhlargest bank. The Canadian presence in Chile has become so significant, says Anatol von Hahn, a Chilean-born Canadian who represents the bank in Santiago, that “it probably should be the first place Canadians think

of when it comes to new trade partners.”

A more formal trading relationship with Chile through its inclusion in NAFTA would provide Canadian companies with greater protection for their direct investments there. “An agreement becomes a bit of an insurance policy,” said one senior government official. But Canada’s portfolio of direct investments is just one of the forces behind the move. Chile is already winning praise in international business circles for its warm reception of foreign investors and for the pro-business economic environment that it has cultivated. “Chile has proceeded faster and further with economic reforms than any other Latin American country,” federal Trade Minister Roy MacLaren told Maclean’s last week. “Chile is pre-eminently equipped to join NAFTA and could do so quite readily.” According to Palma, Chile is anxious to capitalize on that goodwill and to join NAFTA. As in the case of Canada, Chile’s push to participate in the trilateral trade pact has much to do with the United States. “We are very honest about it. The market for us is the United States,” said Palma, adding that he frequently has to remind Chilean exporters that “at the back of the United States is another country.”

Canada’s interest in trade with Chile may be even less obvious, but it is no less vital. In fact, Dosman considers that getting Chile into the NAFTA club “is one of the most

important Canadian foreign policy objectives.” For one thing, Canadian officials want to avoid a precedent where rapidly developing countries, like Chile, conclude bilateral trade deals with the United States, which exclude Canada. ‘What we do not want is a series of bilateral deals in which, at the end of the day, the hub would be Washington,” Dosman said. In fact, it was the same concern about trade relations between Mexico and the United States that prompted Canada to get involved in NAFTA. Furthermore, the Liberals, who ferociously opposed the free trade agreement with the United States and were openly ambivalent about NAFTA, want to expand the membership of NAFTA to dilute I the power of the United I States in the three-way ^ pact. In an indication of Canada’s fear of being left g out on the rim of an ^ American-dominated trade community, MacLaren told Maclean’s that Ottawa would even con-

sider signing its own free trade agreement with Chile if the United States decides to delay Chile’s entry into NAFTA. Canada, Mexico and Chile will begin talks even if the United States is not ready, he said, and negotiations could be concluded within a year. “If at the end, the Americans are unable to participate, we would certainly contemplate a bilateral free trade agreement,” MacLaren declared.

For its part, Washington does not dispute the notion that Chile is ready to join NAFTA. There are, however, some signs of reluctance in the United States, especially after the midterm elections that saw the Republicans

win control of both the House and Senate, where protectionist sentiment is strongest. “The United States is wavering in its commitment to Chile,” Dosman said.

Furthermore, U.S. President Bill Clinton gave up his fast-track negotiating authority for new trade deals, including NAFTA accession, as part of the price to push the General Agreement on Tariffs and Trade (GATT) through Congress last December. Now, the GATT deal, which would bring down trade barriers around the world, is also coming under renewed attacks. Republican Jesse Helms, who is tagged as the most likely new chairman of the Senate foreign relations committee, said last week that he wants the GATT-ratification vote postponed until next year. Adding to the uncertainty over GATT, Kansas Senator Bob Dole, majority leader in the new Senate, has not yet indicated how he will vote. Beyond GATT, Chile is seen as a true test of American support for global trade liberalization. And Chrétien and Frei will both be looking for a reaffirmation of that support from Clinton at the upcoming Miami summit. According to Palma, the Chilean government is hoping that Clinton will offer a formal invitation to begin NAFTA negotiations at the summit.

In Ottawa, the Liberal party’s embrace of free trade—which it opposed as recently as 1988—has some of its former allies feeling betrayed. “I don’t know how they go to sleep at night,” said Maude Barlow, head of the Council of Canadians, a sharp critic of free trade then and now. And as in China, Barlow notes that the Liberals’ enthusiasm for the economic benefits of trade is blinding them to Chile’s human-rights record, which has been criticized by Amnesty International and the New York city-based Human Rights Watch because of the residual influence of the military. “They are turning their back on continued abuses,” Barlow said. Still, for trade advocates like MacLaren, there is no doubt that while Chile is “in the front of the pack” to be accepted as a NAFTA member, other Latin American nations, including Argentina, are close behind. But while bringing Chile into NAFTA would be the first step in building an economic community from Tierra del Fuego to Ellesmere Island, that step remains to be taken.

WARREN CARAGATA in Ottawa