Harper's Latin America trip aims to boost trade

Prime Minister Stephen Harper travels to Latin America on Sunday in a trip widely seen as a push to diversify Canada's economy away from the debt-plagued United States.

PM embarks on 6-day tour, starting in Brazil

Prime Minister Stephen Harper travels to Latin America on Sunday in a trip widely seen as a push to diversify Canada's economy away from the debt-plagued United States.

His first stop on the six-day, four-country tour is Brazil, which is now the world's seventh-largest economy, Latin America's largest economy and Canada's tenth largest trading partner.

Prime Minister Stephen Harper is on his way to Brazil, the world's seventh-largest economy and the first stop on his Latin American tour. (Adrian Wyld/Canadian Press)
About 400 Canadian companies operate there. Harper will spend two days in Brazil, making stops in the capital of Brasilia and the country's financial capital Sao Paulo.

Brazil is undergoing "a tremendous boom, and Canada's just a blip on its radar," said the CBC's Terry Milewski, who is travelling with the prime minister.

Harper's main goal is to help boost trade between Canada and Brazil, but he will also talk about security in the region. But the prime minister will not be talking down Canada's existing trade relationships while courting alternatives.

"Obviously, after this trip is over, we're still going to be overwhelmingly reliant upon the U.S. market," Milewski said. "We will rise and fall with the U.S. economy, and there's no way around it and he knows that."

Overvalued currency and protectionist moves

Brazil's economy is running hot, but some observers say it is showing signs of overheating.

Brazilians are expressing concern their currency has appreciated in the wake of the United States' devaluing the U.S. dollar by keeping interest rates near zero.

"You think that the Loonie's up? You should see the Brazilian Real," the CBC's Milewski said.

The U.S. devaluation has unleashed a flood of investment into emerging markets, such as Brazil, which has caused their currencies to rally. Essentially that means it costs more to buy things from Brazil — so shoppers are starting to look elsewhere for better bargains.

Brazilian President Dilma Rousseff's government responded with measures to curb foreign investment. Rousseff's government gave tax breaks to companies that make products in Brazil and slapped tougher controls on cheaper imports, most of which come from China.

Canada eyes pact with Honduras

Later in the week, Harper heads to Colombia, where a free trade deal that country signed with Canada a few years ago comes into effect later this month.

From there, Harper will make stops on the Central American isthmus in Costa Rica and Honduras, where the Prime Minister's Office says he hopes to make headway on a new free-trade deal.

The Canadian government has been in free-trade talks for a decade with the so-called Central American Four, consisting of Honduras, El Salvador, Guatemala and Nicaragua.

Canada is closer to striking a deal with Honduras than any of the other countries. Officials from both countries held trade talks in Ottawa in December and again in the Honduran capital of Tegucigalpa in February.

Honduras would become the second Central American country with which Canada would have an agreement on free trade. There has been a deal in place with Costa Rica since 2002.

Increased attention

Under Harper, the Conservative government has tried to cement trade ties with Latin America and the Caribbean.

An April 2009 diplomatic cable from the U.S. embassy in Ottawa, published by WikiLeaks, gives some insight into the prime minister's thought process on bolstering ties within the Americas.

According to the classified document, a chat with former Australian prime minister John Howard got Harper thinking that Canada could hold more sway with the United States if his country had strong relations with other countries in the region.

"Harper had long been favourably impressed by Australia's ability to exert outsized influence with the U.S. in particular — and other powers as well — by emphasizing its relations in its own neighbourhood," the cable says, referring to a conversation with a senior Foreign Affairs official.

"PM Harper hoped to gain similar benefits for Canada by increased attention to Latin America and the Caribbean."

The Conservative government sent International Trade Minister Ed Fast on a trade mission to Brazil in June with 19 Canadian companies, including Bombardier and SNC-Lavalin.

Efforts appear to be paying off. Exports to Brazil of Canadian merchandise totalled $2.6 billion in 2010 — up 60 per cent from the year before.

But Canada and Brazil do not have a free-trade agreement. Disputes over agriculture and aerospace during the 1990s and early 2000s hampered trade talks.

However last year, the countries agreed to co-operate on science, technology and innovation in a two-year deal worth $1.5 million.

With files from Terry Milewski and The Canadian Press