Tax & Accounting Blog

Trade Between Brazil and Canada – Past, Present and Future (Pt 2)

Blog, Global Trade, ONESOURCE November 11, 2016

Trade Relations Between Brazil and Canada

Brazil and Canada are extremely important to each other from a bilateral, regional and multilateral view. Diplomatically, both countries share values, mutual and democratic interests, as well as many similarities, such as support for inclusive growth to promote human rights and democracy, innovation in science and technology, and especially encouraging each other in bilateral trade and investment.

In fact, goods and investment trade flows experienced a significant growth, more than 25% in the last decade between countries.

Currently, Brazil is the 14th largest destination for Canadian exports, representing 0.429% of Canadian trade. In 2015 a volume of export to Brazil was $2.25 billion, an increase of 3.4% over the previous year. Likewise, Canadian imports from Brazil totaled $3.74 billion in 2015, an increase of 7.9% compared to 2014, positioning Brazil as the 14th largest partner of Canada’s economy as far as imports.

When considering investments, Brazil was the seventh most important country of origin of investments in Canada in 2015, with $19.7 billion with Brazil as the 12th largest recipient of Canadian direct investment at $12.3 billion in 2015[1].

Brazil and Canada – Trade Balance

As mentioned, trade between Brazil and Canada experienced huge growth over the last decade. Brazil is not only important for global trade in South America, but it’s also considered one of the largest players on the global stage. Because of Brazil’s position in South America, the Canadian government established Brazil as a priority focus for the actions of investment and incentives. By the same token, Brazil recognizes Canada as a major trading partner and has included Canada in all projects relevant to exports and investment incentives, as mentioned previously in the National Plan of Brazilian exports.

To illustrate, in 2015 Brazilian exports to Canada accounted for $2.362 billion, up to 2.03% in comparison with 2014, and imports account for $2.421 billion, down 10.50%, totaling $ 4,783 billion in trade flows, resulting in a trade balance of US +$58 million to Canada.

The list of top Brazilian exports to Canada includes oxide and aluminum hydroxides ($727 million); cane sugar, raw ($244 million); raw coffee beans ($139 million); crude oil ($99 million); and aircraft ($90 million). By aggregate factor, 2015 Brazilian exports were $434 million for basic products; $569 million for semi-manufactured products; $1.33 billion for manufactured products; $1.90 billion for industrial products and $19 million in special operations.

Regarding imports, the main products from Canada in 2015, include: Potassium chloride ($845 million); aircraft ($184 million); medicines for human and veterinary medicine ($146 million); coal, ($144 million); Newsprint in rolls or sheets ($92 million), and so on. By aggregate factor, Brazilian imports in 2015 included $203 million for basic products; $895 million for semi-manufactured products; $1.32 billion for manufactured goods and $ 2.21 billion for industrial products.

Brazil and Canada – Trade Balance 2016

Between January to August of 2016, Brazil exported $1,568 billion to Canada, up 8.58% over the same period in 2015, which was $1,444 billion. Imports were $1,219 billion, a sharp drop of 22% compared to the same period in 2015 that was $1,578 billion; resulting in a positive trade balance of US$349 million to Brazil.

The main products exported from Brazil to Canada from January–August 2016: Inorganic chemicals, etc. ($496 million); natural or cultured pearls, precious stones, etc. ($323 million); sugar ($149 million); boiler and machinery, mechanical appliances ($88 million); Iron and steel ($78 million); coffee, tea, mate and spices ($74 million). By aggregate factor, Brazilian exports this year (until August) presents $192 million for basic products; $545 million for semi-manufactured products; $819 million for manufactured products; $1,364 billion for industrial products and $10 million in special operations.

The main products imported to Brazil from Canada until August 2016 were: Fertilizers ($415 million); pharmaceuticals ($233 million); boiler and machinery, mechanical appliances ($160 million); minerals ($49 million); aircraft and other aerial devices and parts ($43 million). By aggregate factor, Brazilian imports through August of this year have generated $83 million for basic products; $ 434 million for semi-manufactured products; $700 million for manufactured products; and $1.135 billion for industrial products.[2]

Bilateral Relations

The interest in tightening trade relations between Canada and Brazil have been discussed and dialogued over the past decade.

However, even though Brazil is the main supporter and mentor to negotiate a Free Trade Agreement with Canada, the article 16 of Mercosur Decision 32[3]does not allow Brazil to negotiate any bilateral free trade agreement independently. That means all negotiations must be conducted within the block with all member states present.

Mercosur

The evolution of trade between the countries of Mercosur in the last 25 years shows increasing numbers. For example, in a performance analysis of exports in this period, the amount within the block went from $4.5 billion in 1991 to $51 billion in 2015.

Such growth in volume within the block truly favors Brazil; for that reason it’s undeniable that Mercosur is of utmost importance for the Brazilian economy. One-fifth of Brazilian manufactured good exports are intended for Mercosur. As an example, Argentina is the largest buyer of cars produced in Brazil, with Uruguay as the third-largest oil importer from Brazil.

However, over the last 25 years of this partnership, Mercosur has not negotiated any agreement with the world’s largest markets, only Latin American countries. This has disadvantaged the Mercosur bloc especially as the global market continues to open up.

Since 1991, 25 years after the treaty was born, there were 253 FTAs on the globe; Mercosur was part of only two of them (Mercosur–India FTA and Mercosur–Israel FTA), which together represent only 1.69% of Brazilian exports (Jan to Aug/2016)[4].

Recently, after some troubled months of local retraction, general announcements were made regarding the importance of the FTAs in the Mercosur arena, triggering a state of emergency. Brazilian negotiators in compliance with the National Export Plan has increasingly sought to exploit the extra-bloc countries, and one of the countries that is part of Brazil’s ambitions plan is Canada; one of the most open global economies.

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Source:

[1] http://www.mdic.gov.br/comercio-exterior/estatisticas-de-comercio-exterior/comex-vis/frame-pais?pais=ind

[1] http://www.canadainternational.gc.ca/brazil-bresil/bilateral_relations_bilaterales/fs_brazil-bresil_fd.aspx?lang=eng

[2] www.mdic.gov.br

[3] Article 16 of states: “decisions of the Council of the Common Market and the Common Market Group shall be taken by consensus, with all States Parties present. (“Treaty Establishing a Common Market…”) – This means that Mercosur member country cannot negotiate any free trade agreements independent of Mercosur.

[4] http://www.mdic.gov.br/comercio-exterior/estatisticas-de-comercio-exterior/comex-vis/frame-pais?pais=ind