The Canada Trade Mission to Brazil: Partners in development?

November 21, 2004

By Rick Arnold*

On November 21st the Canadian government is sending a 5-day trade mission to Brazil to open trade
and investment doors for Canadian corporations. While the CEOs of participating Canadian companies
will be ‘networking’ with their Brazilian counterparts in Sao Paulo and Rio, Canadian government
officials will take the opportunity to credit ‘free trade’ agreements with increased employment and
prosperity back home.

While there is no doubt that commercial activity between the U.S. and Canada has increased
enormously since the bilateral FTA was signed in 1988, Industry Canada figures indicate that ‘free
trade’ has only contributed to nine percent of this growth. Moreover, Canadians were told that ‘free
trade’ would bring “jobs, jobs, jobs”, but most have been part-time, insecure jobs with fewer benefits,
particularly for women. During the first 13 years under the U.S.-Canada accord and the subsequent
North American Free Trade Agreement (NAFTA) with Mexico on board, Canada actually created less
than half as many full-time jobs as during the previous 13 years.

The National Farmer’s Union (NFU) reports that the impact of ‘free trade’ policies on Canadian farmers
has been dramatic. While agri-food exports have tripled under these two FTAs, net farm income, in
real terms, has decreased by 24%. Some 16% of Canadian farmers have been forced off the land.
Farmer-owned co-operatives, once dominant in the grain trade and in dairy processing, have been
taken over or marginalized. The NFU concluded that free trade agreements ‘may increase trade but,
much more importantly, they dramatically alter the relative size and market power of the players in
the agri-food production chain…Free trade helps Cargill and Monsanto, not farmers.’

Since NAFTA was implemented in 1994, Canada has experienced a fundamental re-shaping of
government policy, and the limits within which this policy is set. NAFTA has opened the door for
unprecedented experimentation in free market policies. It is bad news that Canada and the US are
pushing to export this ‘model’ to other countries in the Americas. Arguably the most controversial
components in NAFTA are provisions contained in Chapter 11, which deals with investment. For
example, this section significantly reduces the ability of governments to condition foreign investment
in order to ensure local benefit. Put in to the Brazilian context, this NAFTA provision, if embodied in an
eventual Free Trade Area of the Americas (FTAA) agreement, could prevent any further development
of Brazil’s national industrial strategy.

Perhaps the most debated NAFTA investment element is the ‘investor-state’ mechanism. This
provision allows investors to sue national governments for virtually any action taken in the public
interest that might decrease expected profits. Chapter 11 tribunals arbitrate such cases beyond the
reach of national court systems. Many free trade opponents in Canada argue that Chapter 11 goes
beyond regulation to the heart of the Canadian Constitution, breaching fundamental principles
including the rule of law, democracy constitutionalism and federalism.

What kind of investment is the “Canada Trade Mission to Brazil” proposing? Canada’s experience
under ‘free trade’ has been that 96.6% of all the new direct foreign investment went to takeovers of
Canadian firms, and only 3.4% was fresh capital for the creation of new business.

A test case illustrative of Canadian investor intentions regarding Brazil might very well be the 2002
purchase of Cervejarias Kaiser Brazil S.A. by Canada’s Molson Inc. for Can$1.2 billion. How has this
takeover advanced Brazilian industrial policy? And now that Molson Inc. is itself to be taken over by
U.S.-based Adolf Coors Co., a corporation with a notorious record on workers’ rights, what will be the
fate of the Brazilian operations?

As globalization proceeds apace, it will be important for investors and nation states to move away
from a focus on exploiting other peoples’ economies. Foreign investment needs to be tied to a genuine
process of development, one that closes the gap between rich and poor. Investment dollars should go
to creating a high wage economy supported by robust social policy and a strong infrastructure. Trade
practices need to be brought in line with these development imperatives and be reflective of a fair
exchange that rewards those whose labour is critical to the production process.

The “Canada Trade Mission to Brazil” bears all the hallmarks of a profit driven agenda that serves only
to line the pockets of a wealthy few. As such it does a disservice to the values that most Canadians
hold dear, and serves to diminish our nation’s credentials as a compassionate neighbour in the
Americas. Many Canadians are speaking out about our own economic colonization and the consequent
loss of our sovereignty. However, we welcome stronger ties with Brazil based on equitable
development principles and fair trade practices.