Bridges Weekly Trade News DigestVolume 2Number 1 • 19th January 1998

‘Team Canada’ and Brazil Advance Towards Mercosur-Canada Deal

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Brazilian President Fernando Henrique Cardoso and Canadian Prime Minister Jean Chretien reached an agreement Friday on how to resolve a dispute involving Brazilian allegations of Canadian aircraft subsidies. The accusations were a significant thorn in the side of the current 380- member Canadian trade mission to Latin America, and were the reason why South America’s four-nation Mercosur customs union halted negotiations on a trade deal with the Canadian team.

Brazil is Canada’s largest trading partner in Latin America, currently importing US$1.5 billion in Canadian goods and services, and exporting US$486 million to Canada.

The high-level conflict resolution–which involves both parties appointing a person to resolve the differences within 30 days-averts the possibility that Brazil will file a complaint against Canada at the WTO. The dispute surfaced in December, when Canada backed out of a US$90 million order for 24 Super-Tucano planes manufactured by Brazil’s formerly state-run aircraft company, Embraer, to be used to train NATO fighter pilots. Brazilian Foreign Relations Minister Luiz Felipe Lampreia claimed that the cancellation was in reprisal to Embraer’s recent sales successes, where it beat out Canadian competitor Bombardier for contracts from American and British airlines.

The agreement comes at a propitious time: Canada is midway through its four-country Latin American tour, having already visited Mexico and Argentina, and is gearing up for a four-day mission in Chile beginning Tuesday. Prime Minister Chretien emphasized that stronger ties with Brazil and other Mercosur members (Argentina, Paraguay and Uruguay) were essential to creation of a Free Trade Area of the Americas, for which a major boost to negotiations is planned as the main feature of the Americas Summit in Santiago in April.

“Canada wants aircraft row untied from Brazil trade talks,” DOW JONES, January 15, 1998; “Canadian trade mission and Brazil reach trade accord,” CONDE REPORT ON U.S.-MEXICO RELATIONS, January 19, 1998.

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