International Trade and Investment Law

Doing business in South America: has the time come?

May 24, 2013 − by Renata − in Blog − No Comments

Press reports on Canada’s Prime Minister Stephen Harper’s trip to Peru and Colombia seem to suggest that Canadian — and by extension American — businesses should avoid the “protectionist” Mercosur bloc formed by Brazil, Argentina, Paraguay, Uruguay and Venezuela, in favour of the newly-formed Pacific Alliance (Mexico, Chile, Peru and Colombia), with which Canada and the US already have free trade agreements.

A quick look at investment and trade statistics between Canada and the South American members of the Pacific Alliance reveal that Canadian mining and exploration companies account for a significant share of Canada’s total FDI in these countries and that machinery and equipment for the mining sector have a strong participation in Canada’s exports. This is likely also mirrored by American business interests. It would seem that our view is quite narrow and directed to natural resource extraction expertise and interests. In particular, the PM is promoting the interests of the Canadian mining industry and there might be little interest in wider trade partnerships.

While this is a legitimate strategy, it is short sighted and discourages initiative to explore the business opportunities arising particularly in Brazil, which is a star in the South American sky. Indeed, Brazil’s highly diversified economy corresponds to 59 per cent of South America’s GDP and Brazil alone accounts for half of South America’s population.

In contrast to Prime Minister Harper’s focus, the Canadian government has actually identified business opportunities in Brazil in aerospace, information and communication technology, environmental technologies, life sciences and oil and gas equipment and services, to name but a few.

The press have portrayed Mercosur and Brazil in particular as an “impenetrable wall” of protectionism. A recent article published in the Economist refers to a “continental divide” between “two alternative blocks: the market-led Pacific Alliance and the more statist Mercosur.” When faced with these two alternatives, business naturally goes for the low-hanging fruit.

There is no mileage in approaching South America in these polarized ‘good & evil’ terms; it discourages businesses from exploring and pursuing opportunities in the most diversified and sophisticated economies in the region.

The key for business is to develop a different strategy when doing business in Brazil and other Mercosur countries. My goal as a former Brazilian diplomat, student of international relations and now Canadian business lawyer is to find solutions concerning how to crack the “protectionist” nut. So far, I am exploring two excellent routes depending on the type of industry or service and based on the volume of business envisaged. The first concerns joint venture with reliable partners in Brazil. There are many mature businesses in Brazil with the capacity and willingness to partner with North American interests. The second involves exploiting the use of franchise operations, which would extend the reach of larger service industries in the North American region. Hopefully US and Canadian businesses will awake to the serious possibilities and take advantage of the growth in the Mercosur bloc, especially in the explosive growth and maturation of Brazil.

Sometimes going for the low-hanging fruit is not the most advantageous course of action. Historically, there is a curtain between North and South in the Americas due to language, culture and geography. It is time for the curtain to come down!

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