Up the Pan-American Highway from Santiago, on the route that leads north to mining country, a small Alberta company has set up shop to repair hydraulic motors and pumps. With an investment of only $770,000, Piston Hydraulics is far from the biggest Canadian company making Chile its new home and base for future expansion in Latin America. But as a small company making a go of it in a new market, it is the kind of success story the Canadian government likes. So last week, Edmonton native Robert Boughton and his Chilean mechanics took a few minutes to give a guided tour of their small workshop to Prime Minister Jean Chrétien. The summer-dry hills and the high distant ridge of the Andes do not bring to mind the Quebec countryside near Shawinigan, but something in the scene, maybe the smell of machine oil, reminded Chrétien of home. Posing for a picture, his arms draped over the shoulders of the Chilean mechanics, Chrétien recalled that his father, Wellie, had shared their trade: "My father worked repairing pumps in the paper mills all his life." In a week devoted to giant business deals on a six-country, 12-day trade mission to Latin America, it was a small but telling moment. "Canadians are beginning to see the world of opportunities that surround us," Chrétien said.
The opportunities were much in evidence in Argentina, Chile and Brazil, the three key stops on the tour, and the overwhelming emphasis on trade was in keeping with a prime minister who sees his role outside the country more as salesman than statesman. The deals were also in keeping with the economic and political transformations that have overtaken many Latin American countries now embracing democracy and free trade after decades of dictatorships, instability and closed economies. In Argentina, Canadian companies used the occasion of the Prime Minister's visit to sign $394 million in deals, investment plans and more tentative proposals. In Chile, where Canada is already the second-largest foreign investor, the deals and near deals and hoped-for deals totalled $1.7 billion. And in Brazil, the total came to more than $602 million. The political message to voters back home was clear. "Trade abroad means jobs and growth at home," Chrétien told business executives during a luncheon speech in Buenos Aires held by the Argentina-Canada Chamber of Commerce.
But there was another political message among the dollar signs. Canada's burgeoning business ties with Latin America - highlighted by the proposed inclusion of Chile in the North American Free Trade Agreement (NAFTA) - is intended, in part, to offset the dominant influence of the United States, which now takes 80 per cent of Canadian exports. And seeking a counterbalance to the Americans is not just a Canadian goal. As Chilean President Eduardo Frei told Maclean's last week: "Here in Latin America, we need an equilibrium in the face of this great partner, the United States".
Chrétien's journey marked the largest trade mission Canada has ever sponsored to Latin America. Unlike the China trade mission last November, there were no premiers in tow. But the delegation did include more than 200 business executives, representing a wide range of industries. And it was also the first time a Canadian prime minister had paid an official visit to Chile or Argentina. Chrétien also made brief stops in Uruguay and Trinidad and Tobago at the start of the trip and was to spend a day in Costa Rica meeting with Central American leaders before returning to Ottawa on Jan. 30. The scope of the trip, said Chilean Foreign Minister José Miguel Insulza in an interview, was a welcome sign "of Canada's wish to move much closer to the countries of this region." The Latin American tour also dealt with some issues that went beyond business. In Santiago, Chrétien announced that Ottawa would lift visa requirements for Chileans travelling to Canada, effective Feb. 1. And in Brazil, Chrétien pressed President Henrique Cardoso about his concerns over David Spencer, of Moncton, and Christine Lamont, of Langley, B.C., who were each given a 28-year sentence in 1990 for the kidnapping of a Brazilian business executive. Canada wants the Brazilians to let the pair serve their sentences in a Canadian prison. Canada and Chile also agreed to support each other's bid for future terms on the United Nations Security Council.
The trip was, however, an overwhelmingly mercantile affair and there were no apologies from the Prime Minister about that. Thomas d'Aquino, president of the Business Council on National Issues, and a participant in the Latin American trade mission, is an enthusiastic supporter of the way Chrétien handles himself abroad. "He really believes this is his role," says d'Aquino, "that he is the chief salesman." Not that Chrétien is shy about scoring a few political points at the same time. The Prime Minister pointedly noted that while he was drumming up trade in Latin America, Quebec Premier Jacques Parizeau was in France trying to drum up support for independence. Quebecers, Chrétien said, would much rather have their politicians devote themselves to economic issues.
But with Canadian companies investing billions in Latin America - $9.7 billion alone in Brazil, Argentina and Chile - some critics wonder whether Canadians are gaining jobs, or losing them. Chrétien admitted in an interview with the Chilean daily El Mercurio that the capital outflow poses some concern. But he insisted that the long-term effects will mean a healthier Canadian economy. Profit from foreign investment helps keep Canadian companies strong, provides jobs in services and generates new markets for other Canadian companies. Chrétien and his aides use Piston Hydraulics as an example. The company set up operations in Chile to follow its customers in the mining industry. It buys equipment from Canadian suppliers, it employs extra Canadian staff to handle the affairs of its subsidiary, and its profits get sent back to Alberta. Trade Minister Roy MacLaren, who accompanied Chrétien on the mission, said Canadian companies have no choice in an age of global economics but to look abroad. "Trade today is largely investment," he says. "The two are virtually indistinguishable."
One of the biggest deals announced during the mission involves expansion of a methanol plant in southern Chile owned by Methanex Corp., of Vancouver, that will become the largest such operation in the world. As an indication of how barriers between South American countries are coming down, Methanex, which is 25 per cent owned by Alberta-based Nova Corp., will get its natural gas feedstock from Argentina - a nation traditionally at loggerheads with Chile over the border questions. Nova is also involved, with other partners, in a $1.3-billion bid to construct and operate a natural gas pipeline across the Andes from gas-rich Argentina to energy-poor Chile, supplying Santiago and the industrial southern city of Concepcion.
While the announcement of the two projects would have happened even if Chrétien had stayed home, Novacorp International president Kent Jespersen said the symbolism of the Prime Minister's trip pays dividends. "Having your government behind you as you invest or trade in other countries always helps." Noranda's stake in Chile, through its interests in Falconbridge Ltd., could get even larger over the coming weeks if Falconbridge exercises its option to pick up half of Shell's interest in the Collahuasi copper mine near the Bolivian border - an action that Balogh says is "more than likely" to occur. The mine would be one of the world's biggest. Such deals, said Chrétien, are a vote of confidence by business leaders that reform in Latin America will endure.
If true, that would be a welcome change. This is not the first time that Canada has discovered Latin America. Chrétien likes to boast that Mitchell Sharp, his dollar-a-year mentor, has long experience in the region through his involvement decades ago with Brazilian Light and Traction. Brazilian Light ran the trams in Rio, was bought out by the government, and then put much of the money back in Canada, where it became Brascan. Indeed, Canadian government officials say that, too often, Canadian companies have pulled out of the region when the going got rough - and they express the hope that it will not happen again. "Our commitment to Latin America is real, tangible and long-term," said MacLaren.
Former prime minister Brian Mulroney, who initiated the latest round of interest with his decision in 1989 to have Canada join the Organization of American States, told Maclean's in a telephone interview from Montreal last week that Canadian companies should be prepared for some bumps along the road. "We should expect some difficulties from time to time," said Mulroney, who is now a director of Barrick Gold Corp., which owns the El Indio gold mine in Chile - one of the world's richest gold properties. Mulroney, whose government negotiated NAFTA with the United States and Mexico over objections from the opposition Liberals, said he welcomed Chrétien's decision to push for free trade in Latin America. "What Mr. Chrétien is doing, which I applaud, is continuing what I did," said Mulroney. "This is our hemisphere, this is our backyard."
The greatest prize of the government's push for free trade in the region is Chile, which Chrétien and his officials say could become a member of a renamed NAFTA by the end of the year. For Chile, NAFTA membership is more than just economics. It is, says Chilean foreign minister Insulza, a sign that Chile has put behind it the military dictatorship, and the international isolation that accompanied it. "It marks a continuation of Chile's reopening to the world," he says. Ministers from the four countries will meet sometime this spring to work out a framework for negotiations. But spokesmen on all sides insist the talks will go quickly because Chile is seeking to join an existing agreement and because its economy is considered "NAFTA-ready." Says MacLaren: "I don't regard the accession of Chile to NAFTA as that complicated a matter."
But complications could arise from the Republican-dominated U.S. Senate, which will almost certainly give the White House "fast-track" authority - meaning the right to negotiate an agreement that the Senate must either approve or reject, without seeking major alterations. That process, in turn, could be hampered by the so-called Tequila effect of the Mexican currency crisis. As Frei explained to Maclean's: "Fast-track is important, but it is not a necessary condition to begin the negotiations. It is necessary to complete them. We hope that within that period Mexico will have been able to solve its problems."
The big question, and one with no definitive answers yet, is what happens after Chile joins as what Chrétien calls "the fourth amigo." Who becomes the fifth? One option promoted by Chrétien last week would see some sort of association between NAFTA and the Mercosur common market of Brazil, Argentina, Paraguay and Uruguay. "NAFTA and Mercosur are the two pillars from which hemispheric free trade will emerge," Chrétien said.
One advantage of trade missions is that promoting Canada is seldom fraught with much controversy, and it never hurts prime ministers to be seen from abroad in the best possible light. That was a point Chrétien made with no ambiguity last week in Chile, with remarks that he might well have made about other Latin American countries on his itinerary. "What you are building in Chile is a beacon of hope in a world grown weary of crisis," he said. "To those looking for good news, I say, come to Chile." It was advice that Chrétien himself was only too happy to take.
Maclean's February 6, 1995