Canada eyes Mercosur trade pact to reduce US reliance, minister says

Prime Minister Mark Carney and his team have been locked in talks with U.S. President Donald Trump to hash out a trade deal by August 1, which could help reduce tariffs on Canada.

But his government is also preparing to rely less on a relationship that generated bilateral trade of over C$1 trillion ($727.33 billion) last year and to focus on diversifying trade by signing free trade pacts globally.

"I had conversations with the foreign minister of Brazil, and there is appetite to carry out conversations around Mercosur," Minister Maninder Sidhu said in an interview with Reuters.

Brazilian President Luiz Inacio Lula da Silva had said in April that he was interested in advancing talks for a trade deal between South America's Mercosur bloc and Canada.

Mercosur - which includes Brazil, Argentina, Paraguay and Uruguay - has had negotiation rounds for a trade deal with Canada in the past.

Canada is also keen to continue talks with China to address trade challenges and views a thawing of relations between India and Canada as an important step to support trade, the Minister said.

"With China, there are opportunities, there are challenges," he said, adding that the countries are holding frank discussions on a path forward on trade tariffs around exports of canola, beef, pet food and many other products.

Canada has 15 free-trade deals covering 51 countries, giving it access to 1.5 billion consumers and Sidhu said that Ottawa will be pursuing more such deals in the coming months without giving a specific target.

He had signed a free trade deal with Ecuador and an investment promotion pact with the UAE in his first two months in office and said discussions are on with the ASEAN countries and also individually with countries in the Indo-Pacific, including Indonesia and the Philippines.

OVER-EXPOSURE

Sidhu said Canadian companies are over-exposed to the U.S. and they are not as competitive as they used to be due to Trump's tariffs.

"My job is to be out there opening doors," he said, adding that he would seek to diversify not only trade but Canada's defense procurements from the U.S.

Carney has promised to increase defense spending by an additional C$9 billion this year to meet NATO's target of spending 2% of GDP.

"We are working with the European Union and other partners around the world to help unlock some of those procurement opportunities in defense for our Canadian companies," he said.

Canadian exports to the U.S. dropped in May to 68% of total exports from a monthly average of 75% last year. The U.S. share in May was the lowest on record as companies pushed to diversify from the U.S.

He did not respond directly on what a trade deal between Canada and the U.S. would look like, but said the government would "work towards a deal that's best for Canadian businesses and Canadian workers."