Douglas Goold is the director, National Conversation on Asia and senior editor at the Asia Pacific Foundation of Canada. Amitendu Palit is senior research fellow, Institute of Asian Studies, National University of Singapore
India’s new business-friendly Prime Minister Narendra Modi is widely expected to impart new dynamism to his country’s continuing trade negotiations. The focus will be on trade agreements with Southeast Asia, Europe and Canada. The previous government left office with India tantalizingly close to the finishing line. Now, the deal with Canada should be the easiest to conclude since it has been the least frictional and contentious. Canada’s Trade Minister Ed Fast recently made it clear he would like to see an agreement soon.
India and Canada have been negotiating a Comprehensive Economic Partnership Agreement (CEPA) since December, 2011. The negotiations were to end by 2013, and now the political imperative is to have it completed well before the next federal election scheduled for October 2015.
Bilateral trade is a meager $5.8-billion (Canadian), about a third of trade between India and Australia. According to a 2010 joint Canada-India joint study, an agreement could increase Canada’s output by at least $6-billion (U.S.), and boost its exports to India by 50 per cent.
Securing the CEPA would be a historic achievement for both countries.
For Canada, after years of trying, it would be only the second agreement (after South Korea) with an Asian country and the first with a BRIC emerging economy. It would offer Canadian trade and investment preferential access in the vast South Asian region, where Canada’s business presence is growing but still limited.
Alongside NAFTA, it would complete an arc of major world markets having trade agreements with Canada, with the 2013 deal with the European Union connecting Canadian businesses across the Atlantic and the Trans-Pacific Partnership potentially doing the same across the Pacific.
Canada has what India wants in helping it solve its food and energy security – and related technologies – needs; its infrastructure and educational needs (though public education is not part of the negotiations); and tourism. Moreover, India is particularly important to the Harper government. It is one of Canada’s 13 priority markets and its million-plus diaspora helped the Conservatives achieve their first majority government in 2011.
A CEPA would not only stimulate trade and investment between the two countries but also improve the relationship, which has been vibrant since the signing of a Nuclear Co-operation Agreement in 2010, in the wake of decades of tension over the nuclear issue.
For India, the CEPA would be its first opportunity to obtain preferential access to a part of the North American market. As with Canada, the CEPA would join the dots on a neat arch connecting India to major world markets given its hoped-for free-trade agreement with Europe, and existing ones with Southeast Asia, Japan and Korea.
While Canada wanted an ambitious deal, which would include areas such as intellectual property and government procurement, India prefers something more restricted. That caution is understandable in key areas like agriculture, since more than 50 per cent of Indians still live off the land (compared to 2 per cent of Canadians), often at a subsistence level.
The final agreement will likely be close to a traditional goods and services agreement, and include clauses on areas such as rules of origins. Canada is looking for “dramatically lower” tariffs on goods and better access on services, in the face of restrictive Indian policies on foreign equity participation in areas such as financial services.
Both countries are keen to come to an agreement on the sensitive issue of visas for the temporary entry of professionals, whether it’s Canadian architects and bankers going to India or Indian IT professionals coming to Canada. Some observers say the issue is so important to both sides it is a potential deal-breaker.
Separately, negotiations for an investment protection agreement or FIPA were concluded years ago but the deal was never ratified. India put a moratorium on signing these agreements after being taken to arbitration by the Dutch telecom concern Vodafone, and the Australian mining firm White Industries, under two of its existing investment treaties. Lifting the moratorium is unlikely until the Indian authorities are able to minimize arbitration possibilities through investor-state dispute clauses in its free-trade agreements.
Canada’s hopes of getting India to sign a more potent CEPA at an early date depend on its priority for Mr. Modi. Trade is one of the five ‘T’s (alongside talent, tradition, tourism and technology) he plans to employ for rejuvenating ‘Brand India’.
That, coupled with Canada’s sustained engagement with him during the years when the U.S. and Britain kept him at a distance because of his perceived involvement in anti-Muslim riots in 2002 in his home province of Gujarat, might well inspire Mr. Modi to deliver a quick and effective agreement.