Canadian and Indian negotiators are scrambling to clear a diplomatic logjam over resuming trade in nuclear materials and technology before Stephen Harper meets with counterpart Manmohan Singh early this week in New Delhi.
Mr. Harper arrived in Agra, India, Sunday for a six-day trip aiming to rekindle a series of flagging trade talks with the world’s ninth largest economy, including a free-trade deal, an investor protection accord and a treaty to resume nuclear trade as India plans for up to 40 new reactors in the next 20 years.
Canada and India reached a nuclear co-operation deal with great fanfare two years ago that was supposed to pave the way for a vast new export business for Canadian uranium and reactor companies.
Even more importantly, that breakthrough helped the two countries move past decades of awkward and sometimes chilly relations over India’s misuse of nuclear fuel obtained from Canada in the 1970s.
But the deal hasn’t come into force yet because India has balked at Canada’s insistence that it should have the right to verify India’s handling of any Canadian nuclear material. India already reports its activities to the International Atomic Energy Agency and doesn’t believe it should have to pass muster with Canada as well.
“The Indians are saying they report through the IAEA and because of that, [this] should be adequate for us. We are concerned about where Canadian nuclear material goes,” said Stewart Beck, Canada’s high commissioner to India.
“We’re trying to come up with a reporting approach that will assure us material is not being diverted.”
Canada is not alone in insisting on safeguards that are tighter than the Indians are willing to accept. The Australians only recently agreed to pursue a nuclear co-operation agreement that would allow its firms to sell uranium to India, and is demanding the same monitoring safeguards that Ottawa wants.
Breaking this impasse is crucial for the Harper government: Canada’s re-engagement with India revolves around the nuclear deal because the highly symbolic accord demonstrates it no longer considers the South Asian country a nuclear pariah for using Canadian and U.S. nuclear material to build its first bomb nearly 40 years ago.
In late October, ahead of Mr. Harper’s visit, Canadian and Indian officials began a second round of talks aimed at bridging the gap. Representatives of Canada’s Department of Foreign Affairs and the Canadian Nuclear Safety Commission met with their Indian counterparts in New Delhi.
They took a break late last week to report back to their respective capitals before resuming again on the weekend of Nov. 3 and 4.
Indian government officials, speaking on condition they not be identified, say they are hopeful a deal can be reached – but both New Delhi and Ottawa won’t say whether this could come before the Harper-Singh meeting Tuesday.
“I think Canada is prepared to be flexible,” a high-ranking Indian official said. “India is also prepared to be flexible to an extent.”
Courting trade in India is politically wise for the Conservatives. There are more than a million people of Indo-Canadian origin in Canada and voters with Indian ties helped clinch Greater Toronto Area seats in the past election, when Mr. Harper won his first majority government.
But it’s also good business. A study commissioned by Canada and India concluded that free trade could boost Canada’s annual economic output by at least $6-billion. The Tories are also keen to diversify trade beyond Canada’s heavy dependence on U.S. customers and is targeting rapidly emerging economies such as China, India and Brazil.
The signing of a foreign investor protection treaty during this visit is less likely now, after a messy tax-bill battle between India and a major U.K.-based phone carrier, Mr. Beck said.
New Delhi has placed on hold all negotiations on deals to grant foreign investors more legal protections after fights with companies such as British telecom giant Vodafone.
“I would say this is going to take more time,” Mr. Beck said of Canada’s efforts to secure a foreign investor protection deal with India.
India is rethinking how it proceeds with investor protection deals that grant foreign companies standing to sue for compensation if government measures hurt their investments.
This past April, Vodafone issued a notice warning India that it intended to challenge tax legislation that allows authorities to reopen tax cases dating as far back as the 1960s and collect more revenue over past corporate deals.
It was the latest in a string of cases where foreign investors were threatening to use bilateral investment treaties to challenge Indian government measures.
“They had a judgment that went against them – the government – in the courts,” Mr. Beck said. “So they’re taking a look at all their agreements before they actually finalize any one of them in particular.”
Mr. Harper begins his India trip with a visit to the iconic Taj Mahal in Agra.