Ottawa is pushing hard to get an investment deal with India and open markets for a clutch of key exports as Prime Minister Narendra Modi makes his first visit to Canada this week.
But a more expansive Canada-India free-trade agreement, now nearly five years in negotiation, remains a mostly aspirational goal.
Canada and India quietly restarted stalled trade talks last month, and the official line is that the two sides are making substantial progress towards an “ambitious” agreement.
But most analysts say it’s a long shot, given India’s highly protected market and the entrenched positions of both sides on key sensitive issues.
“It’s all a question of the level of ambition,” explained Stewart Beck, a former top Canadian diplomat, who was High Commissioner to India from 2010 to 2014. “If we want to be ambitious, it’s going to be a struggle. If you want to just do it, it’s not a big deal, but it won’t be a true free-trade deal.”
Mr. Modi begins a three-day trip Tuesday in Ottawa – the first bilateral visit by a sitting Indian prime minister to Canada in more than 40 years. He’s also slated to go to Toronto and then Vancouver, home to the largest concentration of Indo-Canadians.
Unlike Canada, which has free-trade deals with 10 countries, India has none, and we aren’t likely to be its first partner, even after five long years and nine negotiating rounds.
The boundless promise of the Indian market is tantalizing for Canada, which is eager to diversify its exports into emerging parts of the world. India is a massive country with a bulging middle class, and it’s now outgrowing China. Throw in Mr. Modi’s reform-minded economic agenda and the large Indian diaspora in Canada, and experts say the potential is there for it to become another China in the next decade.
“For those with more foresight, the economic opportunity that India could represent for Canada deserves a longer look,” CIBC economist Avery Shenfeld said in a recent research note. “India could have more promise [than China].”
A key stumbling block to full free trade is that Canada wants a lot in terms of access for its goods in a highly protected market, but has relatively little to offer in return because tariffs are already relatively low here. And Ottawa is reluctant to give the one thing India really wants – freer mobility of visitors and temporary service workers here, pointed out Mr. Beck, now president and chief executive of the Asia-Pacific Foundation of Canada.
A more likely near-term win would be India’s ratification of an investment treaty it signed with Canada in 2012. The deal sets ground rules for investors, allowing them to seek compensation for unfair treatment. But India suspended all such deals, including the one with Canada, over concerns that it could face a flood of investor challenges.
Instead, India is now drafting its own investment rules, hoping foreign countries such as Canada will agree to them.
“It’s a question of will,” Mr. Beck said of the prospects for reaching an investment deal during Mr. Modi’s visit. “The problem for India is that whatever they negotiate with us could set a precedent.”
Ottawa estimates that a trade deal would increase bilateral trade by 50 per cent and boost the economies of both countries by as much as $6-billion a year.
Canadian companies are relatively small players in India now, often lacking the scale to do business in such a large, complex and still highly protected market. Less than 1 per cent of Canadian exports go to India now. Goods exports reached $3.1-billion in 2014, dominated by bulk commodities such as peas, lentils, fertilizer, canola oil and iron ore. By comparison, Canada’s exports to China were nearly $19-billion last year.
Canadian investment in India remains relatively small ($613-million in 2013), in part because of curbs on foreign ownership in many sectors. But the Modi government’s vow to loosen investment rules and spend heavily on infrastructure has prompted a cluster of major Canadian investors to put money on the table, including the Canada Pension Plan Investment Board and Prem Watsa’s Fairfax Financial Holdings Ltd. Other key Canadian investors in India include Bombardier Inc., Magna International Inc., McCain Foods Ltd., Brookfield Asset Management Inc., Sun Life Financial Inc. and BlackBerry Ltd..
With free trade unlikely in the short-term, Ottawa is seeking improved market access on a product-by-product basis. As evidence of progress, Canadian officials point to India’s decision this year to accept imports of Canadian ash lumber products, and eastern spruce in 2013. There is also talk of a deal that would see Saskatchewan-based Cameco Corp.. resume Canadian exports of uranium to feed India’s nuclear reactors.
“India is a priority market,” said Max Moncaster, spokesman for Trade Minister Ed Fast. “We are committed to using all the tools at our disposal to ensure market access for Canadian exports.”
Canada has boosted its staff of trade commissioners in India and opened a clutch of new consulates in recent years. And last year Export Development Canada made a $500-million (U.S.) loan to Reliance Industries Ltd., a move by the government export lender to encourage the Mumbai-based conglomerate to expand its Canadian supply chain.Report Typo/Error