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Back in November, India and Canada jointly announced the launch of free-trade negotiations to much fanfare and excitement. Prime Minister Stephen Harper pledged 2013 as the deadline by which a deal would be signed, opening the door to a new era of flourishing trade and business between the countries.
Then the conversation promptly ground to a halt.
First, the federal election in Canada moved the topic to the back burner. Then India’s chief negotiator—a—civil servant—was rotated into new position and there was a lengthy wait while a new individual was found. As of yet, a date has not been set to escalate the discussion to the second round.
Shashi Tharoor, at the IIFA 2011
Toronto Global Business Forum in Toronto
Photo: Jennifer Roberts for The Globe and Mail
But now that a Conservative majority is in power and the Indian team is ready, the negotiations are back on track. Indian politicians were in Canada last week to refocus attention on the proposed Comprehensive Economic Partnership Agreement (CEPA) between the two countries.
The ambitious plans are aimed at opening a major new market for Canadian exports and investment, eventually boosting Canada’s gross domestic product by at least $6 billion (U.S.) a year, according to a joint study on the benefits of free trade between the two countries.
Of all the things that would help kick-start the discussions, who knew that the Bollywood film industry might be responsible?
The Indian International Film Academy awards last weekend included a global business forum, which was attended by a delegation from India and Sandra Pupatello, Ontario Minister of Trade and Economic Development.
“It’s quite amusing to see Bollywood as an excuse for a business forum,” said Shashi Tharoor, a prominent Indian member of parliament who attended the forum.
“It’s unlikely that any business gathering can compete with the glitz and glamour of Bollywood household movie stars traipsing across a green carpet, but having said that, if some of this washes off on the larger picture, then why not? You can say that the IIFA awards in Toronto really gives the city a huge amount of visibility and this business forum gives you [Canadians] the credibility” in India.
Both Tharoor and Pupatello highlighted information technology, clean technologies, and steel and mining as sectors of interest to both countries. Canada and India’s economic relationship has been cool in the past: Canada had its sights zeroed in on the United States, and India’s protectionist economic policies had previously stood in the way. But since the recession, Canada has started vigorously exploring other markets while India has slowly been opening its gates to foreigners.
The CEPA negotiations still hold great potential, says a report issued by the C.D. Howe Institute. Even though the two countries have a lot in common, the report’s author, Wendy Dobson, co-director of the Rotman Institute for International Business at the University of Toronto, said negotiators will need to exercise patience as they work through differing approaches to trade liberalization.
Canada has signed eight free-trade agreements since the 1994 implementation of North American free-trade agreement, but the majority of those are with smaller economies that account for little of Canada’s total trade, Dobson said. Eleven more agreements are pending, but only three are with dynamic Asian economies—South Korea, India and Singapore—and the negotiations with Singapore, which began in 2001, have been on hold since 2007.
“This scattershot record raises questions of whether Canada has a trade strategy or is simply proceeding on an ad hoc basis,” Dr. Dobson said.
“Canada’s main interests in the CEPA are to secure transparency and non-discrimination for Canadians in the Indian economy, to take advantage of the efficiencies available from Indian information technology (IT) services providers, and to gain greater access to both the Indian and wider Asian markets using India as a platform for regional operations,” she said in the report. She cautions that the talks are likely to encounter some “thorny issues” regarding government procurement, labour standards and the environment.
Jean-Michel Laurin, vice-president of global business policy with Canadian Manufacturers & Exporters, said Canada should position itself as a place with which other countries actively want to trade.
“We know there is a slump happening with the U.S., and it would be foolish to ignore the potential in the BRIC,” he said. “We need to have an aggressive bilateral agreement policy. We should be the place where India comes when they want to tap into the North American and worldwide markets, because of the connections we already have.”
And yet Canadian companies, which have been trying to make headway in India for decades, have actually made greater strides in China.
The root cause for the unfulfilled relationship has been India’s protectionist policies since it gained independence from the British Raj.
That changed in the 1991 when Prime Minister Manmohan Singh, then India’s finance minister, brought in a liberalizing attitude toward the global economy.
The time had come for the “unshackling of the Indian economy,” Tharoor said. “And now that we’re on this path to CEPA, Canada is very much a priority for India. But the Canada-Indian relationship needs to acquire a bit more saliency.”
Peter Conlon, president and chief executive officer of Nautel Ltd., said his Peggy’s Cove, N.S.-based company has been exporting radio transmitters to India for years, but sporadically. He says that although India constitutes a small fraction of his export business, he wants to expand it further.
“India is in the process of currently revitalizing its entire radio infrastructure, which is really exciting for us, considering that radio is really the primary means of communication in the country,” Conlon said. “I would never look at a free-trade agreement as a competitive advantage, but if it can simplify the extremely complicated process or paperwork, then that would be a big bonus. I’m hoping the agreement will remove this headache of bureaucracy.”
Barry Ireland, president of Saskatchewan-based Vbine Energy, said demand in India has been growing for his company’s small wind turbines that fit atop telecommunication towers.
“There is a tremendous demand for power, and a lot of their telecommunications towers are running on diesel, propane and coal,” Mr. Ireland said. “But they have recently started looking at green energy. So this is a big market for us when you consider the hundreds of thousands of towers in India compared to Canada.”
ROOM FOR IMPROVEMENT
Canada’s total merchandise trade in 2008 was $865 billion (U.S.) of which 66% was with the United States. Trade with India amounted to just $4 billion, making it Canada’s 16th-largest merchandise trading partner.
In 2008, India was Canada’s 20th-largest source of foreign direct investment, estimated at $1 billion, while Canada is India’s 40th-largest source of FDI, valued at $801 million.
Estimates of gross domestic product gains with a free-trade agreement range from $6 billion to $15 billion for Canada and $6 billion to $12 billion for India.
Source: September, 2010, Canadian-Indian joint study on the benefits on free trade between India and Canada.