In November 2009, the Canadian and Indian prime ministers, Stephen Harper and Manmohan Singh, set up a joint study group to examine the feasibility of concluding a comprehensive economic partnership agreement (CEPA) between the two countries. The joint study predicted significant gains for both countries and, on 12 November 2010, the prime ministers announced the formal launch of negotiations towards a CEPA.
The fourth round of negotiations took place in New Delhi this February, and the fifth round of negotiations is imminent.
Bilateral trade and investment between India and Canada is currently relatively modest (India is Canada’s 15th largest trading partner and Canada is India’s 33rd largest trading partner). This masks the complementary characteristics of the countries’ economies and the potential to expand economic relations to mutual benefit.
While India’s economy is growing rapidly, much of this growth has occurred domestically. Its export and import trade has room for much greater growth – in which Canada should be a key partner. Canada’s successful free trade agreement with the US can provide Indian producers with a strategic platform to expand access to the US market.
As India’s economy expands, it will need secure access to natural resources which Canada has in abundance. India also needs investment in key areas such as energy, transportation, infrastructure, health and financial services, all of which are key strengths of the Canadian economy. In the information and communications technology (ICT) sector, Canada’s strong presence can complement India’s growing leadership.
The CEPA negotiations and a successful bilateral agreement should deliver: tariff reductions; services and investment liberalization; free movement of business and professional personnel; and reduction of non-tariff barriers (through regulatory cooperation).
The future export to India of liquefied natural gas (LNG) from British Columbia, and of crude oil from Alberta’s oil sands, if the Northern Gateway Pipeline is constructed, holds great potential for increased trade between our two countries.
Current tariffs on key products that India imports from Canada (including chemicals, metals, machinery, and forest and agricultural products) remain relatively high, as do Canadian tariffs for Indian textiles, clothing and other products. While both countries have specific sectoral sensitivities, the complementary nature of our trade leaves ample room for carefully phased or faster tariff reductions in key areas and an adjustment period in others.
Services trade is critical to both India and Canada. Businesses should encourage the governments to aim for an ambitious result based on the “negative-list” approach used by Canada in its bilateral agreements rather than the “positive-list” approach traditionally used by India, and the World Trade Organization. The former liberalizes trade across all service sectors subject to specific exceptions identified by the parties. This allows businesses to benefit from liberal trade from the outset rather than wait for governments to open markets according to their bureaucratic schedules.
Investment liberalization is also a key priority, particularly as India increasingly becomes a source of foreign direct investment. Indian companies would benefit immensely from a regime that allows them to invest freely in Canadian businesses. Similarly, Canadian businesses would be keen to invest in India.
A bilateral foreign investment protection agreement (FIPA) concluded in 2007 has not yet been ratified by India. Ratification of the FIPA and its eventual incorporation into a CEPA would go a long way towards giving momentum to the CEPA negotiations.
Liberalization of rules for movement of businesspeople and professionals would offer India’s engineers, ITC professionals and business consultants an opportunity to apply their skills in new markets to the benefit of both countries. Canada has historically been far less resistant to liberalizing business travel than the US and many European countries, thus potentially offering significant gains for Indian companies.
The increased application in India of Canadian expertise, such as in relation to mining, power generation and oilfield services, would also be of mutual benefit to India and Canada.
Finally, regulatory cooperation offers equally important potential as it can go a long way towards reducing or eliminating non-tariff barriers. Canada’s success in weathering the recent global economic downturn is partly the result of its approach to financial and other regulation. As India proceeds down the path of regulatory reform, it can benefit from the exchanges with Canadian regulators and access to best practices that an accord on regulatory cooperation would promote.
Despite modest roots, Canada-India trade has immense potential. Our complementary products, common legal and political traditions, and the existence of a well-established Indo-Canadian community hold the prospect of significant gains for both countries from an ambitious and far-reaching CEPA.
Milos Barutciski and Angus Mitchell are partners at Bennett Jones LLP, a leading Canadian law firm with over 400 lawyers in offices throughout Canada and in the UAE.
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