From lecturing to dating: Why Canada and India might finally sign a trade agreement

From lecturing to dating: Why Canada and India might finally sign a trade agreement

For India and Canada to solidify their relationship, the will have to overcome several obstacles

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Indian Commerce and Industry Minister Piyush Goyal’s visit to Ottawa and Toronto this week is stoking hopes that Canada might finally strike a trade deal with one of the world’s fastest growing economies after more than a decade of trying.

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The two nations first began trade talks in 2010 under former prime minister Stephen Harper, but after 10 rounds of talks over seven years failed to produce a breakthrough, the effort lost momentum.

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The situation this time around is different. Talks were resuscitated in March 2022 when Trade Minister Mary Ng visited India and the countries have since held seven rounds of discussion leading up to Goyal’s visit this week.

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Goyal and Ng hope to set a deadline for agreeing to an Early Progress Trade Agreement (EPTA) later this year. The EPTA would be a step towards the Comprehensive Economic Partnership Agreement (CEPA) that Canada eventually wants to sign, and might include trading rules linked to specific sectors instead of the entire economy.

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Typically, countries complete trade agreements in one go, so the attempt to start with a less ambitious version amounts to something new. The head of the Business Council of Canada, Goldy Hyder, compared it to dating. “We are not getting engaged or married, that may come,” he said. “But let’s make dating work first and that means having a common understanding of making sure that it’s a win-win situation.”

Some analysts are less positive. Rohinton Medhora of the Centre for International Governance Innovation said he understands the logic of starting with something achievable to create momentum, but argued that given the long and futile history of negotiations, aiming for CEPA directly could be the right way to go “because the small step in the absence of the larger one is meaningless.”

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Regardless, any deal with India would bolster Canada’s $2.3-billion Indo-Pacific Strategy, which Prime Minister Justin Trudeau’s government announced in November. However, for India and Canada to solidify their relationship, the will have to overcome several obstacles. Here’s what you should know:

What’s in it for Canada?

Businesses in Canada don’t necessarily need a deal with India to invest there. In fact, Canadian pension funds already have invested heavily in Indian infrastructure and Canadians overall have about $65 billion in portfolio investments in India.

A trade agreement, however, provides reassurance to businesses. As Hyder put it, trade agreements act as an insurance for businesses in a geopolitical environment of “tremendous risk and uncertainty.” They know that there are a set of rules that both countries will follow.

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This would also pave the way for both countries to expand trade with each other and allow Canada to benefit from India’s growing economy. India is set to surpass China as the world’s most populous nation.

“There is no large economy that’s growing like India is growing,” said Victor Thomas, chief executive of the Canada-India Business Council. “We are an export-driven nation and India is a consumption-driven economy, and they are going to only consume more and more and so the opportunity right now is significant.”

There is no large economy that’s growing like India is growing

Victor Thomas, chief executive, Canada-India Business Council

In addition, in the current geopolitical environment where democratic countries in the West are looking to shift their supply chains towards their allies, India, which aims to produce crucial semi-conductors and other tech equipment in the future, could prove to be a key partner for Canada.

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“Under current conditions, the bilateral trade pattern is maxed out,” said Medhora. “What each side hopes for is the future. India might further value Canada’s natural resources and agricultural products … Canada might see India as a concrete example of ‘friend-shoring,’ as part of the restructuring of global supply chains.”

To date, trade between the two countries is centred mainly on agricultural commodities and minerals from Canada to India, and textiles and some machinery from India to Canada. Anything that might be termed forward-looking, such as high-tech transfer and upper-level manufactures, accounts for less than five per cent of total trade, according to Medhora.

This is because neither side has been willing to open up traditionally protected sectors any further than they have with other, larger, more important trading partners, Medhora said.

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An analysis conducted by the Canada West Foundation, a think-tank, found that Alberta, British Columbia and Saskatchewan were the best provinces to meet India’s import demand for agricultural products. Yet, currently the three provinces’ exports to India represent just 0.09 per cent, 1.4 per cent, and 1.63 per cent respectively of their total exports to the world.

What are the obstacles?

There are a number of reasons why it has taken Canada and India more than a decade to reach a point where they might agree to an early trade agreement.

The first is linked to politics. According to Vivek Dehejia, an associate professor of economics at Carleton University, the relationship between the two nations under the current governments has been poor in recent years.

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For example, Dehejia said Trudeau’s comments on India’s farmer protests in 2020 made it seem as though “Trudeau was lecturing India.” Dehejia said that the comments may have been an attempt by Trudeau to reach out to the Indo-Canadian voters, but it wasn’t well received in India.

Prime Minister Justin Trudeau in 2020.
Prime Minister Justin Trudeau in 2020. Photo by Lars Hagberg/AFP via Getty Images

And then there’s India’s historic unwillingness to join trade groups. Its decision to exit the Regional Comprehensive Economic Partnership (RCEP), a trade deal among several southeast Asian nations, in November 2019 was a disappointment for the region’s member nations.

In general, economists and analysts tend to describe India’s trade policy as defensive and protective, as it has refrained from opening its sectors to developed nations.

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But things are gradually changing. In the last few years, India has signed trade agreements with Australia and the United Arab Emirates, and is in the process of signing one with the United Kingdom. Although these deals were smaller and aren’t the deep or dynamic agreements that Canada is looking for, it’s a sign the country seems to be opening up.

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Dehejia though isn’t too optimistic. “The fact that they want a watered-down deal after 13 years of negotiations, should tell you something,” he said. “It’s not exactly early. We have been waiting for 13 years and we are still not exactly sure what the early progress is going to be.”

Karthik Nachiappan, a senior fellow at the Ottawa-based Macdonald-Laurier Institute doesn’t think India will be open to negotiating issues that will advance issues such as labour, gender, minority rights and culture, aspects that Ng has put at the centre of other negotiations.

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Canadian industry leaders, though, have urged the representatives of both nations to find commonalities and come to some kind of agreement as a start.

What could come from Goyal’s visit? 

Most industry insiders believe the two nations are close to signing an early trade agreement.  But questions remain. How expansive is it going to be? What industries will it include?

“It is relatively simple to have a trade agreement that simply reflects the status quo, thus once again putting off the tricky forward-looking issues,” said Medhora.

There’s a lot that India can teach Canada and we need to come at it with an open heart

Victor Thomas

Dehejia echoed a similar sentiment and said he will be happy if the EPTA looks even “mildly ambitious.”

The Business Council’s Hyder hopes the arrival of Goyal provides the negotiation process with “oxygen and impetus” and helps speed up the timeline. He hopes a deal is announced by August this year, before India hosts the G20 summit.

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Canada-India Business Council’s Thomas said he hopes the arrival of India’s top economic minister encourages other Canadian companies to do business in India.

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“I think people have an outdated view of India,” Thomas said. “I don’t think people understand how things are changing there and how young and dynamic their population is. We think Canada has a lot to teach a country like India, but I think there’s a lot that India can teach Canada and we need to come at it with an open heart.”

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