INTRODUCTION

On 1 December 2011, the House of Commons Standing Committee on International Trade (hereinafter the Committee) commenced a study on negotiations for a Comprehensive Economic Partnership Agreement (CEPA) between Canada and India. The Committee held hearings in Ottawa from December 2011 to March 2013 in order to obtain input from 42 Canadian stakeholders about the principal issues in these negotiations.

Primarily in response to the lack of progress in reaching a new multilateral agreement at the World Trade Organization (WTO), many countries—including Canada—are turning their attention to bilateral and regional trade liberalization agreements. Consistent with one of its stated foreign policy priorities, Canada has emphasized the strengthening of economic ties with certain countries where Canadian opportunities and interests are perceived to have the greatest potential for growth. In this context, the Government of Canada identified India as a priority market[1] and highlighted market opportunities in India for Canadian companies, including in infrastructure, energy, food, education, and science and technology.[2]

With an estimated population of 1.2 billion in July 2012,[3] India is the largest democracy in the world. India’s population is expected to surpass that of China by 2025 because of its higher population growth rate.[4] India is one of the four BRIC countries: Brazil, Russia, India and China. The BRIC countries are characterized by their relatively significant geographic and population sizes, their potential to become leading forces in the world economy and their high economic growth rates. In terms of this last characteristic, India’s estimated gross domestic product (GDP) growth rate in 2012 was 6.0%; the country is also expected to have a high growth rate in each of the next five years, although at an annual rate of less than 10%.[5]

Canada and India cooperate on a number of bilateral and global issues, including regional security and counter-terrorism, science and technology, and the environment and energy. The two countries also interact on issues of mutual concern through a variety of multilateral forums, such as the G20.[6] Bilateral relations between Canada and India are supported by a substantial and growing Indo-Canadian community, which is estimated to exceed 1 million individuals.[7] In 2011, India was the third-largest source country of immigrants to Canada, after the Philippines and China.[8]

This report provides information on the existing trade and investment relationship between Canada and India, identifies the issues that Canadian stakeholders believe should be Canada’s priorities in the negotiations for a CEPA between the two countries, and makes recommendations to the federal government.

CANADA–INDIA TRADE AND INVESTMENT ACTIVITY[9]

Canada–India merchandise trade totalled $5.2 billion in 2012, comprised of $2.3 billion in Canadian exports to, and $2.9 billion in imports from, India. Although India was Canada’s 15^th-largest merchandise trading partner in that year, it is not a major trading partner considering its population size and relatively rapid rate of economic growth.

In 2012, India was Canada’s 12^th-largest export destination worldwide; it was its 5^th-largest in Asia, a region made up of 27 countries. India was also Canada’s 20^th-largest source for Canadian imports; it was its 5^th-largest in Asia in that year.

From 2007 to 2012, the value of Canadian exports to India increased at an average annual rate of 5.6%, compared to 0.2% globally. However, the value of Canadian exports to India fell by 10.4% from 2011 to 2012.

The value of Canadian imports from India increased at an average annual rate of 7.6% over the 2007 to 2012 period, compared to 2.6% globally. From 2011 to 2012, the value of Canadian imports from India increased by 12.7%.

Figure 1 — Value of Canada’s Merchandise Trade with India, 1992–2012 ($ billions)

Source: Figure prepared based on Statistics Canada data.

In 2012, the provinces of Saskatchewan, Quebec and Ontario had the highest-valued merchandise exports to India, with exports to that country totalling $601.5 million, $485.0 million and $471.7 million respectively.

Figure 2 — Canada’s Merchandise Trade with India, by Province/Territory, 2012

Source: Figure prepared based on Statistics Canada data.

In 2012, Canada was a net exporter of resource-based products to India, and a net importer of manufactured products from that country.

Table 1 — Top Canadian Exports to, and Imports from, India, 2012 ($ millions)

Exports		Imports
Product	Total	Product	Total
Leguminous Vegetables - Dried and Shelled	504.4	Medicaments - Measured Doses or Packed For Retail Use	148.5
Helicopters, Airplanes and Spacecraft	270.3	Non-Crude Petroleum Oils and Oils Obtained from Bituminous Minerals	113.1
Diamonds	175.0	Articles of Jewellery	107.6
Newsprint - Rolls or Sheets	173.3	Diamonds	98.8
Coal and Solid Fuels Manufactured from Coal	160.7	Linen	96.8

Source: Statistics Canada.

Although services make a significant contribution to the Indian and Canadian economies, bilateral trade in services in 2010—the latest year for which data are available—was only $1.2 billion, comprised of $446 million in Canadian exports to, and $722 million in imports from, India.

In 2011, Canadian direct investment in India totalled $587 million, making it the 40th-largest destination for Canadian foreign investment. In contrast, Indian direct investment in Canada was $4.4 billion in that year, the 13^th-largest source of foreign investment in Canada.

NEGOTIATIONS FOR A CANADA–INDIA CEPA

The negotiation process

Discussions between Canada and India regarding formal and binding commercial treaties began in July 2007, when responsible ministers from both countries announced the desire to sign and ratify a Foreign Investment Promotion and Protection agreement (FIPA). However, a FIPA between Canada and India has not yet been signed.

In November 2009, Canada and India announced the creation of a Canada–India Joint Study Group, which was composed of Indian and Canadian officials, to explore the possibility of a CEPA. Economic analysis conducted by Canada determined that substantial and symmetrical gains would be achieved through the elimination of barriers to trade between Canada and India, with estimated GDP gains of 0.4% for Canada and 0.5% for India totalling approximately C$6 billion for each country. Economic analysis conducted by India, which used different assumptions, estimated gains totalling approximately US$12 billion for India and US$15 billion for Canada.

The Joint Study Group concluded its work by indicating that, because there was enough common ground, it could recommend that Canada and India move forward with the negotiation of a CEPA.[10] Negotiations between Canada and India were officially launched on 16 November 2010. Since then, seven rounds of negotiations have taken place.

The Government of Canada’s chief trade negotiator for the Canada-India CEPA (hereinafter Canada’s chief trade negotiator) told the Committee that negotiations for a CEPA between Canada and India are a high priority for the Government of Canada; instructions to complete negotiations by the end of 2013 have been given.[11] The Committee was also told that, partly because India conducts trade negotiations with a very small team, the rounds of negotiations with India will be shorter, more focused and more frequent than is usually the case.[12] In this regard, John Harriss (Professor and Director, School for International Studies, Simon Fraser University) noted:

One of the problems that must be faced in these talks is that the bureaucratic capacity in India for conducting trade negotiations is pretty limited. My colleagues talk to me of India turning up at major trade talks with three people, when the Chinese, for instance, come along with 50 people. There are limitations of bureaucratic capacity, and at the moment I think India's priorities are to conclude trading agreements with Southeast Asia and to get through the long-running trade talks with the European Community.[13]

Scope of a potential CEPA

The Committee heard a range of testimony regarding the scope of a potential Canada–India CEPA. Suresh Madan (Champion, Canada Chapters, Member, Global Board of Trustees, The Indus Entrepreneurs) welcomed the progress that has been made to date at the negotiating table and said that an agreement should be concluded as soon as possible based on the points on which both parties currently agree, with outstanding issues addressed in subsequent negotiations.[14]

According to Jason Langrish (Senior Trade Advisor, Canada–India Business Council), all trade agreements are not the same: they reflect, among other things, the scale of the trade and investment relationship between the two parties as well as the institutional linkages between them. Therefore, it is to be expected that a possible Canada–India CEPA would not be as comprehensive as a possible trade agreement between Canada and the European Union, for instance.[15]

The Canadian Chamber of Commerce noted that a Canada–India CEPA should be “a comprehensive, balanced and high-quality agreement that will ensure long-term, real market access for Canadian exporters of goods and services, while also duly recognizing sensitivities. A limited agreement could swiftly lose relevance to both countries’ business communities and may need to be updated less than a decade after its conclusion.”[16]

While some witnesses expressed their hope that the CEPA negotiations will lead to a comprehensive and ambitious agreement, others argued that the parties should reduce their expectations and be realistic about the content of a potential agreement. In this regard, Rahul Shastri (National Convenor, Canada India Foundation) voiced concern about the apparently slow progress of the negotiations to date and the possibility that the negotiations will lead to an agreement with a limited scope.[17] John Harriss shared this concern, noting that it will be very difficult for Canada and India to conclude anything other than a shallow agreement.[18]

Canada’s recent approach to free trade negotiations has been to negotiate three separate but linked agreements: the free trade agreement and parallel agreements on labour cooperation and the environment. In the context of negotiations for a Canada–India CEPA, Canada’s chief trade negotiator told the Committee that, while Canada will pursue adherence to international standards for labour and environment protection, India has—in the past—resisted the inclusion of labour and environmental measures in international trade agreements.[19] In speaking about the environment, John Harriss pointed out that India has historically resisted environmental regulation, and that the implementation of federal environmental legislation by Indian state governments has been problematic.[20]

John Harriss also commented on labour rights in India, and highlighted some of the challenges that the country is facing. In particular, he spoke about the difficulty of controlling child labour, the significant increase in the employment of contract workers, whose labour rights are practically non-existent, and the problems faced by organized labour because of “political fragmentation”.[21]

TAKING ADVANTAGE OF INDIA’S ECONOMIC POTENTIAL

India: A future economic superpower

From a historical perspective, India’s position along traditional trade routes, its large population and its densely populated regions made the country’s economy a significant contributor to the world economy until the 19^th century. However, this role diminished over time as India’s modernization efforts lagged those of other countries. India’s rapid modernization in recent years and its gradual adoption of market-based principles led several of the Committee’s witnesses to argue that India has once again become a significant contributor to the world economy and that Canada should take steps to take advantage of India’s economic potential.

According to Canada’s chief trade negotiator, India is projected to have the world’s fourth-largest economy by 2025 and the third-largest by 2050. Moreover, India has already established itself as a key player in global value chains, and its middle class has between 150 million and 250 million people. On that basis, they indicated that India is a priority market for commercial engagement with Canada.[22]

A number of witnesses pointed out that business opportunities, both now and in the near future, are vast. Satish Thakkar (appearing as an individual) noted:

For instance, in telecommunications, there are more than 500 million cellphone subscribers, with an additional 10 million to 15 million added every month. In infrastructure, India plans to spend $1 trillion on infrastructure in the near future. In education, India needs more than 1,000 new universities and 50,000 vocational colleges to cater to its growing needs.[23]

Gian Dhesi (President, Pacific Exotic Food Inc.) also emphasized the existing business opportunities in India, and highlighted that—between 2006 and 2011— consumer spending in India increased from US$ 549.0 billion to US$ 1.1 trillion, with 250 million people expected to join India's workforce by 2030.[24]

Witnesses also commented on India’s economic growth. John Harriss, for example, mentioned that “India is not likely, actually, to sustain the sorts of rates of growth it hopes for.”[25] That said, others were more optimistic about India’s growth prospects and the opportunities available to foreign businesses. At present, many countries are pursuing deeper economic and diplomatic relations with India and Canada’s chief trade negotiator noted that India has negotiated free trade agreements with several countries or groups of countries, including Chile, the Association of Southeast Asian Nations, South Korea and, most recently, Japan. In addition to Canada, India is currently involved in negotiations with New Zealand, Australia and the European Union.[26]

Canada’s brand in India

The Committee’s witnesses were in agreement about the economic opportunities in India and about the need for Canada to take advantage of them. However, their opinions regarding Canada’s brand in India were more varied.

According to Eugene Beaulieu (Professor of Economics, University of Calgary), when India started to liberalize its economy, it began to increase trade with neighbouring countries; Canada was not often considered by Indian policy makers and business people. Although the situation is changing, and India is now pursuing trade and investment agreements with a number of countries, he believed that Canada is still not a priority for India.[27]

Similarly, Canada’s chief trade negotiator confirmed that Canada’s brand is weak in India. Reasons for this weakness include the geographical distance between Canada and India, and the number of countries that are seeking commercial relations with India. From India’s perspective, Canada may be viewed as an “expensive option.”[28]

Rahul Shastri told the Committee that the limited trade between Canada and India is not defensible given the countries’ commonalities, such as the English language, similar judicial systems and Canada’s large Indo-Canadian community.[29]

The role that the Indian diaspora in Canada could play in enhancing trade relations between Canada and India was raised by a number of witnesses. According to them, the presence in Canada of more than one million Canadians of Indian origin is a considerable asset for Canada, especially as members of this diaspora are—to an increasing extent—politically and economically engaged. Pradeep Sood (Chief Executive Officer, Starling Corporation) argued that Canadians of Indian origin need to be consulted more frequently in order to take advantage of their knowledge and their networks. He indicated that:

I've always believed, concerning our failure to take advantage of the more than one million Canadians of Indian origin in Canada: this is where the diaspora would be extremely helpful. The diaspora networks could be extremely helpful in making Canadians understand how the system works, how it can be most useful and productive, and how success can be achieved in the shortest length of time.[30]

Witnesses noted that the Indian diaspora in Canada is all the more useful given the importance of interpersonal relationships in doing business in India. In this regard, Eugene Beaulieu noted that studies show that a large diaspora in a host country can stimulate trade and investment with the country of origin because of the existing networks.[31]

The Committee was told that, in addition to the Indian diaspora, Canada has other assets that could help Canadian exporters and investors penetrate the Indian market and attract the attention of the Indian government. In noting that Canada and India share many socio-economic and political traits, Satish Thakkar said:

They are both parliamentary democracies and pluralistic societies that are governed by the will of the people. Both are knowledge-based economies that are based on a perennially expanding services sector. Both societies and economies have complementarities which, if harnessed properly, will lead to integration of bilateral relations.[32]

To some witnesses, energy and food resources are Canada’s most important assets given the demand in India for these resources. According to Yuen Pau Woo (President and Chief Executive Officer, Asia Pacific Foundation of Canada), India turns to Canada when seeking trade, help and expertise in relation to the food and energy sectors.[33] Other witnesses confirmed that, in terms of food and energy security, Canada’s brand in India is very positive.

The Committee’s witnesses urged the government and Canadian businesses to build on these strengths, as well as on other strengths—including product quality and technological capabilities—for which Canada is known in India. Vikram Khurana (Founder and Chief Executive Officer, Prudential Consulting Inc.) argued that these strengths allow Canada to have a good reputation in India: “Look at energy and mining, and nuclear technology. [Canada was] the original [supplier] of the CANDU technology to India, which has since been reworked and improved upon by some of the Indian innovations. Look at infrastructure. Obviously, SNC-Lavalin is one of our great companies, and ACORN International is doing a fair amount.”[34]

In addition to relying on the strengths for which Canadians are known in India, Todd Winterhalt (Vice-President, International Business Development, Export Development Canada) advised Canadian businesses wanting to take advantage of opportunities in India to “establish a local presence, ... be willing to adapt their products and business models to Indian norms, and ... show that they are committed to staying for the long term.”[35]

BARRIERS TO CANADA–INDIA TRADE AND INVESTMENT

Despite Canada’s trade opportunities in India, challenges remain with regard to market access. In its report, Doing Business 2013, the World Bank ranked India 132^nd out of 185 countries for ease of doing business and 184^th for enforcing contracts.[36]

In addition to customs duties, which are relatively high for some products exported to India, witnesses noted several technical barriers to trade faced by Canadian exporters and investors wishing to enter the Indian market. These barriers relate to sanitary and phytosanitary issues in agricultural trade, a lack of consistency in the enforcement of regulations, considerable red tape that causes delays, and the complexity of the federal system.

Tariff barriers

The Committee was told that India applies relatively high tariffs on most imported goods. Canada’s chief trade negotiator noted that India’s average tariff rate is around 9%.[37] In terms of products of interest to Canada, in 2009, India’s tariffs were: 10% for fertilizers, chemicals, wood products, pulp and paper, and helicopters; 30% for fish and seafood; and between 30% and 50% for pulses,[38] although they currently enter the Indian market duty-free under a temporary measure.[39]

Canada’s exports of pork to India were highlighted as one area in which tariffs in relation to food and food products can be quite high. As explained by Jacques Pomerleau (President, Canada Pork International), an import duty of 37% is applied on Canadian pork exported to India, to which a value-added tax of 5% on raw meat or 12% on processed meat is added; thus, the tariff on pork could be as high as 49%.[40]

According to witnesses, agriculture is a sensitive issue in India, given that 52% of India’s workforce depends on agriculture, compared with 2% in Canada. Moreover, as Canada’s chief trade negotiator pointed out, “This is not farming in the way a Canadian thinks about farming. This is subsistence farming, in very large measure, so they're extremely sensitive to price fluctuations, to market prices, and to the cost of inputs. India has to manage their agricultural trade very carefully.”[41]

Jean-Michel Laurin (Vice-President, Global Business Policy, Canadian Manufacturers & Exporters) noted that India’s relatively high tariff rates are a barrier to Canadian manufacturing businesses wanting to export their products to India, particularly in the automotive, aerospace and food processing sectors.[42]

Non-tariff barriers

Bureaucracy and corruption

The Committee was told that non-tariff barriers in India are at least as problematic as tariff barriers for Canadian exporters and investors; particular mention was made of the administrative burden of non-tariff barriers. Witnesses also highlighted the lack of transparency and consistency in the enforcement of regulations, and the long delays in obtaining permits and approvals. For example, Todd Winterhalt said:

Certainly, what we encounter most often, and what we see our Canadian clients faced with most often, are things like the bureaucracy. That is, as I mentioned, endemic in terms of trying to obtain permits to conduct business. In particular sectors, it is particularly challenging, infrastructure investment, for example, or resource development in India, or things surrounding real estate development. Anything that has a land element to it is very challenging in terms of working through the Indian bureaucracy. The time and expense that are required to get to an outcome, to get a permit, is certainly something that's a disincentive to Canadian companies, be they exporters or investors.[43]

According to witnesses, customs procedures do not seem to be immune to this administrative burden. Rahul Shastri said that Canadian exporters expend considerable resources in completing the paperwork required for goods to enter the Indian market, and that the paperwork is particularly burdensome for small and medium-sized businesses.[44]

As well, the Committee was informed that corruption is a barrier that continues to prevent a portion of government spending in India from reaching the intended beneficiaries; this reality may deter some Canadian companies from investing in India. According to Sachin Mahajan (Managing Director, Mergers and Acquisitions, Canaccord Genuity Corp.), the “parallel economy” in India, where cash is the predominant method of payment, is a significant impediment for Canadian companies hoping to enter the Indian market.

Witnesses also spoke to the Committee about the need for Canadian companies to be patient when trying to establish partnerships in India, and to understand and respect the business culture. That said, a number of initiatives implemented by the Indian government to deal with bureaucracy and corruption were highlighted. Pierre Seïn Pyun (Vice-President, Government Affairs, Bombardier Inc.) confirmed the existence of reforms and greater openness to foreign companies in specific sectors, such as retail, aerospace and insurance. He also mentioned that discussions are underway regarding the creation of a committee composed of a number of Indian ministers that would have the ability to expedite some of the large-scale infrastructure and industrial projects in the country.[45]

Inadequate infrastructure

According to a number of witnesses, India’s economic growth is restricted by the poor condition of some of the country’s infrastructure. They argued that improvements in road quality and energy supply in particular are required.

For example, the Committee was informed that the state of India’s infrastructure is a particular problem for the transportation of goods entering India and for distribution once there. The challenges of food distribution in India clearly illustrate this reality. According to Yuen Pau Woo, the lack of distribution centres and supermarkets, the lack of refrigeration and the poor condition of the country’s roads mean that a significant portion of food cannot be consumed once it arrives at its destination, as it has spoiled. While the situation is challenging for Canadian exporters, he pointed out that needed improvements in India’s infrastructure are also an opportunity for other Canadian businesses with experience in food transport and logistics.[46]

Sanitary and phytosanitary measures

Witnesses told the Committee that sanitary and phytosanitary measures related to agricultural trade with India are significant barriers for Canadian exporters. For instance, the complexity of Indian standards and the lack of consistency in their application at different entry points in the country require Canadian exporters to expend considerable effort on issues that are simply formalities in other markets. In this regard, Gordon Bacon (Chief Executive Officer, Pulse Canada) noted:

Canada's largest pulse trade challenge with India over the last nine years has been related to a sanitary and phytosanitary issue. This issue, at times, has stopped the loading and unloading of Canadian vessels. It has cost Canadian exporters hundreds of thousands of dollars on single shipments that had to be diverted after leaving Canada to be fumigated in third countries.[47]

Jacques Pomerleau noted that Canada’s pork industry and the Canadian Food Inspection Agency have had difficulty getting their Indian counterparts to negotiate a practical export certificate for Canadian pork products. That said, he told the Committee that, since the announcement of negotiations for a Canada–India CEPA, Indian veterinary authorities have been more open to negotiating such a certificate.[48]

Investment initiatives[49]

The Committee was informed that an important element of the economic relationship between Canada and India is direct investment. According to witnesses, considering India’s economic growth and major projects to improve the country's infrastructure, India could be an attractive market for Canadian investors; however, the existence of some barriers prevents investors from experiencing the full benefits of these opportunities. For example, concerns exist in relation to India’s legal framework, particularly the enforcement of agreements in that country in the event of contractual disputes. Baljit Sierra (President and Chief Executive Officer, NOVO Plastics Inc.) summarized the challenges of the Indian legal framework, stating that:

[A]s a Canadian company, we've encountered some issues, first in negotiating very straightforward [non-disclosure agreements] or confidentiality agreements, or manufacturing agreements. But when you get to a dispute arbitration clause, we often have to pick a third party neutral country as the jurisdiction, because … we want to stay out of the Indian court system. It tends to get bogged down and it's not conducive to expedited business in that country.[50]

Regarding the Indian legal system, Todd Winterhalt noted that a court decision in India on a trade dispute can sometimes take up to 10 years.[51]

Another barrier relates to restrictions on Canadian portfolio investments that are made directly in India. The Committee was told that restrictions on taxation and approvals from the Reserve Bank of India make this type of investment particularly complicated in India. Furthermore, as Suresh Madan noted, Canadians’ inability to buy Indian securities directly creates a significant barrier for Canadian investors.[52]

Representatives of the life and health insurance sector highlighted India’s foreign equity limit of 26% for foreign life insurance providers that want to enter into joint ventures with Indian-owned companies. The Committee was also told that the Indian government recently introduced a bill that would raise the foreign equity limit to 49%, a change that is supported by Canada’s life and health insurance sector.[53]

Finally, witnesses voiced concerns about the opaque nature of land acquisition, land title and land registry services in India. For example, Jas Ghuman (appearing as an individual) and Gian Dhesi explained to the Committee that corruption was particularly problematic when foreigners try to acquire and maintain land in India.[54] In Gian Dhesi’s view, a single-window system should be established to facilitate the land acquisition process for foreign investors.[55]

The complexity of India’s federal system of government

The Committee was informed that Canadian companies wanting to do business in India face challenges related to the complexity of India’s system of government. For instances, power is divided among the central government and 28 states and 7 union territories. While the central government has jurisdiction in areas such as the conclusion of treaties and international trade, the Indian Constitution gives numerous powers to Indian states in areas that have an impact on trade and investment, such as agricultural land rights.

According to witnesses, the regulation of business varies from state to state, and is the main barrier resulting from India’s system of government. That said, Canada’s chief trade negotiator told the Committee that—in the event that a Canada–India CEPA is signed—the obligations that are being negotiated with India’s central government would apply to the states.[56]

Jan Wescott (President and Chief Executive Officer, Spirits Canada/Association of Canadian Distillers) described the difficulties that varying state-level requirements can create for distributing alcoholic products in India, stating:

Some states require a liquor licence simply to transport product through the state, even if the product never enters that state's local markets. Some state-owned liquor monopolies' listing policies are so opaque that importers are never informed of why a listing has been denied. Elimination of state-level non-tariff trade barriers is essential in order to achieve real market access for Canadian spirits.[57]

A number of witnesses said they hoped that a CEPA could overcome the impact of interstate barriers in India; in the meantime, however, it is important for Canadian companies to understand India’s regional disparities and the need to adapt their approach accordingly in order to be successful in this market. Similarly, the Committee was reminded that foreign enterprises need to engage Indian states, particularly considering the recent desire of Indian states to assert themselves politically and economically. The state of Gujarat was used as an example of an Indian state that has done well economically and has shown initiative in attracting foreign investment.[58]

EXPECTED BENEFITS OF A CANADA–INDIA CEPA

Overall impact

While the Committee’s witnesses identified some specific business opportunities that a Canada–India CEPA could provide, they also argued that such an agreement could help to deepen political and economic ties in the long term between the two countries, and could provide the impetus needed to increase bilateral trade so that it more accurately reflects the size of both countries’ economies.

Suresh Madan said that a Canada–India CEPA would benefit both countries, especially as they have much in common: “We are parliamentary democracies, pluralistic societies, and knowledge-based economies, with high contributions to GDP by the service sector, a combination that you don't see in many other countries. [A] CEPA will benefit both countries […].”[59] In this regard, Jean-Michel Laurin said that he hopes that the Government of Canada will continue to seek closer and deeper political and economic ties with India beyond the conclusion of a CEPA.[60]

Naval Bajaj (President, Indo-Canada Chamber of Commerce) shared his view that the establishment of closer economic ties between India and Canada would serve as a gateway for Canadian companies to the entire South Asian market, which is experiencing rapid economic growth. Similarly, access to the Canadian market could create opportunities for Indian companies in the North American market.[61] Pierre Seïn Pyun confirmed that Bombardier Inc. plans to use India as an export base for the region, particularly for Southeast Asia.[62]

Although India recently concluded CEPAs with South Korea and Japan, Canada’s chief trade negotiator told the Committee that it has not entered into agreements with a number of the countries with which Canada competes in the global marketplace, including the United States.[63] In concluding a CEPA with India, they said that Canada would benefit from being the first in the market; if Canada does not take advantage of this opportunity, others will do so.[64]

That said, some witnesses sought to reduce expectations regarding the benefits of a CEPA between Canada and India, and expressed the opinion that while a Canada-India CEPA would result in benefits for both countries, it is equally important that businesses take advantage of opportunities to establish deeper, long-term relationships in India. Jason Langrish argued that, although governments can help businesses in terms of market access and interstate relations, it is ultimately up to businesses to take advantage of available opportunities.[65]

Similarly, John Harriss stated: “To do business in India requires a lot of work in building personal contacts … [b]uilding personal relationships – there ain't no substitute for that.”[66] He also noted there would be many benefits for Canada in increasing trade with India.[67]

Witnesses expressed their satisfaction with the services provided by the Canadian Trade Commissioner Service, which supports Canadian exporters and investors seeking to access the Indian market. That said, the Committee was told that allocating more resources to assist Canadian exporters and investors in India could help to develop further Canada’s brand in that country.[68]

Merchandise trade and government procurement

The Committee was told that Canada’s largest exports to India are pulses and fertilizer, especially potash. Consequently, the tariffs that apply or that could be applied on those exports in the future are of great importance to Canada. Canada’s chief trade negotiator confirmed that reducing tariffs on these products is a basic objective of the Canadian negotiating team in the CEPA negotiations.[69] In that regard, Don Stephenson said:

The elimination of tariffs therefore could generate substantial opportunities for Canadian producers and exporters in a wide range of economic sectors. As well, we believe there are opportunities for Canadian workers and companies in the services sector, where 80% of new jobs in Canada are created today. More specifically, Canadian companies and their employees would stand to benefit from further liberalization of the Indian market in many sectors …. [70]

Citing a study by the National Council of Applied Economic Research, Ron Bonnett (President, Canadian Federation of Agriculture) told the Committee that the percentage of middle-class consumers in India’s total population will increase from the current level of 13.1% to 20.3% by 2015–2016, and to 37.2% by 2025–2026. According to him, India’s growing middle class will create an increased and diversified demand for food and food products, and increased market access opportunities for Canadian producers.[71]

In this context, the Committee was informed that permanent elimination of import duties and the establishment of a mechanism to address market access issues would increase trade opportunities for Canadian exporters wanting to export food and food products to India. Jason Langrish said that all regions of Canada could benefit from these new opportunities because of the diversity of food and food products that India now needs and will need in the future to address its demographic and economic growth.[72]

Regarding forest products, David Lindsay (President and Chief Executive Officer, Forest Products Association of Canada) commented that demand for newsprint in India is expected to increase by about 8% annually over the next few years. The use of dissolving pulp to create rayon and other fabrics is another promising sector in India. According to him, a CEPA with India would allow Canadian businesses to take better advantage of opportunities in that country, given the tariffs that are currently applied on Canadian exports of value-added forestry products to India.[73]

Jean-Michel Laurin told the Committee that increased market access for industrial goods in India is a priority for the Canadian manufacturing sector, given the relatively high tariffs that are undermining the competitiveness of Canadian businesses in India, particularly in the automotive and aerospace sectors.[74] Regarding the manufacturing sector, Zhan Su (Professor, Director of Stephen A. Jarislowsky Chair in International Business, Laval University, appearing as an individual) indicated that India’s manufacturing activities continue to be modest and—in context of the CEPA negotiations—should not be perceived by Canada’s manufacturing sector as a threat.[75]

Other witnesses expressed a different point of view, suggesting that lower wages represent an important competitive advantage for India and that increased trade through a Canada–India CEPA could result in workers being displaced in Canada. Eugene Beaulieu explained that, “[o]n actual employment effects, it's fairly dubious to make arguments that a [Canada–India CEPA] is going to generate jobs.”[76] Furthermore, he said that “[i]n the shorter run, it could lead to some transitional effects where some people are laid off from some firms and other firms are hiring to expand.”[77]

The complexity of value-added trade was also highlighted by witnesses, who argued that there may be important opportunities for Canadian sectors farther up the value chain. According to Ailish Campbell (Vice President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives): “We're doing very well in some of these high value-added components of the manufacturing value chain across this entire country.”[78] That said, she also stated that, in the context of a significant skills shortage in Canada, “[w]e must do better about getting Canadians into those jobs and training Canadian workers.”[79]

Given the integrated nature of the North American economy, Satish Thakkar said that the provisions concerning rules of origin in a Canada–India CEPA should reflect this reality in order to prevent goods partially produced in Canada from not being recognized as Canadian on the Indian market.[80]

Some witnesses highlighted the business opportunities resulting from India’s desire to improve its infrastructure, most notably in the transport and energy sectors. Gian Dhesi explained to the Committee that, “[w]hile the [Indian] government has raised its investments in infrastructure, the investment gap remains daunting with an estimated US$1 trillion required to meet the country’s resource needs over the next five years.”[81]

The Committee was also told that India is creating an industrial corridor from New Delhi to Mumbai where a number of cities will focus on specific economic sectors. According to witnesses, this initiative will present business opportunities for Canadian engineering, architectural and transportation services, among others.[82] According to other witnesses, India particularly needs investments and technology, which could be provided by Canadian businesses.

In light of such opportunities, some witnesses pointed out the importance of providing greater access to government procurement in India for Canadian enterprises. In that regard, and according to the Department of Foreign Affairs and International Trade, although Canada and India have differing points of view on government procurement, the two parties have agreed to discuss the issue as they undertake their negotiations for a CEPA.[83] Greater access to government procurement in India is a priority for the Canadian manufacturing sector. According to Jean-Michel Laurin:

We have been told that India has not yet been willing to discuss government procurement in the context of these negotiations. Given Canadian business expertise in infrastructure projects, in engineering, manufacturing, construction and services, all those aspects of what you would call an infrastructure project, ensuring that Canadian businesses have guaranteed open access to government procurement contracts and ensuring more transparency in India's tendering process are also very important for our members.[84]

Trade in services

Given the size and growth of the services sector in Canada and in India, several witnesses told the Committee that the greatest opportunities that could arise from a CEPA for the two countries are in this sector.

For example, Canada’s chief trade negotiator said that “Canadian companies and their employees would stand to benefit from further liberalization of the Indian market in many sectors, including energy, mining services, financial services, environmental services, and transportation and infrastructure services, including architecture and engineering.”[85]

Some witnesses noted that educational services in India are a market with significant potential. Paul Davidson (President and Chief Executive Officer, Association of Universities and Colleges of Canada) commented on the size of the education market in India: 550 million people under the age of 25. This university-age population is larger than that of Europe, Australia and the United States combined.[86] He said that other countries have implemented intensive marketing campaigns, with the result that they have recently done better than Canada in attracting Indian students; that said, Canada has made progress over the last two to three years. According to him:

[T]here's a reason others are doing a better job of marketing themselves, and that is that their governments stand with them in that marketing effort. The Government of Australia has been spending about 20 times what Canada has for about 15 years, and that's generating results for Australia. The United Kingdom is just completing a five-year £35-million initiative to promote itself as a leader in international education and this is on top of the core funding to the British Council. […] I should add that these figures are changing and they're moving in the right direction. The number of university students from India has increased by 40% in the last couple of years. The number of college students has increased quite dramatically because of a unique program between Citizenship and Immigration Canada and the [Association of Canadian Community Colleges], a colleague organization, which has increased the number of students from India quite dramatically.[87]

In relation to services, Canada’s chief trade negotiator told the Committee that Canada has deviated from its traditional negative-list approach[88] in negotiating services commitments, and is adopting a different approach in the Canada–India CEPA negotiations.[89] In the event that the Government of Canada opts for the positive-list approach[90] that is typically used by India, the Canadian Chamber of Commerce argued that the list must be “extensive and feature a most-favoured nation (MFN) clause to ensure Canadian services companies are not disadvantaged in the future.”[91]

Canada’s chief trade negotiator nonetheless confirmed that the Government of Canada would not deviate from its traditional approach of excluding public education, public health, culture and social programs from the negotiations for a Canada–India CEPA.[92]

Temporary entry of business persons

Witnesses spoke to the Committee about the temporary entry of business persons, noting that the need for labour mobility between countries increases as the flow of trade between them increases. They hoped that a potential CEPA between Canada and India would include provisions to facilitate the temporary entry of Canadian business persons and workers into India, as well as of Indian business persons and workers into Canada.

Ailish Campbell spoke about the need to facilitate the temporary entry of business persons and about the trade in services between Canada and India. In particular, she commented on the 24-hour business cycle and the benefits of establishing global teams within businesses. She said:

[W]here we have shortfalls and opportunities, we cannot allow Canadian growth to stumble when we have opportunities to use Indian or other service providers in literally a 24-hour market cycle where, for example, we have Canadian teams based in Calgary and others that then hand off at the end of their effective business day to Indian service providers to do work overnight creating these global teams. That can also mean importing Indian engineers, high-tech Indian talent for specific projects, learning from them, and then as I said, also taking advantage of the opportunities for Canadian engineers and Canadian construction firms and others to travel to India to provide value-added services in those markets.[93]

According to Baljit Sierra, as Canadian businesses establish themselves in India, they have to send Canadian staff to India and bring Indian staff to Canada for training and development. For these businesses, facilitating those exchanges—whether through visas or ease of access—is very important.[94]

Witnesses said that the temporary entry of Indian workers into Canada was also a priority for India in the negotiations for a Canada–India CEPA, especially in relation to India’s successful information technology sector. According to Jason Langrish, “If they don't have the ability to move their workers abroad, if they don't have the ability to get their workers into Canada, to service their client base and also grow their businesses, they're not going to be that interested in an agreement.”[95]

CONCLUSION

During its study, the Committee heard testimony from Canadian stakeholders representing a number of sectors, as well as from experts on issues related to India and Canada–India relations. On balance, the Committee’s witnesses supported the negotiations for a Canada–India CEPA.

That said, there remain some barriers to trade in India that cannot be eliminated, or that will be difficult to eliminate immediately, through a Canada-India CEPA; these barriers include geographical distance, institutional capacity, infrastructure and business culture. There also appears to be a disparity between the two countries’ negotiating positions with respect to tariffs on food and food products, government procurement and the approach to opening up the service sector. However, it was also noted that increasing trade with India to $15 billion by 2015 was achievable, and that concluding a less comprehensive Canada-India CEPA expeditiously—and addressing ongoing issues in the medium and longer term—might be more advisable than attempting to negotiate a more comprehensive agreement in the short term.

Nevertheless, the Committee believes that a potential Canada–India CEPA would help to improve Canada’s brand in India, and would enable Canadian companies to differentiate themselves from foreign competitors in the Indian market. In this regard, in addition to the characteristics shared by the two countries, Canada has two major advantages compared with other countries seeking to take advantage of business opportunities in India. First, Canada has a diaspora of more than one million Canadians of Indian origin who have both networks and an understanding of the business culture in India. Second, Canada’s food and energy resources are significant assets given the demand for these resources in India.

Therefore, the Committee recommends:

Recommendation 1

That the Government of Canada, as soon as possible, conclude a comprehensive economic partnership agreement with India that provides a net benefit to Canada.

Recommendation 2

That the Government of Canada, in the negotiations for a comprehensive economic partnership agreement between Canada and India, emphasize the importance of including provisions to ensure greater access to government procurement.

Recommendation 3

That the Government of Canada ensure that, in a comprehensive economic partnership agreement between Canada and India, the provisions regarding rules of origin reflect the integrated nature of the North American economy.

Recommendation 4

That the Government of Canada, in the negotiations for a comprehensive economic partnership agreement between Canada and India, adopt an ambitious negotiating position regarding the temporary entry of Canadian business persons to India and of Indian business persons to Canada.

Recommendation 5

That the Government of Canada establish a mechanism that will facilitate ongoing consultation with Canadians of Indian origin.

Recommendation 6

That the Government of Canada, in partnership with Canadian post-secondary institutions, develop an action plan to attract more Indian students to Canada.