Blakes | 5/21/2009
Canada and India Explore a Comprehensive Economic Partnership Agreement
Cliff Sosnow, Prakash Narayanan & Kathryn Aubrey-Horvath (Student-at-law)
LAUNCH OF EXPLORATORY TALKS
Earlier this year, Canada’s Minister of International Trade, Stockwell Day, and Mr. Kamal Nath, India’s Minister of Commerce and Industry, jointly announced the agreement of both countries to initiate exploratory discussions aimed at creating a comprehensive economic partnership agreement (CEPA). With the recent high-profile investments by Indian companies in Canada include the acquisition of Algoma Steel by Essar and the acquisition of Novelis by Hindalco, the announcement is timely. Minister Day stated that these talks responded to the recommendations made by the Canada-India CEO Roundtable in its September 2008 report, suggested objectives for both countries to pursue in a free trade agreement, and urged both the Canadian and Indian prime ministers to endorse the launch of negotiations for such an agreement as soon as possible.
The government notes that a "high-quality CEPA that eliminates tariffs on substantially all goods, opens up opportunities in services, establishes rules in investment and reduces non-tariff barriers" may give Canadian exporters considerable preferential access to India’s market ahead of competitors, and would help to make Canada competitive with those countries that already have trade agreements with India in place.
This spring, the Government of Canada launched a process of public consultation regarding the possible Canada-India CEPA with provinces and territories, as well as businesses, industry associations and the general public. The government sought the views of all interested parties, notably businesses, provinces, territories and industry associations, on a wide range of issues, such as opinions on areas of goods export interest, views on market access liberalization for Indian products into the Canadian market, and advice on "trade facilitation" issues (e.g., significant impediments related to import procedures). While the official period of consultation has ended, government officials have advised us that the government will continue to take submissions from the public on an ongoing basis. Trade officers are currently in the process of compiling the public submissions into a coherent set of findings that will then be passed along to cabinet ministers for their review. The government has advised us that exploratory discussions between Canada and India are expected to begin later this year.
INDIA’S POTENTIAL VALUE
India is projected to be the world’s third-largest economy by 2050. Canadian companies view it as a key market due to India’s growing population, rising per capita income levels, rapidly expanding manufacturing, high-technology and services sectors, and associated infrastructure and natural resources requirements. The Government of Canada considers India to be a "priority market", and identifies the following sectors as offering clear market opportunities for Canadians:
agriculture, food and beverages;
service industries and capital projects;
information and communication technology;
oil and gas equipment and services;
electrical power equipment and services; and
aerospace and defence.
Two-way merchandise trade between Canada and India reached a record high of C$4.6-billion in 2008, with exports of C$2.4-billion and imports of C$2.2-billion. Exports to India consist mainly of fertilizers, vegetables (pulses), paper and paperboard machinery, woodpulp, electrical and electronic equipment, and precious stones and metals. Service exports reached C$363-million in 2006 (the most recent statistics available). Imports from India consist mainly of organic chemicals, precious stones and metals, knit and woven apparel, machinery, iron and steel products, and electrical and electronic equipment. Additionally, with respect to investment, Statistics Canada values Indian foreign direct investment (FDI) in Canada at C$446-million for 2007, up dramatically from C$222-million at the end of 2006, though this figure does not accurately reflect investment by Indian companies routed through other jurisdictions. It is the Canadian government’s goal to triple bilateral trade between India and Canada in the next five years.
Canada and India have already concluded a number of bilateral agreements designed to advance their economic partnership, including a science and technology cooperation agreement and an air services agreement. The two countries also signed a joint statement in 2007 to create the Canada-India Forum for Environmental Cooperation. Further, in January 2009, Minister Day and his Indian counterpart committed to implementing the Canada-India Foreign Investment Promotion and Protection Agreement (FIPPA) that had been concluded by the two countries in 2007.
However, Canadian companies continue to face substantial challenges in India, including low knowledge of Canadian capabilities, trouble in obtaining timely and actionable market intelligence, significant competition, restrictive import regulations, limitations imposed on foreign services providers, weak enforcement of IP rights, and minimal transparency in the contracting process.
A CEPA between Canada and India which may go further than a free trade agreement and elimination of tariff barriers and cover issues relating to rules of origin, customs and administration, trade in services, investment, government procurement, etc., would provide a considerable boost to the trade and investment flows between the two countries.
The first steps towards significantly enhanced trade and investment between Canada and India have been taken through the Canada-India Foreign Investment Promotion and Protection Agreement. The potential launch of CEPA negotiations may result in a significant economic partnership creating important business opportunities.