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India-Canada trade negotiations: CEPA Talks 2.0 reinforce importance of aiming for interim agreements.
Aug 17, 2023

When India and Canada began negotiating a Comprehensive Economic Partnership Agreement (CEPA) in 2010, the primary reason for doing so was the large untapped markets waiting to be exploited by their businesses. India-Canada trade links were at unacceptably low levels despite the large presence of the Indian diaspora in Canada, the third-largest in the developed world after the US and the UK. Since the mid-2000s, India has had a minor presence in Canada’s market. Imports from India have been less than1% of Canada’s total imports, although this share has been increasing in recent years and was just over 1% in 2022. Similarly, Canada’s share in India’s total imports exceeded the 1% threshold only in 2015-16.

Clearly, the businesses in the two countries have made little efforts to galvanise India-Canada trade relations. A recent report by the Canada-India Business Council summed up the situation from the Canadian perspective quite well. The report argued that Canadian exporters and investors have not taken full advantage of the wealth of opportunities open to them since for many, India is at best an afterthought.

The fact that India-Canada trade and economic relations have stagnated at such low levels seems even more surprising since the solution to reverse status quo was provided by the businesses of the two countries as far back as in 2008. The India-Canada CEO Round Table had recommended that India and Canada should formalise the CEPA that would benefit the two countries through market opening initiatives, including elimination of tariffs on a substantially large share of the products traded between the two countries, liberalising services trade, and inclusion of other areas of economic cooperation. This was the most effective justification for the CEPA, based on which the two governments initiated the process of negotiations for opening their respective markets for enhancing the levels of trade and investment.

It must be pointed out that the CEPA negotiations followed the Canadian approach towards engaging in bilateral free trade agreements, which has been to negotiate three separate but linked agreements, namely, a comprehensive market opening agreement covering goods, services, and investment, coupled with parallel agreements on labour cooperation and on environmental standards. Interestingly, Canada insisted on including the agreements on labour cooperation and environment standards despite being aware 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”. This position of the Canadian government was revealed to Standing Committee on International Trade of the Canadian House of Commons, which reviewed the progress of the CEPA negotiations between 2011 and 2013.

Thus, given this stance of the Canadian government, it appeared from the initial phases of the CEPA negotiations that an agreement encompassing all the areas was not easy to achieve. Even the businesses that had provided the initial impetus for the two countries to conclude the CEPA seemed uncertain about the nature of the final agreement.

The Canada-India Business Council opined that it was “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”. On the other hand, the Canadian Chamber of Commerce argued 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”

Differences in negotiating approaches put the CEPA negotiations on the backburner in 2017, and it remains so till date. After a four-year hiatus, the India and Canada agreed to relaunch the CEPA negotiations, with their trade ministers also agreeing to consider an Interim Agreement or Early Progress Trade Agreement (EPTA), that could bring early commercial gains. The Interim Agreement is expected to include high level commitments in goods, services, rules of origin, sanitary and phytosanitary measures, technical barriers to trade, and dispute settlement. India and Canada decided to strengthen their trade and commercial ties by focusing on agro products, chemicals, footwear, textiles, automobiles, energy, electronics, minerals and metals, urban development, information technology and tourism.

There were several interesting facets to this relaunch of CEPA negotiations, and more importantly, through the decision to consider the Interim Agreement or the EPTA. First, the EPTA seems to be modelled on the India-Australia Economic Cooperation and Trade Agreement (ECTA), adopted in 2022 as the first step towards an eventual CEPA between the two countries. Secondly, like the ECTA, the EPTA is a more conventional FTA that includes market access for goods and services, and complementary rules packaged together to ensure immediate gains. And finally, while relaunching the negotiations, the two countries have carefully avoided any references to the contentious issues like labour and environmental standards.

However, the agreement to pursue the EPTA by putting the CEPA on the backburner does not imply that the pathway to the interim agreement will be smooth. This is because market access negotiations involving a few sectors that the trade ministers have been identified as the drivers of the bilateral trade ties may not be easy. For instance, Canada has significant export interest in automobiles, but India’s domestic industry has been reluctant to allow deep cuts in tariffs. Pulses is another area in which Canada would seek assured levels market access from India. India would be looking for greater access for its generic pharmaceutical industry and textiles and clothing.

India’s recent experiences of negotiating bilateral trade agreements with Australia and now with Canada has some important lessons for its future engagements with advanced countries. It seems prudent to forge interim agreements by identifying the areas in which agreements can easily be reached; the contentious issues should not prevent securing early gains from the trade deals.

financialexpress.com

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