Hastening to agree

Prime Minister Narendra Modi is expected to impart new dynamism to India’s ongoing trade negotiations. Currently, trade negotiations with Europe are mostly stuck on tariffs for European cars in the Indian market, intellectual property, data security, access to government procurement markets and movement of Indian professionals to Europe. Increasing foreign equity participation to 49 per cent in insurance and defence equipment manufacturing is expected to encourage the EU to work faster on closing the deal. Greater clarity, however, will be required on India’s stance on the bilateral investment mechanism, particularly dispute settlement. The Asean services agreement, which was all ready to be signed last year and was held up due to the demand for clearer enunciation on the policy of FDI in retail, might need review given the BJP government’s defensive views on it.

In contrast, the deal with Canada should be the easiest to conclude. India and Canada have been negotiating a Comprehensive Economic Partnership Agreement (Cepa) since December 2011. The negotiations were to end by 2013. The political imperative is to have it completed before the next federal election in Canada in October 2015. The Canadian government is keen on finishing the deal early, with Trade Minister Ed Fast urging the Modi government to reinvigorate negotiations. Current India-Canada trade is a meagre US $5.3 billion. According to a 2010 joint study, an agreement could increase India’s GDP by $12 billion and its exports to Canada by 30 per cent. Similarly, Canada’s output should go up by at least $6 billion and its exports to India by 50 per cent. Securing the CEPA would be a historic achievement for both nations.

For Canada, it would be only the second agreement with an Asian country and the first with

a BRIC emerging economy. It would offer Canadian trade and investment preferential access in the vast South Asian region, where its business presence is growing but still limited. Alongside the Nafta, it would complete an arc of major world markets having trade agreements with Canada, with the 2013 deal with the EU connecting its businesses across the Atlantic and the Trans-Pacific Partnership doing the same across the Pacific.

India is particularly important to the Stephen Harper government. It is one of Canada’s 13 priority markets and its million-plus diaspora helped the Conservatives achieve their first majority government in 2011. A Cepa would not only stimulate bilateral trade and investment but also improve the relationship, which has been vibrant since the signing of a Nuclear Cooperation Agreement in 2010, in the wake of decades of tension over the nuclear issue.

For India, the Cepa would be the first opportunity to obtain preferential access to a part of the North American market. Indeed, the Canada trade deal can be the template for negotiating a similar deal with the US. As with Canada, the Cepa would join the dots on a neat arch connecting India to major world markets through the FTA with the EU (once done), existing ones with Southeast Asia, Japan

and Korea, and the ongoing Regional Comprehensive Economic Partnership talks between Asean and its six free trade partners.

While Canada wanted an ambitious deal, including intellectual property and government procurement, India is looking for something more restricted. This is evident from its cautious postures on all FTAs it is negotiating. The final agreement should be close to a traditional goods and services agreement.

Both countries are keen on coming to an agreement on the sensitive issue of visas for the temporary entry of professionals, whether it’s Canadian architects and bankers going to India or Indian IT professionals coming to Canada. Some observers say the issue is so important to both sides it is a potential deal-breaker. On the other hand, negotiations for an investment protection agreement were concluded years ago but the deal was never ratified. India put a moratorium on signing these agreements after being taken to arbitration by Vodafone, and the Australian mining firm White Industries, under two of its existing investment treaties. Lifting the moratorium is unlikely until the Indian authorities are able to minimise arbitration possibilities through investor-state dispute clauses in its free trade agreements.

Canada’s hopes of getting India to sign a more potent Cepa at an early date depend on its priority for Modi. Trade is one of the five “T”s (alongside talent, tradition, tourism and technology) he plans to employ for rejuvenating “Brand India”. Top priority for trade, coupled with Canada’s sustained engagement with him during the years when the US and UK kept him at a distance, might well inspire Modi to deliver a quick and effective agreement. That would also augur well for India’s pending FTAs.

Palit is senior research fellow, Institute of South Asian Studies, National University of Singapore. Goold is director, National Conversation on Asia and senior editor, Asia Pacific Foundation of Canada