CIF speaks on CEPA and Canada India trade before House of Commons Standing Committee on International Trade

CANADA INDIA FOUNDATION

Presentation to Standing Committee on International Trade

Clerk of the Committee

Paul Cardegna

Canada India Foundation

Rahul Shastri, National Convenor

Kalyan Sundaram, Executive Director

2939 Portland Drive

Oakville, ON., L6H 5S4

p.1.289.291.0277

www.canadaindia.org

November 20, 2012

Honourable Chair and Members of the House of Commons Standing Committee on International Trade, We thank you for the opportunity to share our views on behalf of Canada India Foundation on the formal Comprehensive Economic Partnership Agreement (CEPA) currently under negotiation between the governments of Canada and India and also on the broader issue of greater trade with India and stronger relations. It had also been the privilege of CIF to present to the Senate Standing Committee on Foreign Affairs and International Trade, on April 14, 2010.

Canada India Foundation – History and Purpose

Canada India Foundation was formed as a non-profit public policy organization for the express purpose of promoting stronger relations between Canada and India. During the past 5 years, we have been actively working towards this objective. We have been actively engaged with Cabinet Ministers, Members of Parliament, Senators, including the Canada India Interparliamentary Friendship Group, as well as Indian business and political leaders. Our Charter members have, either individually or collectively, made substantial contributions to the creation and operation of Canada India centres on public policy in Canadian universities, such as Waterloo and Carleton.  Our most significant initiative has been the organization of thematic Canada India Public Policy Forums, focusing on selected opportunity sectors. We have held three such forums, on Energy (2009), Mining and Metals (2010), Agriculture and Food Processing (2012). The formats of the Forums have been identical.

CIF has invited senior leaders of government and government agencies, CEO’s and other leaders of private sector, independent industry experts, academicians to take part in panel sessions on a full range of sub-topics, with each panel, balanced and consisting of 6 stakeholders engaging in a discussion on the sub-topic, and culminating in a Go-Forward session, where the main discussion points were consolidated in to prioritized recommendations for action.

India – Demography and Opportunity

The demography based reasoning for both the opportunity for and the necessity of trade with India has been well documented. This would include the fact that 50% of India’s population is less than 23 years of age, the high propensity for savings of the average Indian (projected to be as much as 40% in 2015) and the voracious appetite of the domestic consumer (80% of India’s GDP is due to domestic consumption). According to the International Monetary Fund, India is the 10^th largest in the world by nominal GDP and third by Purchasing Power Parity.

India imports $461 billion worth goods and exports $299 billion worth, of which Canada accounts for just $5.1 billion in bilateral trade, less than 0.7% of the total figures for India. Clearly these numbers are not defensible, given Canada and India’s considerable shared legacy, the English language, judicial and military system and most importantly the strong and economically vibrant Indo-Canadian community.

Engagement of States and State Governments

The current and likely-to-be-sustained geo-political climate in India has been the importance of the States of India to assert themselves more and more politically and economically. The excellent economic growth of Gujarat in the past decade is well documented and also acknowledged by Canada, evidenced by its participation as a country partner in the Vibrant Gujarat event. India

Gujarat is by no means India’s only gem. At a recent  widely televised public event in Tamil Nadu, presided over by its Chief Minister, Ms. J. Jayalalitha, MOU’s with a total value of about 4 billion dollars were signed with 12 companies, almost all with international partners, however, none of the partners were Canadian.

Comprehensive Economic Partnership Agreement (CEPA)

While the justification for the CEPA with India would be the creation of new jobs for Canadians and an increase in the average Canadian family’s annual income, the trigger for its success would be in demonstrating the benefits that India would accrue from the entering into such an agreement with Canada. There is a perception that the CEPA negotiations have not progressed as fast as one would hope and that there is a) a lack of energy on the Indian side, and b) there is the possibility of reaching an agreement that is much reduced in scope, something that Canada should not go along with.

If the CEPA negotiations have used India’s negotiations with Australia as the benchmark, we should also keep in mind that the India-Australia bi-lateral numbers are targeted to reach $50 billion by 2020. In that context, a target of $15 billion by 2015 for Canada is very modest, considering Canada has more natural resources than Australia, greater population base and a prosperous and more mature Indian diaspora.

Insofar as issues of importance in CEPA and strategies going forward, CIF cites the following matters to be addressed:

Facilitate the temporary entry and legitimate delivery of professional services between our two countries, such as to allow ease of temporary professional travel. A more progressive approach to enable hi-tech workers to come to Canada, especially when they would form the core of a foreign investment initiative from India, would offer more incentive for that initiative to succeed and also potentially increase the value of the initiative. This would also address the shortage of such workers here on a permanent basis.

A clearer breakdown of the taxes and levies to which Canadian businesses and their products will be subject to, needs to be provided.

Removal of tariff barriers which impede market access for Canadian exporters.

Phase in the lifting of tariff barriers. For certain industries, longer transition periods will be needed for them to adapt to a new context of tariff-free Canada-India trade. One area which has not realized its trade potential, due to excessive tariffs, is high-end textiles, with 35% tariff rates. Based on discussions with SME’s, this has caused a significant reduction in the volume of the business, which could be recovered and more, if the tariff were to be eliminated.

Tackle non-tariff barriers. Regulatory approaches and standards differ across jurisdictions. CIF advocates regulations based on internationally accepted norms. Limits also need to be placed on the number and scope of regulations such that they not exceed what is necessary to achieve the World Trade Organization Technical Barriers to Trade Agreement.

Canadian businesses whose commercial or investment endeavours in India by technical barriers or regulatory measures, should be permitted to be part of a transparent consultation process.

Inclusion of services as part of CEPA, given that the same represent nearly 75% of Canada’s GDP. Canadian financial companies in particular face significant restrictions on foreign direct investment in India’s banking and insurance sectors.

Ensure high standards of intellectual property protection.

As the premier non-profit civic society organization, dedicated to the Canada-India corridor, with a membership that is not only active in promoting trade and other ties between the two countries, but also directly involved in some of the major investments by Indian companies in Canada and vice versa, CIF can actively complement the government negotiations with its own interactions to move the yardsticks forward.

Areas of Opportunity for Canada

CIF believes that, with a comprehensive approach to addressing the top 5 areas of partnership reflecting both Canada’s strength and India’s need, i.e. Energy, Agriculture, Education, Mining and Infrastructure (including water), the current target of $15 billion in bilateral trade should not only be easily achievable, but should force a rethink of the target to at least $30 billion, especially with the breakthrough in the nuclear sector. India’s infrastructure is also going through a remarkable transformation, that is both highly visible, to anyone who has visited some of India’s suburbs in big cities, e.g. Gurgaon, Noida, and quite invisible, particularly in the lower income areas.

Energy

1. i) Nuclear

Prominent among the recommendations made by CIF, from its Energy Forum, was the speedy conclusion of a civil nuclear agreement between Canada and India. We were pleased to note that shortly after the Energy Forum, the first step towards the civil nuclear agreement was taken and now that the administrative arrangements have been agreed upon, it should not be long before this important element in Canada India trade will be in place, paving the way for Uranium sales[1]. Even though Canada is late in the game, behind countries such as France and Russia, it remains the premier full value player in the nuclear sector and given that the appetite for power in India is largely unsatiated, at 20% of requirement, it can still become a leading player in India.

Canada-India partnership in the civil nuclear sector, could grow beyond the borders of the two countries, into a third country investment partnership, for example the UAE, with which Canada has a civil nuclear agreement as well.

1. ii) Natural Gas & Oil

Canada is not only the full value player in the nuclear sector, it is also a full value player in the overall energy sector, including oil and natural gas and we need to continuously play on this strength in all our discussions with India. New technologies have made natural gas very attractive both for the supplier (in this case, Canada) and the consumer (in this case, India). A great opportunity exists to exploit the Canada’s eastern gateway to export natural gas to India. Canada may have to unshackle its export license issuing mechanism to do this.

Strategically, Canada has to look at alternative partners in any case in the oil sector, considering the renaissance in the US oil industry, forcing Canadians to look elsewhere. Another of CIF’s recommendations from the Energy Forum was to create a Canada-India Energy taskforce. Such a task force would match the energy security needs of India, with the diverse energy product portfolio of Canada.

Education and Research

Much of the recent push, has been the need for Canada to attract the vast number of Indian’s students to attend universities and colleges in Canada. More than 12,000 students from India are in higher education programs in Canada, and that number is only going to increase, thanks to some very aggressive marketing by several Canadian universities. Still Canada’s cause in India will be better served, by implementing high visibility programs, both at the government level and at the private social entrepreneur level, that tackle the still latent educational potential for the average Indian child. In the long run, these students will be the future recruits for Canadian universities and eventually ambassadors for Canada, either as naturalized Canadians or returned graduates.

Canada also has a distinct advantage with its research facilities and can gain visibility and capital through partnering with Indian institutions.  On November 6, 2012, as part of the recent trade mission to India, Prime Minister Harper announced that the Canadian Government named the India-Canada Centre for Innovative Multidisciplinary Partnership to Accelerate Transformation and Sustainability (IC-IMPACTS) as the winner of the Canada-India Research Centre of Excellence (CIRCE) competition, which had been announced as part of the Government’s Economic Action Plan 2011.

The competition winner, will bring together a team of expert researchers, industry innovators, community leaders, government agencies, and community organizations from both Canada and India to address three important issues that affect millions of people: safe and available drinking water, effective public health by preventing and treating disease, and reliable civil infrastructure, such as well constructed bridges and hospitals.  

CIF, as an organization, as well as through its individual membership, has been active in promoting various Centres of Excellence, including those established through the University of British Columbia, Carlton University (Canada India Centre for Excellence), the University of Toronto (Indian Innovation Institute) and the University of Waterloo (Chanchlani India Policy Centre) 

Agri-Business

The recently concluded Canada India Agriculture and Food Processing Forum, organized by CIF, reiterated the importance of agriculture in the trading basket of goods with India. With food security high on the Indian government’s agenda which is being hampered by not always reliable monsoon season, poor infrastructure in storage and transportation, urgent initiatives are required. These would include the key recommendations made by the Agriculture Forum moderators, such as creating an environment for greater use of canola oil in India facilitated by import from India; use Canada’s expertise to increase India’s value-added food processing, food storage and distribution capacities, and turn bio-fuels such as wheat straw and rice husk into energy.

Infrastructure

Investment in infrastructure is projected by FICCI (Federation of Indian Chambers of Commerce and Industry) to double from its current value to $1 trillion in the twelfth five-year plan ending 2017. Much of this amount will have to be marked for roads, railways and ports, areas neglected in the previous plan

Engagement through CIF

CIF exists as a national non-profit organization specifically for the purpose of strengthening Canada India relations, so it would make sense that governments take advantage of CIF’s networking with India by financially supporting the organization’s administration and projects.

We thank you for giving us the opportunity on behalf of Canada India Foundation to make this submission.