Canada: Negotiations for Canada-India Comprehensive Economic Partnership Agreement Announced

Copyright 2010, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment, November 2010

BACKGROUND

On November 16, 2010, Peter Van Loan, Canada's Minister of International Trade, officially announced the launch of free-trade negotiations with India during a visit to New Delhi. The announcement came on the heels of the release of a report by a Joint Study Group, established in 2009, comprised of officials from both countries and mandated to engage in substantive discussions regarding the parameters of a possible comprehensive economic partnership agreement (CEPA). The 114-page report, entitled "Canada-India Joint Study Group Report: Exploring the Feasibility of a Comprehensive Economic Partnership Agreement" (the Joint Report), was drafted jointly by the Government of Canada and the Government of India. As part of the report, the Joint Study Group also undertook economic modelling with a view of identifying the possible economic impact of trade liberalization.

CANADA AND INDIA'S TRADE RELATIONSHIP

Although the trade and investment relationship between Canada and India has expanded in recent years, it is modest relative to other comparable trading partners. In 2009, Canadian merchandise exports to India totalled C$2.1-billion, while imports from India were C$2-billion. Canadian companies have reported facing 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. The Joint Report estimates that a CEPA could lead to GDP gains from US$6-billion to US$15-billion for Canada and US$6-billion to US$12-billion for India respectively.

SCOPE OF A POTENTIAL CEPA

The term CEPA refers to a broad-coverage, high‑ambition, high-quality trade liberalization agreement. CEPAs typically cover a number of other issues outside the traditional trade in goods, services and investment. Both Canada and India have recently shown preference for the use of CEPAs over traditional free-trade agreements (FTAs). Canada is currently in the process of negotiating a CEPA with the European Union, in this case called a Comprehensive Economic Trade Agreement, while India signed a CEPA with South Korea in 2009 and is currently negotiating a CEPA with Japan.

The Joint Report sets out the scope of the parameters for a Canada-India CEPA (the CEPA). The recommendations cover a broad area of topics including: trade in goods, trade in services, direct investment, institutional provisions and other areas of economic co-operation. Below is a brief overview of the key areas that the CEPA may cover, as well as those areas that are likely to be left off the table.

Trade In Goods

Apart from the traditional objective of an FTA of eliminating tariff barriers, the CEPA is also likely to address rules of origin, customs (origin procedures), trade facilitation, technical barriers to trade, sanitary and phytosanitary issues, tariff-based emergency action mechanisms/bilateral safeguard measures, and trade remedies.

Trade In Services

Services are an area of potentially significant growth in trade between Canada and India. India's strong information technology (IT) services sector and Canada's relatively robust financial institutions (some of which already have a presence in India) may have significant opportunities if a CEPA is signed. The CEPA could contain ambitious trade in services elements that would reach a considerably higher level of ambition than current WTO commitments with the aim of achieving greater market access commitments. The services chapter could include: substantial sectoral coverage, disciplines in domestic regulation as a complement to market access and non-discrimination, and provisions to facilitate the mutual recognition of professional qualifications. The Joint Study Group recommends in particular that the CEPA should include stand alone chapters for: financial services, telecommunication services, and temporary movement of natural persons (an issue of particular concern to India).

Direct Investment

It is unclear at this stage whether the CEPA will incorporate detailed provisions related to investment or whether investment will be left to be dealt with more comprehensively by the bilateral Foreign Investment Promotion and Protection Agreement (FIPPA) that both governments have recently mentioned they are close to finalizing. The FIPPA was initially announced in June 2007, but hit a roadblock in 2009 when India notified Canada of its concerns with the inclusion of taxation and expropriation issues. The Joint Study Group recommends that the FIPPA should be completed and ratified before additional investment provisions are negotiated in the context of the CEPA. However, the FIPPA is at present still not signed and it is not fully clear what the impact of the commencement of CEPA negotiations will have on this process.

Institutional Provisions

Any agreement would be expected to include institutional provisions for its effective administration, including a binding dispute mechanism. It remains to be seen whether India and Canada will consider investorstate dispute mechanisms similar to those found under the North American Free Trade Agreement in addition to state-state dispute mechanisms.

Other Areas of Economic Co-operation

According to the Joint Study Group, the following areas should be addressed within the context of a comprehensive CEPA: intellectual property, ayurvedic products, electronic commerce and competition policy.

Areas of Difference

In the Joint Report, Canada and India acknowledge that they have differing points of view in the areas of government procurement, trade and labour, trade and environment, and taxation, but agree to continue discussions on these issues as CEPA negotiations progress. It is noteworthy that India has not included these topics in the negotiation of bilateral FTAs to date. In comparison, the agreement that Canada is currently negotiating with the European Union will likely include provisions for both government procurement and sustainable development in the areas of labour and the environment. Agriculture is also likely to be an area of potentially differing views for both countries.

CONCLUSION

Canada and India have made great strides in recent months towards fostering trade and investment liberalization between the two countries. Canada's successful negotiation of the CEPA with India would be a key achievement under Canada's Global Commerce Strategy, which includes India as a "priority market" for potential growth. India is projected to be the world's third-largest economy by 2050 and Canadian companies view it as a key market due to its growing population, rising per capita income levels, rapidly expanding manufacturing, high-technology and services sectors and associated infrastructure and natural resources requirements. However, bilateral trade and investment are relatively low at present and it remains to be seen how ambitious and meaningful the CEPA will be once it is negotiated. One should also be guardedly optimistic about the speed at which negotiations will progress, given the slow pace at which the FIPPA between the two countries has developed. Nevertheless, this early stage in the process provides an opportunity for corporations and stakeholders looking to increase their presence in the Canada-India business corridor to review the Joint Report and consult their advisers to determine the best possible methods of influencing negotiation strategies and objectives of the Canadian and Indian governments prior to negotiations beginning in earnest.

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