canada-india_the way forward

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January 2012

CanadaIndia:The way forward


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As Canad as largest and m ost in uential business association, the Canadian Chamber of Commerceis the primary and vital connection between business and the federal government. It continuallydem onstrates imp act on p ublic policy and decision-making to the bene t of businesses, commu nitiesand families across Canada.

Experience the pow er of a netw ork of over 420 chamb ers of commer ce and board s of trad e,repr esenting 192,000 businesses of all sizes in all sectors of the econom y an d in all regions.


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Executive Summary .................................................................................................3

Introduction ........................................................................................................... 9

Section I: Snapshot of India today ............................................................ 11

Ind ia on the move ........................................................................................................................11Reforms an d renew al ...................................................................................................................12India Inc. ........................................................................................................................................12Domestic hurdles to overcome ..................................................................................................14

Futu re prosp ects ...........................................................................................................................15Can ad aInd ia trade an d investm ent ties ..................................................................................16

Section II: The Canada-India Comprehensive EconomicPartnership Agreement (CEPA) ....................................................................... 18

If a dealthen a comprehensive, balanced, high-quality deal .............................................18Tariff barriers ................................................................................................................................19Multiple-speed lifting of tariff barriers .....................................................................................20Non-tariff barriers and regulatory cooperation .......................................................................20

Services ..........................................................................................................................................21Investm entcomplement to the Can ad a-Ind ia FIPA ............................................................22Rules of origin...............................................................................................................................23Cu stom s procedures an d trade facilitation ..............................................................................24Intellectual property ....................................................................................................................24

Section III: Canada-India ties beyond the CEPA ................................ 27Political t ies and Canad ian visibility .........................................................................................27Indian investment in Canada .....................................................................................................30

Energy an d mining: the p rod ucts and the exp ert ise ...............................................................31Higher education and research ..................................................................................................33Tourism..........................................................................................................................................34

Conclusion ................................................................................................................. 35

Annex .............................................................................................................................. 36

Table of Contents


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The Canadian Chamber of Commerce 3

Executive Summary

The United States will rema in Canad as top economicpartner, bu t the n egative impact the r ecent economiccrisis had on ou r southern neighbour has mad eCanadian businesses realize that they m ust d iversifytheir trade and investment. Many Canadian com-pa nies are looking to do bu siness with Asia. WhileAsia is distant and unfamiliar to man y Canad ians,its booming d emand for Canadian commodities,services and high-tech prod ucts make it ap pealing.It is a source of opp ortun ities and cha llenges Cana da

cannot afford to ignore

Enter Ind ia. A rising econom ic giant in Asia, it hasone of the w orlds fastest grow ing GDPs. Indiasmidd le class is expanding quickly w ith consumeraspirations to ma tch, and its private sector is thrivingand internationally active.

While Canada-Ind ia relations are old and rooted inWestminster institutions, common law an d strongpeople-to-people ties, trade and investment betweenCanada and India, while growing, are still wellbelow potential. Prominent Canadian companies door have d one business with the subcontinent, butfor many, India remains a very challenging businessenvironment. The expansiveness of Ind ian m arkets,red-tape and regulatory complexity, restrictionson trade and investment, infrastructure challenges,a very d ifferent business culture and the need forlong-term commitment w hen going to India preventsome Canad ian companies from considering doingbu siness there. For new entran ts, especially smallerbusinesses, amassing suf cient resou rces to cover th ecosts of travelling, und erstand ing local markets andmaintaining a presence on the ground is nosimple feat.

Operating in India m ay not m ake sense for allcompanies, but for m any others the op portu nitiesare real. The w orld is out to do bu siness in and withIndia, and the foreign rms that succeed are thosethat tailor their value prop osition to meet Ind iasdevelopment needs and the consum ption habits andincomes of its people.

Businesses do business, but governments playa necessary role. They en able the p rivate sectorto access oppor tun ities by removing bar riers to

trade and investment, by levelling the competitiveplaying eld as mu ch as possible and by d efendingCanadian trad e interests. The Canadian Cham ber of Commerce supp orts the advancement of a stronger,win-win economic relationship between Canada andIndiaone w here the tw o countries view each otheras partners w ho create value together rather thanmerely as clients.


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CanadaIndia: The way forward a f o r a r d

4 The Canadian Chamber of Commerce

This submission, resulting from our consultationswith the wider Canad ian business comm unity andthou ght lead ers, outlines a policy d irection forCanada with regards to Ind ia that is focused on:

ensuring that the Canada-India ComprehensiveEconomic Partnership Agreement (CEPA)negotiations yield a high-quality and balancedresult; and

boosting Cana da s visibility in India th roug hpolitical engagement and enhancing exchangesin the areas of investment, energy and mining,higher education and research and tourism.

The Canada-Ind ia Comp rehensiveEconom ic Partnership Agreemen t(CEPA)

In 2009 and 2010, the Canad ian Cham ber of Commerce called up on the federal government toun dertake free trade negotiations w ith India. InSeptem ber 2010, the governm ents of Canada an dIndia released a joint stud y that recommend ed thelaunch of Comprehensive Economic PartnershipAgreement (CEPA) negotiations between the twocountr ies. The stud y forecasts signi cant gainsresulting from the rem oval of barriers to real marketaccess on bot h sid esbetween C$6 billion and US$15 billion for Can ad a. i These wou ld be spread acrosssectors, from agricultural products and resourcesto chemicals, transport equipm ent, machinery andequipment and services.

The negotiation of a CEPA w ith Ind ia is set to be a

lengthy p rocess, taking Ind ias trade n egotiationswith the European Un ion and Au stralia as bench-mar ks for comp arison. It w ill be a challenging p rocessgiven the size and complexity of the Indian m arketand its stakeholders, Indias competing internationaltrade policy priorities and the offensive and defensivestakes for Canad a in an agreement w ith Ind ia.

Any d eal with Ind ia must be a good d eal for Canada.Ou r initial view of a CEPA with Ind ia is that it:

Be a comprehen sive, balanced and high-qualityagreement that w ill ensur e long-term, realmar ket access for Canad ian exporters of goodsand services, while also du ly recognizingsensitivities. A limited agr eement cou ld sw iftlylose relevan ce to both cou ntries businesscommun ities and may need to be up dated lessthan a decad e after its conclusion.

Remove tariff barriers that signi cantly imped emar ket access for Cana dian exporters. WhileIndia has m ade great p rogress in lowering tariff lines over the years, customs d uties remain h ighin several areas, notably in agr i-food. Moreover,Canadian bu siness needs a clearer breakdown of the taxes and levies to w hich th eir p rodu cts aresubject in Ind ia.

Ensure a multiple-speed lifting of tariff barriers ,as there is concern about th e potential impa ct of Indian p rodu cts on the competitiveness of someCanadian manu facturing companies following

the lifting of tariff barriers. For certain ind ustries,longer transition periods will be needed forthem to a da pt to a n ew context of tariff-freeCanada-India trade.

Tackle non-tariff barriers. Businesses a reconcerned abou t regulatory approaches andstandards differing across jurisdictions and aboutthe mu ltiplication of regulations and standard s inrecent years. India is a challenging case wh en itcomes to non -tariff barriers. In th e CEPA context,regulations need to be based on internationally

accepted norm s and the nu mber and scope of regulations must not exceed what is necessary toachieve objectives speci ed in the World TradeOrgan ization Technical Barriers to Trad e(WTO TBT) Agreement.

i Cana da-Ind ia Joint Study Group Report: Exploring the Feasibility of a Comp rehensive Economic Partner ship Agreem ent (Septem ber 24, 2010)


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Pursue regulatory cooperation . The introd uctionof new regu lations in Ind ia, nationa lly andsub-nationally, needs to be d one in a tran sparentfashion, allowin g for prior consultations w ithCanadian businesses w hose legitimatecommer cial or investment activities in India m aybe impacted by n ew technical barriers or otherregulatory measures.

Include services , wh ich rep resent almostthree-quarters of Canadas GDP and a growingpart of its trade. A CEPA with India m ust extendbroad mar ket access across services sectors.Canadian nan cial comp anies in particular facesigni cant restrictions on foreign direct invest-ment in Indias banking and insurance sectors.At the sam e time, sensitivities in certain areaslike the information technology (IT) indu stry,w hich is imp ortant to Can ad as overall economicprod uctivity, mu st be duly considered by thenegotiators. We also recommend the use of a negative list wh ereby a limited nu mber of services are exclud ed from th e prov isions of the agreem ent. Shou ld a p ositive list be used , itwou ld need to be extensive and feature a

most-favoured nation (MFN) clause to ensureCanadian services compan ies are notdisadvantaged in the future. The use of a ratchetmechanism is also needed to ensure that anymeasures on services un dertaken in eithercountry cannot be m ore restrictive than thatstipu lated in the agreement.

Facilitate the temporary entry and legitimatedelivery of professional services on a temp orarybasis for both Can ad ian professionals going toIndia and Indian professionals coming to Canad a,

in accordance with immigration laws.

Liberalize investment . After all, foreign directinvestmen t (FDI) is often accomp anied by ow s of experience and exper tise that help th einvestmen t-receiving countr ys sectors becomemore d ynamic or can help m eet a countrysdevelopment goals (e.g. nan cial sectorbuild-u p). Sensitivities mu st be accoun ted for.

Ensure any CEPA investment chap tercomplement, rather than substitute for, thelong-awaited Canada-India Foreign In vestmentPromotion and Protection Agreement (FIPA) wh ich w as concluded in 2007 and has yet to berati ed by the Ind ian Parliament. We hope theIndian sid e will join Canad a in nalizing theFIPA w hich will provid e a solid long -termframework for two-way investment withcomprehensive, high standards of protection forinvestors and recipients in both countries.

Ensure suf ciently liberal rules of origin thataccount for the integrated n ature of the N orthAmerican economy (NAFTA) with n um erousCanad ian good s incorp orating U.S. factors of prod uction. Rules of origin are u sed to d eterminewhen goods have und ergone suf cient prod uc-tion or transformation w ithin th e free trade areaor territory established b y an agreem ent (in thiscase the CEPA) to qu alify for p referential accessund er that agreement. Also, rules of origin mu stbe clear and easy-to-use by bu sinesses as comp lexrules drain business resources.

Ensure the transparency, predictability anduser-friendliness (for businesses) of customsprocedures . Customs procedures must facilitatethe movem ent of goods w hile enhancing security .

Facilitate trade between the two countries. Inadd ition to m ore straightforward customsprocedures, the CEPA shou ld better alignCanadian and Indian certi cation and otherexport-import procedures. This entails ensuringnon-du plicative procedu res for both Canad ianand Indian exporters and importers, subject to

the need to maintain the highest safety standard s.

Ensure high stand ards of intellectual property(IP) protection. Ind ias record on IP r ightsprotection is better than some other d evelopingeconomies and its legal framew ork ensures thatIP concerns are taken seriously. How ever, the IPprotection av ailable in certain sectors, includ ingthe life sciences sector, and IP rights en forcemen t


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across all sectors rem ain a m ajor concern. Forexample, Ind ia does not provide protectionagainst u nfair commercial use of test or otherdata p rovided by bu sinesses to the governmentof India for marketing approval. Canada, likeIndia, must also greatly improve its record onIP rights p rotection in term s of trad emark s,copyright and patents. A Canad a-Ind ia CEPA isan op portun ity for boosting IP protection.

Canada-Ind ia ties beyond the CEPA

Canadas visibility in Ind ia has imp roved somewh at,bu t it is no secret that a Canad ian visibility de citin India as in Asia generally remain s an issue. Anu mber of Canadian companies are active there, butthe lingering image of Canad a is still that of a land of natural w ilderness or that country next to the United States . Members of the Canadian Cham ber tell us of the strengths the Canad ian business commu nity canmarket in Indiastrengths that range from nancialservices, mining, energy and agri-food products, tohealthcare, aerospace and transportation, sustainableengineering, machinery and high-level education.

Canadian companies active in India have longmarketed how their expertise can contribute to Indiandevelopment and consumer needs. The onus is onthe Canad ian business comm unity, the academiccomm un ity, civil society leaders as w ell as Ind o-Canadian leaders and Canadian India w atchers toboost Canadian visibility in India throu gh ou treach toIndian counterparts. However, the Canadian govern-ment p lays one important niche role in enh ancingCanad ian visibility and credibility in Indiabyactively enga ging in political exchan ges with Ind ias

government. These exchanges generate goodwill thattrickles dow n into bu siness-to-business ties. Regularmeetings between the Canad ian and Ind ian leaders,such as Prim e Minister H arp ers successful 2009 tripto India and his meeting w ith Prime Minister Singhin 2010, strike the right note and shou ld continu e.We wou ld w elcome a v isit by Prime Minister Harp erto India in 2012. Canad ian pr ovincial and territorialoutr each is also helpful, so long a s it is do ne in aspirit of pan-Canadian cooperation.

Ensuring consistency between Can ad as tieswith Ind ia and its ties with other countries in theAsia-Paci c region is importan t. As Canada s tradeand investment with India and other Asia-Paci ccountries continue to grow , so too will Canada sinterest and stake in sustaining the regions order andprosperity. Approaching the Asia-Paci c region in aholistic man ner th at integrates p olitical-security andeconomic considerations will help Canada developfavourable partnerships with the imp ortant players inthe region.

Beyond trade, Canada is interested in diversifyingits sources of direct in vestment . This includ esinvestmen t from India. FDI coming into Can ada , inresources or in sectors such as services andmanu facturing, is welcome, provided it is commer-cially-oriented and contributes to the developmentor co-development of new technologies and brandsand to the growth of ind ustries in Canad a. FDI thatis short-term-oriented or focused on the acquisitionof existing technologies, know -how or d istributionand supp ly networks is not wh at is sought. Thegovernment review process under the InvestmentCanada Act is necessary, and th e new enterprise

value thresholds und er the 2009 amend ments to theAct need to be fully imp lemented.

Indian investors seeking plugs into North Americancapital markets can consider listing in Canad a.Canad as resilient nan cial sector has w orld-classexpertise in Asian and Indian markets, in mining andsmall business nance and in serving its internationalclients need s. Ind ia should consider furth erfacilitating capital transactions with C anad a on abilateral basis to boost portfolio in vestment in bothdirections beyond FDI.

Sustaining rap id economic growth in a coun try of 1.2billion p eople requ ires access to reliable, high-qualityresources . Canada is an ideal and abun dan t supp lierof energy , metals, minera ls and other resou rces.It also possesses a w ealth of w orld-class expertisein mining-related serv ices and technologies. Indiashould look more at w hat Canad a has to offer inthis regard.


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In particular, we hope Canad a and India can w ork tohav e Indian extractive sector restrictions on Ca nad ianpr ivate-sector participation rem oved (i.e. explorationand extraction rights, foreign direct investment inIndia). On the Canad ian side, we look forward toprogress on getting the N orthern Gateway pipeline (asw ell as Paci c Trails) don e to sup ply Canad ian oil andgas to the d ynam ic economies of the Asia-Paci cincluding Indiaand live u p to Canad as aspiration of becoming an energy su perpow er. To get there, we hopethe federal governm ent, Alberta, British Columbia andthe affected A boriginal commu nities can nd asatisfactory w ay forward .

Higher ed ucation an d research is another area forcooperation. International students m ake an enorm ouseconomic contribution, abov e $5.5 billion an nu ally, andsustain employment for more than 80,000 Canadians.The num ber of Indian studen ts in Canad a has nearlytripled since 2008 and the p otential to attract more isstill great. Having them in Canad a provides them witha w indow into Canadas quality of life and its prod ucts.These experiences then trickle back creating good willand awareness of Canada in India, and connectionsw ith Ind ian alumn i can cemen t business ties. Also,

Canada is an aging country w hich draw s in part onimm igration to replenish its skilled w orkforce.

The onu s is on Cana dian u niversities and colleges toattract Indian students and foster research exchangeswith Indian p artners, and man y have don e so. Theiroutreach efforts should continue being complementedby targeted governm ent efforts to make Canad ianhigher edu cation better know n. We also look forwardto the establishm ent of the Canad a-India ResearchCentre of Excellence.

The grow th of Indias mid dle class is spurr ingtourism like never before. Tourism is a hu ge economicopportunityin 2009 total tourism revenue for Canadawas C$69.5 billion. ii Depen d ence on dom estic or U.S.dem and for tourism is of limited poten tial givenCanadas relatively small pop ulation and theapp reciating Canad ian dollar that makes Canadaless affordable to U.S. travellers. The opp ortu nityfor Canad a to become a major destination for Indiantour ists is not one to be m issed.

Canada will have to climb a steep curve. Our countryis still largely unkn own to a great nu mber of potentialIndian tour ists. It will mean being su ccessful inmarketing Canada to travellers. The CanadianChamber of Commerce has been an u nequivocalad vocate of the need for scal consolidation an dapp lauds the federal governments d etermined actionin that regard . Even so, it is imp ortant to su stainfocused investments so as to compete with other traveldestinations seeking to draw Indian tourists (or touristsfrom other developing countries for that matter).

ii Canadian Tourism Comm ission, 2009 Annual Report


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Canad as interest in strength ening its econom ic andbusiness ties with Asia has grown over the pastdecad e, especially since th e 2008 global nancial crisispu t the spotlight on our countrys need to diversifyits external trad e and investmen t. Asias fast-pacedeconomic developm ent and booming d emand forcommodities and a nu mber of services and high-techgoods Canada p rodu ces have also spu rred thatinterest. Investment opportunities also beckon.

Enter India. It is an ascend ing economic player and ,based on current tr end s, it is set to become one of thefour largest economies in the w orld w ithin th e nextfour decades. 1 While man y experts had pred icteda slump in Indian growth as a result of the global nan cial crisis, India cam e ou t of the crisis relativelystrong. Its GDP grew by near ly 10 per cent in 2010,before moder ating somew hat in 2011. 2 Canad as tiesw ith India are noth ing new . Political conn ectionswith Ind ia go back to Canadian Confederation, owingto a shar ed British legacy and use of the English

langu age. While the two coun tries dem ocracies andlegal systems differ, both are rooted in Westminsterinstitutions and commo n law. The connection is alsoa hum an one cemented throu gh a large Canadianpop ulation of Indian descent and a growing nu mberof Canadian Ind ia watchers.

Even so, economic exchanges between Canada andIndia, though grow ing, remain limited. ProminentCanad ian comp anies such as Sun Life Finan cial,Bomb ard ier, SNC Lavalin and McCain Foods, tonam e just a few, are very active on the su bcontinent,

and many smaller Canadian compan ies do or havedo ne bu siness in India. In 2010, just 0.5 per cent of Canadas merchand ise exports headed for Ind ia

Introduction

1 Uri Dadu sh and Bennett Stancil, The G20 in 2050 (Carnegie Endowmen t for International Peace, Novem ber 2009)

2 International Monetary Fund, World Economic Outlook, also available online at http:/ / www .imf.org/ external/ pubs/ ft/ weo/ 2011/ 01/ pd f/ text.pdf [cited April 2011]


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1. Ind ia on the move

How does one und erstand India? Like China,India p resents comp etitive challenges as well as anabund ance of trade and investment opp ortunitiesthat h ave attracted th e wor lds attention. Still, theopp ortunities, the challenges and the w ay of doingbu siness in Ind ia differ greatly from those in neigh -bouring China, and so the comparison with that other

Asian giant stops there. Ind ia must be u nd erstood interms of its own distinct realities.

For many Canadians, rst impr essions of the Indiansubcontinen t are still tinged b y experiences of thehu stle and bustle on the streets of Delhi and Mu mbaior dealing with Indias byzantine public bureaucracy.Poverty rem ains conspicuou s. Roug hly 40 per centof Ind ias pop ulation lives below the po verty line, 3 and some two-thirds of Ind ians are rural residentsw ith meag re livelihood s. Although Indias fertilityrate is d eclining, visitors to India tak e note of its

vast, youth ful popu lation (half of Indias pop ulationis und er the age of 25). Other im pr essions of Indiadw ell on rom antic touristic imageryRajpu t palacesor Goan b eaches. Stick to such ima ges and one m isseswh at is actually happening on the subcontinent.

India is on the move. Local private enterp rise andvalue chains continu e to dev elop just as India Inc.scomm ercial footpr int is becoming ev er more global.Research centres an d prod uction facilities areinnovating and cities like Bangalore and Hyderabadhave become information an d commun icationtechnology (ICT) hu bs on par w ith Silicon Valley.

Mum baiSouth Asias bu siness capitalis ametropolis of mushrooming h igh-rises and corporatehome to conglomerates that compete worldw ide.Indias curren t boom is moving into high ervalue-add ed p rodu ction, but is rooted in theinnova tion of afford able goods and services thatmatch the pu rchasing pow er of Indian consumersat large.

Parts of Ind ia are d eveloping m ore slowly, par-ticularly in the centre and n ortheast of the country,yet other areas are modernizing quicklywesternand southern states like Gujarat, Haryana, Pu njab,Karnataka, Maharashtra and Tamil Nad u. These arethe areas of India where private sector companiesare m ost active in cross-border b usiness. These arethe areas tha t tend to be relatively bu siness-friendlyand wh ere global businesses are teaming u p w ithlocal partners, investing in research and development(R&D) and production, participating in infrastructureprojects, selling their products and outsourcing

non-core business functions.

India is a serious intern ational player. It is a nation1.2 billion strong with a sizeable talent pool of well-educated , English-speaking p eople. It boasts avibrant private sector and its larger corporations arewo rld leaders in their respective indu stries. Witha rapid ly growing m idd le class, its econom y is oneof the more consump tion-driven in the developingwo rld. Led by its private sector, Ind ia also investsincreasingly overseas. Its GDP growth rate is thesecond highest amongst major economies in the

world. India w arrants Canad as attention.

Section I: Snapshot of India today

3 New Global Poverty Estimates What it means for India (World Bank, 2005)


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2. Reforms and renew al

H ow is Ind ia being transformed ? In 1700, Indiarepresented roughly one-quarter of global economicoutp ut. Und er the British Raj, it developed railwaysand expansive bureaucratic institutions, but declinedeconomically relative to the rest of the w orld. Fromind epen den ce in 1947 un til 1991, Ind ias economybecame inw ard looking, dom estically-focusedand heavily regulated by government (whosebu reaucracy w as then d ubb ed the License Raj). Itw as a period of centralized p lanning an d ill-fatedattemp ts at n ational self-reliance with little room

for free enterpr ise and op en mar kets. Financial andmanufacturing rms w ere nationalized. Goods andservices imp orts were discouraged and foreigninvestmen t un welcome. All this sti ed GDP growth,w hich averaged 3.5 per cent ann ua lly between 1950and 1991.

In 1991, Ind ia represented little more than one p ercent of global GDPfor a country with 16 per centof the world s peop le! 4 Indias relative share o f worldtrad e also fell from some 1.4 per cent in th e 1950sto 0.5 per cent b y th e late 1980s.This picture h as

changed dramatically since India enacted the rst of several wa ves of liberal economic reforms in the early1990s, on the heels of a mon etary crisis. The ou tcomeof those ambitious reforms: an acute, upward shiftin Indias growth trajectory and the unleashing of Indias vibrant pr ivate sector econom y. The architectof reform: then- nance minister Dr. Manm ohanSingh Ind ias current p rime minister.

Reforms got macroeconomic fundamentals back on track, unshackled p rivate entrepreneurship andopened India to the w orld. They liberalized trad e andcustoms regim es, cut imp ort restrictions, redu ced

taxes, deregulated sectors and eased investmentrestrictions. Foreign bu sinesses hav e return ed toIndia in the relatively un regu lated services sectorand , increasingly, in the far more heav ily regu latedareas of infrastructure an d manu facturing.

The Ind ian economy expand ed n early ve-fold, fromUS$245 billion in 1992 to over US$1.1 trillion in 2008. 5 Ind ias per -capita incom e tod ay is US$1,100 (or $3,200wh en looking at real pu rchasing p ower), more thanthree tim es its per-capita income in 1992. 6 India isnow the w orlds 10 th largest economy an d accordingto the World Bank, it is poised to become th e fourthlargest by 2020. In p ur chasing pow er par ity (PPP)terms, it is already the w orlds third largest economy .

3. In d ia Inc.

Indias external trade and investment expandedas it looked ou tward , and the w orld has come todo business with the South Asian dyn amo. Indiasmerchandise trade with the w orld increased morethan six-fold over th e past decad e, from US$86 billionin 1999 to more tha n U S$470 billion in 2009, w ith

growth of imp orts outperforming that of exports.7

In 2008, Ind ia w as th e 16 th largest importer and the27 th largest exporter in the w orld, and it has a m inortrade de cit equivalent to tw o per cent of GDP. 8 The balance between Indias imports and exportsattests to that countrys home-grown economicdyn amism. Compared w ith regional neighbours,Indias comp osition of GDP is more h ealthily tiltedtoward dom estic consumption. India is also a majortrader and net exporter of services, with exportsof US$123 billion and imp orts o f US$116 billion in2011. 9 Increasing trad e in goods and services points to

Indian companies globalizing.

4 World Developmen t Indicators (World Bank)

5 World Bank

6 CIA World Factbook

7 Government of India, Ministry of Commerce & Industry, Department of Comm erce (http:/ / commerce.nic.in/ eidb/ Default.asp)

8 Cana da-Ind ia Joint Study Group Report: Exploring the Feasibility of a Comp rehensive Economic Partner ship Agreem ent (Septem ber 24, 2010)

9 WTO Trade Statistics (http:/ / www .wto.org/ english/ res_e/ statis_e/ its2011_e/ its2011_e.pdf)


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India h as become a prim ary recipient of foreigndirect investmen t (FDI). New FDI in Ind ia has risendr amatically from a mere US$4 billion in 2000 to overUS$32 billion in 2007. 10 Aided by the liberalizationof Indias capital account and over US$300 billionin foreign reserves, Indian comp anies have becomemajor foreign in vestors. Between 2000 and 2007,Indias investm ent in other cou ntries has leapt fromUS$830 million to over US$18 billion. 11 It was recentlyreported that total Ind ian investment abroad h assurp assed th e US$100 billion mark. 12 While servicesare the top mag net for FDI in India, mu ch of Ind iasoutw ard FDI has been geared toward cross-bordermergers and acquisitions in m anufacturing andresour ces. Several such acqu isitions have p rop elledIndian corp orations into Fortune Global 500 rankings.

Indias sectors are moving up the value-added chainand with that, Indian external commerce. Informationand commu nication techn ology (ICT), softw aredevelopment an d business process outsourcingsectors remain key d rivers of Ind ias economicdev elopm ent. Servicesinclud ing ICThavecontinued expanding th eir share of Ind ian GDP,reaching the 55 per cent mar k. 13 Comm ercial services

are un restrained by the p lethora of regulations thathold back manu facturing, thereby m aking services ahotbed for innovation, produ ctivity growth and thescaling u p of bu siness plans. For examp le, IndiasICT sector emp loys less than one-thou sand th of thecountrys workforce but prod uces more than ve percent of its GDP.

Over the past ve years, Ind ia has mad e strides inboth labour-intensive m anufacturing andhigh-value-added prod uction in sectors such asbiotechnology and pharm aceuticals. Corporate

investment in new p lants and equ ipment, human

capital and a ccess to global sup ply chains is sowingthe seeds of a successful Indian m anu factur ingsector that will develop over the coming decades.Improvements to transportation and utilitiesinfrastructure get produ cts to end markets at homeand overseas with greater ef ciency than in the p ast,though m uch more remains to be done.

Agriculture rem ains a relatively weak spot. It isan area where prod uctivity growth lags du e totechnological limitations an d a dear th of foodprocessing know -how. While it emp loys two out of every th ree Indian s, the sectors share of GDP ha sfallen to less than 20 per cent. While value ad ded hasgrown by 10 per cent per ann um in services and fourper cent ann ually in man ufacturing, in agriculturethis amounts to less than three per cent per annu m. 14

10 Indias International Trade and Investment: An Overview (Export-Import Bank of India, www .eximbankindia.com/ fore-trade.pdf)

11 Ibid.

12 Business Standard / Press Trust of India (December 31, 2011) (http:/ / ww w.business-standard .com/ india/ news/ overseas-investment-touches-1092-bn/ 154157/ on)

13 United Nat ions Indu strial Development Organ ization



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4. Dom estic hu rdles to overcome

Indias development remains a w ork in pr ogress.The Union Government and many Ind ian states havetaken lau dab le initiatives that are bearing econom icfruit. The num ber of senior government of cials withbusiness background s and acumen is grow ing. YetIndias democracy, though appealing to Westernbu siness, is also coloured by comp lex coalitionpolitics and interests, which make the pursuit of thereform agenda a tricky task for the current minoritygovernment. Ambitious policy action is required tokeep India chugging along.

Infrastructur e remains a major chokepoint forIndias economic growth . While it is imp roving,infrastructur e is falling behind the need s of an Ind ianeconomy growing at breakneck speed. Residentialareas, business districts and industrial zones in andaround cities continue to be hamp ered by inadequatetransportation infrastructure that impedes th e timelyand predictable movement of people and goods.The capacity of railways, road w ays, seaports andairports tying Indian cities together and to the w orldis stretched thin. Upgrad es on a gargan tuan scale

are u rgently needed. Access to suf cient, reliableenergy an d oth er utilities continu es to be a bigproblem, attested by pow er blackouts that rem ain afact of everyd ay life. Many of ce buildings andpr odu ction facilities in India are constrained todivert limited resources to m aintain th eir ownpower-generating capability.

Then there is the p roblem of red tap e. Businessfreedom has p rogressed, bu t bu reaucratic complexityand regulations ham per p rivate sector innovation,investment and the grow th of business plans and,

therefore, prod uctivity. An example is that of restrictive labour law s that mak e it dif cult forcompa nies with m ore than 100 emp loyees to lay off people. The result is that many Indian companies areunw illing to recruit people and scale up even w henmarkets favour it.

Some inef cient (and sensitive) sectors are shieldedfrom comp etition. For instance Indias domesticcommercial distribution system (includ ing retail)is woefully inef cient an d closed to foreign d irectinvestment (FDI). The Indian governm ent m ade anun fortun ate decision in 2011 to keep th e retail sectorclosed to th e sort of investm ent that sector sodesperately needs to modern ize in ord er to meet theneed s of 1.2 billion p eople. Lapses in th e pr otectionof intellectual property rights also dampenR&D-driven innovation.

Endem ic political corru ption at the local level isgreatly pr oblematic for it distorts th e level playing eld for both Indian and foreign companies. Theproblem has gotten w orse with Indias rapideconomic development. Some Ind ian commentatorsexpress concern that India ru ns the risk of an

oligarchization of political and economic pow er.These are challenges the countr y is tackling.

The World Economic Foru m (WEF) found that Ind iascores high in nan cial markets, business sop histica-tion and innovation, but it has moved little in keycompetitiveness areas like health, infrastru cture,the availability and quality of primary educationand enrolment in higher edu cation, as previouslynoted. Certain m acroeconomic fund amentals such asin ation and p ersistent public de cits and d ebt alsopose a challenge to long-term growth. 15

15 Klaus Schwab , The Global Com petitiv eness Repo rt, 20102011 (World Econom ic Forum, 2010)


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5. Futu re prosp ects

India is in business, but w here is it going? Certainly,economic indicators point to robust immediate tolong-term grow th. Indias economy has come ou t of the global Great Recession healthy and kicking. It isset to be the wor lds second fastest growing majoreconomy in 2012. In fact, the Internation al MonetaryFund (IMF) expects Ind ia to experience GDP growth

just over seven per cen t p er an num over th e n exttwo years, 16 though a severe worsening of globalmacroeconom ic conditions (e.g. the European debtcrisis) could pu sh those gures downw ard. Provided

India continu es to reform, growth prospects in thelonger run remain positive.

India p ossesses a sizeable work force of engineers,scientists, computer p rogrammers an d savvyentrepreneurs, in addition to a large pool of unskilledw orkers. Its w orkforce is also youn g, and an alystsbelieve this demograp hic dividend may even seeIndias GDP grow th rate surp ass Chinas in thefutu re, as the latters work force ages. How ever,to capitalize on that dividend, India will need tored ouble efforts to train its vast un skilled p opu lation

so as to match the need s of its manu factur ing sector.It must also ensure the d evelopm ent of a largerworkforce with p ost-second ary qu ali cations to dr iveR&D and innovation and to ll man agerial positionsw ith the right level of competen ce.

Then there is the ph enomenon of a rap idlyexpanding, urban -based m iddle class num beringanywhere between 50 and 200 million individuals,dep ending on income de nitions u sed. A 2007 reportby the McKinsey Global Institute foun d th at over thenext tw o decad es, Ind ias midd le class will grow tomor e than 40 per cent of the coun trys pop ulation an dcreate the wor lds fth-largest consumer market. 17

The grow th of this mid dle class is closely tied to thatof cities. Ind ia is in the early stages o f wh at w ill be anunp recedented w ave of urbanization, and with that,wea lth creation. By 2030, nearly 600 million Indian swill reside in cities, up from 340 million in 2008, andsome 90 million u rban h ouseholds w ill be midd leclass. 18 Today, Ind ia has som e 40 cities larger th anCalgary. Two d ecades from now , that num ber will becloser to 70. Thirteen cities will have over four millionpeople and Mum bai will have become a m egacityof 33 million sou lsalmost equ al to Can ad as totalpopulation today. 19

Even so, the purchasing pow er of most of thatmid dle class will be lower th an th at of their Westerncounterparts, given current exchange rates. Also,most of Ind ias 1.2 billion p eople rem ain ou tside themidd le class and Ind ian consumers are generally veryprice-sensitive. The m ajority will not be in th e mar ketto buy the m ore expensive prod ucts North Am ericanbusinesses deliver for decades. A great strength of Indias pr ivate sector is catering to hun dr eds of millions of dom estic consum ers with limiteddisposable income through frugal innovation orwh at some commentators call Indo-vation i.e. by

delivering innov ative, low-retail-cost prod ucts.

India is both a challenge and opportunity. Its globalbusiness footprint is growing an d Western countriescan expect comp etition from Ind ian compa nies tointensify, particularly in manufacturing andcommercial services. The bu siness environm ent inIndia is a tough n ut to crack for foreign comp anies,but the op portun ities and p otential to formpartnerships are too important to ignore. WhileCanadian comp anies deal with India as it is, weexpress hope that India w ill further reform an d

liberalize its econom y, for the ben e t of its ow nbusinesses but also to stimulate more trade an dinvestment with Canad a that can further contributeto its development.

16 International Monetary Fund, World Economic Outlook Update, also available online at http:/ / www .imf.org/ external/ pubs/ ft/

weo/ 2012/ update/ 01/ pdf/ 0112.pdf]

17 The Bird o f Gold: The Rise of Indias Consu mer Market (McKinsey Global Inst itute, Au gust 2007)

18 Indias urban awakening: Building inclusive cities, sustaining economic growth (McKinsey Global Institute, August 2010)

19 Ibid.


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6. Canad aInd ia trade andinvestment ties

What is the state of Canad a-Ind ia econom icexchanges?

India has d eterrents to bu siness, but these have notstopped a great num ber of rms from the UnitedStates, Europ e, Japa n, South Korea and Au straliafrom going to the subcontinent and doing bu sinessthere. As one of the few high-grow th storiesfollow ing the recent nancial crisis, Indias globallure is set to swell, and increasingly, global

companies see Ind ia as indispensable to their growth.

Two-way trade between Canada and Ind ia hasexpanded noticeably over the past d ecade, with theexception of a slight dr op post-2008; the total valueof two-w ay tra de w as C$4.1 billion in 2009 versusC$1.5 billion in 1999, with Cana dian ann ua l exportgrowth (17 per cent) outpacing import grow th (sevenper cent). 20 These gures likely un derstate the value

of trade, as a signi cant portion of trade between th etwo countriesincluding Canadian af liate sales inIndia and ind irect trade with India through globalsupp ly chainsare not counted in of cial trad estatistics. Even so, Canad a-Ind ia trade rem ains farbelow potential. India represents less than one percent of our coun trys overall merchan dise trad e. Bycontrast, the United States represents more tha n 70per cent of our merchandise trade.

In terms of Canad as composition of trade, its expor tsto India are dom inated by chem icals, followed byvegetables, fruits and nuts (mostly pulses includingdried p eas and lentils), pu lp and p aper prod ucts, andmachinery and equipment. Together, these accountedfor 80 per cent of total merchand ise exports fromCanad a to Ind ia in 2008. 21 Other important exportsectors includ e m etals, transportation equipm entand minerals. As Indian consumption moves up insoph istication, there will be room for robu st exportgrowth in kn owledge and technology industries.

20 Statistics Canad a



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Most of Canad as impor ts from India consist of chemical products, textiles and apparel,miscellaneous m anufactured p rodu cts as well asmachinery and equ ipment. These made u p 70 percent of Indian m erchandise imp orts to Canada in2008. 22 Ferrous and non-ferrous metals, food p rodu ctsand minerals were also important imports.

In terms of balance of trade, Canad a has gone fromtrade de cit with India before 2007 to a sur plu s wh ichtouched C$216 million in 2008. To further strength enits trade ties with Ind ia, Canad a mu st better matchits produ cts and expertise with th e subcontinentsshifting consumption needs. Trading more will alsomean trad ing smarterplugging prod ucts into newvalue chains as opp osed to selling nished goods toIndia from existing value chains.

Canad as comm ercial services trade w ith India hasexpan ded over the pa st several years, from C$133million in 2000 to C$196 million in 2007. Canad iancomm ercial services exports to Ind ia fell fromC$93 million in 2000 to C$56 million in 2007, wh ilecomm ercial services imports from Ind ia have risenfrom C$36million to C$140 betw een 2000 and 2007.

Canad as earlier trad e surp lus in commercial servicesbecame a d e cit in 2005. 23 Canadas commercialservices exports to India, including managementservices, nan cial, architectura l, engineering andother technical services and miscellaneous bu sinessservices represent a m inute one-thousandth of ourcountr ys world w ide commercial services expor ts.The expertise is there and expansion is warranted.

Thoug h comm ercial services repr esent most of Canad as total services exports w orldw ide, in Ind ia,these amou nted to only 17 per cent of the total in2007, behind tran sporta tion, governm ent servicesand travel. More needs to be d one to facilitate andencourage Canadian service providers to pu rsueopp ortu nities in Ind ia. Financial services includ inginsura nce, ICT and business services see room forgrowth in India.

On the investment side, both Canada an d Ind ia havea long w ay to go in realizing their poten tial. Canad asstock of foreign d irect investmen t (FDI) in Ind ia wasC$601 million in 2009 out of a total stock of Canadianoutw ard FDI of C$593.3 billion, or just on e-tenthof one p er cent of Cana das total overseas FDI. Incomparison, the United States and Europe heldC$261 billion and C$159 billion in Ca nad ian FDI,respectively in 2010. 24 Indias direct investments inCanada are limited but have m ushroomed over thepast tw o years. Canada is a n et importer of FDIfrom India.

Indias pr ivate sector continues to dem onstrate keeninterest in investing in Canad ian sectors, par ticularly

in the resou rces (including en ergy), ICT and biotech-nology sectors. Ind ia has also indicated its interestin Canad ian investment and expertise in areas likeinfrastructure development and the food ind ustry.Clean technology is another area with potential.

22 Ibid.




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In 2009 and 2010, the Canad ian Cham ber of Commerce called up on the federal government toundertake free trade negotiations with India. That callw as heard . On N ovemb er 12, 2010, Prime MinisterHarp er and his Ind ian coun terpart, Prime MinisterSingh , annou nced th e beginning of negotiations fora Com prehensive Economic Partnership Agreement(CEPA) between the tw o countries. This importa ntmilestone conclud es a cycle of work begu n w ith theCanadian prime ministers visit to India in November2009, where the tw o governm ents set up a JointStudy Gr oup to examine the feasibility of a CEPA.The resulting joint stu d yreleased on Septem ber 24,2010recomm end ed th e launch of free tradenegotiations between th e tw o countries.

The joint stu dy forecasts signi cant gains to beachieved through the elimination of barriers to realmar ket access on both sides. Canad as mod ellingestimates GDP gains of abou t C$6 billion at cu rrentGDP levels for each country and two-way trad egains of appr oximately 50 per cent for both Canad aand India. Indias mod elling, based on d ifferentassum ptions, p redicts gains of US$12 billion for Ind iaand US$15 billion for Can ad a. 25 Given that of cialstatistics und ercount Canadas trade volume withIndia, 26 some ana lysts suggest Canad as gains couldbe signi cantly greater than those predicted by the

joint stu dy. Th ese wou ld be sp read across sectors,

ranging from primary agricultural prod ucts andresources to chemicals, transport equipment,machinery and equipment and services. Ind iasgains wou ld be concentrated in textiles and app arelprod ucts and services.

The negotiation of a CEPA w ith India is expected tobe a lengthy p rocess, taking Ind ias trade n egotia-tions with the Europ ean Union and Australia asbenchm arks for comp arison. The process will bechallenging given the size and complexity of theIndian market and its stakeholders, Indias competinginternationa l trade policy priorities and th e offensiveand defensive stakes for Canada in an agreementwith India. The timeliness of process is less imp ortantthan getting a good d eal for Canada. It goes withoutsaying tha t if a d eal with Ind ia is to be reached, itmu st be a good oneone that obtains real marketaccess for Canad ian bu sinesses across sectors and isof net economic bene t to Canada.

The Canadian Chamber of Commerce is followingthe n egotiations closely and is actively participatingin consultations. Our initial views on th e negotiationsare outlined below.

If a dealthen a comp rehensive, balan cedand high-quality deal

If Canad a is to do a d eal with India, it must be ahigh-quality agreement that will ensure greater real,effective m arket access for Can ad ian comp anies. Agood d eal would remove those tariff and non-tariff barriers for good s, as well as those obstacles totrade in services and investment, which are h armfulto Canad ian goods and services exports. It w ouldfacilitate trade procedures whose complexity andredu nd ancies unnecessarily raise the cost of doingbusiness, and commit the tw o countries to regulatorycooperation. Given how qu ickly the global economy


26 Canadas Missing Trade with Asia (Conference Board of Canada, February 2008)

Section II: The Canada-India Comprehensive Economic Partnership

Agreement (CEPA)


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and (how mu ch more quickly) Ind ia are evolving,a limited free trade agreem ent could sw iftly loserelevance to both coun tries business comm un itiesand may need to be up dated less than a d ecade afterits conclusion.

Also, the Canad ian Chamber recognizes that tradenegotiations are a relatively n ew endeavou r forthe government of India and that the process isconstraining on time and resources. Canada, too,mu st carefully mana ge limited r esources at a time of scal restraint. It is possible that th e need to balancecompeting priorities could entice India or Canada tofocus on achieving a limited -scope CEPA rath er thana comprehensive agreement. By comprehensive,we mean th at it is imp ortant to cover all areas whereCanad ian compa nies face market access issues withIndia, including the many challenging non-tariff barriers (NTBs) that are encounter ed in Ind ia. Thefocus mu st be on areas wh ere the Canadian andIndian economies complement each other. A compre-hen sive negotiating process must also be balancedand carefully consider all Canad ian sectors interestsvis--vis India, through ongoing consultation withthe bu siness commu nity across sectors and regions of

Canada.

Getting a comprehensive, quality d eal done is m oreimportant th an getting a limited deal don e quickly.

Tariff barriers

Canada had an average app lied Most-FavouredNation (MFN) tariff of 4.7 per cent in 2008 (includingad valorem equivalents). Of the 8,464 tariff lines ineffect in March 2010, 68 per cent h ad an M FN p ref-erential tariff rate of zero. Also, the trad e-weighted

average applied tariff on Indian exports intoCanad a w as 4.6 per cent in 2008. 27 Following the 2010Canadian federal bud get, tariffs on imp orted inpu tsfor Canadian exports were marked for removal.

Canadian du ties remain relatively high in on ly a fewsectorsinclud ing textiles and a nu mber of animalprod uctswith th e exceptional peak d uties foundonly in the sup ply-managed indu stries.

India has mad e important progress in loweringtariff lines, w ith customs d uties as a percentage of value of impor ts declining from nearly 22 per cent in1999-2000 to 7.4 per cen t in 2008-2009. Desp ite th ispro gress, Ind ia average ta riffs remain considerablyhigher than Canadas and m ore than dou ble thoseof nearby South east Asian coun tries. One-third of Indian n on-agricultural tariff lines remain unbou nd .Also, there is signi cant divergence between Indianbound tariff lines versus applied ones. Many of Indias average tariff linesfor imp ortant Ca nad iansectors such as chemicals, wood an d pu lp prod ucts,metals, minerals, machinery and mechanicalapp liances, certain transportation p rodu cts andmiscellaneous manufacturesremain clusteredbetween six and 10 per cent. For important Canadianexports such as animal and vegetable prod ucts andother p repa red foodstuffs, Ind ias average tar iff linesare exceedingly highamongst the highest in theWorld Trad e Organ ization (WTO)near or over 30

per cent.28

Indias aggregate du ties includ e: the Basic Custom sDuty ; an Ad ditional Custom s Duty (typically leviedon imported goods that compete w ith similarIndian-made products); other special customs duties,anti-du mp ing and safeguard d uties; an EducationCess (a surcharge on all direct and in direct taxes); thecustoms handling fees; and other miscellaneous sur-charges. There also exist interstate levies within India,as well as tariff quotas on a n um ber of food stuffs.

First, for the CEPA to achieve meanin gful trad e gains,it will be imper ative to remove Ind ian tariff barriersthat are harm ful to Canadian exporters (and potentialexporters). Tariff lines for agri-food p rod ucts, wood

27 Canad a-India Joint Study Grou p Report: Exploring the Feasibility of a Comprehensive Economic Partnership Agreemen t (Septem ber 24, 2010)

28 Ibid.


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and p ulp and d erived prod ucts, wh ich are imp ortantexports for several Canadian provinces and Canadaas a w hole, wou ld need to be lowered substantially.Tariff lines on indu strial pr odu cts that are export edto Ind ia would need to be lowered, though thereare also a nu mber of sensitivities on both sides, forexample in a n um ber of manu facturing su b-sectors,w hich will need to be carefully considered in thenegotiations.

Second, Cana dian bu siness requires a clearerbreakdow n of the taxes and levies to wh ich th eirpr odu cts are subject in Ind ia. To date, no singleof cial go to source pr ovides this information in acomprehensive manner. Canadian an d other foreignexporters, not to m ention Indian imp orters, areconstrained to consult nu merous sources (includingind ividu al states of India) to get the full picture of w hat sorts of tariffs, fees and ta xes the goods th eywish to export / import are su bject. The complexityof the tax and levies fram ewor k acts as a d e-facto,non-tariff barrier for Canadian companies.

Finally, far greater transparency is need ed aroundthe use of additional customs duties, countervailing

and anti-du mp ing duties which have been emp loyedin the p ast to p rotect sensitive sectors in India. Thereis concern with the growing n um ber of cases wheresuch du ties have been applied.

Mu ltiple-speed lifting of tariff barriers

There is concern in p art of Canad as businesscommun ity about the p otential impact of Ind ianprod ucts on the competitiveness of Canadian m anu -facturing in the d omestic market follow ing the liftingof tariff barriers. There are w orries that comp etitive

pressures on Canadian prod ucers will push some toshut d own or move p rodu ction overseas. For certainindustries, longer transition periods will be neededfor them to ad apt to a new context of tariff-freeCanada-India trade, and therefore a m ultiple-speedlowering of tariffs lines wo uld n eed to be considered.

In sectors where th ere is presently a zero ta riff onCanadian-produ ced good s, but w here there is arecognized one-sided ow of trad e, such as is thecase of the au to sector, it w ill be imp ortant to seenon -tariff barriers redu ced in order to allow ameaningful increase in m arket penetration byCanadian imports, which is key to achieving abalanced agreement. During those transition periods,temporary safeguard s against sudd en import surgescould be considered.

Non -tariff barriers and regulatorycooperation

Tariff redu ctions ar e bu t one facet of effective mark etaccess; how ever, und oing technical barriers to tradeand other non-tariff (beyond the border) barriers are

just as im portant. Regu lat ion s are justi ed inachieving certain objectives, such as p rotectinghum an health and safety or the environment, assanctioned by the World Trade Organisation (WTO)Technical Barriers to Trade (TBT) Agreement, of wh ich Canad a and India are both signatories. 29 How ever, this same agreement also seeks to ensurethat technical regulations, standards and conformityassessment p rocedu res do not constitute u nnecessaryobstacles to legitimate trad e.

Businesses are concerned , not only becauseregulatory approaches and standard s and conformityassessment p rocedu res differ across countr iesand jurisdictions, but also because the num ber andscope of regulations and standard s has m ultiplied inrecent years. All this increases costs and th e dif cultyof doing business for companies operatinginternationally as th ey have to deal w ith mu ltipledocumen tation requirements, du plicative testing or

certi cation requirements. Another growing concernfor business is the use of regulations in man y parts of the w orld for p rotectionist (or econom ic-nationalistic)pu rposes, which d istorts open, ru les-basedglobal trade.

29 Ibid.


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India rep resents a challenging case wh en it comesto non -tariff barriers and th e lack of transpa rencyin issuing and app lying new regulation. In theCEPA context, regu lations need to be based oninternation ally accepted scienti c norms and thenu mber and scope of regulations mu st not exceedw hat is n ecessary to achieve objectives speci ed inthe WTO TBT Agreement. But that is not enou gh.The CEPA mu st enhan ce regulatory cooperationbetween Canad a and India. In p articular, theintroduction of new regulations in India, whetherat the na tional or sub-national level, need s to bedon e in a transparent fashion, allowing for p riorconsultations with Canad ian businesses w hoselegitimate commercial or inv estment activities inIndia m ay be negatively affected by new techn icalbarriers or other regulatory measures. This shouldbe reciprocated on the Canad ian side. A mechanismallowing for cooperation between Canada and India,recommended in the joint study, would be effectiveto that end . Such cooperation w ould also be helpfulto India in its efforts to harm onize more na tionalstandard s w ith international pr actice.

Committing the tw o countries to regulatory

cooperation is all the more imp ortant given that Indiais a developing cou ntry an d its ability to enforceregu lations thorou ghly and effectively varies acrossregions and d epend s on the types of regulations inqu estion. In m any instan ces, local corrup tionweakens enforcement. Canad a mu st be cognizant of these limitations, but the CEPA w ill be afuture-oriented agreement: as India grows, both itand the w orld w ill expect regulatory enforcementand governance to improve. In th e interim, agovernment-to-government mechanism forregu latory cooperation, along with an effective and

robust d ispu te resolution mechanism, would serve asthe most effective means to d eal with new technicalbarriers and regulatory issues.

For examp les of pr actices in India th at act as non-tariff barriers, please consult the ann ex to this paper.

Services

The CEPA is to go beyond covering good s as intrad itional trade agreemen ts, and w ill cover servicesas well. There is no trad e agreemen t of value toCanad a that d oes not include services. After all,services repr esent almost three-quar ters of Canad asGDP and ap proximately two ou t of three net new

jobs created over th e last year . Serv ices a re a key facetof Canada-India economic exchanges going forward.Natu rally, given the d istance separating th e Indiansubcontinent from North America, the cross-borderpro vision of services will be the pr imary m ode of services delivery between Canada and India.

The CEPA must extend br oad m arket access acrossservices sectors, de-linked from comm ercial pr esenceor residency and citizenship requirements. Ambitiouscommitments must be m ade targeting quantitativelimitations and guaranteeing national treatment(i.e. equ al treatmen t of foreign an d dom estic serviceproviders) and most-favoured nation treatment (i.e.Canada an d Ind ia mutu ally affording each otherthe best treatment they afford any other country).Canadian nan cial compan ies face very signi cantrestrictions on foreign d irect investmen t in Indiasbanking an d insurance sectors, which obstruct theirentry and grow th in an Indian market they view ascrucial to their business. Canad ian banks, insur ersand other nan cial enterp rises need greater accessto India.

At th e same tim e, sensitivities in certain servicesub-sectors, like the inform ation techn ology (IT)indu stry, must be du ly considered by the negotiators,in keeping w ith the need to achieve a balancedagreem ent. After all, IT activity in Can ad a is animportant lever for prod uctivity growth in theCanadian economy overall, and the ou tcome of atrade agreement should be to strengthen value-addedactivity in this area in Canad a. For this reason, webelieve that for Canad a speci c domains su ch as ITrequire speci c app roaches.


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The CEPA must be a forward -looking agreement.In a trade agr eement, a negative list (the app roachtaken by both Canada and the United States) registersa limited nu mber of services on both sides that areexcluded from the p rovisions of the agreement.Conver sely, a positive list registers those services thatare sub ject to the provisions of the agreement. Giventhe rapid pace of innovation and transformationw ithin services sectors, it is best that a m eaningfu l

and future-oriented agreement emp loy a negative listap proa ch for services. In the ab sence thereof, man yof the service produ cts traded betw een Canada an dIndia 10 or 15 years from n ow m any n ot be coveredby the CEPA.

Should a positive list (wh ich registers only thoseservices liberalized u nd er the agreemen t) beemployed, it wou ld need to be extensive (so asto achieve the comp rehensiven ess of a negativelist), and w ould n eed to be accompan ied by amost-favoured nation (MFN) clause that ensures

Canadian services companies will not be d isadvan-taged in any way, w ith regards to competitors basedin foreign jurisdictions that m ay conclude futu retrade agreements own their own w ith Ind ia.

The use of a ratchet mechanism is also needed . Inthe CEPA, such a mechanism wou ld guaran teethat any measure on services un dertaken in eitherCanada or India cannot be more r estrictive than that

stipu lated in the agreement. A ratchet mechanismredu ces uncertainty in services mar kets, allow ing forservices providers in Canada to integrate India intotheir long-term bu siness plans, just as Ind ian servicescompanies can thu s integrate Canada into their ow nlong-term plans.

Also, professionals increasingly travel the w orldto deliver their service prod ucts and expertise. Thefacilitation of temporar y entry an d th e legitimatedelivery of professional services on a temp orarybasis are needed, for both Canadian professionalsgoing to India an d Indian p rofessionals coming toCanada. Wh ile the cross-border m ovement of p eoplemu st occur in accordance w ith immigration laws an dconform to the h ighest national security standard s,it is impor tant th at pr ofessionals be able to obtainvisas for travel to Canad a or India on a timely andpred ictable basis. The negotiations m ust also aim formutual recognition of professional quali cations, atthe national and sub-national levels, without whichprofessionals w ho are able to travel to Canada orIndia then risk nd ing themselves unable to d elivertheir services legally.

Investmentcomplement to theCanada-Ind ia FIPA

Over the past decade, Ind ia has made good p rogressin openin g its economy to foreign direct investm ent(FDI) relative to where it was. After all, access to for-eign capital not only provid es mu ch of Indias pr ivatesectornotably sm aller comp anieswith nancingthat may be d if cult to obtain elsew here, FDI alsobrings with it new technologies and international bestpra ctices and access to global netwo rks of supp liers,mar keters and sales platforms. For examp le, the

further liberalization of Ind ias nan cial sector wo uldenable top Can adian banks an d insurers to betterprovide innovative insurance, mortgage, investmentand consumer loan services, and India could bene tfrom Canadian nan cial institutions experienceof strong corporate governance and leading-edgetechnological expertise. Ind ia could a lso bene t fromthe sustaina ble practices of Canad as world -leadingextractive sector.


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India increasingly d eems that op enness to investmentis essential to its economic diversi cation and tomak ing m ore of its sectors comp etitive. Yet thecountr y rem ains relatively closed to FDI overall.According to the Organ isation for Econom icCo-operation a nd Developm ents (OECD) 2010 FDIRestrictiveness Index, Ind ia scored 0.22 on the index,(wher e 1=closed to FDI and 0=open). 30 By comp ari-son, the OECD av erage w as 0.095 (Canad a scored0.153), wherea s the non -OECD average w as 0.157.The governm ent of Ind ia is compelled to furtherliberalize FDI to stymie the steep d ecline in d irectinvestmen t from overseas that occurred in 2010.

The Ind ian government grants FDI approvalsau tomatically in a n um ber of sectors, subject tostanding p ercentage limits and other guid elinesthrough use of the autom atic route. Proposedinvestmen ts in strategic sectors or that exceedpercentage limits or do not meet automaticinvestmen t gu idelines are subject to ForeignInvestmen t Promotion Board (FIPB) appro valor referred to th e cabinet comm ittee on foreigninvestment.

While Canadian bu siness wou ld w elcome aninvestment chapter in the CEPA, this shouldcomplement the Canada-India Foreign InvestmentPromotion and Protection Agreement (FIPA) whichw as conclud ed in 2007 and ha s yet to be rati ed bythe Ind ian Parliament after the latter cited concernsw ith the Ag reemen t (in 2009). The FIPA w ith Ind iais needed to p rovide a solid long-term framework for two-way investment, w ith comprehensive, highstandards of protection for investors and recipientsin both coun tries. The agreemen t will protect foreigninvestors against discriminatory and arbitrary

practices, provide ap prop riate recourse in the eventof a dispute, ensu re the equa l treatment of foreignand dom estic investors and ensu re the free move-ment of capital between th e two countries. We urgethe Indian governm ent to take necessary steps to

ratify the FIPA and for the government of Canad ato work closely with its Indian counterparts tothat end.

Foreign direct investm ent in India rema ins severelycurtailed in many sectors jud ged by India to bestrategic or sensitive. Canad a has investmen tsensitivities as well. For examp les of restrictions inIndia on FDI, please consult the annex to this pap er.

Rules of origin

Rules of origin are used to d etermine when good shave und ergone suf cient p rodu ction or transforma-tion within th e free trad e area or territory establishedby an agreem ent (in this case the CEPA) to qualify forpreferential access under that agreement. To unleashthe full potential of CEPA gains for businesses in bothcountries, two imperatives must be m et:

First, tariff redu ctions mu st be matchedw ith rules of origin in the CEPA tha trecognize the increasingly interconn ectednature of global value chains, where theprod uction of many nished good s involvesinpu ts, techn ologies, services and nancingfrom d ifferent countries and jurisd ictions.Rules of origin mu st accoun t for theintegrated nature of the N orth Am ericaneconomy (NAFTA), with num erousCanad ian good s incorporating U.S. factorsof produ ction.

Second, rules of origin must be clear andeasy-to-use by businesses, as complex rulesdrain business resources, generate unneces-sary opportun ity costs and h amp er opera-

tional ef ciencies. The telephon e bookapp roach to rules of origin is straightforw ardand pa rticularly effective for businesses touse. It could serve as a good star ting point inthe CEPA context.

30 Blanka Kalinova, Angel Palerm and Stephen Thomsen: OECDS FDI Restrictiveness Index: 2010 Update (OECDWorking Papers on International Investment, No. 2010/ 3, OECD Investment Division, ww w.oecd.org/ daf/ investment)


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Customs procedures and trade facilitation

Customs p rocedu res adm inistering rules of originin the CEPA mu st be transparent, pred ictableand easy-to-use by bu sinesses. Canada and Indiamu st strive to reach common grou nd on customsproced ur es within the CEPA that facilitates themovement of goods, while enhancing security. The

joint study recogn izes the d ifferences in certi cationof origin procedures between Canad a and India. Itis imp ortant for the Canadian business comm unitythat th e CEPA maintain a self-certi cation pr ocess forCanadian exporters.

The CEPA must facilitate trad e between th e twocountries. In ad dition to achieving and ensuringstraightforward customs procedures for two-waytrad e, it is also essential that the CEPA betteralign Canad ian and Indian certi cation and otherexport-import procedures. This entails ensuringnon-du plicative procedu res for both Canad ian andIndia exporters and importers where possible, subjectto the requirement that such procedu res adhere tothe high est safety stand ard s. Also, certi cation anddocumentation formats th at create unn ecessaryburd ens for comp anies (in terms of red-tape andcosts) mu st be eliminated . For instance, the CEPAshould m ove Canada-Ind ia trade from the u se of different data requirements for export-import toa harm onized system of data requ irements, frompap er-intensive docum entation to an automatedsystem, and from mu ltiple wind ows to u se of a singlewind ow for exporters and imp orters. Add itionally,customs border ad ministration and the clearanceof goods m ust be ef cient, reliable, p red ictableand timely. The CEPA can achieve rst-classtrad e facilitation.

Intellectual property

Intellectual property (IP) is a fundamental componentof a business assets. It involves mak ing hu ge invest-ments over many years in research and development(R&D), training and skills and can be at th e core of acompa nys value. IP is key to businesses maintainingtheir comp etitive and techn ological edge, fosteringinvestmen t in inn ovation, creating high-quality jobsand growing. Given the years and resources that gointo pro du cing IP, it is vital to protect comp aniesund ertaking investments in IP from poaching.

It goes without saying that high stand ards of

intellectual prop erty rights p rotection are crucial to awell-functioning, open trade an d investment system.Yet IP rights p rotection in many cou ntries remains aserious bu siness concern. Ind ias record on IP rightsprotection is better than some other developingeconomies and its legal fram ewor k ensu res that IPconcerns are taken seriously. Even so, IP protectionsavailable in certain sectors, includ ing th e life sciencessector, and enforcement rem ains a major concernand there are ramping up issues, such as the needto properly train judges to deal expeditiously withIP-related cases in court. It is also imp ortant th atcustoms and police auth orities be fully equipped toexpeditiously seize and destroy counterfeit p rodu ctsof any national origin, since these endan ger consum ersafety, siphon revenu e from IP owners and depreci-ate brand value as a result of their lower qu ality.

Indias new P atents (Amen dm ent) Act (2005), wh ichintroduces produ ct patents in pharm aceuticals,chemicals, biotechn ology and food, is a welcomedevelopment. How ever, key concerns remain,includ ing that Ind ia: establishes paten tability that


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is limited to n ew chem ical entities (as opposed tobeing ava ilable for any form of chemical so long asit meets p atentability criteria); continues to allowfor comp ulsory licensing of patented med icines onkey und e ned bases and outside of circumstancesof extreme u rgency; do es not prov ide for any formof restoration of patent term loss du e to governmentregulatory approval p rocesses; and d oes not providepr otection against u nfair commercial use of test orother data p rovided by bu sinesses to the governmentfor marketing approval.

Canad a, like Ind ia, mu st also greatly impr ove itsrecord on IP rights protection. Canad as cur rent legaland enforcement tools are ineffective in p rotecting IPrights:

de nition s of illicit activities lack legal clarity;

protection of recording indu stry material and lms is poor ;

Canadian authorities are not adequ atelyempow ered to search, seize and destroycounterfeited an d p irated prod ucts; and

patent enforcement procedures app licable toinnovative medicines and vaccines unfairlydiscriminate against the patent holders, andCanada remains the only industrialized countrywithout an y form of patent term restoration.

The governments of both Canad a and India are fullyaw are of the imp ortance of IP rights protection to thegrowth of their respective economies and indu stryand are committed to getting their IP regimes right.In Canada, the government has p ut forth copyrightreform as a priority and is expected to get thatmu ch-needed reform into law. In India, thegovernment is w orking to pu t in place betterregulations to d eal with op tical media p iracy andthe lack of pr otection given to p harm aceuticaland agricultural chemical prod ucts against un faircommercial use of the data p rodu cers submit to thegovernment in order to get marketing app roval.Given the above, the Canada-India CEPA presents aunique op portun ity for the two countries to enhancetheir cooperation on IP related issues and to send astrong signal tha t IP rights protection is a cornerston eof both innovation and open, ru les-basedinternational trade and investment.


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Recommendations

That a Canada-India ComprehensiveEconom ic Partnersh ip Agreem ent (CEPA) bea comprehensive, balanced an d high-qualityagreemen t that achieves real market accessfor Canadian bu sinesses across sectors. Toachieve a comp rehen sive deal that is good forCanada, it is important to continue consultingwith all Canadian sectors and regions of the country.

That tariff barriers be brough t down , and onthe Ind ian side, notably tariffs on importantCanad ian exports such as agri-foodprodu cts, chemicals, wood an d p ulpproducts, metals, minerals, machinery andmechanical appliances and a nu mber of transportation produ cts. Sensitivities on boththe Canadian and India side w ill need to bedu ly accounted for.

That a Canad a-India CEPA incorporate amu ltiple-speed lowering of tariffs to provideCanad ian sectors with a n ecessary period of transition and ad aptation. Where z ero tariffson Canad ian goods app ly, it would also beessential to ensu re that n on-tariff barriersare reduced.

That a Canada-India CEPA remove, on abilateral basis, the many non -tariff barriersthat hin der the market access of Canadianexporters and investors in India, and that aCEPA include rob ust p rovisions for regula-tory cooperation betw een Canada and India.

Removing n on-tariff barriers injurious toCanadian comp anies would be the core of anymeaningful agreement with Ind ia.

That a Can ada-Ind ia CEPA remove servicesand in vestment barriers that are harmfulto Canadian companies, and that n egativelists be applied to services and investment. Any eventual agreement w ith India must alsoaccoun t for sensitivities on both sides w ithregards to services and investment, and aninvestment chapter shou ld complement themu ch-needed Canada-India ForeignInvestment Promotion and ProtectionAgreem ent (FIPA).

That a Canada-India CEPA make use of su f ciently liberal, business-friendly rulesof origin. The integrated natu re of manyCanadian sectors at the N orth Am erican levelshould be taken into account.

That a Canad a-India CEPA better align

Canadian and Indian certi

cation and otherexport-import procedures, while preservingself-certi cation for Canadian exporters.Simpler, streamlined customs and tradeprocedures make legitimate trade easier andless costly for businesses.

That a Can ada-Ind ia CEPA strengthencooperation on intellectual property rightsprotection, which is k ey to the innovationand su ccess of the Canadian and In diankn owledge-based economies.


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1. Political ties and Can adianvisibility

India is a vast coun try w ith diverse climates, terrains,cultures, langu ages and economic pro les across itsstates and un ion territories. It is a constellation of markets centred on bu rgeoning metropolitan areas.There are a d ozen or so large Ind ian cities, mostly inthe western and southern p arts of the coun try, whichare already well connected with the global economy.The nu mber of large centres is grow ing. In contra st,Indias vast rural areas and pop ulation are p oorer,more isolated and the source of a growing in ux of migrants into urban areas.

A nu mber of mostly larger Canad ian businesses havebeen very active in India for years and are familiarwith the country an d its markets. Beyond th at,

Canadian businesses familiarity with India remainslimited. Just as p roblematically, Ind ias bu siness-people, media and midd le class have only a limitedawareness of Canada. For some, Canada is that country next to the United States full stop. Ther e areexceptions. Parts of w ealthy states, such as Gu jaratand Punjab from w here imm igrants to Canada havecome, are more aw are of our coun try. Real efforts areneeded on the part of Canadian companies to marketthemselves in Indias other hotbeds of growth.

Successful Canadian companies pitch their products

and services to help Ind ians meet their needs.They have ad apted their offer to m atch those needs.What are the strengths Canada has relative toother countries?

Financial services : India and other developingeconomies app reciate Canad as conservativeapp roach to nan cial services. Not a singleCanadian bank or insurance comp any required agovernment bailout d uring the nancial crisis,

unlike many of their U.S. and European p eers.Canadas life and health insurance industry isexpert and well-managedit offers the high-quality, nancial solutions Indian consumersare seeking to mitigate risk and im pro ve theirlifestyles. Canad as stock m arkets can allowIndian SMEs to get the nancing they need.

Mining : Canada s mining sectorthe rawmaterials, the engineering, the environmentaland legal services associated w ith mining , as wellas mining nan ceis a true Canad ian cluster

of expertise. Canad a is a plentiful source of minerals and metals and a politically reliable one(few coun tries in the w orld can credibly assertthis). Canad as mining nance expertise ru nsdeep. Our mining nance poles may be furtherfrom Ind ia than, for example, Australias andSingap ores, but they are w ell connected w ithU.S., European and other global nancing hubsand pools of capital. Canad a has the w orlds toplisting for global mining comp anies.

Section III: Canada-India tiesbeyond the CEPA


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The Canadian government does play an importantniche role that contributes to adv ancing Can adianvisibility in India by actively enga ging in p oliticalexchanges w ith Ind ias government and pu rsuinggovernment-to-government cooperation across arang e of areas of mutu al interest (not to mentionmore dif cult les w here interests do not m atch).The Canadian bu siness commun ity encourages thepositive m omentum it sees behind two-way politicalties. Canada an d India do not hesitate to describe thepa rtnersh ip as strategic. In recent years, there hav ebeen regular meetings between the Canad ian andIndian prime ministers, including Prime MinisterH arp ers successful trip to Ind ia in N ovemb er2009 and cabinet ministers meetings w ith Indiancounterp arts. Cooperation across cabinet po rtfoliosin the pu rsuit of shared interests and in areas wh erethe Indian side show s interest in learning abou t theCanad ian experience (e.g. govern ance, regulation,etc.) is enriching the su bstance of two-w ay ties andconsolidating our countrys signi cance and cred-ibility as a partn er.

Meetings between Canad ian premiers and Indianstate governo rs also play a positive role, and it

is imp ortant for the pr ovinces and territories tocontinue coordinating their India outreachw ith federal efforts in a spirit of pan-Canad iancollaboration. These have served to d eepen m utu altrust, brighten Canadas beacon on Indias crowdedradar screen and generate goodw ill that tricklesdown into business-to-business ties.

These political exchan ges have stru ck the right notewith India and we encourage their continu ation.We hop e to see Prime Minister Harp er visit hiscounterparts in India in 2012. Canada may also w ant

to consider ap pointing (formally or informally) anu mber of well-known Canadians of Indian originand Canadian India watchers as goodw illambassadors to the country.

When engaging w ith Ind ia, the Canadian govern-ment shou ld remain mind ful of the need to ensureconsistency between its ties with Ind ia and its tiesw ith other coun tries in the larger Asia-Paci c region,to w hich Can ada fully belongs. As Canadas trade

and investment with India and other Asia-Paci ccountries continue to grow , so too will Canada sinterest and stake in sustaining the regions order andprosperity going forward . Approaching theAsia-Paci c region in a holistic man ner th at integratespolitical-security and economic considerations w illhelp grow Canad as older and newer p artnershipswith th e important players in that region consistentlyand in line w ith Canadian interests. Taking thatholistic approach should include Canada joiningtop-level leader n etworks that help bu ild the regionalpolitical and econom ic ord er, such as the EastAsia Summit.

Finally, it m ust be u nd erscored th at the governm entsrole as described abov e is a niche role. The onu sis on the Canadian bu siness commun ity, theacadem ic commu nity, civil society leaders as w ellas Ind o-Canad ian leaders and Canadian Indiawa tchers, to boost Canad ian visibility and credibilityin India through their own quintessential outreachto and cooperation with Indian counterparts.Fortunately Canadian entities, including businessleaders, associations such as the Canad a-Ind iaBusiness Council and the Indo-Canada Chamber

of Commerce and academic institutions such as theUniversity of Alberta are active on this front. Other sare joining their ran ks.

Recommendations

That the government of Canada continueto engage politically with its Ind iancounterp arts so as to secure Can adianvisibility and credibility in In dia.We look forward to continu ed d irectengagement betw een Prime MinisterHarp er and his Indian counterp arts, andcabinet-to-cabinet contacts.

That the government of Canad a integrateits ties with India (and other Asiancountries) with a holistic approach to theAsia-Paci c region.


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2. Ind ian investment in Canada

Just as Canad a d iversi es its internationa l trade,so too d oes it need to d iversify its sources of directinvestment. U.S. and European capital marketshav e been mor e constrained since the 2008 nancialcrisis, whereas Asian capital markets are aw ash w ithliquidity. Indian en terpr ises are actively cour tinginvestment opportu nities around the globe in a bid todiversify their portfolios and grow their markets andbrands.

The government of Canad a should continu e voicing

support for more commercially-oriented foreigndirect investmen t (FDI) from Ind ia (and other sou rcecountries) that contributes to the growth of value-add ed activity in Can ada, not only in resourcesbu t also in sectors such a s services andmanufacturing. These sectors have drawn littlecapital from Asian coun tries to date in comp arisonwith the Un ited States and Europ e. Where theInvestment Canada Act maintains a necessarygovern men t review pr ocess, it is neverthelessimportant that th e new enterprise value thresholds befully imp lemented as per the 2009 amendm ents.

Canad a is strategically located next to U.S. markets,to w hich it has preferential access und er NA FTA. Itsbu siness tax regime is competitive. The Can adianw orkforce is highly skilled. Many Cana dian sm all-and medium-sized enterprises (SMEs) and researchinstitutes in colleges and u niversities incuba teinnovative ideas whose road to commercial fruitionrequ ires access to risk capital of the sort Ind ia has.These strengths put Canad a in an advantageousposition to d raw mor e FDI. FDI that is short-term-oriented or focused on the acqu isition of existingtechnologies, know-how or d istribution an d supp lynetworks is not sough t out by businesses. Ratherwh at is sought is investment th at contributes to thedevelopment or co-development of new technolo-gies and brand s and to the grow th of indu stries inCana

canada-india_the way forward

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