India-Canada FTA: Are We On Track?
Western economies are increasingly recognising India as a geopolitical and trade partner. India is also indispensable for Canada's strategy in the Indo Pacific region. India too wants to bolster its ties with Canada, acknowledging which Minister of Commerce, Piyush Goyal has announced India-Canada will review its Free Trade Agreement (FTA) with India, the progress of which will be reviewed every 15 days. If this happens, Canada will be the first among G7 countries to sign a pact with India.
What is FTA?
Simply put, FTA stands for Free Trade Agreement. The deal can be signed between two or more partners where they agree between certain obligations which protects trade, investment, and IPR (Intellectual Property Rights) among other issues. The idea is to reduce or remove trade barriers between the parties. So far, India has signed FTAs with 13 countries. It helps corporate sector of countries to enter and compete easily in the market place through zero or minimal tariffs. It creates a more predictable and transparent trading environment.
Given that India has one of the highest import tariffs at over 15 per cent, it is important to have these agreements to increase imports. The IPR protection is important to take care of artistic inventions, and investments in research and development (r&d). For example, investment to develop medicines require high r&d with a lot of uncertainty.
Where are the trade relations today?
India exports $2.9 Bn to Canada as against $2.85 Bn in 2019-20. Imports stood at $2.66 Bn as against $ 3.9 Bn in 2019-20. A major chunk of this trade is in agri food products. While the trade is balanced and there is no major deficit, there is still a lot of untapped potential.
If India expects to push for greater market access for pharmaceutical products, agriculture goods, more IT jobs, readymade garments, and export of Indian organic products. Basically, India wants to diversify its export list. For Canada, India is a good option for expanding its trade options given that USA is becoming more protectionist. The former still has a bulk of its trade with USA. Canada's second largest trade partner is China which is becoming a risky place to do business. Additionally, Canada wants to increase its presence in the Indo-Pacific region which further incentivises it to increase trade with India. The country can benefit from having a Comprehensive Economic Partnership (CEPA) with India.
The talks for FTA between India and Canada started over a decade ago in 2010, following which the last rounds of talks occurred in 2017. There has been a lull since 2017, until we saw talks of relaunching the trade agreement talks in March 2022. By the time it was May 2022, second round of talks has already commenced. In September 2022, fourth round of talks had already taken place, and the two parties came up with Early Progress Trade Agreement (EPTA). The latest round concluded on 14th November, the details of which are yet to be released.
As per some estimates India is set to become the third largest economy after USA and China. Given this fact, it is not a surprise that many countries want to sign a trade agreement with India. Canada right now a in sweet spot where it can be a win-win situation for both the parties. There are minor, solvable issues between the two countries like dairy product trade, and permit approvals. However, none of these issues are larger than life deal breakers. We are in a good position to head towards CEPA by 2023. Given the moderate trade numbers between both the countries at present, we are in a good position to amplify it.
