The Hindu | 14 January 2016
Canada-India free trade agreement talks delayed
The negotiations on the Canada-India free trade agreement (FTA), which began in in November 2010, have been put on the back burner due to several sticking points, official sources privy to the development told The Hindu.
Canada, the sources said, had pulled back its team that was negotiating India on the FTA — officially called the Comprehensive Economic Partnership Agreement — and asked them instead to focus on completing the ratification process of the Trans-Pacific Partnership (the U.S.-led mega regional FTA between 12 Pacific rim nations, including Canada). India is not a part of the TPP.
Simultaneously, Canada — citing demands from investors, especially from the financial services sector, for protection of their rights — wanted India to first ensure that the bilateral Foreign Investment Promotion and Protection Agreement (FIPA) is signed and brought into force, before proceeding with the FTA talks. The FTA includes chapters on opening up merchandise goods and services trade between both the countries. The investment aspects are covered separately by the FIPA. The sources also said there are major differences between both the sides regarding the FTA though nine rounds of negotiations have been held including the last one in March 2015. The FTA is meant to help Canadian companies get greater access to India’s huge market comprising over 1.25 billion people and Indian firms obtain more access to the lucrative North American market by using Canada as a hub.
The High Commission of Canada did not respond to specific questions from The Hindu on the reasons for the delay in signing the FIPA and in concluding the FTA talks but only said: “Canada’s new government is focusing on expanding trade with large fast-growing markets, including India… Canada’s new government looks forward to engaging India on key economic and other issues that will enhance our mutual prosperity.”
Differences on FIPA
In June 2007, India and Canada had said they concluded the FIPA talks. However, the FIPA is yet to be ratified and made operational, the sources said. Later, India had decided against signing new Bilateral Investment Treaties (BIT) till a model BIT text was in place. Though India had recently brought out a model BIT text, the matter is yet to be taken forward with Canada. However, the sources said since the Indian government had decided to accord sanctity to all the BIT negotiations that went on till the freeze on signing new BITs, such a window could help in expediting the signing of the Canada-India FIPA.
It is learnt that Canada has differences with India regarding clauses in the proposed FIPA including on the Investor-State Dispute Settlement (ISDS) mechanism.
In case of any dispute, India wants investors to exhaust the domestic remedies before approaching international tribunals. But Canada is worried about judicial delays in India and wants flexibility to help investors approach international tribunals at the earliest. Also, Canada wants India to ensure protection of investment commitments made based on existing policies in case any roll-back / changes in those policies later hurt those investment plans.
India has not agreed to Canada’s demands on these issues fearing that they will lead to the government losing policy space.
The unresolved issues in the FTA include clauses proposed by Canada namely “MFN-forward” and “ratchet”. ‘MFN-forward’ is to ensure that future concessions — accorded by India to any other trading partner country under a bilateral pact — are extended automatically to Canada as well and vice-versa. India has opposed “MFN-forward” saying each FTA is inked on the basis of a unique relationship with the partner country and automatically extending all such benefits to Canada will lead to imbalances and conflicts.
‘Ratchet’ is to make sure that the benefits arising from future liberalisation of India’s domestic policies are automatically extended to Canada, and vice-versa. India is against ‘ratchet’ as “it will result in a loss of policy space for the government.” India has also opposed Canada’s attempts to include labour and environment standards as well as competition and government procurement in the FTA.
India-Canada trade in 2014-15 was just $6 billion (with India’s exports at $2.2 billion and imports from Canada worth $3.8 billion), much below potential.
FDI inflows from Canada to India during April 2000-September 2015 were only $586 million (or 0.22 per cent of the $265 billion in total FDI India received in those 15 years).