International Trade Committee on Nov. 27th, 2012

[The Chair, Conservative, Rob Merrifield]

We want to call the meeting to order. We are continuing with our study of a comprehensive economic and partnership agreement with India.

We want to thank the department for coming in. We're excited about hearing from our department with regard to how things are going. I'm sure that it's going to stimulate a considerable number of questions. We want to thank our chief negotiator, Mr. Don Stephenson, and his team for being here with us.

We will yield the floor to you. We look forward to your presentation as you introduce the rest of your guests.

[Don Stephenson, Chief Trade Negotiator, Canada-India Comprehensive Economic Partnership Agreement, Department of Foreign Affairs and International Trade]

Thank you kindly, Mr. Chair.

It is my pleasure to be here today to speak on the topic of the Canada-India Comprehensive Economic Partnership Agreement, or CEPA, negotiations.

With me from the Department of Foreign Affairs and International Trade are Luc Santerre, Director of South Asia Commercial Relations, Catherine Gosselin, Deputy Chief Negotiator for the CEPA negotiations, and Shendra Melia, Deputy Director of the Services Trade Policy Division.

As the committee will no doubt recall, we discussed the CEPA negotiations almost a year ago on December 1, 2011. Since that time, the negotiations have been progressing well through the initial stages. Four rounds of negotiations have been held, and we will soon move towards the next and more intensive stage of the negotiations.

The decision to pursue the CEPA negotiations with India is a key part of Canada's broader strategy of engagement with this increasingly important country. As Prime Minister Harper stated during his recent state visit to India, our government is committed to promoting greater trade and investment with India. India is a growing economy with enormous potential, and expanding our trade and investment links with India will create jobs, growth, and long-term prosperity here in Canada.

The visit of November 4 to 9 was Prime Minister Harper's second official visit to India. Prime Minister Harper was accompanied by a high-level delegation comprising three ministers, including the Honourable Ed Fast, Minister of International Trade, five members of Parliament, two senators, senior officials, and business persons. In addition to New Delhi, the Prime Minister visited Agra, Chandigarh, and Bangalore.

Prime Minister Harper and Prime Minister Singh held detailed discussions on bilateral issues and on regional and international issues of mutual interest. Most notably, the prime ministers announced the conclusion of negotiations for the administrative arrangement between Canada and India that will allow the implementation of the nuclear cooperation agreement between the two countries that was signed in June 2010. They witnessed the signing of the Canada-India Social Security Agreement, which will enable Canada and India to better coordinate the pension provisions and contributions of their citizens who have worked in both countries. They also commended the convening of the first meeting of the India-Canada CEO Forum.

Furthermore, Prime Minister Harper announced the winner of the Canada-India Research Centre of Excellence competition, and Minister Fast welcomed the announcement of commercial agreements worth more than $2.5 billion. The two leaders also noted that bilateral trade at its current level does not reflect the true potential of the commercial relationship and reiterated their shared desire to see bilateral trade reach $15 billion by 2015.

In 2011, two-way foreign direct investment reached $5 billion, and bilateral merchandise trade reached $5.2 billion, an increase of 23.4% from 2010. As Minister Fast remarked:

Canada's growing trade with India is fuelled by our strong people-to-people ties. India is a growing economy with enormous potential, and our government is committed to further strengthening the links between our two countries.

The CEPA negotiations have an important role to play in reaching this potential.

The committee will recall that in November 2009 Prime Ministers Harper and Singh announced the formation of a joint study group to examine the feasibility and benefits of a comprehensive economic partnership agreement. The joint study was publicly released in September 2010 and concluded that free trade could boost the economies of both Canada and lndia by at least $6 billion, increase bilateral trade by 50%, and directly benefit a variety of Canadian sectors, which we discussed in more detail last year.

Let me now provide some context to the CEPA negotiations, an update on where we are in the talks, and what we expect in the coming months.

Canada, as you know, is pursuing an evermore ambitious array of trade negotiations with partners around the world.

Since 2006, Canada has concluded free trade agreements with nine countries: Colombia, Honduras, Jordan, Panama, Peru and the European Free Trade Association member states of Iceland, Liechtenstein, Norway and Switzerland. In addition, Canada is pursuing many other negotiations including with the European Union, Japan and Korea. Exploratory talks have also been launched with Thailand, and more recently, Canada joined the Trans-Pacific Partnership talks.

As part of Economic Action Plan 2012, the government committed to updating the 2007 Global Commerce Strategy to align Canada's trade and investment objectives in specific high-growth and strategic priority markets. Canada's pro-trade agenda is also driven by the need to ensure that Canadian workers and companies can compete on a level playing field with their foreign competition.

India has already negotiated several trade agreements, including with Chile, ASEAN, Korea and most recently Japan. India is also currently negotiating with New Zealand, Australia and the European Union, and the queue is likely to continue to grow in the coming years.

So where do negotiations stand today?

Following the release of the joint study, the prime ministers of Canada and India formally announced the start of the CEPA negotiations in November 2010. Six rounds of negotiations have been held to date, four of them since we last met, in December 2011. The third, fourth and fifth rounds were held in December 2011, February 2012 and July 2012, all in New Delhi. Most recently, the sixth round was held November 15 to 17, here in Ottawa.

India typically conducts its trade negotiations with a very small team. As a result, rounds with India are shorter and more focussed than is Canada's usual model.

In terms of structure, seven negotiating tables have been established covering the key areas of the agreement. These are goods, technical barriers to trade, sanitary and phytosanitary measures, origin procedures, customs and trade facilitation, institutional issues, and services. That includes cross-border trade in services, temporary entry, financial services, and telecommunication services. We have also agreed that other areas as identified in the joint study may be discussed in future rounds.

Following a productive sixth round, at which most areas were discussed, the first stage of the negotiations is coming to a close. We have exchanged information on approach, trade data, tariff information, and model text. Progress has been made towards consolidating text in a number of areas. We have different approaches in some areas of the negotiations, and the sixth round provided an opportunity to address some of these issues. We plan to further these discussions intersessionally.

We are starting to move toward the next stage of the negotiations that will involve the exchange of first offers in goods and services. During the round, my counterpart and I discussed how we can intensify the negotiations and lay down a road map of next steps through to the conclusion of the negotiations.

The negotiations with India are a high priority, and our target remains to complete negotiations by the end of 2013, further formalized during Prime Minister Harper's visit to India, as the two prime ministers welcomed the progress being made in the negotiations and reaffirmed their desire to conclude in 2013.

Based on consultations to date, the CEPA negotiations enjoy broad-based support from stakeholders in Canada, including the provinces and territories. We will continue to consult with and seek advice from stakeholders as we proceed.

Our aim is to move forward with ambition to ensure a forward-looking agreement that captures our current trade today and facilitates the Canada-India economic relationship into the future.

In conclusion, Mr. Chair, the government is committed to deepening Canada's trade and investment ties with India, as shown by Prime Minister Harper's visit to India.

Canada has an ambitious trade negotiations agenda, and the CEPA is a key element of that.

I thank you for the opportunity to address the committee members. My team and I look forward to hearing your views, which will inform our negotiations. We would be pleased to answer your questions.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your presentation. I know that you've just finished your sixth round, right? To be done by the end of 2013 is very ambitious, but we wish you all the success in that.

Mr. Davies, the floor is yours for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Stephenson, first of all, thank you all for being here, and thank you for your expertise and service. I know that we have an excellent team negotiating on our behalf.

There are a couple of basic goalposts here, Mr. Stephenson. Do we currently have a trade deficit or a surplus with India? For that, you can break it down to a trade deficit and a current account deficit, however you wish.

[Don Stephenson]

The trade in merchandise between Canada and India is roughly the same, roughly balanced. We have $5.2 billion worth of trade, and it's about fifty-fifty.

With respect to the current account, I'm unsure, and we'll have to consult an economist to answer your question properly.

[Don Davies, NDP, Vancouver Kingsway, BC]

Now, I know that India presents quite a positive profile for us in terms of trade. Their population will grow to 1.5 billion by 2050 and the population is getting younger. My figures are that they plan on spending a trillion dollars on public infrastructure in the next five years, and they're building an industrial corridor between New Delhi and Mumbai, so I think there are some great opportunities. Their economy appears to be growing at a rate of around 5% currently, but that has been as high as 8%.

My understanding is that the Indians are interested primarily in investment and technology—more so than exports from Canada—and I'm wondering if you could comment on that.

[Don Stephenson]

First, I would say that when Indians talk about their priorities in terms of economic development, they talk about food security, energy security, public sector infrastructure, and education. All of those are areas of tremendous Canadian strength, where we have a lot to offer and there's a lot of potential.

In a more general sort of way, India's interests are indeed, as you say, principally in investment, as they can't reach any of their development goals without foreign investment, and in technology, and that applies pretty much in all of those sectors, but in all sectors generally speaking. So in terms of the Indian interest, I would say that it is more in investment than in imports from Canada, but in certain sectors the imports are extremely important to India. For example, potash and lentils contribute to their food security, one of their highest priorities. That would be my guess.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

In your notes, you say that we have “different approaches in some areas of the negotiations” and I think that's to be completely expected. I would presume that one of those different approaches might be an investor-state provision.

We've been reading that India has been very reluctant—or certainly nervous—about investor-state provisions. There have been three suits filed in 2012 against the Indian government: one in April by the British telecom giant Vodafone; on February 28, there was the Russian conglomerate, Sistema; and thirdly, a Norwegian telecom company, Telenor, has also threatened to invoke the India-Singapore Comprehensive Economic Cooperation Agreement to protect its investments as well.

Have you had any discussions with the Indian negotiators around investor-state provisions, and is Canada pushing for an investor-state mechanism in this agreement?

[Don Stephenson]

The CEPA will not include investment protection. Investment protection is being dealt with in another negotiation on a foreign investment promotion and protection agreement, in which Canada would seek.... Canadas's standard model includes investor-state provisions, but that's not my negotiation. That's another one.

[Don Davies, NDP, Vancouver Kingsway, BC]

Exactly, so you may not know this. I may have this wrong, but I think I heard in the House in the last week or two that the Canada-India FIPA had been negotiated but not yet signed. First of all, do you know if that's correct? If it is correct, do you know if that agreement as negotiated does or does not have an investor-state provision?

[Don Stephenson]

Well, I don't want to take a misstep on someone else's negotiation. As I understand it, India is currently in a process of review of their model for foreign investment protection agreements, and that may have some bearing on our negotiation.

As I said, I know that our standard FIPA model includes investor-state provisions, but I wouldn't venture any farther with respect to somebody else's negotiations.

[Don Davies, NDP, Vancouver Kingsway, BC]

That's fair enough.

Can you tell us if there are areas of the Canadian economy that might be vulnerable to an agreement with India? We talk a lot about the advantages. We want to be optimistic, but surely no trade deal between two partners is a complete win for either party. I'm interested in finding out where you think Canada's vulnerabilities are.

[Don Stephenson]

The first thing to say about vulnerability in a trade negotiation is that the outcome you're looking for is one that protects your interests and that you don't do a deal that puts you at risk. You are looking for win-win.

With respect to the sectors that have expressed some sensitivity, it's sort of logical. Those areas where we tend to have higher tariffs are the areas that expressed the greatest concern.

For example, in textiles and apparel, there have been concerns with respect to temporary entry of business persons, and, as well, in a couple of sectors, such as the gems and jewellery sector, for example, because India is a huge producer and exporter of gems and jewellery. Those are the sectors that have expressed concerns, but that's about it.

[Don Davies, NDP, Vancouver Kingsway, BC]

You say that Canada's pro-trade agenda is “driven by the need to ensure that Canadian workers and companies can compete on a level playing field”. I think it's fair to say that Indian wages and benefits are significantly below Canada's. Do you see any vulnerability there? If we allow goods and services to enter Canada tariff-free from a country that has very different wages and benefits—in fact, quite a bit lower—are there any vulnerabilities there, do you think, for our Canadian manufacturers?

[Don Stephenson]

Well, the wage cost is the principal—or at least one of the principal—Indian competitive advantages. That is just in the nature of trade. I don't see that as a major vulnerability to Canadian exports in any sector that I can immediately think of.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we'll move to Mr. Shory, who was with us in Japan, only to fly home to return to India, so he was with the visit in India.

Mr. Shory, the floor is yours.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Yes, some people are jealous of that.

[Voices]

Oh, oh!

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thank you to the witnesses as well.

I have had an opportunity to talk with you as well, Mr. Stephenson. First of all, I want to thank you and your team for putting all your energy towards this negotiation.

You made a comment in your opening remarks that you have a plan to intensify the negotiations. As the chair said before, I wish you good luck. You may want to share it with us. How are you likely to proceed to intensify the negotiations so that we can finalize it before our targeted date?

[Don Stephenson]

In the course of the most recent discussions with India, the sixth round of negotiations two weeks ago, Canada made proposals with respect to the structure of the services, market access negotiations, and the temporary entry of business persons.

I think that is a first step in engaging the market access part of the negotiations, the exchange of offers, and the real—forgive me—horse-trading, the real negotiating process. At that point, it seems to me that a more intensive process will be possible with India and will logically follow.

At the last session, we began, between the two chief negotiators, to have a discussion about a road map through to the end of the negotiations, as I said. That certainly included more frequent meetings, starting with an intersessional meeting in January, a meeting would focus on market access issues. At that point, it seems to me that meetings perhaps every other month would be possible and would move us to a conclusion at the end of 2013.

[Devinder Shory, Conservative, Calgary Northeast, AB]

You may also recall, Mr. Stephenson, that during our visit last year, we were told that there are tariffs applicable of up to 30%—for example, on lentils. Of course, tariffs will be negotiated. Are you aware of any non-tariff barriers, and are they an obstacle? Are you negotiating those non-tariff barriers as well?

[Don Stephenson]

First of all, with respect to the tariff on lentils, the bound tariff in the WTO, the tariff that India may not exceed, may be 30%, but the applied tariff is often at zero when India needs the imports. The problem with that is the uncertainty with respect to whether the tariff is going to remain at zero or move back up. In the negotiations, we'll be looking to lock in low tariffs, even when they're applied at very low levels, including at zero.

With regard to non-tariff barriers, there are significant non-tariff barriers. There are sanitary and phytosanitary issues with respect to our agricultural trade in India that present important barriers to our trade. We try to address them with the appropriate authorities each time we're in India.

Some of these issues must be addressed outside the negotiations, but we make the effort of trying to advance those discussions every time we're there, because we understand that even if we get additional market access in the deal, if there are still non-tariff barrier problems getting the product into the market, it doesn't help our producers. With respect to what we do inside the agreement, we try to negotiate a streamlined process for dealing with disputes or issues in market access, including sanitary and phytosanitary measures, and for recognizing each other's standards and procedures like that.

[Devinder Shory, Conservative, Calgary Northeast, AB]

As Mr. Davies mentioned, there are huge opportunities in infrastructure. When we were there, we visited the McCain plant. They told us how they have created jobs there and also how successful they are.

On the other hand, when I look at investments, I see that Indian companies have more investments in Canada, whereas Canadian companies have fewer investments in India. What is the reason? Is there any obstacle? What would encourage companies or make them feel comfortable, I would say, to go out and invest in that market and take advantage of all the opportunities that Mr. Davies mentioned?

[Don Stephenson]

I like to use the McCain plant as the best example I can think of in regard to investing in India, because they took a very patient approach, they took a very local approach, and they are very successful.

With respect to the balance in the flow of investment, it's a little bit difficult to be confident in the numbers, because a lot of the investment of which we are aware between Canada and India doesn't seem to show up in our numbers, our official numbers. Sometimes this is because the investment goes through another country for tax or whatever reasons. I would point out, for example, that the largest investor of any country in India is Mauritius. This seems clearly to be for corporate tax reasons or others. That's the first thing.

With respect to what the concerns or the impediments are to Canadians investing more in India, I'd take us back to the discussion of the FIPA. I think that having the certainty and predictability for the protection of your investment in India that a FIPA would provide would certainly help with regard to Canadians feeling more comfortable about making investments in India.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Easter, you have seven minutes.