International Trade Committee on Nov. 29th, 2012

[The Chair, Conservative, Rob Merrifield]

I'll call the meeting to order.

We want to thank our witnesses for being here.

We are continuing our study on a comprehensive economic partnership agreement with India. We have two hours of witnesses.

In our first hour, we have the former president of the Indo-Canada Chamber of Commerce, Mr. Thakkar.

Thank you for being here. We'll give you the floor first, and then we'll introduce Mr. Langrish, a commoner to our committee.

We'll yield the floor to you, sir. We look forward to your deliberations.

[Satish Thakkar, As an Individual]

Ladies and gentlemen, I am Satish Thakkar, the immediate past president of the Indo-Canada Chamber of Commerce. I am also a practising chartered accountant and CGA. I run a boutique business and financial consulting firm in Toronto.

It is a great honour and a privilege to be appearing before the House of Commons Standing Committee on International Trade.

The comprehensive economic partnership agreement, CEPA, that is at present being negotiated between Canada and India, and that is scheduled to be finalized and signed in 2013, will undoubtedly expand bilateral economic relations and put them on a different, speedier trajectory.

Canada and India share many socio-economic and political traits. They are both parliamentary democracies and pluralistic societies that are governed by the will of the people. Both are knowledge-based economies that are based on a perennially expanding services sector. Both societies and economies have complementarities which, if harnessed properly, will lead to integration of bilateral relations.

One of the less acknowledged aspects of the two countries is that they are neighbours to giant economies and political superpowers. In Canada's case, it is the United States. In India's case, it is China. Not surprisingly, the largest trading partners of both countries are their neighbours. The economic slowdown in the U.S. and the focus on internal consumption in China are significant global shifts in economic trends, and will bring Canada and India closer in the near future.

Canada has many things to offer India, and Canada needs to look at India with the seriousness it deserves. India's unparalleled growth is not something that Canada can ignore. Growth has averaged 8% of GDP for over a decade, and will continue to grow for a long time. In addition, the number of consumers, at 1.2-billion strong, with a rising upper middle class, offers tremendous opportunity for Canadian goods and services.

Some statistics are just mind-boggling. For instance, in telecommunications, there are more than 500 million cellphone subscribers, with an additional 10 million to 15 million added every month. In infrastructure, India plans to spend $1 trillion on infrastructure in the near future. In education, India needs more than 1,000 new universities and 50,000 vocational colleges to cater to its growing needs. The demographics in India, where more than 50% of the population is young, under the age of 25, will ensure that the demand in all spheres will remain high and insatiable.

In all these three spheres, Canada can offer India a great deal. It is no wonder that the world is out to do business in and with India.

As compared with Canada, Australia, for example, has three times the trade volume with India, even when Canada' s economy is 50% bigger than Australia's. One of the major causes of Canada's relative economic isolation is its over-dependence on the United States. That is not a bad thing, per se, and the significance of the United States is not going to be reduced. The U.S. will remain Canada' s major trade partner for years to come, but its significance will reduce because of the negative impact of the economic slowdown south of the border and the rising economic prominence of Asia.

Canada has reformulated its international trade strategy, particularly when there is a heavy demand for such Canadian goods and services as agro products, energy, minerals and metals, and other high-tech products in Asia. In such an emerging scenario, CEPA offers Canada a long-term relation-building instrument with India, and will assist in addressing issues that have kept the economic relations frozen at a suboptimal level.

These are among the issues that will be on the agenda: elimination of unnecessary tariffs; liberalization of laws related to import and export; the overall regulatory environment; trade facilitation; re-examination of the foreign direct investment regime; the movement of people; and other areas of economic cooperation, such as intellectual property rights, cooperation in agriculture, innovation, science and technology.

Already several agreements in many of these sectors have been inked between the two countries, but the comprehensive economic partnership agreement will open new vistas.

However, I don't wish to create an erroneous impression about the opportunities that India offers, because these opportunities are wrapped in major challenges. For example, FIPA, which was concluded in 2007, is yet to be ratified by Parliament. India remains a very challenging business environment, with red tape, regulatory complexity, restriction on trade and investment, infrastructure challenges, and a very different business culture.

All these things require long-term commitment to succeed.

What can work in this scenario?

The key mantra to succeed is to offer a value proposition through a product and service that is in sync with India’s social and economic development agenda and meets the consumption and income habits of the consumer. The framework for CEPA should be such that both countries should see this value creation jointly, as partners, rather than as a client-supplier relationship. It should be a balanced, high-quality agreement to ensure long-term real market access.

An urgent task is to enhance Canada's visibility in India. Canada should not be viewed merely as a tourist destination, as the coldest place on earth, with beautiful scenery and a good standard of living. Instead, our strengths—financial services, health care, mining, energy, agrifood products, aerospace, transportation, sustainable engineering, high-level education—should be profiled properly.

The Canadian government, through political exchange, is doing and should further enhance visibility and credibility in India. The two visits by Prime Minister Harper and the exchange of senior-level ministerial visits are welcome developments and should be sustained.

Finally, the key role of the Canadian business community, academic community, Indo-Canadian leaders, and India watchers should be to work together to be the ambassadors of Canada promoting Canada's interests.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Before we get into questions and answers, I will mention that we also have, from the Canada-India Business Council, Jason Langrish, senior trade adviser.

Last time you were here, I forget the exact title you used.

[Jason Langrish, Senior Trade Advisor, Canada-India Business Council]

This is my second of a few hats.

[The Chair, Conservative, Rob Merrifield]

The floor is yours.

[Jason Langrish]

Thanks very much. I appreciate the opportunity to address the committee today.

As Rob mentioned, I've been active on the Canada-EU agreement, but obviously I'm here today in my capacity as an adviser to the Canada-India Business Council.

I'm not going to echo a lot of the remarks that Satish has made, which I agree with; I'm going to focus my comments on the more granular aspects of the CEPA negotiations.

Before doing that, however, I will say that there a few principles that I think should be guiding this relationship.

One is that it's a long-term relationship. A trade agreement can only do so much.

I'd add the caveat that I don't believe it's the responsibility of trade agreements to open up markets, per se. I think that's the responsibility of business, and government can assist where they're able to assist. I think trade agreements predominantly exist to manage increasingly complex commercial relationships. That said, the CEPA can be a very useful tool for furthering this relationship and getting some immediate gains.

I also agree with Satish's remarks that the visibility of Canada in India, and Canadian business in particular, needs improvement. I think more attention should be paid to it.

As occurs in a lot of the big emerging markets, or in many cases markets that have already emerged, the focus tends to be on the large companies, in some cases the state-owned companies. However, there's another tier that's emerging that's very significant, very entrepreneurial, and potentially could be just as good, if not better, in terms of long-term strategic partners for Canadian service providers, investors, and also companies that trade in goods.

With regard to the CETA, one thing that's been notable in the business community has been the delay; it hasn't gone unrecognized. I think there's a sense that some deliverables need to be forthcoming rather soon.

There is some skepticism out there as to the degree to which, one, this agreement is going to be concluded, and two, the level of ambition that it's going to have. At C-IBC we still think this agreement can be concluded in a timely manner and can have ambition. However, all trade agreements are not the same. As an example, the trade agreement being negotiated with the European Union is a much more comprehensive agreement, but it's also a reflection of the scale of the trade, the investment relationship between the two territories, the institutional linkages, and the existing familiarity between the two sides, which allows you to negotiate intellectual property protections, public procurement, and those types of things.

In the India deal, I suspect that those things probably won't be in at least the first rendition of the deal. However, when you start looking at things like tariffs, it's a 9% average tariff across all tariff lines for Canadian products into India, and 95% of goods have tariffs attached to them. In the agricultural space, the tariffs average about 30%. There's clearly room for elimination of tariff in market access for Canadian agricultural, and industrial, and processed foods, the whole gamut, really.

There is also the issue of certainty. For instance, on lentils there's zero tariff at present. However, there's a shortage of lentils in India, so the market is open. That's not a certain market. The market can be closed at any time. A CEPA can reinforce the fact that this zero tariff on lentils will not be removed, shall we say, based on changes in circumstances on the Indian side. This is important. I mean, if you want to develop a deep long-term relationship, certainty needs to be a component of that.

I'd underline, as well, that it's essential that this FIPA be concluded in fairly short order. It's going to be very difficult to conclude a CEPA that doesn't have a FIPA element.

I'm assuming that the thinking is that the FIPA will become the investment component of the agreement. If that's the case, it's going to be very difficult to conclude the FIPA after a CEPA. It seems to me that the CEPA would need to be there in advance.

As to the details of what will be in the FIPA, it's hard to say. Will there be investor to state....? I know that's become a hot topic lately in the media. I don't think that's the principal issue. The issue is fair treatment for investors, as close as possible to the concept of national treatment, which means if you meet all the same kinds of requirements and legal conditions, you should be treated the same as a domestic investor. Also, there's the risk of expropriation. Of course this is notably of concern, and the risk of expropriation becomes more and more prominent in such areas as mining. It's something that would certainly need to be addressed.

I think this agreement could use some thinking outside the box. If it doesn't move a bit more quickly in the next little while, we may want to look at some thinking outside the box. I'll throw out an example of where you may be able to do something on this.

One of the big prizes of the Indian market is insurance, financial services, commercial banking. As it stands, there is no possibility to get a majority ownership stake in these areas. I believe it's about 49%. In some cases it's lower.

What India is very keen on, in particular, is getting a mode 4, which is the temporary entry of workers, in particular in IT. They have a very large and successful IT industry and everything that comes with that. However, if they're not able to leverage that, and that's not just providing IT and related services in India, but it's also the ability for their people, for Indian citizens.... This isn't immigration; this is economic immigration, temporary entry. If they don't have the ability to move their workers abroad, if they don't have the ability to get their workers into Canada, to service their client base and also grow their businesses, they're not going to be that interested in an agreement.

There is an opportunity here. For instance, in the case of the deal that the European Union is currently negotiating with India, there has been pushback in this area. That's because the issue of temporary entry has been confused with the issue of immigration. Notably in the U.K., and when places are going through economic trouble, one of the first things that starts popping to the forefront is that they don't want immigration into their country. That whole debate really misses the fundamental point, which is that this is not immigration for immigration's sake; this is strategic entry tied to investment.

Perhaps Canada could say that in return for their opening up their banking, commercial banking and insurance market to Canadian participation above the minority threshold, we would reciprocate by opening up our market on mode 4 temporary entry for their workers. The reason this would be compelling to the Indians—and I don't think this would be a discussion that would necessarily occur in the first instance with the negotiators, but probably something that would have to be debated with India at the planning committee—is that it would signify for them for the first time with an advanced country getting a win, and establishing a precedent that they would really like to have.

In return, they'd be opening up to participation from Canadian financial service and insurance providers, that are not necessarily of the scale, or at least have the perception, that they would have an undue influence on the market. This is an area that could be pursued.

As it stands, what we're looking at is a deal that would include those things, and then probably we would also look at goods and services. I understand they're going to take a positive list, which means you cover only the things that are on the list. That's not as ambitious as a negative list, where only the things that are excluded are not covered. So you have an opportunity there to push the goods and services angle.

The investment component is obviously key, but we have to look at it this way: if Canada is offering, what is India getting? The Canadian side wants market access. The Canadian side wants investment opportunities in India, but the Indians really need to get something as well. It's not just access to the commodities we have and the expertise we have that they could use in, say, engineering, public transit, and all those areas where there is potential for gains. We have to give them something in return, and that something in return has to be a recognition that this is a key strategic growth area for them, and they want international, tangible recognition of this.

I would encourage that further consideration be given to that. This is not necessarily precedent setting in the sense that the temporary entry program was quite successful and had been implemented. I believe it's been temporarily suspended, but I think that's something that should be revisited.

All in all, it's a long-term relationship. I think it's important. The political commitment has been very good. Probably the political commitment and the business participation could be a bit more joined up. For instance, in visits to India, missions to India, rather than business going separately from government, I think they'd do better if they did it together, at least in some instances.

All in all, the business community stays very optimistic about this deal, but the optimism won't be there forever.

Thanks very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now go to questions and answers.

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

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you very much for being here today, and thank you for your time.

Mr. Langrish, can you envision a FIPA without investor-state provisions in it, and what would that look like?

[Jason Langrish]

Again, I know that right now this is a hot topic of debate. There are various models. I guess it would be state-to-state. Essentially what that means is that if a company feels that their investment rights have been violated, as opposed to being able to petition, to basically access the dispute resolution mechanism directly vis-à-vis the government that they feel has contravened their rights, they'd have to get the Canadian government to take up the cause on their behalf.

I think investor-state provides a greater level of certainty. Usually investor-state is pushed with developing nations because of the risk of decisions being made based on short-term political calculations. I would also argue that it's in the interests of the countries to make those levels of commitments, because it signifies to the investors that they're in it for the long haul.

If it were not to take that course, it would likely take state-to-state. I think that would be acceptable, but it certainly wouldn't set a gold standard.

[Jasbir Sandhu, NDP, Surrey North, BC]

Okay.

We've heard in this committee that trade with India has been relatively small compared with maybe China in regard to Canada. It's $5 billion, and a relatively equal amount of trade.

What are the main obstacles to preventing more trade with India? How is the CEPA going to enhance that? You said earlier that trade agreements themselves don't expand relationships; it's the businesses investing, working with the companies. What are the obstacles that are preventing more companies from doing business with India?

That's for both of you guys.

[Satish Thakkar]

That's an excellent question. That's the kind of debate we always go through in various round tables on the part of the Indo-Canada Chamber of Commerce.

To enhance or further a trade relationship, first you have to build the relationship. What has happened between Canada and India is that for the last, I would say, five to seven years we have taken so many good initiatives to bringing the relationship closer, and that has impacted. If we look at it that way, it has gone up almost 24% in the last two or three years.

There are a couple of things here. The first is profiling Canada in India so that they perceive Canada as a major trade hub, see the key strengths of Canada, and look at those economic opportunities. Number one is creating the awareness. That awareness happens on both sides, from the government level as well as from the business level. You have to create a kind of aura around the business community that they always think about when they're looking to source any product, whether they are thinking about the United States or they are thinking about any other country surrounded by that neighbourhood.

The second thing is the movement of people. If we look over the parameters of CEPA, one of the key aspects is that, apart from goods and services, the movement of people will be addressed as well. One of the key examples is the one Jason has just given, regarding the temporary visas for the IT professionals. In India, the IT industry is close to a $100-billion industry. In Canada, it's only a fraction of that. At the Indo-Canada Chamber of Commerce, we have some members in the IT sector, and a common complaint is that they are offering products and services where they can bring a lot of valuation, but if there is no free flow of people, it becomes harder for them.

Mind you, when people move here, even on a temporary basis, they bring a wealth of experience. They bring a wealth of connections. It's not limited to only one particular industry they are serving. They look for opportunities 360-degrees.

I think CEPA will help overall when we have more flow of goods, more flow of people, more interaction at the political level, at the business level, at the community level. It will strengthen that relationship, and the business will automatically happen.

[Jason Langrish]

I would just qualify my remarks when I said the principal role of free trade, but free trade can open markets, of course, notably in, say, commodities agriculture.

I think the CEPA can assist with that, notably in areas like trade in uranium, lentils, and perhaps wheat, perhaps in LNG, liquefied natural gas. Half of the trade between Canada and India, as I understand it, is held by Saskatchewan. There are opportunities.

Just by way of comparison, Canada and Europe had a relatively basic framework. It came out of this third option from the Trudeau years. It was a fairly modest vehicle for facilitating trade and investment—trade and investment subcommittees, periodic reviews of trade irritants, and so on and so forth. Then the relationship, as it deepened and became more complex, necessitated, I would argue, the CETA. I would say that with India, the goal would be more than the third option-type TISC, trade and investment, a CEPA, but it won't be as ambitious as the CETA, which is the EU-Canada deal.

It's something that goes beyond just a shop, to talk, and sort of keep looking over and over at the same trade issues, but it's not going to be as ambitious as NAFTA or something like that.

It can have value. I think the key value is going to be trade in commodities, services, the movement of people, and also, as much as possible, predictability and certainty around investment and the opportunity to participate in procurement markets.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Cannan, you have seven minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here today. Thank you for representing your organizations and for speaking as an individual within the Indo-Canadian community, a very important part of my community of Kelowna—Lake Country. British Columbia has a large Indo-Canadian population—about a million across Canada.

As individuals, as groups and associations, what role do you think you can play to help move this CEPA forward? Other witnesses used the word “ambitious”, in terms of a lack of an ambitious nature from the Indian government to move forward. We would like to move forward in a timely manner, trying to get the same level of enthusiasm, I guess, from India to engage.

Do you have any suggestions for how the contacts from your community and your contacts in Canada can work with the folks in India?

[Satish Thakkar]

Absolutely. It is a process where we need engagement at every level, engagement of the whole diaspora at the political, business, and civil society levels.

As an example, last year we started hosting various round tables with Don Stephenson to reach out to various business communities, with a particular focus on the SME sector. For Canada, if we look at the size of the economy, the contribution of the SME sector is huge. They need a lot of support.

We hosted a lot of round tables on that side. The chamber has been leading a trade delegation every year with a specific focus on the SME sector. In January we led a 65-company small and medium enterprises trade delegation, where we partnered with the Town of Markham. This year, again, under the presidency of Naval, ICCC will be leading another trade delegation in the month of January with the City of Brampton.

How do you fuel this overall environment? It's basically more interaction at the business level, at the industry level, and at the government level. If we engage all these levels at full stream, where some kind of activity is going on, I think we can gain a lot of attention.

You see, India is such a vast and lucrative place, where every second day you will see that some of the country representation is there to look out for opportunity and have some business deals. With that scenario, how do you gain attention? How do you reach out to business communities and say that Canada is not just a tourist destination; we are very serious about business and the kinds of opportunities that are emerging here?

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you for participating and for engaging those individuals in Canada. We've heard, as Mr. Langrish said, it's all about relationships. I think if we continue to build on those, it will help not only for the short term but for the long term as well.

As alluded to in the past, we're a very small country in population, with 35 million as compared with 1.2 billion. I think one of my colleagues said they multiply over the weekend. I forget the exact phrase; maybe he can word it better.

The fact is that definitely, with their population, they have the people and we have the resources, whether it's food, energy, or education. We have so much to offer, and we want to work together.

The Library of Parliament has indicated the following:

In its report Doing Business 2013, the World Bank ranked India 132nd out of 185 in terms of the ease of doing business. Moreover, India ranked 184th in the world in terms of the enforcement of contracts.

My colleague Mr. Sandhu talked about the need to have some protection, and I think the word you used, Mr. Langrish, was “certainty”.

I don't know, I've never been to India; I hope to get there one day soon. Perhaps you could share with us, in terms of the judiciary system, if we go to a FIPA that would be going to an internationally recognized quasi-judicial tribunal, how do they compare?

[Jason Langrish]

Well, I'm not sure I fully understand the question. Are you asking how it would look from a legal point of view?

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Correct.

[Jason Langrish]

That's a very complicated question. It would be pure speculation. I mean, every FIPA is set up in a different way, the way officials are appointed, the length of time the tribunal exists, where the officials are appointed from. It varies from agreement to agreement, so it's hard to say.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

The enforcement of a contract with the judicial system that's in India right now, is that quite complicated as well?

[Jason Langrish]

I'm not an investor, myself, in India, so....

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I'm just interested in—

[Jason Langrish]

I would think it would vary, based on state to state, but yes, it can be very problematic, especially because there are no investor protections. There is no legal recourse. You'd have to take it through the Indian courts, as essentially a private investor or a private citizen. You can only imagine what that would entail.

In fact, it could be so messy that it would be a disincentive to investment, especially scalable investment. I'm sure there are all kinds of smaller entrepreneurs operating in this context, but I don't think you're going to really....

For instance, you're not going to pursue a large-scale mine in an area that could potentially be considered volatile without any kind of investor protection rights in place. It just won't happen.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

In essence, that's a deterrent right now.

[Jason Langrish]

Big time, yes.