International Trade Committee on Feb. 27th, 2013

[Dr. John Harriss]

On the last point I have to say that I've been out of Canada now for, I think it's getting on to three months, and I'm not as well in touch with news from Canada as I would like to be. I don't know what has been finally decided about the rather controversial Chinese bid to buy up one of the Canadian oil and gas companies. I recall the controversy about that in the latter part of last year.

I believe that Indian companies like Reliance and ONGC are very interested in having a piece of the action in Canada.

This is a profoundly ideological kind of question, it seems to me. I know that politicians are very strongly divided upon it. I think that if a company like Reliance can really do a good job in Canada, why not?

On the other side, Canadian investment in India, I think the big problem—and I've heard the high commissioner in Delhi talking of this quite forcefully as well.... I think there ain't no substitute for, metaphorically, wearing out shoe leather. To do business in India requires a lot of work in building personal contacts. Family is still a very powerful element in Indian business. It's still the case that some of the biggest companies are still very much family businesses. Building personal relationships—there ain't no substitute for that. That, it seems to me, is really what Canadian companies need to do—to get in there, and as I say, wear out the shoe leather.

[Devinder Shory, Conservative, Calgary Northeast, AB]

What about the banking and insurance sectors? I believe there are restrictions on foreign direct investments in those sectors in India. Are you aware of the restrictions and if they should be negotiated in the FIPAs?

[Dr. John Harriss]

I've had interestingly different advice on this from the colleagues with whom I've spoken. They include, as I mentioned, a former finance secretary in the Government of India, and somebody who was also a senior official in finance.

The former finance secretary points out that banks like Lloyds and the infamous Royal Bank of Scotland do actually have very good business in India in the area of commercial services. Although the banking sector is very highly regulated in India and there are barriers to the participation of foreign banks, there are openings there. I believe that Singapore banks have also been able to enter into the areas of supplying commercial services in India, but there are a lot of detailed issues there about which I'm really not at all remotely expert.

[Devinder Shory, Conservative, Calgary Northeast, AB]

We talked about all this. Are you aware of some non-tariff barriers culture-wise, on how we deal with those barriers and if there are any specifics, in your mind, we should be looking into?

[The Chair, Conservative, Rob Merrifield]

Please give just a very short answer.

[Dr. John Harriss]

Okay. There are clearly very sensitive areas for India, such as pharmaceuticals and generics. I think it will be extremely important that there is absolute clarity about the protocols and procedures that will be followed in processes of certification and regulation in areas of that kind. Simplicity and clarity are going to be extremely important in those sorts of areas.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Regan, go ahead.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chairman.

Thank you, Dr. Harriss, for rising so early and allowing us to benefit from your insights.

I want to call on a question that Mr. Shory started because you raised the issue of the domestic regulation of financial services. On Monday of this week, the committee actually heard from Mr. Suresh Madan, who talked about the limit on foreign borrowing, the deferential tax treatment for portfolio investments, and the inability of Indian companies to tap Canadian markets. We think of Canada, obviously, as a market particularly for things like mining as well as oil and gas, but mining would be a key one internationally.

What can you tell us about the ills that the Indian government—or governments, it is a federal country, of course—is wanting to address in creating these measures? As Canada is negotiating with India trying to deal with these things, how do you view the problems that they're trying to address, and what's the motivation behind these measures?

[Dr. John Harriss]

I really can't give you a detailed answer to that question because I have so little expert knowledge in this field. But I know that the officials who have run the ministry of finance in India have always been a very conservative bunch. It is greatly to their credit historically that India did not suffer from the debt crisis that so many countries, erstwhile third world countries, suffered from in the 1980s.

There's an account of that period by two very distinguished Oxford economists, who try to answer the question of why India did not suffer from those sorts of problems. It concluded that the answer was actually in the quality of the officials in the ministry of finance and their extremely cautious kinds of attitudes. There's a real tradition of caution, and that tradition was confirmed. Certainly that's what the governor of the Reserve Bank of India talked of when I heard him speak here three years ago on their observation of the crisis of 2008.

Sorry, that's a very general and a rather woolly kind of an answer, but I think that's what you have to bear in mind.

[Geoff Regan, Liberal, Halifax West, NS]

It's all right. It was probably a woolly question, too. Let me ask you another. Which of the challenges faced by Canadian exporters and investors in dealing with India do you think an agreement is likely to succeed in addressing, and which kinds of challenges do you think it could not address?

[Dr. John Harriss]

We shouldn't expect too much from an agreement of this kind. I mentioned in my presentation the problems of capacity in India, in actually conducting these kinds of negotiations. I believe that the Indian ministry of commerce website lists 34 sets of trade negotiations of this kind going on at the moment. I believe there are about 10 people who are seriously involved on the Indian side in conducting these negotiations.

We mustn't think that even a very good agreement is going to really tackle all the problems. I believe a lot of the agreements India has entered into are relatively shallow. I guess I come back to the point that there's really no substitute for Canadian companies and investors getting in there and getting themselves informed.

As you well know, there are really no meaningful general answers to the kinds of questions you are all rightly raising about barriers and difficulties. There are different barriers and different difficulties in different areas of business.

[Geoff Regan, Liberal, Halifax West, NS]

If you were to imagine yourself a medical doctor for a moment, doctor, and you were examining the patient—India, let's say—and looking at the opportunities and challenges, strengths and weaknesses it faces, what do you think the prognosis is for the next 10 to 20 years?

[Dr. John Harriss]

I think India is not likely, actually, to sustain the sorts of rates of growth it hopes for. As I'm sure you're aware, for Indians the competition with China is immensely important. There's a tremendous concern that the Indian economy should be growing at about the same sort of rate as the Chinese economy. The Chinese, of course, aren't remotely bothered about the Indian economy, but the Indians certainly are. It's really unlikely that those sorts of rates of growth are going to be sustained.

It will be interesting to see later today, when Mr. Chidambaram makes his budget speech, whether there are clear signs of the tackling of tax reform and of how he's proposing to deal with the long-running problem of the level of subsidies that are paid out by the Government of India, which mainly benefit somewhat wealthier people rather than poorer people.

He's made commitments already to cash transfer programs that should be attractive in terms of getting the Congress government re-elected in the elections next year. I don't personally think it's likely that the long-running problem of fiscal deficits in India is going to be tackled any time soon. I think that is always going to be a serious constraint upon sustaining high levels of growth.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Cannan.

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

Thank you, Mr. Chair.

It's good to have Mr. Regan. Welcome to the committee, and those were good questions.

Thank you and good morning, Dr. Harriss.

I'm from Kelowna—Lake Country in British Columbia. So as one British Columbian to another, it's good to welcome you to the committee. Thank you for sharing your wisdom and experience. I understand from looking at your bio that you've published extensively on the politics and political economy of south Asia and it says of India in particular.

With your experience, do you think there's the political will in India to move this trade agreement forward—taking the fact there's a budget to be tabled tomorrow in India and an election next year?

[Dr. John Harriss]

As I said in my presentation, and in answer to other questions, my understanding and my perception are that India's person-power resources for concluding an agreement of this kind are very limited. I think that if Canada is to bring this really onto, if you will, the front burner in India, then being able to do a really convincing deal in regard to oil and gas could be the game changer.

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

We've heard from some witnesses from British Columbia that there are economic opportunities in the forest sector as well; as you mentioned, the housing markets—

[Dr. John Harriss]

Yes.

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

—have great potential.

Specifically following up on my colleague Mr. Davies' question about labour, we believe in free and fair trade, and labour agreements have been part of our trade agreements in the past. With this economic partnership agreement, we've signed on with the international labour cooperation agreements. Do you think with these, we'll be able to resolve some of the issues with child labour?

[Dr. John Harriss]

I'm a great believer in the overall ILO agenda of decent work. Whether there's any chance of these protocols being really effective in addressing the problem of child labour, I'm rather doubtful. The studies that we have of child labour—I'm thinking more of ethnographic studies that have been conducted—I'm sure there are such strong incentives for kids themselves, never mind for their parents, to be getting into work. So long as the whole structure of the economy isn't transformed, I think that those incentives for kids, as well as for their parents, are going to remain very powerful. I'm sorry, it's rather a depressing kind of answer, but that's what I think.

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

But the reality is when we were in Colombia outside Bogotá, I saw some of the shantytowns. We talked to the people there and that's their hope. We want to obviously make life better for them. Giving them an opportunity, we feel that hopefully that's a step in the right direction. That's my belief.

Going with your academic perspective, at SFU, and we have UBC Okanagan in my riding and the college. Technology is a big...there are some very sharp techie minds in India. Do you see some of that collaboration from the academic world as well? Have you been able to experience some of that from your first-hand professorship? Canada and India?

[Dr. John Harriss]

We, in Canadian universities, have really woken up in a big way to those potentials within the last five years. My own university has become very active in trying to build these connections.

There remain lots of problems. We have problems with resources to actually get people here and there. In spite of the growth of the Indian economy, there is still not a lot of money for building these kinds of links on their side, but there is a terrific potential starting to be opened up. We, in Canada, are getting better as well at opening up possibilities for Indian students in Canada.

It's been very striking to me, having come to Canada seven years ago from the U.K., just how few Indian students there are. It's getting better, but given that fee levels—the cost of doing a Ph.D. in Canada—are so much lower than they are in the United States or the U.K., it's extraordinary to me that there haven't been very much larger numbers of Indian students coming to study in Canada. The situation is changing, but I think we can still do more to facilitate the movement of students.

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

People and capital: we'll bring them together.

Thank you very much. I look forward to hearing how you can help facilitate bringing this agreement to fruition.

[The Chair, Conservative, Rob Merrifield]

Very good.

Madam Papillon, go ahead. I think you're sharing your time with Mr. Davies.

[Annick Papillon, NDP, Québec, QC]

Thank you very much.

Thank you for being with us, Mr. Harriss.

The NDP believes that free trade agreements can be used to strengthen cooperation on sustainable development between two countries, and that including a section on the environment in the final agreement is important. In fact, that is what was usually done until not so long ago. However, so far India has been against the idea of including an environmental accord in a potential free trade agreement.

Why do you think India is so reluctant? Is it because of the difficulty, and even the impossibility, of enforcing existing regulations?