The Decibel - Canada looks to India as ties with China fray

Episode Date: May 16, 2023

China is Canada’s second-largest trading partner, but tensions continue to rise between the two countries over allegations of foreign interference and concerns about human rights. So the Canadian government is trying to expand trade to other places – like India.The Indian and Canadian governments have been negotiating for more than a decade on a trade agreement, but this might finally be the moment we get one. Today, Rita Trichur, The Globe’s senior business writer and columnist, explains why it’s taken so long for an agreement to come through and why it’s so important.Questions? Comments? Ideas? Email us at [e-mail]

If you've been listening to this podcast, you know the tensions between Canada and China have been rising. Canada has called China, quote, an increasingly disruptive global power. So the government is trying to become less reliant on China and looking towards India instead. Despite being one of the largest and fastest growing economies in the world, India is not one of Canada's primary trading partners. At least, not yet. That may soon change. Rita Tricher is the Globe's senior business writer and columnist.

Today, she tells us about Canada's plans to improve trade with India and why an agreement is so important. I'm Maina Karaman-Wilms and this is The Decibel from The Globe and Mail. Rita, thank you so much for joining me. Thank you for having me. Let's just start by kind of getting the lay of the land. So what does trade look like right now between India and Canada? So how much is happening and what do we tend to trade?

Okay, so right now our trade with India is worth about $15 billion, which is a really paltry sum of money when you consider the total trade that both countries do on an annual basis. So Canada trades about 1.5 trillion worth of goods and services in Canadian dollars. And India measures its overall trade in US dollars, and they stand at about US 1.2 trillion. Okay, so there's room to grow there, then. Oh, absolutely. Lots of room to grow. And so there is trade that goes on, obviously, right now. And so for Canada, a lot of our exports to India include things like agricultural products, pulse crops, as an example, lentils. And there are other things that we export to India as well. You know, some machinery, ag tech is one area. Agricultural tech. Agricultural tech, yes. So, you know, there's a lot more that we can send to India in terms of our own exports. And there's a lot more

that India is really interested in, in terms of Canada. I mean, they already send us, you know, vaccines and medicines, life science products. But they're interested in purchasing more of our natural resources. They're interested in energy. They're interested in the critical minerals. They're interested in clean tech. So there's a lot of areas where the trading relationship can expand should we actually get a trade agreement in place after all of these years. Yes. And we'll talk about kind of the build up to a potential agreement. But first, let's just establish, like, why is it important that Canada boost its trade with India? Okay, so there are a few different reasons. I mean, first of all, for many, many, many decades,

our trade has been over reliant on the United States as a trading partner. I mean, that has long been seen as a problem. And, you know, President Biden in the United States is proving to be just as protectionist as his predecessor, President Trump. Buy American is a big theme of his as well. So, you know, there's always been that overhang of what if the US market suddenly becomes less friendly to free trade with Canada. But the other reason, which is kind of a newer reason, is because our second largest trading partner, which is China, there seems to be a lot of, you know, geopolitical tension going on right now. You know, there is a diplomatic spat. There's accusations of foreign interference, Chinese government interference in Canada's internal affairs. And this, of course, comes after the whole episode of, you know, the two Michaels being detained, among other grievances. Okay, so Canada needs to diversify its trade from just the, you know, the top two trading partners, US and China. But why India in particular?

Why do we want to trade with India? So India is considered to be one of the fastest growing economies in the world. Unlike China, it's a democratic country. It relies on the rule of law. It has a rules-based system. It's a commonwealth country. There is a lot in common between Canada and India in terms of how the countries are structured. I mean, India is a republic, Canada is not. But beyond that, they're both federal countries. And there is a huge, you know, people to people dynamic between the two. Obviously, India is a huge source country for Canada in terms of immigrants. Yeah. And of course, we learned just recently that India is now the most populous country in the world. It just surpassed China. So there's a huge population there as well.

Absolutely. And it's a young population. And so we need immigration in Canada to help grow our economy. And India has the people and it's an educated workforce, increasingly huge tech sector. These are the kinds of people that we would like to have priority access to. And India has also put a big focus now on making trade deals with other countries as well. So I guess does that maybe impact our ability to negotiate a trade deal with them? Oh, absolutely. So, you know, India has just finalized trade deals with the United Arab Emirates, with Australia, which has an economy which is pretty similar to ours in terms of it being a natural resource based. In addition to that, they're talking about thinking big in terms of trade with the United States and also with Britain.

Okay. So it sounds like Canada has a little bit of pressure really to diversify its trade and in particular to look to India. What kind of position does that leave Canada in then, Rita? Well, we should have done this trade agreement a long time ago because I would say that our bargaining power is probably not as strong as it could have been or would have been many years ago. You know, Canada has talked a lot about, you know, reimagining itself as an Indo-Pacific country, but we haven't really had sustained interest in that region. India is central to Canada's Indo-Pacific strategy. There are other countries involved as well that we also need to have trading relationships with, but India is the biggest and it's among the

fastest growing economies. And as you alluded to, Rita, we've been trying to make this deal happen for a while. We've actually been trying to negotiate a trade deal with India since 2010. So over a decade. Why has it taken so long to make this happen? So the business community has been pushing for a trade deal for even longer than that, I'd say close to 20 years. And when I say business community, I'm talking about the business community in both those countries. I mean, really, at the end of the day, what has held this process up are the unfortunate consequences of some bad politics. I would say the head prime minister, Justin Trudeauau and Indian Prime Minister

Narendra Modi maybe didn't get off on the right footing. You know, Prime Minister Trudeau made a comment back in 2016 that wasn't received well in India when he remarked that he had more Sikhs in his cabinet than Modi did. And a lot of people in India didn't take kindly to that remark. And then I would say that the trip to India from Mr. Trudeau in 2018, where there were so many, just not one gaffe after another, set that relationship back. I think at this point, we're hearing from both governments that they want to set aside the politics of the past. They want to hit reset. They want to focus on the economic relationship and what they can do to go forward. We had the Indian Trade and Commerce Minister here last week on a visit, and we heard from

both governments that these are two countries that are democratic, rules-based, with complementary economies, very little areas of conflict. So they've decided that instead of the comprehensive free trade agreement that they were originally envisioning, that they would focus on what is known as an early progress trade agreement, which is really kind of a baby version of what was originally envisioned. And so what that is, is they're going to look at a small number of issues and try to seek agreement on a small number of issues so that they can lay the foundation for, you know, further talks. It'll pave the way for this comprehensive free trade agreement. Yeah. Okay, so it sounds like there's at least a baby trade agreement potentially in the works here, this early progress trade agreement, EPTA. Let's look at what that would actually entail, Brita. So what're looking to, you know, ideally resolve

some key issues like what if there's a dispute between two parties? What would the resolution process look like? What would the rules of origin look like? What would the tariffs on certain products look like? So just kind of providing some basic framework around kind of a small set of issues and using that as a foundation to build on. Okay. And I understand, too, it only kind of includes certain sectors. Is that right, too? Can you talk about that? Yeah, they have said that it would only include a small number of sectors. Now, we don't actually know what specifically they're going to include in this. But they have talked about how there's an interest, as I said before, in kind of clean technology, critical minerals, tech sector, broadly would be something that's of kind of common interest. Maybe there's something

along the lines of manufacturing and life sciences. I mean, these are all areas of potential collaboration. But the fact is, we don't really know what's being discussed on the bargaining table. Okay. Okay. So I realize this is a little hypothetical, because we don't actually have a deal yet. We don't exactly know what would be included in the deal. But if we did have an agreement that actually happened, Rita, how would that actually change things? Like, could we walk through a potential example of some good or labor element that would actually be affected by this deal? Yeah, absolutely. So people mobility is a key issue.

And it's something that, you know, Canada really stands to benefit with, you know, with our comprehensive agreement, free trade agreement that we currently have with the European Union as an example, labor mobility was a key aspect of that agreement. And that makes it easier for companies, as an example, to bring in skilled workers from abroad to fill labor shortages. That is something that Canadian companies really stand to benefit from. If we were to reach some sort of, you know, people mobility provision as part of these free trade talks with India. So that's a good thing. Another thing that I think which would be a benefit to companies in both countries is that there would be more assurance, as some people have talked about, around the dispute resolution process.

And so it would allow companies to ramp up their investments with a greater feeling of certainty about what the regulatory environment looks like and what the rules of the game are. So at this point, there's about 600 plus Canadian companies that are doing business in India. A lot of them are big pension funds and there's already billions of dollars that have been invested in that market.

And there are something like 80 Indian headquarter companies doing business in Canada, but each business community is looking for more certainty on what the rules could be before they proceed with increasing their investments. We'll be back in a moment. So Rita, we've talked a lot about why Canada wants a deal with India, but what about what's in it for India? Why would India want an agreement like this with Canada? Well, I think that they are looking also to diversify their trading partners.

And obviously their companies talk to me about how Canada is an attractive market because it's a stable market. It's a democratic country. There's the rule of law. And also working in our favor is, you know, we could be the gateway to a broader North American strategy for a lot of these Indian companies. We have already seen European companies do that using, you know, either Toronto or Montreal in particular as kind of a good place to establish a beachhead for their North American operations, and they can expand southward from Canada. And there's no reason why Indian companies couldn't do the same. So they also see the potential for increasing their own exports. Prime Minister Modi has talked a lot about this theme of making India a manufacturing hub.

They are looking to become big in semiconductors. Actually, that's one of the issues that they're talking to the US government about is possible opportunities there in terms of electronics, semiconductors. They signed a deal with Apple to manufacture more iPhones. So they see Canada as a market for their exports. And they also see Canada as being, you know, this wonderful source of natural resources. I mean, we really are blessed in our country with an abundance of natural resources, including some of the, you know, critical minerals that are so essential to the green transition. And of course, India is looking for, you know, to make that same transition toward a lower carbon economy.

Yeah. One of the reasons why Canada wants to diversify in trade agreements anyways, is because there's big points of tension with China, which we talked about earlier. One of the other tensions with China is over human rights concerns, particularly in the treatment of Uyghurs and religious minorities in the country. There are also human rights concerns with India, too, in particular concerns about the government's treatment of Muslims in the country. So how does Canada, I guess, balance those concerns with its need to trade? Well, you know, traditionally, Canada has made human rights a partial focus of these trade agreements. There's certainly an opportunity to discuss things. And I think there would be an interest on both sides to talk about

things like minimum labor standards. I mean, you obviously don't want a situation where we're importing goods made with forced labor of any kind. You know, we don't want any kind of, you know, goods made with any kind of human trafficking. Both countries, both ministers last week talked about the need for inclusive growth. I think that they are aware. I think, though, we have to be pretty careful that we walk a fine line. Nobody really comes to these trade deals with a squeaky clean record on human rights, are we prepared for another country to turn around and look at our human rights record? You know, how we treat religious minorities in certain provinces, which affect their ability to get jobs in the public

service? Are we willing to answer questions about our own treatment of indigenous peoples? And I think that we have to be really careful, given the strategic importance of India, that we set minimum labor standards and we argue for human rights, of course. I mean, like these are not things that should be negotiable, but we should be also prepared to defend our own record. If we did do a trade agreement with India, would this fix the diversification problem

that Canada has with trade? No, it absolutely won't, you know, ultimately fix that. I mean, like, look, there is, China is just such a huge trading partner, you know, for us, you know, Our exports to China were worth $28.6 billion in 2021, and Chinese imports were worth $57.2 billion. India didn't even make the top 10 list of trading partners that year in terms of when this data was produced, which was 2021. So, I mean, no, this is not going to correct that. There are other steps that Canada is taking. We have applied to join the U.S.-led Indo-Pacific Economic Framework for Prosperity. There are 14 members that are part of that group, including the United States. And those countries represent 40% of the world's GDP. So the hope is that we will also take other steps to diversify our trade with other countries. And so there's a lot of opportunity for Canada to grow beyond just India. So just lastly here, Rita, does it actually seem like this is the moment that Canada and India will actually get even a baby trade agreement done so we can kind of move forward on this and actually develop this trade relationship?

Well, I mean, everybody was expressing cautious optimism that this could happen. happened before Mary Ng, our Minister of International Trade, makes her Team Canada mission to India with the business leaders this fall. That would be the ideal time to say we at least have a memorandum of understanding in place with an eye to finalizing a deal by the end of the year. That would be ideal. That would be the ideal outcome. Rita, thank you so much for taking the time to speak with me. Thank you. That's it for today. I'm Mainika Raman-Wilms. Our interns are Wafa El-Rayis, Andrew Hines, and Tracy Thomas. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrian Chung is our senior producer and Angela Pachenza is our executive editor.

Thanks so much for listening and I'll talk to you tomorrow.