As Trudeau investigates India, Canada’s trade policy hangs in the balance

It was just four months ago that India’s Commerce and Industry Minister Piyush Goyal at an event in Toronto hinted at the possibility of inking a trade deal with Canada by the end of this year, providing hopes of breaking a decade-long deadlock between the two countries

During his three-day visit to Canada in May, Goyal said “tremendous progress” had been made and that a trade agreement by year-end was “certainly not beyond the realm of possibility.” He added that he wished a deal could be reached “much faster.”

Four months later, relations between the two countries could not be more different.

Prime Minister Justin Trudeau on Sept. 18 announced that Canada will pursue allegations of a potential link between government of India agents and the killing of a Canadian citizen in this country. As a result, trade deal negotiations seem to have “stopped in their tracks,” as Bob Fay, managing director of digital economy, Centre for International Governance Innovation’s (CIFI), put it.

 

 “Other countries have failed in trade negotiations with India, so we are certainly not the first”

 

“More worrisome is what will happen with Canada’s recently launched Indo-Pacific strategy that places India at the core of our engagement in that region,” he said.

Fay said Canada’s decision to investigate links between India and the fatal shooting of Hardeep Singh Nijjar, president of the Guru Nanak Sikh Gurdwara, outside a Sikh temple in Surrey, B.C., has effects well beyond trade and includes areas such as the promotion of peace, resilience and security, but added that trade is “intricately linked to these areas.”

Prior to Trudeau’s announcement, it seemed as though the two nations were finally making some progress on a trade deal, something which the countries have been trying to do since talks first began in 2010 under former prime minister Stephen Harper. However, 10 rounds of talks over seven years failed to produce a breakthrough.

Talks were resuscitated in March 2022 when trade minister Mary Ng visited India and the countries held several rounds of discussions, which led to Goyal visiting Canada in May. Business leaders hoped the minister’s visit would speed up the signing of an Early Progress Trade Agreement (EPTA) between the two countries, which would be a first step towards a Comprehensive Economic Partnership Agreement (CEPA) that Canada eventually wants to sign.

Canada typically prefers trade agreements that cover most aspects of the economy. But after making little headway with India after more than a decade of talks, the countries decided to try for a smaller pact focused on areas they could more easily find agreement on.

India’s government strongly rejected Trudeau’s allegations, which was followed by diplomats from both sides getting expelled.

“The deal was always going to be difficult; now it’s going to be even more so,” said Carlo Dade, a director at the Calgary-based think-tank Canada West Foundation. “There are a large number of Canadian negotiations that had great promise that never went anywhere. This could fall into that category. Other countries have failed in trade negotiations with India. We would not be the first.”

Businesses in Canada don’t necessarily need a deal with India to invest there. Canadian pension funds have already heavily invested in India’s infrastructure. But a trade agreement provides reassurance that there are a set of rules that both countries will follow, businesses say.

A deal could also pave the way for both countries to expand trade with each other and allow Canada to benefit from access to India’s growing economy.

An analysis conducted by Canada West Foundation concluded that Alberta,British Columbia and Saskatchewan were the best provinces to meet India’s demand for agricultural products. But the three provinces’ exports to India respectively represent just 0.09 per cent, 1.4 per cent and 1.63 per cent of their total exports.

Dade, for one, doesn’t expect the absence of a trade deal to be a big loss.

“I think we overestimate the importance of trade deals,” he said. “We had NAFTA (North American Free Trade Agreement) for generations, and we still haven’t met anywhere near our potential on that market,” he said.

Rather than just focusing on how to get market access, Dade said Canada also needs to make sure it can make that access work. For example, he said Canadian pulses can be exported to India, but they are hit with stiff tariffs upon arrival.

But the Canadian Chamber of Commerce said it hopes the two governments can work together and return to trade discussions as soon as possible.

“These are deeply disturbing allegations that need to be taken very seriously,” Matthew Holmes, senior vice-president of policy and government relations, said. “The Canadian Chamber views the trade relationship with India as an important one, in particular with such a strong expat community here in Canada, and huge potential for closer business ties in the future.”

Towards the end of Goyal’s visit in May, he described Indo-Canada trade relations as one of “lost opportunities” and hoped that would change.

“What minister Ng and I are trying to do is get down to the drawing board, script the future different from the past,” he said.

The latest tensions between the two countries suggest there’s still a long way to go.