Harper in India: bad timing, bad mood - Macleans.ca

Harper in India: bad timing, bad mood

What you need to know on the trade mission

(B Mathur/Reuters)

Prime Minister Stephen Harper still has a couple of days in India—he’s headed to Bangalore tomorrow for the last leg of the trip—but there are no more meetings with high-level government officials on the schedule, so it’s safe to say the important part of the Canada-India rendezvous is over.

Coverage of the trip has been drowned out by the U.S. election—something that might suit our notoriously secretive PM just fine—and journalists seeking insight into the trade mission have been fed little besides Samosas. To help Maclean’s readers makes sense of it all, here’s an Econowatch primer based on news reports and interviews with three of Canada’s top trade experts: Carleton University’s Michael Hart, the University of Ottawa’s Debra Steger and the Conference Board of Canada’s Danielle Goldfarb:

Our business pitch to India.

In general terms, what we’re telling India sounds a lot like what we’ve been telling China: “we have a lot of what you need.” India is starved for energy: it suffered a major blackout in August and is scrambling to ramp up its imports of oil and gas, as well as its nuclear energy capacity. Canada would be happy to help in all those areas. India also needs to build things like streets and bridges at top speed. “Infrastructure is sorely needed in order to trade,” Hart told Maclean’s. China has “three superb points of entry”— in Hong Kong, the door to the country’s manufacturing hub; Shanghai, the finance and services epicentre; and the Port of Tianjin, the main gateway to the Beijing area. Logistical headaches in India, by contrast, are one factor that has kept foreign business at bay. Here, too, noted Goldfarb, Canada can lend (or rather, sell) a hand: we can supply both raw material and design and engineering expertise. Food security, a major concern for New Delhi, is another hot area: India already imports 40 per cent of its pulses and 25 per cent of its potash from Canada, according to the Associated Press, but there’s ample space to deepen cooperation. Finally, India’s massive service sector would be fertile ground for Canadian investment, not to mention the country’s 1.2 billion consumers with rising disposable incomes and a growing appetite for western goods.

What is on the table right now.

More specifically, though, there were three key deals on the table when Harper left for India on Saturday night:

1. A few administrative arrangements needed to be worked out in order for Canada to start shipping uranium and nuclear technologies to India after the two countries signed a Nuclear Cooperation Agreement in 2010. The crux of the matter here was that, after India surreptitiously diverted uranium produced at a Canadian plant to its first nuclear bomb in 1974, Ottawa wanted to be able to closely monitor the stuff this time around. India’s position, on the other hand, was that they report to the International Atomic Energy Agency, and that should be enough to keep us satisfied. Those differences have now been overcome, the Harper government announced on Tuesday. According to Reuters, we’ve beat Australia to this—they are still looking for assurances on nuclear safeguards—but it’s not clear yet whether Ottawa has had to make significant concessions to get the Indians on board.

2. Canada and India have also been haggling over the details of a foreign investment protection agreement, a negotiation that dates back to 2004. The aim here is to get New Delhi to grant Canadian investments in India the same protection Indian investments enjoy in Canada. Ottawa government just inked a similar deal with China that had been 18 years in the making. There were rumours that it might be able to get a signature from India too during Harper’s visit, but that didn’t happen (more on this below).

3. Finally, the bigger prize is a bilateral free-trade agreement, which the two have been discussing since 2010. Ottawa has said it would like to have the pact signed by 2013 and to see the yearly volume of two-way trade triple—from $5 billion to $15 billion—by 2015. Five rounds of negotiations have been completed, the sixth one kicks off in Ottawa in mid-November.

Read the signs: why this had to be a six-day trip.

This is one of the PM’s longest foreign trips to a single country, which is meant to send New Delhi the message that we think they matter…  a lot.

“Canada does not have much of a profile there,” according to Goldfarb. “Basically everybody is competing to court India,” she said: Canada has to make sure its business pitch doesn’t get drowned out in the general noise.

But the extra-long stay, she added, might also be meant to raise India’s profile in the eyes of the Canadian business community. The government is hard at work to clear the way for trade and investment—companies at home should take note.

India: a notoriously difficult partner in trade negotiations.

Yesterday, three days into the visit, our PM sounded a bit frustrated. Progress has been slow, and the government of India Prime Minister Manmohan Singh seemed distracted. “The untapped economic potential between us is massive and undeniable,” Harper told reporters at the World Economic Forum in Gurgaon, but, he added sourly, “massive and undeniable as that potential is, it will not develop itself.”

But Harper wouldn’t be the first one to be temped to bang his head on the table when talking trade with India, according to a veteran negotiator like Hart. With its intricate domestic politics and myriad special interests bent on fighting off attempts to introduce foreign competition in different areas, India has traditionally been a protectionist country and a notoriously difficult party to negotiate with. It’s the price of democracy, he quips, recalling Canada’s own “ferocious debate” on NAFTA.

It doesn’t help that India’s factious politics are looking particularly dysfunctional right now. The Indian government just lost its majority—over a series of proposed economic liberalizations, of all things—and has been facing growing criticism over India’s relative economic slowdown.

Bad timing on the foreign investment protection agreement.

Harper’s India trip seems to have had a bit of bad timing in another respect as well. Several press reports earlier this week suggested that a tax dispute between New Delhi and U.K. telecoms operator Vodafone had reduced the chances that India would sign Canada’s investment deal. The Indian government had put all negotiations with foreign countries on such agreements on hold, Canada’s High Commissioner to India Stewart Beck told reporters at the the onset of Harper’s visit.

But India’s decision to review its bilateral investment treaties has to do with more than just the Vodafone spat, according to the U of O’s Steger. New Delhi has been stung by a series of investor-state arbitration cases that foreign companies have brought against it citing the myriad investment treaties India has signed with a variety of countries. Last November, in particular, a tribunal dealing with a long-running dispute between New Delhi and an Australian foundry manufacturer handed India its first known defeat in such an arbitration proceeding. The negative ruling has probably made Indian authorities more cautious about signing further bilateral investment treaties such as the one with Canada, Steger noted.

Our own, self-made spoiler.

Ottawa’s reluctance to approve takeover bids by Asian majors such as Malaysia’s Petronas and China’s CNOOC might have also muddied the Harper government’s message that Canada is ready to do business with the world. “What’s the point of going to somebody’s house when you’re going to reject what they offer you?” a merger arbitrage specialist told Bloomberg News, when asked about the Canadian PM’s India visit.

That’s a fair point, said Hart. “If you go around billing yourself as an energy superpower open for business and then, when a big foreign investor comes around, you say ‘well, we’re not sure about you,’ ” he added, “it sends a signal.”

Steger, however, noted that Canada’s review process, however murky and opaque, is still rather attractive to Indian investors. In Canada, she said, the dollar threshold that triggers government review of transactions by foreign entities is much higher than, say, in the U.S. and Australia. That’s why only a few, very large acquisitions have attracted Ottawa’s scrutiny. South of the border, by contrast, foreign investment is much more likely to require Washington’s vetting.

The big picture: whatever happened to WTO negotiations?

Both Steger and Hart agreed that the Canada-India free trade agreement, whenever it might be signed, will likely represent a rather small, albeit welcome, step forward. Multilateral trade negotiations under the auspices of the World Trade Organization would accomplish much more, Hart added, because the prize from trade liberalization is much bigger and countries tend to be readier to make larger, politically painful concessions. Harper himself seemed to admit this much yesterday at the World Economic Forum: “Doha is not progressing,” he told reporters, alluding to the latest, long paralyzed round of WTO negotiations. Canada’s trade strategy, he added rather bluntly, is “predicated on the view that Doha will not go forward and we have to … sign bilateral and regional multilateral agreements, and that’s what we’re doing.”

Most countries are doing the same, said Hart. Sometimes, he added, a flurry of bilateral and plurilateral agreements struck on the side can have a “stimulative effect” on multilateral trade talks. This time, however, he added, “I see no evidence that that’s happening.”