Examining the ‘tailwind’ thrown in Canada’s way

Image copyright Getty Images Image caption Ottawa is facing its own woes over tariff and counter-tariff measures

Canada’s prime minister Justin Trudeau appears to have had a lucky break in getting the new UK trade relationship off the ground: the new Indian foreign minister Sushma Swaraj has agreed to restart negotiations for a deal with Canada.

So what happened during the bitter trade talks between the Indian and Canadian government? Let’s take a closer look at the what, when and why.

First off, the sad saga of the suspended Canadian-Indian free trade negotiations has escalated into a tug-of-war between India and Canada on multilateral international trade fronts.

India has been incensed with its trade relationship with Canada since 2015, when India alleged that Canada was abusing its trade rules to disadvantage India when trading in natural gas.

Image copyright Getty Images Image caption India blames Canada for unfair energy market treatment and unfairly subsidising its own natural gas industry

Last year, India complained about Canada’s tariff exemption on ghee (clarified butter) from the example of France, which was exempted from ghee tariffs by Canada.

India had repeatedly made this complaint in a hearing of the World Trade Organization (WTO), accusing Canada of unfairly subsidising its own gas industry and unfairly treating oil and gas import from India.

In a clear signal of Canadian non-compliance with the WTO resolution, New Delhi temporarily blocked the investment deal between the two countries in December.

However, the investors entered the UK.

EU trade deal concessions

But after Brexit, India’s decision to delay some of its investment agreements and withhold its consent to the European Investment Bank’s “Marshall plan” of £12bn for Indo-European development projects also helped breathe some life into its Canada trade push.

With New Delhi and Ottawa restarting negotiations for a new free trade agreement , the EU’s concessions to India on investment in 2003 for membership of the EU has allowed the Canadian government to re-jig its trade view of Canada.

Like Canada, India had signed off on a “soft path” deal to enter the European Union when EU politicians were granted the use of a conciliatory-speak visa formality to enter Canada for five years (called the Schengen visa waiver program).

Canada had been treading with caution to accommodate India’s concerns on the preferential access of ghee. So New Delhi decided to go on the march for a firmer EU agreement after the completion of trade negotiations with Britain and the US.

What’s changed for Canada?

Canada has developed a new vision for investment relations with other countries. It is now looking to negotiate long-term “investment protection agreements” that align with both WTO rules and the aim of 21st century globalization to share equally the benefits of liberalized trade and investment between countries.

The key driver for an investment protection agreement with India is Canada’s fear of being vulnerable to legal action from Europe and India to protect their common practices when dealing with inbound foreign direct investment (FDI).

In 2015, the EU warned India that it must significantly cut back its FDI approvals when considering investments of €1 billion (US$1.2bn) to clear a logjam of thousands of pending investment approvals.

After the UK’s exit from the EU next year, the investment protection agreement between the two countries will become the first and largest such trade agreement between countries in the Indian Ocean region.

At the first meeting between finance ministers of the two countries on 18 June, Canada’s national export credit agency Export Development Canada (EDC) president Fred Hahn confirmed that he was “in favour of granting equal access to such investment protection agreements” after the UK leaves the EU, according to the Canadian Business.

Image copyright Getty Images Image caption A bilateral investment protection agreement between Canada and India, one of three bilateral free trade agreements, was suspended in 2015

Now that there’s more faith in the UK, New Delhi is looking for a fresh way to revive its stalled investment protection agreement with Canada.

After building confidence with Britain in last week’s London India Investment Summit, Canada hopes that the US, which is close to signing its own bilateral investment protection agreement with India, would respect its next investment protection agreement.

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