CEPA between India and Canada

Abstract

In the past few years, there have been several attempts to form an economic partnership between India and Canada to boost trade between the two countries. There have been 8 rounds of negotiations focused on goods and services exploring areas of interest which will enable both the countries to boost trade and economic integration. We have analysed the Indian and Canadian trade structure for both goods as well as services. The scale of Canadian exports is huge as compared to Indian exports. Also, most of the Canadian goods are imported from USA which is a part of the NAFT agreement. We analysed the Indian and Canadian trade structure to identify complementarity in products with large share or/and high average growth in the exports/imports. We have focused on the Indian interest in Canadian markets. Through our analysis of Indian and Canadian trade, we have identified 3 products which show complementarity. They are Motor Vehicle Part Manufacturing, Pharmaceutical & Medicine Manufacturing and Iron & steel mills manufacturing. The findings are bolstered by the values of the trade indicators: trade intensity index, RCA, trade complementarity index and export specialization index. Despite having high complementarity, the share of these products in Canadian imports remain low indicating the comparative disadvantage of these products in Canadian import market. The analysis of the tariff and non-tariff barriers justifies the low share in Canadian imports despite having high complementarity. The tariff rates faced by Indian exports in Canadian markets are significantly higher than other import partners of Canada (USA, Mexico, Japan etc.). Indian companies also face several non-tariff barriers which include anti-dumping and anti-subsidy cases. The highest number of anti-dumping cases is on engineering products including steel accounting for 32% of total number of cases pertaining to anti-dumping cases. Analysing the services sector; computer services, telecommunication and the audio-visual industry shows complementarity with the Canadian market. Another area of interest is the personal travel services which is the only sector with double digit share (26%) in Canadian imports. RCA number supports the complementarity of the above services. The export specialization index of computer services is whopping 1733% proving the importance of services sector the agreement. In FDI, Construction services, Finance & Insurance and Energy sector are the major areas where India can leverage Canadian expertise. Over the past few years Indian FDI in Canada has been on the rise. In fact, India’s FDI in Canada is more than what Canadian firms invest in India. This trend will help Indian firms to export to other countries which have preferential treatment for Canada.