Explained : Why India needs Canada, and how we can leverage that and Its Impact

Jeff Mahon is director of geopolitical and international business advisory at consulting firm StrategyCorp.

India has been getting a lot of attention from the federal government. There’s been an unprecedented degree of high-level engagement that now includes Mr. Carney’s trip to India and forthcoming comprehensive economic partnership agreement (CEPA) negotiations.

How Canada-India relations unfold will be a critical test case for the Carney Doctrine and its vision for middle-power co-operation in the face of heightened geopolitical competition.

Success requires Canada understands and responds to the bigger-picture implications of the global changes under way and, importantly, how they are motivating India’s concomitant policy rethink.

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India is the world’s largest developing country – a claim that used to belong to China – with a large agrarian population and low levels of economic development. India’s GDP per capita of roughly US$2,800 is eclipsed by Canada’s at US$54,300. For Canada, the trade war with the U.S. is about fighting to maintain a high standard of living; for India it’s about losing the proven export-led path to economic development: investment from advanced countries that builds up a position in global supply chains which is underpinned by market access.

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However, this dynamic helped fuel the collapse of the current international order. China’s economic rise was propelled by foreign investment from and trade surpluses with advanced countries. Offshoring accelerated the deindustrialization that the U.S. is now reacting against with its tariff program. India was quick to see the writing on the wall and what it meant for its plans to become a global supply chain hub, so it engaged Mr. Trump early on in his presidency, resulting in positive political signalling on issues including defence, energy, trade and investment.

But things started to fall apart when Mr. Trump’s “Liberation Day” tariff program hit India with 26-per-cent tariffs. Geopolitical issues were added to the mix in August when Mr. Trump placed an additional 25-per-cent tariff on Indian exports when that country wouldn’t align with U.S. oil sanctions against Russia. Months of negotiations finally resulted in an interim agreement on reciprocal trade, where India committed to removing or reducing tariffs on variety of U.S. exports in exchange for a lowered 18-per-cent tariff on Indian exports to the U.S.

The U.S. also used market access as leverage to force political concessions, largely in the form of economic security alignment as it has done with developing and middle-income countries alike, ranging from Cambodia and Malaysia to Mexico. While not referenced in the official documents, Mr. Trump is claiming that India has finally acquiesced to its demands to not buy Russian oil.

This snapshot highlights the conundrum many countries face when squaring off with the U.S. To meet development goals, access to the U.S. remains a coveted prize. But the use of leverage by the U.S. to extract both economic and political concessions has sown distrust that undermines truly deep and meaningful co-operation. These circumstances create an opportunity for Canada.

Where the U.S. adopts a racketeering approach to trade negotiations in a short-term effort to smash and grab market share, Canada can offer a contrasting approach – one that uses persuasion and partnership to drive commerce, rather than coercion.

Canada should offer India a mutually beneficial path to economic development as it negotiates the CEPA. In the pre-Trump era, these negotiations would be a relatively esoteric process modelled after standard free-trade agreements (FTA) comprehensible only to those initiated in the arcane language of international trade law. Indeed, Canada and India were engaged in off-and-on-again FTA negotiations over the span of a decade with nothing to show for the efforts. But geopolitical circumstances are now dictating a heightened urgency to move fast and achieve tangible results.

While a traditional FTA will be an important component of the CEPA, much more can be achieved with a broader and more imaginative approach. We’re in a new world where technocratic trade rules still matter, but matter less than the political will put behind new forms of partnership. India’s development circumstances and its attendant governance challenges, in combination with its own iteration of a managed economy, means that the market access potential from a traditional FTA will be marginal.

A focus on targeted and deepened partnerships could drive de facto market access preferences for Canadian businesses. Canada should propose initiatives that bring capital, knowledge and knowhow to areas which correspond to India’s development interests. That in turn would create an incentive to purchase Canadian inputs, whether goods or services.

For example, India has a nutritional security imperative where Canadian agri-processing and R&D capabilities could boost Indian capacity, contingent upon preferential access for Canadian agricultural exports. There are also mutually beneficial complementarities in other sectors, such as digital technologies and energy. Canadian pension funds could find opportunities as well.

By placing the emphasis on tangible co-operation, Canada can pave the way to building a partnership with this strategic middle power that could bolster not only new geopolitical alliances but also Canadian economic growth.