Justin Trudeau in India: Pulses set tone; trade, investment the larger goal

Ottawa's key concern is the curbs on international arbitration New Delhi has imposed on investor-state disputes

As Canadian Prime Minister Justin Trudeau lands in India today, state and business delegates from both countries are looking ahead for week-long discussions on trade and bilateral relations. 

Of the $4.1 billion worth of imports from Canada in 2016-17, shipments of pulses — yellow peas, green peas and red lentils (masur) — amounted to $1.1 billion, or more than a quarter of the total, making pulses the central point of forthcoming trade discussions. 

Pulse imports from Canada have reduced to just above $500 million in 2017-18, owing to government caps and duties following a supply glut in 2016-17 and this year as well, putting Canada’s pulse exporting industry and pulse growers from Africa in a fix. 

But though pulses would be on the dining as well as the discussion table, both parties are looking at the realisation of broader aims of trade expansion and investment promotion. Currently India and Canada are engaged in the negotiation of the proposed Foreign Investment Promotion and Protection Agreement (FIPPA) for facilitating investments and the Comprehensive Economic Partnership Agreement (CEPA) or the proposed free trade pact.

Talks on FIPPA had earlier been stalled by New Delhi's decision to conduct negotiations for all investment pacts under the framework of the model Bilateral Investment Treaty issued by the government in 2015. 

Dipping Canadian Pulse Exports
	Value		Quantity
	Yellow & green peas	Red lentils	Yellow & green peas	Red lentils
2014-15	628	443	1.5	0.7
2015-16	503	902	1.4	1.1
2016-17	657	474	1.7	0.6
2017-18*	381	278	1.1	0.5
Figures in $mn; Quantity in mn tonnes; *April-Nov 2017; Source: Ministry of Commerce

"Canada’s prime concern is with the clause that in case of an investor-state dispute,a foreign investor can seek international arbitration only when all domestic legal options are exhausted. While India feels this is required to keep control on litigation and reduce the chances of extremely high penalties from international tribunals, most developed nations believe the Indian legal system to be slow and corrupt," a senior government official said.
 

India’s domestic markets have had a deluge of pulses during the past two years: 23 million tonnes and an import of 6.6 million tonnes of pulses in 2016-17, and an equal amount of production estimated in 2017-18 with 5 million tonnes of imports already till December. 

India effectively had 58 million tonnes of pulses against a consumption of about 45 million tonnes for two years. This was a large excess, due to which the government put a cap on quantity imported of tur (red gram: 200,000 tonnes), moong (green gram) and urad (black gram) (together: 300,000 tonnes), hiking import duty on yellow peas and chana, while opening up exports of all pulses.

Yellow peas, with a 50 per cent import duty, form the bulk of Canadian pulses imports.
 

How India's trade with Canada shapes up against its top trade partners
Country	Trade in 2016-17
China	71.45
USA	64.51
UAE	52.68
Saudi Arabia	25.08
Hong Kong	22.25
Canada	6.13
Trade figures in billion dollars Source: Ministry of Commerce

“Transparency, predictability and clarity in trade policy with regard to pulses is the most important point we are trying to put forward in the upcoming meetings,” Gordon Bacon, CEO at Pulse Canada, the country’s biggest pulses association told Business Standard. 

Canada does not appear in the top 25 trade-friendly countries of India, with total trade amounting to about $6 billion in 2016-17 and about $4.5 million in April-November 2017-18, just one per cent of India’s total trade. 

“Apart from predictability, we expect that the cargo enroute should be exempt from the changed import policy, and fumigation — method of applying gaseous pesticides in the cargo vessel to prevent pest proliferation in India — regulations should be science-based and country specific,” Bacon added.

On the trade front, both governments urgently want to conclude the CEPA since trade volumes remain woefully low. Despite Canada’s southern neighbour, USA, being India’s largest export destination, bilateral trade has remained low with the Great White North. Two-way trade was only $6.1 billion in 2016-17, down two per cent from the year before. 

Raw diamonds and gold are also important Canadian imports. Exports from India are extremely broad based with no commodity constituting more than 8 per cent of all outbound trade. Medicines, shrimps and prawns, and jewellery are the major export items from India. 

India had placed a conditionality that the trade pact cannot be discussed until both nations reach a possible conclusion on the investment deal.
 

There are 18 members of Indian origin in the 338-strong Canadian parliament, while four of them are ministers, all of whom are participating in business forum and government level discussions in Mumbai and Delhi.