Canada trades billions in goods with India. As tensions rise, what’s at stake?

Allegations that there is evidence that agents of the Indian government may have been involved in the June murder of a Canadian citizen are putting into question relations with the aspiring superpower, including trade.

Prime Minister Justin Trudeau dropped a bombshell Monday in the House of Commons when he cited “credible” intelligence that agents of Indian Prime Minister Narendra Modi’s government may be linked to the killing of 45-year-old Hardeep Singh Nijjar.

Nijjar, a prominent Sikh leader who advocated for the Khalistan movement, was shot dead June 18 outside the Guru Nanak Sikh Gurdwara in Surrey, B.C.

Trudeau did not elaborate further on what evidence Canadian intelligence agencies may have.

India has strongly denied the allegation, accused Canada of sheltering “Khalistani terrorists and extremists” and warned its citizens in Canada to “exercise utmost caution” due to what it calls “anti-India activities” in the nation.

Both nations, which have traded billions of dollars worth of goods over the years, have expelled each other’s diplomats. A former foreign policy adviser to Trudeau says this may be the beginning of a months-long diplomatic spat with India.

Here’s what is at stake when it comes to trade.

Before the allegation publicly surfaced Monday, trade relations with India were beginning to sour.

On Sept. 1, Indian High Commissioner Sanjay Kumar Verma said Ottawa had sought a pause “within the last month” to ongoing preliminary talks for a trade agreement.

The two countries have been negotiating a deal since March 2022 that would be restricted to certain industries, instead of spanning the entire economy.

The talks followed a five-year hiatus. The countries had entered negotiations in 2010 for a comprehensive deal, but they abandoned the plans in 2017.

Then on Sept. 15, Trade Minister Mary Ng’s office said a planned “Team Canada” trip to India was being put off, giving no details about when it would go ahead.

Ng was scheduled to lead a five-day “Team Canada” trade mission to Mumbai with leaders from Canadian businesses and provinces, leaving on Oct. 9.

The trade mission, the first in Asia under Canada’s Indo-Pacific strategy, was focused on boosting Canadian clean-technology companies as a way to help meet India’s need for renewable energy.

The Trade Commissioner Service said the trip would’ve also sought to increase trade in sectors such as automotive, agriculture and value-added food, digital technology, infrastructure and life sciences.

It would’ve also involved networking with Indian business leaders, briefings from senior officials, and key industry players and roundtables with local industry and experts.

A description of the trip posted on the Trade Commissioner Service website noted that India was the fastest-growing major economy in 2022.

Last year, India was Canada’s 10th largest trading partner, Global Affairs Canada said on its website, adding that India will be a “key partner as Canada strengthens its economic links to the Indo-Pacific under a new, comprehensive strategy for the region.”

Exports to India last year amounted to $5.4 billion worth of goods and $6.2 billion worth of services to India, according to the Trade Commissioner Service.

Imports from India were $6.4 billion worth of goods and $2.9 billion worth of services.

Canada’s top export to India in 2022 was fossil fuels and related products worth nearly $1 billion, followed by fertilizers worth nearly $748 million, and wood pulp and plant fibres worth about $384 million, according to Trading Economics/UN Comtrade data.

Pharmaceutical products, worth about $418 million, made up the bulk of Indian exports last year, followed by iron and steel products worth about $328 million and machinery, nuclear reactors and boilers worth about $287 million.

Some parts of Canada’s economy rely on the trading relationship.

Since 2018, India has been the largest source country for international students in Canada. In 2022, their number rose 47 per cent to nearly 320,000, accounting for about 40 per cent of total overseas students, the Canadian Bureau of International Education says.

The increased reliance on international students and their high tuition fees comes as the amounts universities and colleges can charge domestic students have been limited, and as higher education funding has slowed.

India is also important to Canada’s pulse industry, with around $400 million in Canadian lentils shipped annually to the country over the past three years.

Saskatchewan makes up roughly a third of Canada’s exports to India, which are worth over $1 billion to the provincial economy. The trade includes commodities like lentils, which India has occasionally blocked or delayed as it tinkers with pest-control policies.

Saskatchewan also has a trade and investment office in New Delhi.

The agricultural sector is hoping cooler heads prevail, said Keith Currie, president of the Canadian Federation of Agriculture.

“Given the amount of product that we’ve shipped, that potentially could be impactful,” he said.

“But we’re also optimistic that the Indian government is going to see that ‘this is a product we need.’”

Trudeau said Tuesday that Canada is not looking to “provoke or escalate” tensions with India, and wants its government to co-operate in the investigation, which is being led by the RCMP.

However, with India’s strong denial and with trade talks on ice, the spat carries the risk of arbitrary trade measures, said Jeff Nankivell, president of the Asia Pacific Foundation of Canada.

“The greatest vulnerability would be in the agriculture sector.… Typically, when governments want to express their displeasure through trade measures … this has to do with how many inspections you need, what kind of chemicals you’re allowed to apply to the crop and that kind of thing,” he told Global News.

“That’s the go-to play in the playbook for affecting trade interests as a way of expressing diplomatic displeasure, and that would be one area we need to be watching out for to see if there are any measures taken by the Indian government.”

Nankivell added that a long-running spat could potentially impact the number of international students from India in Canada.

“That would affect a lot of different economic interests in Canada, both in the higher education institutions and also the local economies where those institutions are located,” he said.

Canada could also impose sanctions targeting sectors or individuals, said John Boscariol, head of the international trade and investment law group at McCarthy Tetrault LLP, but he added that it’s a delicate situation.

“Canada should be very careful in how they do this, to be sure that they’re not shooting their own businesses in the foot,” he said.

However, with many allied nations looking to pivot away from the communist regime in Beijing, India may not need Canada all that much, said Rohinton Medhora at the Centre for International Governance Innovation.

Global News has learned that while Canada’s allies are concerned and supportive about the Nijjar allegation, they have chosen a more cautious approach than the Trudeau government in their interpretation of the intelligence and just how far they are willing to take it.

In fact, Britain said Tuesday it will continue trade talks with India despite calling the development “serious allegations.”

“Work on the trade negotiations will continue as before,” a government spokesperson told reporters.

“When we have concerns about countries we are negotiating trade deals with, we will raise them directly with the government concerned. But with regards to the current negotiations with India, these are negotiations about a trade deal, and we’re not looking to conflate them with other issues.”

Treasury Board President Anita Anand told reporters on Tuesday that Canada’s efforts to ease trade reliance with China in the Indo-Pacific continue despite the India row.

— with files from The Canadian Press and Reuters