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Canadian auto parts makers pump brakes on TPP optimism

Canadian auto parts makers pump brakes on TPP optimism

December 20, 2017

The notion that Canada’s participation in a new Trans-Pacific Partnership trade deal will open a vast new market for Canadian auto-parts producers is incorrect, says Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada.

Prohibitive fees for shipping across the Pacific Ocean push the costs of most components made in Canada out of reach for markets in Japan and elsewhere in Asia that would be part of such a free-trade deal and small and medium-sized auto-parts companies lack the resources that are essential to win business and open up factories in those markets, Mr. Volpe said.

Nor will sales of Canadian-made vehicles with high Canadian-parts content take off if the current automotive provisions of the TPP are made final in an 11-country agreement, he said.

“Furthermore, access to the low-cost supply chains of Asia on a volume basis is structurally out of reach for Canadian manufacturers and the advantage will fall solely to Asian-based assemblers of the Trans Pacific Partnership region,” Mr. Volpe said in a memorandum to the association’s members.

His comments are supported by Rob Wildeboer, executive chairman of Martinrea International Inc., Canada’s third-largest auto-parts maker by revenue.

“Putting parts on cars sold in Japan, I just don’t think that’s going to happen,” said Mr. Wildeboer, who noted that he supported the TPP when it included the Americans. But since the United States pulled out of the talks earlier this year, it makes more sense to carve the auto sector out of the TPP until negotiations on the North American free-trade agreement are concluded, he said.

Both he and Mr. Volpe argued that Canada reaching a new deal on NAFTA with the United States and Mexico, then the North American countries negotiating as a bloc with the other TPP countries would make more sense than trying to reach separate deals at the same time.

Automotive trade is also a critical issue in the NAFTA discussions and the concerns raised by the parts makers about the auto provisions of the TPP contributed to the federal government insisting in multilateral talks on the deal last month that further negotiations are necessary.

“Why can’t you have a discussion on TPP and say we’re going to exclude this [auto] industry?” Mr. Wildeboer asked. “Because quite frankly, it’s as important as the cultural industry.”

Japan-based auto makers Honda Motor Co. Ltd. and Toyota Motor Corp. are strong supporters of the TPP, in part because it would eliminate the 6.1-per-cent duty Canada levies on vehicles imported from Japan.

That tariff is being eliminated on vehicles imported by Honda and Toyota rivals in South Korea and Europe because of free-trade agreements that country and continent have signed with Canada.

Mr. Volpe suggested in an interview that Canada can address that concern by granting the two companies an exemption from the levy while negotiations are under way on the TPP.

A tariff exemption for Honda and Toyota on the approximately 40,000 vehicles they import from Japan annually could address their key concern that they are being treated unfairly because they have invested billions of dollars in assembly plants in Canada, while auto makers from South Korea and Europe have not.

“The Japanese have invested here much to our benefit,” Mr. Volpe said.

Granting the exemption to all Japan-based auto makers would reward those companies that have not invested here, he said.

Among major auto makers, Mazda Motor Corp. and Subaru Corp. import the largest percentages of vehicles from Japan into Canada.

He acknowledged that such a move would likely be challenged at the World Trade Organization.

The challenges “might win that complaint, but that complaint might be won in 18 to 24 months and Canada might be forced to back off,” he said. “In the meantime, we’ll have put NAFTA to bed and we’ll go back into TPP discussions.”

Veteran trade lawyer Larry Herman said Canada would not simply agree to such a concession for Honda and Toyota without getting something in return.

“Tariff reductions are like arms negotiations,” Mr. Herman said. “No one unilaterally disarms, outside of an agreement where there are balanced concessions.”

Canada would only reduce or eliminate the duty as part of an overall trade agreement, he said.

The TPP auto provisions would permit duty-free shipment of vehicles in the free-trade zone if they have 45 per cent content from TPP countries. Parts could be shipped duty-free if they contained 35 per cent TPP content.

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