The Trans Pacific Partnership (TPP) will likely hurt Canada's auto sector, but how much? Industry experts are split on whether that impact will be significant. What they do agree on is this: if the U.S. ratifies the TPP, Canada will have little choice but to also join in the 12-nation Pacific Rim free-trade agreement.
"The negative consequences of us being outside the deal are far worse than the negative consequences of the deal itself," said Jay Myers, president and CEO of the Canadian Manufacturers and Exporters. Losing equal access to the markets participating in the agreement — particularly the U.S. market — would erode the competitiveness of Canadian businesses, he said.
Critics say the deal has three main problems: loosened rules of origin which govern how much of a car or a part can be built outside Canada; a toorapid elimination of Canadian tariffs; and no provisions to prevent currency manipulation.
In the deal, Canada agreed to eliminate tariffs on Japanese cars and trucks in five years. Meanwhile, the U.S. cut a separate deal with Japan that eliminates duties on light vehicles and trucks in a 25-30 year time frame.
Flavio Volpe, president of the Automotive Parts Manufacturers Assn., called the differing tariff reduction schedules an "incongruent challenge" and "unfair," to small and medium size Canadian parts manufacturers. But he said the geopolitically motivated TPP is also an opportunity for large Canadian multinational parts suppliers to chase new customers in developing markets.
He said opinion is divided on whether Canada might be able to reopen negotiations and level the playing field between Canadian and U.S. tariff reductions.
Trade union Unifor economist Jim Stanford said the deal is potentially damaging and he wants Canada to try to fix it. He said the elimination of duties and reduced rules of origin are a disincentive for automakers to build in Canada. Stanford said Canada should renegotiate the duty reduction and might get the chance if U.S. President Barack Obama doesn't win the domestic political support he needs to ratify the deal.
"We are trying as hard as we can to nail down new investment and new product mandates in several key Canadian plants," said Stanford. "The fact that those products will be more exposed because of a unique Canadian trade concession to competition from Japan is both bizarre and attracts unwanted critical attention to the Canadian plants."
He said Canadians buy about 150,000 vehicles a year from Japan while exports in the other direction are mostly nonexistent. The elimination of a 6.1 per cent tariff on imported vehicles would "clearly" allow Japanese automakers to sell more, he said.