Canada’s auto sector is without prospects for free-trade access to several Pacific Rim countries after U.S. President Donald Trump signed an executive order Monday starting America’s withdrawal from the proposed Trans-Pacific Partnership free trade deal.
“The agreement cannot enter into force without the United States,” Minister of International Trade press secretary Alex Lawrence wrote in a single-line response to an Automotive News Canada request for comment.
The TPP would have broadened Canada’s tariff-free access to automotive imports and exports of vehicles and parts of nine countries outside the United States and Mexico. It stood to especially affect parts makers. Under the North American Free Trade Agreement, the rules-of-origin threshold for preferential treatment for assembled vehicles is 62.5 percent, meaning nearly two thirds of the parts in a vehicle had to be made in Canada, Mexico or the United States. Under the TPP the threshold was to be 45 per cent, increasing the number of countries from which automakers could purchase parts and greatly decreasing the percentage of parts that had to be made in North America.
The end of the pact means fewer tariff-free exports to those Pacific Rim countries and less access to cheaper parts for vehicles built in Canada. By the same token, Canadian parts makers would have gained a bigger, global customer base.
The federal government said on its Global Affairs website the TPP was “expected to translate into efficiency gains (i.e. costs savings) for Canadian automotive producers, but, on balance, would result in losses of approximately two per cent in both production and investment in the automotive industry as a whole.”
Canadian Vehicle Manufacturers Association President Mark Nantais, whose trade group represents the Detroit Three automakers assembling vehicles in Canada, declined to comment beyond saying the association is waiting for the dust to settle on the newly minted Trump presidency. Nantais said the CVMA is assessing situation before commenting on anything to do with Trump's withdrawal from the TPP and renegotiations of NAFTA, which Trump said on Jan. 22 is coming soon.
Flavio Volpe, president of the Canadian Automotive Parts Manufacturers Association, said his members were resigned to the fact the TPP deal hinged on U.S. participation and that Trump was going to follow through on his promise to withdraw.
“Canada had agreed to the terms of it, but none of us were planning for its implementation until we understood where the Americans were and now we understand our focus should just be NAFTA,” Volpe said. “The TPP as it’s envisioned, as it’s been signed, is dead.”
The original TPP free trade agreement included Trans-Pacific Strategic Economic Partnership Agreement, also known as the P4, among Brunei Darussalam, Chile, New Zealand and Singapore came into force in 2006. Canada didn’t enter talks until 2012, two years after the United States joined the discussion about increasing the number of countries involved in the deal.
“Canada entered the TPP discussion as a defensive action and begged its way in after discussions started,” Volpe said.
Tony Faria, co-director of automotive and vehicle research at the University of Windsor's Odette School of Business, said Canada might be wise to pursue its own trade deals with countries that were involved in the TPP.
“If Canada was part of this group and the United States wasn’t, then it makes a little more sense to assemble some vehicles in Canada where Canada might be a better exporter than the United States might be, depending on where you’re exporting,” Faria said.
In particular, Faria and Volpe said Japan would make a good free-trade partner.
Former Conservative Prime Minister Stephen Harper started trade talks with Japan in 2012 but those stalled in 2015 once TPP talks ratcheted up.
Said Volpe: “It would make sense for Canada to re-engage on those discussions with Japan.”
David Worts, the executive director of the Japan Automobile Manufacturers Association of Canada, agrees.
"As we have often told the Canadian government, should the TPP not proceed as a result of the U.S. decision to withdraw, we urge both Canada and Japan to resume and expeditiously conclude the bilateral EPA negotiations, which were paused in late 2014," he told Automotive News Canada.
Lawrence did not say whether Canada would pursue trade deals with any of the countries that were supposed to be part of the TPP.