Key players in Canada’s vital auto sector say Justin Trudeau’s government now faces a major decision: whether to seek changes to the massive Trans-Pacific Partnership trade deal – an agreement, the just-revealed text shows, that offers worse-than-expected terms for Canadian vehicle parts makers.
“They’re going to have to take a look at this closely, see what has been negotiated and decide whether they want to pursue renegotiation of any element of the agreement,” said Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, which represents the Canadian units of the Detroit Three auto makers.
The full text of the wide-ranging Trans-Pacific Partnership accord was finally made public Thursday, one day after Mr. Trudeau’s government took office, and the agreement – negotiated by the defeated Harper Conservatives – now must be ratified by 12 signatory nations from Chile to Japan.
Mr. Nantais’s group, which employs close to 20,000 Canadians, is unhappy with how Canada consented to eliminate a tariff on imported Japanese vehicles far more rapidly than what was agreed to by the United States. Canada will do it in five years, while the U.S. will take as long as 30.
The 6,000-page pact includes more than two-dozen side deals Canada has cut with other members of the proposed 12-nation trade zone, including an agreement Ottawa struck with Washington in which border agents will share information about smuggling of counterfeit goods.
The biggest concern, however, remains the impact of the TPP on Canada’s cornerstone auto sector.
The deal offers Canadian companies long-sought access to Japan’s massive consumer market, but it would also eliminate tariffs on Japanese vehicles and make it easier for manufacturers to use offshore parts. It would be a boon for low-wage Asian suppliers of parts, but a challenge for Canadian firms.
Canada’s auto parts makers, who employ 81,000, say the text of the agreement shows the local-content protections for vehicle components are significantly skimpier than the former Conservative government had advertised. Former prime minister Stephen Harper had said local-content requirements for important vehicle components would be between 40 per cent and 45 per cent.
But two key areas of Canada’s auto-parts industry will receive less protection than expected. “We got worse terms on key parts than we were originally told,” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said Thursday.
Engine parts and such body stampings as truck frames and metal roof panels will only be required to have TPP content of 35 per cent.
Metal stampings and engine parts are “critical pieces that Canada plays in and they have the lowest threshold,” Mr. Volpe said. “It’s a real exposure. Those were categories flagged by us to the government and they didn’t protect them as a priority.”
Mr. Volpe said 26 Canadian parts companies manufacture stamped metal components and 18 firms make engine parts.
The new federal Liberal government, though, is avoiding making any promises to renegotiate the TPP agreement, which would require asking 11 other countries to allow Canada to make changes to what it negotiated. Instead, International Trade Minister Chrystia Freeland is urging Canadians to review the accord and send her their feedback.
“I really want to invite all Canadians – not everyone is going to read the full 6,000-page text – but please familiarize yourself with it,” she said.
Ms. Freeland said the Liberals plan to consult Canadians on the deal before it’s debated by Parliament.
Trade lawyer Lawrence Herman said trying to renegotiate the TPP could prompt other signatories to seek more concessions and could threaten the ability to once again close the pact. “It would be very difficult to reopen the deal … for fear that it might cause a house of cards to come tumbling down.”
The Ontario Liberal government on Thursday urged Ottawa to deliver auto-sector aid in the wake of the TPP deal, saying it’s worried about the accord despite the market potential it offers.
“Ontario remains concerned about several key concessions regarding the auto sector, in particular the tariff reduction schedule and the rules of origin for autos and parts,” Ontario Economic Development Minister Brad Duguid said in a statement.
He said he expects the Trudeau government to commit to support Ontario’s auto sector – what he described as a “transition adjustment program” to ensure the industry’s “long-term strength and competitiveness are not weakened by these [trade] concessions.”
Canada’s auto-parts makers association, and some senior parts industry executives, fear that the lower content threshold will make it difficult for them to compete against parts makers from TPP countries such as Malaysia and Vietnam, which have much lower labour and other costs.
Other senior industry officials believe the lower content threshold and the five-year elimination of Canada’s 6.1-per-cent tariff on vehicles imported from Japan means Japan-based auto makers will gradually reduce their production here.
They fear Japanese auto makers will import metal stampings and engine parts from China and other low-cost countries, assemble those parts into vehicles in Japan and then ship vehicles to Canada duty-free.
U.S. President Barack Obama formally notified Congress on Thursday of his intent to sign the TPP, a move that triggers a 90-day period for review of the deal – which is expected to face a rough ride in Washington.
STEVEN CHASE AND GREG KEENAN
OTTAWA and TORONTO — The Globe and Mail
Published Thursday, Nov. 05, 2015 9:52PM EST
Last updated Friday, Nov. 06, 2015 7:25AM EST