Harper pledges $1-billion in grants for auto sector in wake of TPP deal

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Conservative Leader Stephen Harper is promising $1-billion in aid for Canada's auto sector, a campaign pledge designed to assuage fears that a massive new trade deal will leave this vital industry more vulnerable to foreign competition.

The Trans-Pacific Partnership agreement, reached this week between Canada and 11 other Pacific Rim countries, would eliminate Canadian tariffs on Japanese vehicles and makes it easier for manufacturers to use offshore parts in cars. It's a boon for low-wage Asian suppliers but a challenge for Canadian firms.

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If re-elected, a Conservative government would funnel $1-billion in new funding into the Automotive Innovation Fund, a federal program first set up to provide repayable loans and encourage vehicle makers to conduct major research into greener engines. The existing fund's commitment was set to run out in 2017-18 and this promise would extend it another decade.

Mr. Harper made the announcement in Whitby, Ont., at a company that makes emissions controls for engines.

Proposed new rules would allow fund money to cover the cost of the land, infrastructure and buildings required for vehicle-assembly plants. Plus, the cash would be extended as a non-repayable grant if the auto firm wants to establish a new factory or assembly line that is guaranteed to be in operation for the long term.

Offering grants instead of loans is a major shift in attitude on the part of the Conservatives. The Tory government, until now, has ignored complaints by the industry, through the Canadian Automotive Partnership Council, that the fund's repayable loans – which were also taxable – discouraged investment. "If auto makers are prepared to make firm commitments to new and modernized plants in Canada for the long term, our government is prepared to partner with them," Mr. Harper said Tuesday.

NDP Leader Thomas Mulcair, who was campaigning in Surrey, B.C., said Mr. Harper's announcement of support for the auto sector is an admission that tens of thousands of jobs will be lost as a result of the TPP.

"Stephen Harper is an opportunist on trade," Mr. Mulcair said. "He's willing to sell out Canadian families, Canadian farming families, he's willing to sell out families where the livelihood is gained in the auto sector two weeks out from an election because he thinks it's good for him."

Liberal Leader Justin Trudeau declined to comment on the specifics of the deal or the compensation packages, while insisting his party is "resolutely pro-trade."

"We will look carefully at the elements in the deal as they become available, we will look at the compensations offered," he said at a news conference at Olympic Stadium in Montreal on Tuesday morning. In addition to bringing the matter to a full debate in Parliament, Mr. Trudeau said he would actively sell "the benefits that come from trade" to the public.

Mr. Harper played down the chances of this agreement damaging vehicle or parts makers, which employ more than 100,000 people in Canada.

One auto-industry source said Conservatives were told repeatedly in recent months they needed to deliver something for the industry if a TPP deal was struck.

"The industry had warned if the TPP was going to make the sector more vulnerable, then they needed to do something on domestic policy to counter it," the source said.

Unlike the $4.3-billion compensation Ottawa promised to Canadian farmers on Monday, Tuesday's auto announcement is not a government commitment but a campaign pledge that is contingent on the Conservative Party's re-election.

The Conservative promise pales in comparison with the type of auto-industry assistance provided south of the border. Mexico and southern U.S. states are doling out hundreds of millions of dollars to finance new assembly plants. Canada was once the fourth-largest automotive-assembly country in the world but was ranked 10th-largest in 2014. One senior Canadian auto-industry executive, who spoke on condition of anonymity, said the shift to grants from loans is a good development, but, they added, $1-billion over 10 years is insufficient.

"When other countries are paying 50 per cent or more toward a single $1-billion investment, Harper's $1-billion won't go far," the executive said.

Jerry Dias, president of Unifor, which represents workers at the Canadian units of the Detroit Three auto makers, said $1-billion is not much considering the amount of capital auto makers spend on new plants and upgrading existing factories to make new or next-generation vehicles. A new paint shop at an assembly plant costs $700-million, Mr. Dias said, noting that Fiat Chrysler has spent $2-billion in the past year preparing its assembly plant in Windsor, Ont., for a new generation of minivans.

Mr. Harper made no apologies for the size of the auto-assistance purse he's offering. He said the Conservatives do not want to extend so much of a taxpayer-funded incentive that it places a lot of public money in jeopardy should new auto investments fail.

Cam Vidler with the Canadian Chamber of Commerce said the auto-aid pledge will help the industry adjust to the TPP. "TPP is going to put more pressure on our auto industry, no doubt. But that doesn't mean we have to be like a deer in the headlights. We've got time to transition, and initiatives like those announced today can bolster the case to invest here in Canada."

With a report from Daniel Leblanc in Montreal