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Canada is heading for its largest automotive trade deficit on record this year, the Canadian Auto Workers union says in a paper to be released Monday.

The deterioration of Canada's auto trade performance underlines the need to open fair two-way trade or halt negotiations with South Korea, which has the most unbalanced relationship with this country when it comes to motor vehicles and parts, CAW economist Jim Stanford said.

“What was once a unique success story regarding Canada's high-value participation in world markets has turned remarkably quickly into an industrial nightmare,” he says in the report, which will be released a day before federal officials launch their 11th round of negotiations on a free-trade agreement with South Korea.

This would be Canada's second consecutive automotive trade deficit, following last year's shortfall of $1.6-billion, the first since 1987 and a sharp downturn from the peak surplus of $14.4-billion in 1999. The deficit is on track to reach $8-billion this year, Mr. Stanford said.

The automotive trade surplus has been declining for the past few years and is a troubling trend that comes as the dollar rallied more than 50 per cent to finally regain par with the U.S. currency, thereby eroding one of Canada's major competitive advantages.

A massive restructuring by Chrysler LLC, Ford Motor Co. and General Motors Corp. has already wiped out thousands of jobs in the industry.

Major investments by Honda Motor Co. Ltd. and Toyota Motor Corp. have not offset those losses. The trade deficit with South Korea alone is close to $2-billion, in part because automotive firms have exported just $5-million worth of goods to that country this year.

“This is the wrong time for our own government to expose this still-crucial export industry to even more damage from low-cost, one-sided imports,” the CAW said.

Auto makers operating in Canada are united – with the exception of the Canadian unit of Hyundai Motor Co. and that company's Kia Motors Corp. unit – in their opposition to a one-sided deal with South Korea that opens the Canadian market to increased vehicle imports from that country, but doesn't open up the South Korean market to shipments of finished vehicles from Canada.

As recently as last week, Chrysler Canada Inc. president Reid Bigland urged Ottawa not to conclude a deal if it doesn't include guarantees that South Korea will eliminate non-tariff barriers to vehicles built in North America.

General Motors of Canada Ltd., which is the only Detroit-based auto maker that imports vehicles into Canada from South Korea, is also opposed to any agreement that doesn't crack open the South Korean market.

Canada has traditionally run a surplus with the United States that more than compensates for its deficit with the rest of the world.

There's a surplus with the United States this year as well, but now a deficit with Japan, South Korea, China and European nations has outpaced the positive contribution of U.S. trade.

The surplus with the United States is falling as well, amid a decline in exports of finished vehicles to that market.

Mr. Stanford blames that on growing imports to the U.S. from outside North America that have sent market share for Chrysler, Ford and General Motors skidding in their home market.

Passenger vehicles are still Canada's largest export by dollar value, despite the rise in the price of oil and growing production out of the oil sands.

“It would be a glaring mistake to therefore conclude that the auto industry no longer matters to Canada's global performance,” Mr. Stanford said.

Despite the decline in the automotive trade balance, automotive exports will still exceed $70-billion for 2007, he said.