A deep rift between the Detroit Three auto makers and other Canadian business groups is complicating Ottawa’s drive to conclude a long-delayed free trade deal with South Korea.
The lobbying battle has pitted the Ontario-based auto makers, who fiercely oppose the agreement, against an array of sectors, including farm groups, aerospace companies, food processors, distillers and wine makers.
A Canadian official bristled at the “bizarre stance” of the auto makers in Canada who he suggested are “taking marching orders” from their U.S. parents. “We believe we can compete with the best in the world,” said the official, who declined to be named.
The conflict underscores the difficulty of aligning Canada’s industrial players as other countries take advantage of freer trade abroad.
Canadian exports to South Korea have fallen roughly 30 per cent, or $1.5-billion, since the U.S. and Europe struck free-trade agreements with the Asian manufacturing powerhouse.
Last week, Ford Motor Co. of Canada Ltd. chief executive officer Dianne Craig said the deal would be bad for the Canadian economy, even though the company earlier backed a similar agreement between the U.S. and South Korea.
The key issue for auto makers is a 6.1-per-cent tariff that is applied on vehicles imported to Canada from outside North America.
The Japan Auto Makers Association of Canada (JAMA), which represents two auto makers that assemble vehicles in Ontario, said it is not opposed to a deal with South Korea that removes the tariff as long as Canada accelerates the pace of talks with Japan on a bilateral agreement or via the Trans-Pacific Partnership talks, so that all companies importing vehicles into Canada are playing by the same rules, said JAMA executive director David Worts.
Experts said internal dissent is holding up a deal with Canada, the focus of on-and-off negotiations since 2008.
“An important agreement is literally being held hostage by an industry group that agreed to the same kind of deal in the U.S.,” pointed out Toronto trade lawyer Lawrence Herman.
The auto makers – all three of which have received subsidies in recent years – are asking for too much, according to Mr. Herman. “They can’t have everything, subsidies and loan guarantees, and at the same time frustrate a trade agreement,” he said.
In a commentary submitted to The Globe and Mail, Maple Leaf Foods CEO Michael McCain urged the Conservative government to look beyond the auto sector at the “big picture and our overall national interest.”
“Canada needs to move and move fast … if we aspire to remain one of the top players in the global agri-food arena,” said Mr. McCain, who pointed out that the food processing sector is a larger factory employer than autos.
Other Canadian exporters said they risk being shut out of the South Korean market entirely as tariffs on U.S. and European goods are removed.
“We are behind the Americans,” said John Masswohl of the Canadian Cattlemen’s Association. He noted that the U.S. now has an eight-percentage-point tariff advantage in South Korea. Exports have dropped from nearly $50-million in the early 2000s to less than $5-million last year.
Jim Quick, president of the Aerospace Industries Association of Canada, said his members see South Korea as lucrative potential market, though small now. Removal of South Korea’s 8-per-cent duty on aerospace components represents “a significant opportunity,” he said.
General Motors of Canada Ltd. spokeswoman Adria MacKenzie would not comment specifically on where the auto maker stands on a Canada-South Korea deal, but said the company’s position is “generally supportive” of free-trade deals with countries that demonstrate that they have open markets. Chrysler Canada president Reid Bigland declined to comment.
Ontario now finds itself at odds with most other provinces after the provincial legislature passed a motion in December calling on Ottawa to protect auto makers. In an e-mailed statement, Cal Dallas, Alberta’s Minister of International and Intergovernmental Relations called on Ottawa to “make every effort to conclude an agreement with South Korea at the earliest opportunity.”
In a letter Monday to Trade Minister Ed Fast, the head of the main auto sector union complained trade with South Korea is a “one-way street,” condemning Canada to a “subservient relationship.”
The top four Canadian exports to South Korea are coal, copper, aluminum and wood pulp, while the top four Canadian imports from that country were vehicles, integrated computer circuits, automotive parts and telephones, pointed out Jerry Dias, president of Unifor. “Trade relationships like this are a recipe for de-industrialization. It would be an enormous and historic mistake for your government to sacrifice our auto industry at such a sensitive time in its history for modest market opportunities in agriculture,” Mr. Dias wrote.