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A Toyota RAV4 is seen at the Toyota automobile assembly plant in Woodstock, Ont., about 130 km southwest of Toronto.

MARK BLINCH

Toyota Motor Corp. will spend $1.4-billion to upgrade its Canadian manufacturing operations, giving a positive jolt to the auto sector in Canada amid NAFTA negotiations that will play a crucial role in how auto industry investment in North America is allocated.

Toyota, backstopped by $220-million from the federal and Ontario governments, will spend the money at plants in Cambridge, Ont., and Woodstock, Ont.

Prime Minister Justin Trudeau and Ontario Premier Kathleen Wynne made the funding announcement on Friday – on the eve of the official launch of an Ontario election campaign – at the Toyota Motor Manufacturing Canada Inc. plant in Cambridge.

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The Cambridge factory will be retooled to start producing the RAV4 in early 2019, after output of the Corolla compact sedan ceases. The assembly plant in Woodstock has been turning out the RAV4 since it opened in 2008.

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The investment will create 450 new jobs – the auto maker employs about 8,000 people now at the two plants – and includes spending of $200-million in research and development in Canada over the next 10 years as well as production of a hybrid model of the RAV4.

“Companies have confidence in Canada and Canadian workers and know that we are ready to build the cars of the future,” Mr. Trudeau said in a statement. The investment will help keep the Canadian auto sector globally competitive, Mr. Trudeau said.

The RAV4 is Toyota’s bestselling vehicle in North America, displacing the Camry mid-sized sedan in the U.S. market and the Corolla compact in Canada amid a surge in popularity of crossovers.

Toyota had previously announced in 2015 that it would expand RAV4 output in North America by adding it to the Cambridge plant, saying at the time that the investment would be about $500-million.

The announcement comes amid negotiations on the North American free-trade Agreement, during which the auto industry and a debate about how much North American content should be in vehicles is at the centre of discussions between Canada, the United States and Mexico.

Toyota has already changed production plans amid the NAFTA talks and hectoring by U.S. President Donald Trump about how he would put up roadblocks to companies that build new assembly plants in Mexico and export cars to the United States.

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Mr. Trump and the U.S. negotiators at the NAFTA tables are trying to establish new rules of origin for North-American-made vehicles that would divert the flow of billions of dollars of automotive investment into the United States from Mexico.

The Corolla, for example, was originally scheduled to be moved out of Cambridge to a new Mexican plant to make room in Cambridge for the RAV4. But in January, 2017, Mr. Trump threatened on Twitter to impose “a big border tax” on the car.

A year later, Toyota said it would assemble the car instead at a new Toyota-Mazda Motor Corp. factory that is being built in Alabama. Toyota officials denied any connection between the threat and the change in investment plans.

Both the NAFTA talks and the June 7 Ontario election would have played roles in the timing and discussions within Toyota about the announcement, said Greig Mordue, an associate professor at McMaster University and former Toyota Motor Canada official.

“This would have been enormously complex and fraught with challenges to get through to the finish line,” Prof. Mordue said.

“It would have to have been approved at the most senior levels of Toyota in Japan and there would have been a lot of sensitivity about being seen as making an announcement of an investment in Canada at the same time that they are in the final stages of a very sensitive NAFTA negotiation that hinges around auto and auto content rules,” he said.

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