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Canada heads to TPP talks in Atlanta with key auto content issue unresolved

Canada is challenging provisions that would allow cars to be sold with less domestic-content requirements


Canada's Trade Minister Ed Fast is heading to Atlanta to join a pivotal round of talks that could yield a massive Pacific Rim trade deal – even though Japan has so far refused to give ground on rules in the proposed accord that could hurt Canada's auto sector.

The very same unreconciled differences between Canada and Mexico on one hand, and Japan on the other, stalled a Trans-Pacific Partnership trade accord last summer in Maui.

Mr. Fast says Canada can't afford to walk away from the table – even during an election campaign with less than four weeks before the vote. A successful conclusion to the talks, of course, could be a political boon for the Tories.

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Twelve countries, from Chile to Vietnam, are part of efforts to create a sprawling free trade zone comprising 40 per cent of annual global economic output.

Canada and Mexico, however, are challenging provisions agreed to by the United States and Japan that would allow cars and auto parts to be sold in North America with significantly less domestic-content requirements than exist under NAFTA. Negotiations this week in San Francisco to break this auto-trade logjam ended without resolution. Canadian officials privately point fingers at Tokyo.

"Talks have been difficult, and there is still much progress to be made," a Canadian government official said, speaking on condition of anonymity. "Japan has moved in the right direction, but they're moving inches and we need them to move yards."

The United States and Japan, the two most influential players in the TPP talks, are eager to wrap up a deal before the Canadian federal election on Oct. 19. One of the reasons cited by Japan is the possibility that the Harper Conservatives might lose power, and a new government might be less willing to conclude the Trans-Pacific Partnership on an expedited basis.

Japan's minister responsible for the TPP, Akira Amari, warned last Friday that failure to reach a deal in Atlanta could delay an agreement for years.

On Wednesday, Mr. Fast defended his decision to join the talks in Atlanta even though Canada has not resolved the very problem that prompted Canadian negotiators to balk at a deal in Hawaii. Chief negotiators begin talks in Atlanta on Friday, and trade ministers from 12 countries join them in the middle of next week.

Under NAFTA, Canada, the United States and Mexico require more than 60 per cent of cars and auto parts to be made within the NAFTA zone in order to enter their markets tariff-free.

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The Japan-U.S. formula says that in the TPP zone, vehicles would be tariff-free even if only 45 per cent of their content is made within the TPP zone, and auto parts with as little as 30 per cent.

Canada's auto parts manufacturers, who employ more than 80,000 in Canada, are calling on Ottawa to secure a 50-per-cent content rule for cars and parts.

Rick Roth, a spokesman for Mr. Fast's office, said Canada wants a TPP deal that benefits all sectors "and ensures the interests of Canadian auto makers and parts makers are well served."

Mr. Fast said allowing the TPP to proceed without Canada would mean being cut out of a huge new trade network. It would mean forgoing new market opportunities in Asia, and Canada's preferential relationship with the United States under NAFTA would be eroded over time as the Trans-Pacific Partnership deepened ties between the Americans and 10 other Pacific Rim countries.

"If we walk away now, there's a tremendous cost that our economy will pay," Mr. Fast told CBC TV.

Conservative Leader Stephen Harper would certainly tout a TPP deal as the fruit of his government's economic policy, but Mr. Fast rejected the notion that Ottawa is at the talks in order to win votes. "By no means is the fact that we're at the table today a political gesture."

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New Zealand's trade minister praised the Harper government's willingness to hammer out a trade deal during an election campaign – a period when Ottawa is run in caretaker mode until a new government is elected. "The Canadians are negotiating as if there's no election," Tim Groser told New Zealand media on Tuesday.

Mr. Groser nevertheless signalled he remains unhappy with the lack of ambition on liberalizing the trade in dairy products, a sign that bigger players in the TPP talks may have relented in their push for Canada to massively open its markets to foreign milk and cheese. He predicted a TPP accord would not be a "gold-plated deal" as far as he is concerned.

"Basically, the situation is that I and my negotiators can see a very good deal for New Zealand in everything except dairy, and I don't know to characterize the deal there because it's not a deal we could accept," Mr. Groser said, according to the New Zealand Herald.

He appeared resigned, saying what is taking shape may be the best that can be achieved.

"Is there a better alternative? Successive governments have tried to do bilateral [free-trade agreements]with Canada, Japan, Mexico and the U.S. for 30 years and have completely failed," Mr. Groser said. "With these four giant countries, it's this or nothing."

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