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Politics Auto-sector protection under TPP deal less than Ottawa touted

Canada's Prime Minister Stephen Harper speaks during a news conference on the Trans-Pacific Partnership (TPP) trade agreement in Ottawa, Canada October 5, 2015.

Chris Wattie/REUTERS

The Canadian government has omitted a key detail from its public explanation of what would change for this country's vital auto sector under the Trans-Pacific Partnership trade agreement.

And pressure is building on Ottawa to release the full text of this massive Pacific Rim deal before voters cast their ballots on Oct. 11.

International Trade Minister Ed Fast, whose party hopes to capitalize on the deal, which would open Japanese markets for Canadian business, is pledging to make the agreement public in a matter of days.

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But, contrary to what government documents and Prime Minister Stephen Harper have said, the local-content requirements for some auto components under the TPP deal are lower than advertised.

This is important because the agreement reached this week in Atlanta among Canada and 11 other Pacific Rim countries would eliminate Canadian tariffs on Japanese vehicles and make it easier for manufacturers to use offshore parts in cars. It would be a boon for low-wage Asian suppliers but a challenge for Canadian firms.

Summaries of the deal from the Department of Foreign Affairs and International Trade, and Mr. Harper himself, have focused on the fact that local-content requirements would be 40 per cent and 45 per cent for vehicle components.

"Just in terms of thresholds, we are no lower than 40 [per cent] on anything and 45 [per cent] on most, which is a considerable improvement over an earlier understanding between a couple of other partners," Mr. Harper said at a news conference on Oct. 5.

However, some components will have local content thresholds as low as 35 per cent. This means 65 per cent of the content could come from countries outside the TPP zone.

Mr. Fast's office defended the government's explanations, saying they focus on the components that Canadian firms produce in large quantities.

"It does go as low as 35 [per cent], but they are not key Canadian parts," spokesman Rick Roth said. "Canada's TPP autos outcome is extremely strong in all areas."

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He said details on precisely which categories of auto parts would fall under the local content rule will be released with the text of the deal. It is expected more sophisticated components, such as engines, chassis and transmissions, would have higher local content thresholds, while simpler parts would have the lower thresholds.

Mr. Roth said eight categories of auto parts flagged as priorities by the Canadian industry are covered by the higher thresholds. He said 35 per cent would still be better than the 30 per cent that Japan and the United States had planned for the TPP.

"The outcome Canada negotiated, with inputs from the parts industry, ensures most key Canadian parts are at 45 [per cent], with others at 40. Those facts are what we've communicated."

Until the TPP text is made public, it is not possible to determine whether the categories of components in which the most offshore content would be allowed actually are made in large quantities in Canada.

A new Nanos Research poll suggests Canadians have concerns about the deal. Three-quarters of respondents were worried about the impact on the dairy and automotive industries, a new survey said.

Forty-seven per cent said they were not or somewhat not confident in the job done by the federal government in negotiating the TPP. Forty-two per cent said they were confident or somewhat confident that Canada's interests were looked after.

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A full 73 per cent of respondents said it would be important or somewhat important to them if the deal had a negative impact on dairy farmers. Twenty-four per cent disagreed. The Conservative government has agreed to pay dairy farmers a combined $4.3-billion in compensation for losses from the TPP and European trade deals.

Canadians were equally supportive of the auto sector, with 75 per cent worrying about the impact, and 23 per cent saying it was not important.

NDP Leader Tom Mulcair, who opposes the Pacific Rim deal and is trying to rally anti-TPP voters behind him, appears emboldened now that a major U.S. political figure is also against it.

Hillary Clinton, whom polls suggest is the leading contender for the Democratic Party presidential nomination, broke with President Barack Obama on Wednesday and rejected the TPP.

Said Mr. Mulcair Thursday: "I welcome news that Hillary Clinton has joined other senior Democrats in the United States in opposing this bad deal. It is now clearer than ever that we don't have to accept Stephen Harper's TPP."

Major U.S. business groups are also withholding their applause, saying they want to wait until they see the text – a hint of the major opposition expected in Congress towards the agreement.

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/Matt Schewel, a reporter for Inside U.S. Trade, which tracks the TPP closely, singled out Canada as the country among the 12 TPP nations that has divulged the most so far. "Which TPP government has released the most details of the agreement thus far? My vote goes to Canada," he wrote on Twitter on Thursday.

/Questions remain about whether the deal would accelerate the trend of auto investment bypassing Canada in favour of Mexico and the southern United States.

/The agreement replaces the North American free-trade agreement and its requirement that vehicles sold in North America contain at least 62.5 per cent content from the three countries with a new requirement that cars and trucks can be sold tariff-free in all 12 TPP countries with just 45-per-cent content from those 12 countries.

The rules differ for parts, with that same 45-per-cent level required to be considered duty-free for some parts and 40 per cent for others. Included in the 45-per-cent or 40-per-cent levels are engines, transmissions, chassis components, bumper systems and suspensions, sources said. A third set of parts can be considered originating in TPP countries with just 35 per cent TPP content.

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