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High-tech investment comes at a price Add to ...

In what has become a familiar ritual, the incoming Liberal government in Ontario is being pressured to offer $200-million in financial incentives to Ford Motor Co., to ensure the auto maker pours more than $1-billion into a new high-tech manufacturing system in Oakville.

While doing so goes against our anti-subsidy principles, there is an argument to be made that Ontario can't afford to be left out again when it comes to new auto industry investment.

The luring of new car plants has become a high-stakes game of financial chicken, with different regions scrambling to offer the most attractive package of tax breaks, infrastructure spending, research and development grants and plain hard cash without bankrupting themselves in the process. So far, southern U.S. states and Mexico have been winning the game.

Over the past 13 years, seven new plants have been built in the United States and another six in Mexico. The number of new plants built in Ontario? One, by Honda.

There are many differences between Mexico, Georgia and Ontario, but one of the most important is that the first two have been more than happy to provide the financial incentives demanded by the Big Three. "When I go to Mexico, I get some government support in 30 seconds. Why would I go to Canada without getting government support?" DaimlerChrysler's chief operating officer for North America, Wolfgang Bernhard, asked earlier this year.

Mexico has seen its share of the auto market skyrocket to about 12 per cent from 6 per cent just a decade ago, while Canada has remained fairly flat at about 16 per cent. Industry officials have said Canada's lower health-care costs and better-trained work force are no longer enough to win new investment.

The argument that other jurisdictions do it and therefore we should too isn't a particularly sophisticated one, but it is a reality. It's also a fact that the kind of plant Ford is proposing - a state-of-the-art flexible manufacturing facility - is important enough that it arguably justifies an exception to the "no business subsidies" rule. Industry experts have pointed out that Ford sees such plants as the future of its business, and that if Ontario loses it, the odds of winning further investment drop even lower.

Like it or not, Ontario's auto industry is a huge part of Canada's industrial economy. It would be nice if Queen's Park could stand on principle and still attract new investment, but that doesn't appear to be the case. If anything, the Liberal promise to raise corporate taxes will make it even harder to appeal to the industry. And new investment isn't coming with the frequency it used to, as U.S. auto makers struggle with lower profits. DaimlerChrysler wanted to build a new plant in Ontario, but cancelled its plans due to overcapacity at existing plants and its weak financial health.

Ontario shouldn't just throw money at Ford. Any funds - which could come from the $625-million already committed to a research and development program - should be tied to specific proposals, or in the form of low-interest loans or tax incentives. But the province, and, if necessary, Ottawa, should do what it can to make sure Ford puts its investment here.

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