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Toyota has a plant in Cambridge, Ont., that assembles Lexus vehicles.Kevin Van Paassen/The Globe and Mail

The federal government is putting a hard sell on Japanese auto makers to boost investment here as Canada and Japan open sweeping free-trade negotiations.

Ed Fast, Minister of International Trade, and Christian Paradis, Industry Minister, met Nissan Motor Co. Ltd. and Toyota Motor Corp. officials earlier this month amid free-trade talks that will address Japan's desire to eliminate a key Canadian automotive trade policy – a 6.1-per-cent tariff that Canada levies on vehicles imported from outside North America.

One question for the two ministers is whether they can trade that tariff for a new assembly plant or expanded factories and potentially thousands of jobs or settle for increased access to Japan for other Canadian products or some other less visible trade-off.

The existing Toyota and Honda of Canada Mfg. assembly plants in Cambridge, Ont., and Alliston, Ont., were opened in the late 1980s when then-industry minister Ed Lumley choked off imports of those companies' vehicles in Vancouver until they agreed to build plants here. That was part of a long-time strategy on the part of successive federal governments to use various elements of trade policy to win new auto investments.

"It would be pretty difficult to do a deal with Japan without addressing [the auto tariff], if it was going to be a high-quality free-trade deal," pointed out John Weekes, a former top Canadian trade negotiator and now an adviser with law firm Bennett Jones. The vast majority of the duties now collected on Japanese imports to Canada come from autos.

Two-way trade between Canada and Japan totalled $25.24-billion in 2012. About 42 per cent of that was motor vehicles, motorcycles, bicycles and trailers.

Given that Honda and Toyota already have a significant presence in Canada, Mr. Weekes said Ottawa could be making a mistake by demanding a lot more as a condition for ending the duty.

"They should be using this as an opportunity to reinforce what we have, not hold them ransom," he said.

Joe Loparco, chairman of the Automotive Parts Manufacturers Association of Canada, told a Canada-Japan trade symposium in Toronto last week that a free-trade agreement could lead to another Japanese auto plant being located in Canada.

Japanese auto makers want Canada to create a level playing field with their competitors from South Korea and Europe, Toshihiro Iwatake, executive director of the Japan Automobile Manufacturers Association Inc., said in an interview in Toronto last week.

If trade agreements between Canada and the European Union and Canada and South Korea eliminate the 6.1-per-cent tariff, Japanese companies will be disadvantaged, Mr. Iwatake said, which will make this country less attractive for new Japanese investment.

Canada might insist on new auto investments by Japanese companies in return for eliminating the tariff, but "I wonder whether the Japanese government will be successful to force Nissan or Toyota – or any Japanese company – to make investments," he noted.

The meetings Mr. Fast and Mr. Paradis held in Japan were about the investment attractiveness of Canada, including some opportunities in this country that Ottawa wants to see "come to a successful outcome," said one federal official.

One of those could be Nissan's plan to assemble vehicles for its Infiniti luxury brand in North America.

Mr. Paradis met with Infiniti chief executive officer Johan de Nysschen in Hong Kong this month, but Automotive News later reported that Canada is no longer being considered for the Infiniti operation.

The auto industry is also central in the Canada-EU and Canada-South Korea free-trade talks. A Canada-EU deal is down to a "small handful of issues," Mr. Fast said last week.

The Canada-EU talks appear to include a deal that involves Canada reducing its 6.1-per-cent tariff on imported vehicles while Europe reduces its 10-per-cent vehicle tariff.

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