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Report On Business In Canada's auto-parts factories, Japan now outpaces U.S.

A worker works on a car dash board at Honda of Canada Mfg. Plant 2 in Alliston, Ont.

Nathan Denette/THE CANADIAN PRESS

Employment at Japan-based auto-parts makers in Canada now exceeds that of U.S.-based parts companies amid a steady rise in vehicle assembly that led to record output by Japanese auto makers in this country last year.

Honda of Canada Manufacturing Inc. and Toyota Motor Manufacturing Canada Inc. assembled more than 1 million vehicles last year, representing 44 per cent of all passenger cars and light trucks made in Canada.

Those are among the key conclusions of a study done by McMaster University professors Greig Mordue and Brendan Sweeney, who examined the economic impact of Japanese auto investment in Canada between 2001 and 2016. The study was undertaken for the Japan Automobile Manufacturers Association of Canada.

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The study comes as federal policy makers and trade negotiators assess what strategy to adopt in talks on renegotiating the North American free-trade agreement and the Japanese companies press for equal treatment with their South Korean and European rivals when it comes to tariffs on vehicles imported into Canada from outside North America.

The increase in output and employment by Japan-based companies is "a story which has kind of been lost in the higher level stats that we've read about the Canadian automotive industry as our growth has been offset by a retrenchment by U.S. auto makers and parts makers," David Worts, executive director of JAMA Canada, said Wednesday.

Those statistics include a drop in overall vehicle production in Canada to 2.357 million last year from the record high of 3.056 million in 1999. Output by Honda of Canada Manufacturing Inc. and Toyota Motor Manufacturing Canada Inc. rose while overall vehicle production in Canada was falling, which means the two Japan-based companies almost doubled their share of Canadian production from 23 per cent in 2001.

Investments by Japanese parts makers to feed expansions by Honda and Toyota led to employment at the components makers to more than double between 2001 and 2016. They employed 17,155 people in Canada last year, compared with 12,000 who were employed at U.S.-based parts firms. Some U.S-based parts companies have departed entirely from Canada, while others have drastically scaled back their Canadian operations.

"We think the report underscores the need for balanced, open, transparent and equitable trade policies … while maintaining a competitive marketplace for the benefit of Canadian consumers," Mr. Worts said in a interview.

The long history of U.S. companies in Canada means U.S. interests can overshadow those of other companies when Canada is in trade negotiations or regulating the industry, said Stephen Beatty, vice-president of Toyota Canada Inc.

Industry analysts within government are aware of the size of the Japan-based industry in Canada, Mr. Beatty said, "but impressions die hard. If you go to Ottawa or elsewhere across the country, there's still an impression of the U.S.-based industry being much more substantial than it actually is today."

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Honda and Toyota face an actual competitive disadvantage compared with South Korean and European companies even though the Japan-based companies have invested billions of dollars here and companies from those regions have not. The Canada-South Korea free-trade deal eliminated a 6.1-per-cent tariff on vehicles imported into Canada from South Korea, while the agreement between Canada and the European Union will do the same thing over the next few years on vehicles imported from Europe.

Japan-based companies are seeking the elimination of the tariff on their vehicles through a Canada-Japan free-trade deal or the Trans-Pacific Partnership trade agreement.

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