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Why the new TPP will boost Canada’s automotive sector

David Worts is executive director of the Japan Automobile Manufacturers Association of Canada.

Setting aside the mixed messages in news reports coming out of Vietnam on the sidelines of the recent APEC summit, Canada seems to have embraced the transformation of the Trans-Pacific Partnership, now renamed the CPTPP (Comprehensive and Progressive TPP). Although expectations were high going into the leaders' meeting in Danang for an agreement in principle, all parties managed to reach an agreement on "core elements" of the new CPTPP, leaving a few issues for further negotiations.

Clearly time was of the essence; but as trade negotiators remind us, "Nothing is agreed until everything is agreed." Although smaller in scope, the fact remains that the CPTPP is still an ambitious, complex and modern trade agreement. This is a significant opportunity. Completing the CPTPP will also send a strong signal to the international community that multilateral or regional trade agreements are alive and well. What's more, the welcome mat is still there for other countries to join the party.

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The members of the Japan Automobile Manufacturers Association of Canada support diversified trade liberalization for the mutual benefits which accrue to all trade signatories from enhanced business opportunities, as well as advantages for consumers. As global value chains forge stronger economic linkages with major trading partners, we urge Canada to continue pursuing diversified trade initiatives in Asia-Pacific with the CPTPP, building on the provisional implementation of the Canada-European Union trade agreement (CETA) and the fully implemented Canada-Korea free-trade agreement.

The CPTPP, according to a recent analysis by the Canada West Foundation, will offer expanding trade and business opportunities for Canadian exporters in Asia-Pacific, including a first-mover advantage particularly with respect to the Japanese market. While the study claims the impact on the auto sector would be neutral, we believe the CPTPP also offers the opportunity to boost production and exports from Canadian plants with preferential access to CPTPP markets, especially Japan.

Put simply, finalization of the CPTPP will put an end to the unfairness that Japanese auto makers in Canada, whose manufacturing footprint has been long-standing and continues to grow, have faced vis-à-vis automakers from other countries that do not manufacture in Canada. Moreover, tariff phase-outs on motor vehicles are important and timely as they will restore a level playing field that was lost for Japanese auto makers in Canada after the Canadian government signed trade deals with South Korea and, most recently, Europe.

With respect to automotive rules of origin, we believe flexible, predictable, simple and forward-looking rules of origin (ROO) for autos in the CPTPP will reflect the realities of current global supply chains.

As most auto makers embrace "just-in-time" or lean manufacturing, as well as a business philosophy of "build where we sell" in close proximity with key suppliers, the auto-parts industry in Canada does well when auto makers' plants in Canada are strong and have flexible rules that allow them to compete globally.

Honda's Alliston, Ont., plant is now the global lead for the new Civic, and Toyota's recent reinvestment in the Lexus RX plant as well as future investment in RAV4 production in their North and West plants illustrate this reality. Moreover, as supplier relationships have steadily grown over the past 30 years, competitive Canadian suppliers will continue to benefit.

Currently, only U.S. and Japanese auto makers are manufacturing light-duty motor vehicles in Canada for both domestic and export markets. As U.S. auto makers in Canada have had the benefit of duty-free treatment particularly from their home market since the 1965 Auto Pact, Canada should also extend the same duty-free treatment to Japanese auto makers in Canada, who now represent 43 per cent of total light-vehicle production in Canada.

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And it's not just about "cheaper" imported vehicles. This will also send a positive message to Japanese auto makers with significant investment in Canadian manufacturing, as well as sales and service operations that have created 80,000 direct and indirect jobs. This growing commitment to Canada supports gainful employment for over 200,000 across Canada as a result of spin-off effects from local manufacturing operations, as well as over 1,230 dealerships from coast to coast.

Bottom line: The CPTPP agreement will finally and effectively create a balanced and competitive auto market in Canada, and allow Canadian consumers competitive access to a wider range of safe, environmentally friendly, advanced technology and alternative powertrain vehicles.

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