David Worts is executive director of the Japan Automobile Manufacturers Association of Canada.
Why is the Trans-Pacific Partnership important? Because it will restore a level playing field among vehicle manufacturers that was lost as other free-trade deals extended benefits to countries such as Mexico and South Korea. That competitive equity is important to vehicle manufacturers, but it will also benefit Canadian consumers and has limited impact on Canadian production facilities whose major market lies in the United States. Meanwhile, it provides Canadian manufacturers with open access to 40 per cent of the global economy.
Much has been made by opponents of the deal of two provisions: the five-year tariff phaseout and the more flexible rules of origin.
First, let's examine the phaseout period.
The five years is actually longer than our companies felt was appropriate, given that Mexican production already enters Canada duty free and that South Korean vehicles will achieve full duty-free status at the end of next year. What's more, tariff rates and structures differ between the United States and Canada (in fact, Canada's 6.1-per-cent tariff is 2 1/2 times higher than the U.S. passenger vehicle tariff), so there's no compelling reason why tariff phaseouts need to be the same.
Given that adoption of the TPP by the partner countries will likely take at least two years, followed by the five annual stage reductions of the tariff on imports from Japan, we will continue to be placed at a competitive disadvantage for over half a decade. But we accept the five-year phaseout as a far better outcome than the highly protectionist phaseout of U.S. tariffs, which will delay the elimination of the 25-per-cent "chicken" tariff applied to pickup truck imports in the United States for 30 years.
While critics of the deal focus on comparing Canada's tariff phaseout period on vehicles to the longer tariff cut schedule offered by the United States, they fail to acknowledge that the important bilateral concession offered by the United States was the immediate elimination of U.S. duties on auto parts – something that will benefit American assembly plants as well as TPP parts makers. Canada already provides duty-free access to imported auto parts and it is interesting to note that Japanese investment in parts production in Canada has exponentially increased since these duties were eliminated in 1998.
In fact, if the past is any predictor of the future, it might be instructive to ask what has happened to auto production in Canada since the original Canada-U.S. free-trade agreement was signed. South Korean and American auto makers have eliminated or reduced their Canadian footprint while Japanese companies have continued to invest here.
Secondly, the concerns about the TPP automotive rules of origin as compared to the North American free-trade agreement have been exaggerated and often misleading.
In spite of the fact that NAFTA sourcing is closer to 75 per cent (well above the 62.5-per-cent NAFTA threshold) due to logistics and localization, it is worth noting that NAFTA doesn't guarantee any country-specific sourcing. That said, the auto parts industry in Canada does well when vehicle plants in Canada are doing well. Honda's Alliston plant is now the global lead for the new Civic, and Toyota's commitment for the next-generation Lexus RX and the second RAV-4 plant in Cambridge illustrate this reality.
What's more, innovative, reliable and competitive Canadian suppliers will continue to benefit. These supplier relationships in Canada have been forged over almost 30 years, and will not change just because the TPP rules differ from NAFTA.
Also noteworthy, the recent Automotive Parts Manufacturers' Association-led "Connected Car" project utilizing a vehicle built in Cambridge is a very encouraging demonstration of focused collaboration and Canadian suppliers rising to global challenges with advanced technologies.
As with U.S. auto makers in Canada, Japanese auto makers are deeply integrated in the North America auto sector. More than $10-billion has been invested in vehicle manufacturing over the past 25 years, which has allowed Canada to be a net exporter of Japanese brand vehicles every year since 1993.
In 2014, as a result of record production, we exported more than six times as many vehicles from Canada as were imported from Japan. Direct and indirect employment in our part of the auto industry stands at 72,600 across Canada, including about 30,500 in vehicle and Japanese-related auto parts plants, most of which are in Ontario.
At the same time, almost eight of every 10 Japanese brand vehicles sold in Canada are currently made in North America, which means that about 20 per cent of sales are imported from Japan. But this 20 per cent represents about half of the various models that meet the wide-ranging needs of Canadian consumers. These include new or advanced technology models, or small-volume vehicles only manufactured in one plant globally.
Ultimately, consumers are the key beneficiaries from trade liberalization. Eliminating tariffs reduces non-manufacturing costs, which allows auto makers to offer more choice, along with more features, better financing or lower prices.
No doubt, this is a challenging time in the automotive industry due to intensifying global competition, the advent of new and disruptive technologies, tougher safety and emissions regulations as well as the changing and ever-demanding needs and wants of consumers.
From our perspective, the TPP represents a challenge and an opportunity with a long-term positive outlook that will benefit the auto industry and Canadian consumers.