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Sales/Production – Growth
Begins to Moderate in 2000
Production
In the first quarter of 2000, total vehicle
production rose by almost 11% for combined operations at Honda,
Toyota and CAMI plants in Canada to a total of close to 165,000
units. However, this gain in output was driven entirely by Honda
in Alliston, where unit production jumped over 35% to 85,730 units
for the quarter. At the same time, production at Toyota in Cambridge
and CAMI in Ingersoll fell 9.2% and 4.3% respectively, compared
to the same period in 1999. The strength in output at HCM is largely
due to the robust demand in North America for the Odyssey minivan.
Vehicle Exports
Vehicle exports in the first quarter for the most part reflected
the results in unit production, rising 13% over 1999 to almost 132,000
units. Overall growth was driven by higher shipments from Honda’s
operation, up 37.9% over last year, while Toyota recorded lower
exports during the period, down 9.1%. Shipments from CAMI rose 5.5%
over the estimate from the same period in 1999, due to a higher
percentage of output designed for export markets.
Imports (Shipments to Canada)
Imports of finished vehicles by all JAMA Canada members combined
during the first quarter rose 6.6% overall to just over 70,000 units.
Shipments from Japan were up 4.9% year over year to just under 46,000
units, while imports from the US and Mexico increased about 10%
to almost 25,000 units. While it takes time for
factory shipments to be distributed and finally
sold to the retail consumer, an increase in shipments is a sign
that demand remains buoyant.
Sales
Sales of light duty vehicles among all JAMA Canada members continue
to improve, gaining 8.8% in the first quarter of 2000, to 73,762
units. Both passenger cars and light trucks were up, 9.6% and 6.8%
respectively.
Among individual members, Mazda, Subaru and Nissan recorded
sales gains in excess of 20% over the previous year. Market share
for JAMA Canada members edged up to 21.8% in the first quarter of
2000, from 21.6% in the same period in 1999. Passenger car share
dropped marginally to 29.7% due to strong sales gains of Korean-made
vehicles during the period.
23rd CJBC Conference Proposes
to Study Canada – Japan Bilateral Trade Agreement
The focus of the 23rd annual Canada-Japan Business Conference,
held in Tokyo on May 14-16, centred on ways to revitalize the bilateral
relationship, including a new liberalized trade initiative toward
an FTA.
Discussion papers were presented by Keidanren and the Business
Council on National Issues (BCNI) that explored the prospects as
well as some concerns about a new bilateral trade discussion aimed
at an eventual FTA between Japan and Canada. An independent paper
prepared for Toyota Canada by T. Iwasaki was also distributed to
the CJBC delegates. This paper explored the historical precedents
for Canada – Japan trade initiatives, and strongly supported the
case for further analysis of bilateral trade liberalization between
the two countries, consistent with the multilateral trade system
in the WTO.
At the CJBC plenary session, there were concerns expressed on both
sides about sensitive issues in an FTA initiative; but at the end
of the day the joint statement issued by the Co-Chairmen of the
CJBC – from Japan, Mr. Hiroshi Okuda, Chairman, Toyota Motor Corporation;
and from Canada, Mr. Paul Tellier, Chairman, Canadian National Railway
– endorsed further study on various options on a free trade deal,
with a view to reporting on progress at the 24th CJBC
that will be held in Calgary in mid-May, 2001. While this initiative
is being spearheaded by the respective business communities in Canada
and Japan, government officials have been very cautious at this
stage, but no doubt will closely follow the progress at the CJBC.
There seems to be five major reasons for the current interest in
a Canada-Japan FTA:
1. To seize the opportunity to strengthen the Canada-Japan relationship
which has been stagnating recently, as well as the recognition of
the relative complementarity of our two economies;
2. While Japan is the only major developed economy that is not involved
in a free trade agreement, it is now exploring bilateral and regional
trade in support of the multilateral system in the WTO;
3. Canada-Japan FTA would not only be mutually beneficial, but would
also provide a template for future trade initiatives with the US and
be a precursor to open broader trade talks in the Pacific region;
4. The failure of the WTO to launch the “Millennium” Round of multilateral
negotiations in Seattle last year, and the continuing uncertainty
for the next round.
5. The growing business opportunities for both Canada and Japan in
the IT sector of the new economy.
While Canada has been active for the past 15 years negotiating
various free trade agreements with US, Mexico, Israel, Chile, EFTA
and more recently Costa Rica and Singapore, Japan has recently begun
to consider regional or bilateral trade initiatives to supplement
the multilateral trade regime under the WTO. Japan has entered into
formal discussions with Singapore and is likely to consider further
trade incentives with Mexico and South Korea in the near future.
CJBC – Automotive Committee
On the second day of the CJBC, the Automotive Sector Meeting was
hosted by Honda at the Motegi Twin Motor Ring facility outside of
Tokyo.
Two panel discussions were held during the morning session. The
first explored “Automotive Trends in Southeast Asia” with presentations
by Mr. Koji Hasegawa, Managing Director, Toyota Motor Corporation;
Mr. Shigehiro Nishimura, General Manager, International Planning
Group, Denso International; and Mr. Martin Mazza, Vice President,
Diversified Sales and Global Marketing, The Woodbridge Group. The
focus of the panel explored the business opportunities for Canadian
auto parts suppliers with Japanese automotive companies in four
ASEAN countries (Thailand, Malaysia, Philippines and Indonesia)
as the economies in the region begin to recover from the Asian currency
crisis begun in 1997.
The second panel looked at “M & A Trends in Asia’s Auto Industry”.
Panelists included Mr. Edward Phillips, Director, Motor & Equipment
Manufacturer Association (MEMA) Japan; Mr. Daniel Baum, Director,
Sales and Engineering, Magna International; and Mr. T. Onda, Purchasing
Director of Honda Motor Company. The focus of this session was on
rapidly changing corporation affiliations and strategic alliances
in Japan and the Asian region, including ongoing consolidation and
globalization in the motor vehicle and Tier One auto parts industries.
The meeting was co-chaired by Mr. Takeo Fukui, President of Honda
R&D Co. Ltd. and Mr. Ken Nichols, Chairman & Chief Executive
Officer, Ventra Group Inc.
New Chairman at JAMA
The Japan Automobile Manufacturers Association (JAMA) at their
annual Board Meeting held in Tokyo, Japan on May 18 elected Toyota
Motor Corporation Chairman Hiroshi Okuda to be the new JAMA Chairman
succeeding Yoshifumi Tsuji, Counselor, Nissan Motor Co., Ltd.
Mr. Okuda, who will serve a two-year term, pointed out in Tokyo
following his election that the automobile industry is now global
and, in a sense, the world is now a single market. “International
exchanges of people and overseas communications have become increasingly
more important for our association.”
Mr. Okuda believes that JAMA should “take a leadership role in
promoting harmonization and world vehicle standards by contributing
our know-how to the world.” “The Japanese automobile industry will
continue to work with the world motor vehicle industry to further
these goals.”
Mr. Okuda served as Toyota’s president from 1995 to 1999 whereupon
he assumed the auto company’s chairmanship. Mr. Okuda spent most
of his 45-year career with Toyota’s international operations including
overseeing preparation for construction of manufacturing plants
in North America.
Two years ago, Mr. Okuda was selected as a member of the Prime
Minister’s Economic Strategy Council of Japan. In 1999, he became
chairman of the Japan Federation of Employers’ Associations (Nikkeiren).
Mr. Okuda graduated from Tokyo’s Hitostubashi University in 1955
where he earned a degree in business. His favorite pastimes include
books and movies. He also holds a black belt in judo.
CAMI Automotive Names New President
 General
Motors employee Simon Boag, 34, a former CAMI team member, has been
appointed president of CAMI Automotive Inc. Effective July 1, he
replaces Shigeo Narita who is returning to Suzuki Motor Corporation.
The appointment was announced on May 24 by senior members of
the CAMI Board of Directors, Maureen Kempston-Darkes, President
and General Manager of GM of Canada and Sokichi Nakano, Executive
Managing Director of Suzuki Motor Corp. of Japan.
“We’re delighted to welcome Simon back to CAMI Automotive,” said
Rick Jess, CAMI’s Vice President of Personnel. “On behalf of the
2,400 CAMI team members, I want to thank Narita-san for his enormous
contribution to CAMI as a ‘founding father’ and president, and wish
him best of luck with his new role at Suzuki Motor Corporation.”
Born in Brockville, Ontario, Boag began his career at CAMI in 1988,
beginning in paint production engineering and eventually becoming
Assistant Manager of the paint shop.
He joined Ford Canada in 1991, and then moved to GM in 1994 in
the Cadillac/Luxury Car Division, Flint, Michigan as Area Manager,
Paint. In 1996 he was appointed Area Manager, General Assembly at
Buick City in Flint and in 1997 he was promoted to Assistant Plant
Manager at Buick City. In 1999, GM selected Boag for a Sloan Fellowship
at Stanford where in June 2000 he will be awarded a Master of Science
in Management Degree.
Boag graduated in 1988 with a bachelor’s degree in Mechanical Engineering
from the University of Toronto.
CAMI Automotive Inc., a joint venture between GM of Canada and
Suzuki Motors of Japan, located in Ingersoll, Ontario, opened in
1989 in a $500 million, 1.7 million square foot building on 570
acres of land. Two types of vehicles are built there on two separate
lines operating simultaneously – the Chevrolet Tracker and the Suzuki
Vitara sport utility vehicles and the Chevrolet Metro, Pontiac Firefly
and Suzuki Swift economy cars.
WTO Report upholds earlier finding:
Auto Pact in Canada contravenes trade rules
There was no surprise when the WTO Appellate Report, which was
publicly released at the end of May, upheld the key findings of
the earlier Final Panel Report, in which major parts of the Auto
Pact in Canada were deemed to be inconsistent with WTO rules. On
June 19, the Dispute Settlement Body of the WTO formally adopted
both reports. Under WTO Dispute Settlement procedures, Canada has
30 days to respond to the WTO with measures to comply with the ruling.
One aspect of the case, pertaining to the SCM Agreement (Subsidies
and Countervail Measurements), requires Canada to ‘withdraw the
export subsidy within 90 days’. Canada was found to be acting inconsistently
with Article 3.1(a) of the SCM Agreement by granting a subsidy which
is contingent in law upon export performance, as a result of the
application of the ‘production-to-sales’ ratio requirements as one
of the conditions determining eligibility for the import duty exemption
on motor vehicles under the Auto Pact and similar Special Remission
Orders.
The WTO panel found that the production-to-sales ratio (a condition
to produce one vehicle in Canada for every vehicle sold in the same
class in the Canadian market), required an automaker to export (usually
to the US) in order to meet the ratio, and thereby obtain the duty-free
benefit. The factual evidence of the Canadian auto industry tends
to support this finding. For example, Canadian vehicle production
in units is currently twice as large as total domestic sales. It
is not just that the Canadian market is too small for the amount
of production; but also that automotive trade policy, as it was
set up in the Auto Pact in 1965, was designed to create an integrated
market in North America, with duty free access for vehicles and
original equipment parts between the US and Canada. In 1999, more
than 3 million vehicles were built in Canada, while new vehicle
sales totaled 1.5 million units. Furthermore, over 80% of total
Canadian production is exported, while over 70% of domestic sales
are vehicles built outside of Canada.
Where the WTO finds subsidies deemed to be of an egregious nature,
such as an export subsidy, the ruling usually requires that the
subsidy be withdrawn ‘without delay’. In this case, the Panel ruled
that a 90 day period would be sufficient as the Canadian Government
can effect the change through regulation (i.e. an Order in Council)
rather than legislation. The likely response to this 90-day ruling
would be to ‘strip out’ the production-to-sales ratio in the Auto
Pact and Special Remission Orders through an Order in Council, thereby
removing the contingency which creates the export subsidy. In effect,
the duty-free subsidy would still exist after the 90 day period,
but it would no longer be an ‘export subsidy’ because the condition
that created the export subsidy would have been eliminated. In this
case, other parts of the Auto Pact and SROs, such as duty-free treatment
of imported vehicles, would likely continue until all other parts
of the Panel’s ruling will have been addressed.
The Panel also found that the Auto Pact was inconsistent with other
WTO articles. Canada was found to act inconsistently with GATT Article
I:1 (the MFN obligation for non-discriminatory treatment of like
products of all member countries), and Article III:4 of the GATT
(concerning national treatment obligations arising from the CVA
(Canadian value-added) requirement in the Auto Pact that favoured
domestic suppliers over products of suppliers from other GATT members).
The Panel also concluded that there were violations of Articles
II and XVII of the GATS (General Agreement on Trade in Services).
Similarly, these refer to MFN and national treatment obligations
in respect of services and service suppliers.
As a result of this WTO report, it is clear and widely acknowledged
in both government and industry that the Auto Pact will eventually
be terminated. The timing for these changes, other than the 90 day
export subsidy issue, are subject to WTO procedure, perhaps as much
as 12-15 months from the date of adoption of the report by the Dispute
Settlement Body. The timing is also subject to negotiations between
the parties: Canada, Japan and the EU.
Most analysts and industry watchers expect that when the Auto Pact
is eliminated that all non-NAFTA qualifying finished vehicle imports
will be subject to the current 6.1% MFN tariff. Interestingly, Simon
Reisman, the illustrious Canadian trade official who negotiated
both the Auto Pact in 1965 and the Canada-US FTA in 1989, according
to a recent article in the Ottawa Citizen, while bowing to politics,
supports the elimination of tariffs on imported vehicles, as the
Auto Pact had done what it was intended to do and was no longer
necessary.
Back in the early decade of the 1960’s, Canadian trade officials
were concerned about the small, uncompetitive, high-cost, tariff-protected
auto industry in Canada. Dominated by American-owned vehicle manufacturers,
the Canadian government, under threat of trade sanctions from the
US in 1964 due to duty remission programs that were deemed to be
export subsidies, the two countries negotiated the Automotive Products
Trade Agreement in 1965, commonly known as the Auto Pact. However,
after the Auto Pact was signed, Canada and the US implemented the
treaty in completely different ways. Canada chose a multilateral
approach utilizing an elaborate duty remission scheme that required
qualifying manufacturers to meet defined production and value-added
requirements in return for duty free imports of vehicles and parts,
not just from the US, but any GATT member country. The US wanted
the Auto Pact to be bilateral, which required the US (but not Canada)
to obtain a waiver from the GATT.
According to US reports on the Auto Pact, the US felt that the
so-called safeguard requirements in Canada were temporary, and inconsistent
with the principles of free trade. Canada was more concerned about
getting a ‘fair share’ of the North American auto industry jobs
and investment, and using the preferential access to the huge US
market to establish a vibrant industry in Canada that would create
jobs, skills and opportunities for technology transfer by offering
foreign automakers the opportunity to set up Canadian manufacturing
for markets throughout North America. In 1999, Canada enjoyed a
19% share of total light vehicle production in the US and Canada,
but only an 8% share of total light vehicle sales. Arguably, this
may have been different without the 1965 Auto Pact. However, due
to the major differences in policy implementation between the US
and Canada, the US found the opportunity to change the Auto Pact
during the FTA negotiations in the latter half of the 1980’s. The
FTA automotive provisions replaced the Auto Pact in the US, and
more significantly, dramatically changed the Auto Pact in Canada
into a two-tiered policy that maintained duty waiver benefits for
selected companies, while excluding all others. These changes were
maintained in the NAFTA in the early 1990’s.
Today, about 85% of all new vehicles sold in Canada are duty-free,
as a result of either domestic production, the Auto Pact or NAFTA.
However, it is not widely understood that the conditions for duty-free
entry differ considerably under the Auto Pact and NAFTA. The Auto
Pact benefit not only allows duty-free entry for all parts and vehicles
from any country, but also without having to meet any origin test
(which would allow non-NAFTA qualifying goods from the US and Mexico
to enter without duty) and without the administrative cost and burden
that arises in the case of the NAFTA rule of origin requirement
to trace the value of non-originating materials in vehicles and
major components.
While the Big 3 can readily adjust from Auto Pact to NAFTA to maintain
their duty-free status on the majority of their vehicle sales in
Canada, there seems to be some concern about the ability of other
companies with production facilities in Canada , currently operating
under Special Remission Orders, to shift from the Auto Pact to NAFTA
and MFN. Consultations with these companies are being conducted
to determine whether there are issues in adjusting to post-Auto
Pact regulations. In addition to the major vehicle manufacturers
in the Auto Pact, there are many smaller firms, typically involved
in the manufacture of truck bodies, specialty vehicles, off-road
vehicles, buses, etc., that operate under Special Remission Orders,
similar to the Auto Pact. The FTA in 1989 contained a list of about
190 companies that were qualified for ‘Auto Pact or Auto Pact-like
treatment’ in Canada. While other concerns have also been raised
in the matter of meeting treaty obligations with the US under the
Auto Pact, there does not appear to be any significant issue, particularly
as the Auto Pact in the US was replaced by the FTA and NAFTA.
JAMA Canada continues to support tariff elimination for finished
vehicle imports, as well as trade policies and regulations that
are open, transparent, and non-discriminatory.
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