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Comments on Automotive Trade Policy for
Industry Canada’s Interdepartmental Automotive
Competitiveness Review, February 1998
As part of the Federal Government’s review of the
auto industry in Canada, JAMA Canada has prepared this paper to contribute
to the discussion and debate about automotive trade policies necessary
to sustain a vibrant, globally competitive industry in Canada which will
continue to attract investment into the 21st century and, as a result,
will also create jobs for Canadians and benefits for consumers.
WHO WE ARE:
The Japan Automobile Manufacturers Association of Canada is a non-profit
trade association established in 1984 to promote greater understanding
on economic and trade matters pertaining to the motor vehicle industry
and to encourage closer cooperation between Canada and Japan. JAMA Canada’s
members include the following companies who import, distribute, manufacture
and export automotive products:
Hino Diesel Trucks (Canada) Ltd., Honda
Canada Inc., Honda of Canada Manufacturing,
Mazda Canada Inc., Nissan
Canada Inc., Subaru Canada Inc., Suzuki
Canada Inc., Toyota Canada Inc., and Toyota
Motor Manufacturing Canada Inc.
The Japanese auto industry in Canada has grown and changed a great deal
over the last decade. In 1986, Honda of Canada
Manufacturing started vehicle production at their plant in Alliston, Ontario.
In 1988, Toyota Motor Manufacturing Canada
began making cars in Cambridge, Ontario. And in 1989, CAMI
Automotive, a joint venture between General Motors of Canada and Suzuki
Motor Corp., opened their plant in Ingersoll, Ontario. In 1997, current
output is forecast at these three plants to be about 375,000 units. However,
due to expansions at both Honda and Toyota, total capacity will rise to
about 730,000 units over the next few years, more than double the level
of all JAMA Canada members’ vehicle sales in 1997.
In addition to producing more than one vehicle in Canada for every one
sold, Canada has been a net exporter of Japanese badged vehicles since
1994, as exports from Canadian plants have exceeded imports from Japan,
the U.S. and Mexico. What’s more, Japanese automakers have been increasing
their purchases from Canadian suppliers, and with current expansions substantial
new business opportunities will likely more than double current levels
of activity.
Furthermore, these expanding operations in Canada have encouraged more
auto parts investment from Japan. Over the past year, eight companies
have announced new auto parts plants in Canada.* Also, NAFTA content levels
have been increasing as a result of continuing localization of suppliers.
At the same time, imports of auto parts from Japan by non-Auto Pact companies
dropped 15.4% in 1996 over the previous year, in spite of the fact that
tariffs on imported auto parts were reduced to zero at the beginning of
1996 by the Government of Canada. In a nutshell, all these changes mean
more investment and more jobs for Canada and Canadians.
OUR CONTRIBUTION TO CANADA:
As a group, JAMA Canada members are an integral part of the Canadian
auto industry that makes a significant contribution to Canada in a variety
of ways:
- Through an extensive distribution, sales and service network employing
over 25,000 Canadians from Newfoundland to British Columbia, about a
third of which are in Ontario;
- Through several billions of dollars in direct investment, joint ventures
and industrial cooperation in vehicle and parts manufacturing;
- Japanese vehicle and auto parts manufacturing operations are currently
employing 14,000 Canadians. Current vehicle assembly expansions and
new auto parts plants will add over twenty-five hundred new jobs over
the next few years.
- Manufacturing activities are adding to Canada’s trade balance by exporting
about 75% of total production, primarily to the U.S. It is widely acknowledged
that Japanese automakers presence in the Canadian market stimulates
competition which ultimately benefits consumers.
- At the same time, Japanese vehicle and parts makers are adapting
Japanese manufacturing technologies to the Canadian business and industrial
culture, and establishing a growing array of supplier relationships
which helps Canadian industry be globally competitive through the diffusion
of both product and process technologies.
* For further details, please refer to the attached
information sheets on Japanese automakers and Japanese affiliated parts
makers’ activities in Canada.
AUTOMOTIVE TRADE POLICY REVIEW –
The Tariff Issue in Context
The review is timely, as auto trade policy in Canada is in need of repair.
While considerable attention has been given to the matter of MFN tariffs
on finished vehicles, the focus on tariffs some times obscures the underlying
problem with current policies. While lowering tariffs can alleviate the
problem, the key concern is to have an auto trade policy that is fair
and non-discriminatory, applied equitably to all foreign owned automakers
in Canada consistent with international trade rules. To be sure, differential
tariffs on finished vehicles are a major symptom of the problem, but the
heart of the issue is more precisely the principle of having a fair and
equitable trade policy. The two-tiered industry, established under the
Auto Pact in 1965, has been fragmented by changes in the Auto Pact through
both the FTA and NAFTA trade agreements.
In 1989, the Auto Pact abruptly changed and became exclusionary as a
direct result of the FTA negotiations with the U.S. What’s more, over
the last fifteen years or so, internationalization of the auto industry
also changed both the competitive environment and the opportunities for
cooperation and strategic alliances among globally-focused automakers
and parts makers.
As a result, there are now four tiers reflecting different treatments
in the Canadian market, keeping in mind that overall 80% of all vehicles
produced in Canada are exported and 70% of all vehicles sold in Canada
are imported.
- Auto Pact importers that are eligible to import finished vehicles
duty free from any country;
- non-Auto Pact importers that pay applicable MFN duties on vehicle
imports;
- non-Auto Pact importers that do not pay MFN duties on imported vehicles
due to business affiliations with an Auto Pact company;
- and non-Auto Pact importers that qualify for (currently or in the
near future) but are denied Auto Pact benefits due to a provision in
the FTA, and therefore also pay applicable MFN duties on vehicle imports.
This differential treatment fosters confusion and distortions in the
market, and sends negative signals to current or potential investors.
Moreover, it raises questions about consistency of Canada’s trade policies
with international trade rules. Given that the stated goal of the Canadian
Government’s Automotive Competitiveness Review is to create a favourable
environment for investment and jobs in Canada, both a re-balanced trade
policy that is equitable and non-discriminatory, and lower tariffs are
important elements in achieving this goal.
Economic analysis, together with the experience under successive GATT
rounds, demonstrate that lower tariffs lead to expanded international
trade and greater economic benefits for countries adopting open trade
policies. Because tariffs add non-manufacturing costs to traded goods,
generally both consumers and producers benefit from lower tariffs. This
is particularly relevant in Canada where vehicle production and consumption
are fundamentally disconnected. As a result of various trade policies
and key competitiveness factors, Canada produces twice as many vehicles
as it consumes. At the same time, 70% of all light vehicles sold in Canada
are imported, while over 80% of Canadian production is exported. Currently,
Canada’s MFN passenger vehicle tariff, while fairly modest by international
comparison, is higher at 6.7% than either the U.S. at 2.5% or Japan at
0%.
OUR POSITION: Fair Treatment/Lower Tariffs
In simple terms, JAMA Canada is seeking fair and equal treatment for
all automakers in Canada through open, transparent and non-discriminatory
trade policies consistent with the GATT/WTO, as well as reduced tariffs
on finished vehicles, a measure that will benefit Canadian consumers.
The members of JAMA Canada acknowledge that the need for changes in policy
is often driven by dramatic and continuous changes not just in the auto
industry, both globally and locally, but also in the broader context of
liberalization of the global trading system. In the words of the Honourable
Roy MacLaren, the former Minister for International Trade:
The continued existence of low tariffs, coupled
with rules of origin, imposes a transaction cost on cross-border trade
that is out of all proportion to the purported benefits to protected
industries. It is time to acknowledge that the era of the tariff is
finally over, and to get on with other, more pressing and difficult
issues.
In this context, and in any event, JAMA Canada supports the ongoing effort
to liberalize international trade through the GATT/WTO by reducing tariff
and non-tariff barriers, thereby creating export opportunities for Canadian
manufacturers. At the same time, we are prepared to work with the Canadian
government to help increase the acceptability of necessary changes to
Canada’s automotive tariffs and trade policies with the Canadian public.
For More Information Contact:
JAMA Canada
Suite 460, 151 Bloor Street West,
Toronto, Ontario,
Canada M5S 1S4
Tel: 416-968-0150
FAX: 416-968-7095
Email: [email protected]
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