JAMA Canada - Position Papers: EPA: To the Subcommittee on the Auto Industry, March 9, 2009

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CONSULTATIONS ON POSSIBLE NEGOTIATIONS FOR A COMPREHENSIVE
ECONOMIC PARTNERSHIP AGREEMENT WITH JAPAN

JAMA Canada supports the Joint Study towards an EPA with Japan

With motor vehicles and auto parts representing 25.9% of total bilateral trade between Canada and Japan
last year, JAMA Canada enthusiastically supports efforts to further liberalize our trade and investment
relationship including consideration of a comprehensive free trade agreement.

Canada and Japan have over 80 years of diplomatic relations and an even longer trade relationship that
began over a century ago. A number of bilateral initiatives have been established to facilitate trade and
investment as well as deepen our relationship, such as the Canada Japan Framework for Economic
Cooperation in 1976, the Canada Japan Business Committee, which re-structured after 25 years in 2002,
and the Canada Japan Forum. In spite of these efforts, total bilateral trade remains fairly stable in overall
value terms, but is gradually declining relative to overall global trade.

Of the $22.6 billion in total bilateral trade in goods last year, automotive vehicles & parts represented
about a quarter of the total. Over the past twenty-five years, Japanese investment in Canada has been led
by motor vehicle and related parts manufacturers. What’s more, investment continues to expand in
Canada to supply markets primarily in North America. At the same time, there is growing Japanese
interest in innovative Canadian leading-edge technologies such as bio-plastics and other light-weight
materials as well as industrial processes such as hydro-forming. It should also be noted that both
geography and cold weather have attracted Japanese automakers to set up cold weather research such as
Toyota’s operation in Timmins Ontario.

Although rapid economic growth in China, India and other Asian countries continues to attract global
business interest, Japan not only remains the third largest economy after the US and China, but is in a
favourable position for Canada and for Canadian companies as a base for broader strategic initiatives in
Asia. Overall, there is a need for both governments and the private sector to engage in a broader dialogue
in order to deepen and strengthen our economic and trade partnership.

The importance of liberalized trade for the Canadian auto industry:
With a relatively small domestic market, Canadian policy makers have recognized the dependence on, as
well as the benefits of, liberalized trade and foreign investment needed to support a globally competitive
industry. The auto sector is highly integrated in North America as a result of various trade agreements
including the 1965 US/Canada Auto Pact, the Canada / US Free Trade Agreement in 1989 and the
NAFTA in 1994. With the benefit of open and duty free access to the large US market, the auto sector in
Canada has been able to sustain a much larger production base than the domestic Canadian market
requires by itself. Moreover, all vehicle manufacturers in Canada are foreign owned.

As a result, Canada has had structural automotive trade surpluses for most of the past two decades due to
the fact that the vast majority of automotive production is exported. However, in the past few years, the
surplus in auto-related trade has fallen into deficit as a result of a number of factors including currency
appreciation, the early onset of an economic recession in the US, the global financial crisis in 2008 and
the bankruptcy crises of General Motors and Chrysler in 2009. In 2010, Canada’s overall auto trade
deficit stood at approximately $8.6 billion, with a $4.9 billion surplus in finished vehicle exports and a
$13.5 billion deficit in automotive parts. Last year, the automotive surplus with the US was $7.3 billion
(comprised primarily of $17.4 billion surplus in finished vehicles, and $9.9 billion deficit in auto parts). Bilaterally, Canada has also auto trade deficits with major non-US trading partners including Japan,
Korea and a number of European countries as most of the vehicles sold in Canada are imported – from the
US, Mexico, Europe and Asia.

But as a result of over $9 billion Japanese automakers’ cumulative investment in Canadian manufacturing
plants, Canada has been a net exporter of Japanese brand vehicles every year since 1993. In 2010, over
590,000 vehicles were exported from Honda and Toyota plants in Canada, almost three times the 196,000
vehicles that were imported from Japan by all JAMA Canada members. Moreover, two of every three
Japanese brand vehicles sold in Canada are now built in North America.

The steady growth of the Japanese auto industry in Canada over the past 25 years and the now expanding
Canadian automotive presence in Japan has begun to add depth to the range of mutual benefits. Two
decades of industrial cooperation and investment in Canada has opened up business opportunities,
technology transfer and Canadian parts investment in Japan including local sales and engineering offices
of large Canadian auto parts suppliers including Linamar, Magna International, ABC Group and the
Woodbridge Group.

More intense competition ultimately improves products and broadens choice, which benefits consumers.
Closer cooperation offers new business opportunities, technology sharing, lower costs and efficiency
gains to name a few. There is no doubt that today the Canadian auto industry is stronger, more globally
competitive and better able to meet the ever-increasing demands of the consumer as a result of liberalized
trade in NAFTA and GATT / WTO.

In spite of our success to date, global competition is intensifying, requiring automakers to constantly find
ways to reduce cost, including the cost of regulation and the associated administrative burden. At the
same time, the rising cost of developing new technology and the growing reliance on global and local
supply chains are creating opportunities for cooperation and strategic alliances.

Our intention in supporting an economic partnership agreement is not only to address current
impediments to trade and investment and thereby deepen our bilateral commercial relationship, but also to
create an impetus for collaborative opportunities between Canadian and Japanese business in other
markets in Asia and around the world.

Key issues in a bilateral EPA negotiation:
Our intention in supporting an EPA is not only to address current impediments to trade and investment
and thereby deepen our bilateral commercial relationship, but also to create an impetus for collaborative
opportunities between Canadian and Japanese business in other markets in Asia and around the world.
The following are key issues for improving our bilateral trade and economic partnership:
Motor Vehicle Tariffs: While Japan has had zero tariffs on imported vehicles and parts since
1978, Canada maintains a significant MFN tariff of 6.1% on finished motor vehicles. Canada
eliminated the tariff on automotive parts for use in production in Canada in 1997.

At the same time as local sourcing in North America expands with growing capacity in Canada
and the US, JAMA Canada members continue to rely on vehicle imports from Japan to meet the
needs of Canadian consumers with products not currently built in NAFTA, such as niche or low
volume vehicles often made only in Japan. Currently a majority of vehicles are built in North
America; however, about 34% of current sales are made in Japan and subject to the Canadian
6.1% tariff. In 2010, almost 183,000 vehicles sold in Canada were imported from Japan. While we would prefer that tariffs be eliminated multilaterally, the uncertainty surrounding the
current Doha Round of WTO negotiations raises the profile and prospect for alternative measures
such as bilateral trade initiatives. At the same time, Canada’s current FTA negotiations with
South Korea and the European Union have generated serious concerns among JAMA Canada
members about competitive disadvantages they would face if only imports from Korea and
Europe would be duty free. This is particularly of concern to those who are building and/or
importing compact and sub-compact vehicles for the Canadian market where a 6.1% landed cost
advantage would be a significant advantage in a price-sensitive segment of the market. A
prospective EPA with Japan could effectively address those particular concerns by offering
equivalent tariff treatment for all automakers in the Canadian market.

Mutual Recognition / Harmonization of Standards & Regulations:
Automakers increasingly
depend on global and local supply chains to maintain competitiveness. Mutual recognition
agreements can be helpful in transitioning to harmonized standards and technical regulations.
Working Visas: Current standards for issuing and renewing business visas are not as clear, open
and transparent as they could be, creating an often burdensome process for international intracorporate transfers, particularly for training and international business experience.
In the context of our broader trade, economic, social and cultural relationship with Japan, we recommend
giving serious consideration to the benefits that would accrue to both countries. We look forward to the
results of the Joint Study and the early start of negotiations towards a comprehensive economic
partnership agreement.

* *
Contact:

David Worts

Executive Director

Japan Automobile Manufacturers Association of Canada

151 Bloor Street West, Suite 460

Toronto, Ontario

M5S 1S4

Tel: 416-968-0150

Fax: 416-968-7095

Email: [email protected]

Web: www.jama.ca

March 26, 2011

(PDF Version – 81 KB)

Japan Automobile Manufacturers Association of Canada

Position Papers

CONSULTATIONS ON POSSIBLE NEGOTIATIONS FOR A COMPREHENSIVE
ECONOMIC PARTNERSHIP AGREEMENT WITH JAPAN

JAMA Canada supports the Joint Study towards an EPA with Japan

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© 2018 JAMA Canada

Position Papers

CONSULTATIONS ON POSSIBLE NEGOTIATIONS FOR A COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT WITH JAPAN

JAMA Canada supports the Joint Study towards an EPA with Japan

Page Navigation:

© 2018 JAMA Canada

CONSULTATIONS ON POSSIBLE NEGOTIATIONS FOR A COMPREHENSIVE
ECONOMIC PARTNERSHIP AGREEMENT WITH JAPAN