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:
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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;
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Through
several billions of dollars in direct
investment, joint ventures and industrial
cooperation in vehicle and parts
manufacturing;
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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.
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Manufacturing activities are
adding to Canada’s trade balance by
exporting about 75% of total production,
primarily to the U.S.
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It is widely acknowledged
that Japanese automakers presence in the
Canadian market stimulates competition
which ultimately benefits consumers.
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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.
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* 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.
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Auto Pact importers that are
eligible to import finished vehicles duty
free from any country;
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non-Auto Pact importers that
pay applicable MFN duties on vehicle
imports;
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non-Auto Pact importers that
do not pay MFN duties on imported
vehicles due to business affiliations
with an Auto Pact company;
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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.
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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
Internet: [email protected]
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