THE SIGNING OF CETA COULD BE A MAJOR BREAKTHROUGH FOR CANADA, EVEN THOUGH THE IMPACT ON OUR INDUSTRY PROBABLY WON’T BE FELT FOR SOME TIME
On October 18 2013, Prime Minister Stephen Harper and EU President Jose Manuel Barosso announced the Canada/EU Comprehensive Economic and Trade Agreement in Brussels. A joint Canada/EU study undertaken in 2008 had suggested such an agreement would create 80,000 new jobs in Canada and add $12 billion to the Canadian economy annually, as well as increasing bilateral trade by 23 per cent.
President Barosso has suggested CETA could be implemented by 2015 — no doubt music to the Harper Government’s ears — since it will come just as Canadians get ready to cast their votes in another federal election.
So what does CETA mean for the Canadian auto industry? In the short term, probably not a great deal. Cars were among the two per cent of goods for which tariffs were not to be eliminated immediately. Instead, the 6.1 per cent tariff on European vehicles coming into Canada and the 10 per cent tariff on Canadian vehicles going to the EU will be eliminated on a linear basis over the course of 7 years, so it will be 2022 by the time that happens.
INCREASED LOCAL CONTENT
Canada currently imports around 100,000 vehicles from Europe, while exporting only about 10,000 units across the pond. This was part of the rationale for establishing an export derogation of 100,000 units — negotiated by Canada under the CETA deal for which there would only have to be 20 per cent Canadian content in Europe-bound vehicle exports.
If this content level seems low, that’s because it is. For most vehicles built in Canada, a significant portion of their parts and components come from elsewhere, principally the U.S. and Japan but increasingly from other jurisdictions, owing to the ever evolving global supply chain. In such circumstances, even reaching the 20 per cent target for Canadian content could prove a challenge.
Further beyond the derogation, Canadian vehicles would need to have 50 per cent Canadian content, increasing to 55 per cent after seven years, to qualify for duty-free access to the EU.
It seems a little strange in that if a company struggles to reach 20 per cent Canadian content to take advantage of the derogation, how will it meet 50 or 55 per cent Canadian content?
Given the current volume of Canadian exports to Europe is around 10 per cent of the total 100,000 unit derogation — consideration of Canadian content requirements beyond that may be a moot point. Vehicle manufacturers in this country at least have an advantageous opportunity under the derogation to significantly increase exports to Europe, and I think this represents an important “win” for Canada.
PROTECTIONIST STANCE?
On that basis, I found it odd that in reading A Call for Action II — A Report by the Competitiveness Committee of the Canadian Automotive Partnership Council (CAPC),” the paper’s commentary on tariffs and trade is little more than thinly-veiled protectionism. The paper talks about how the Canadian automotive manufacturing industry was designed to support the North American market only, whereas the countries Canada is negotiating bilateral agreements with are those whose auto industries have a global perspective. For this reason — the paper contends — Canadian manufacturers need time and resources to make adjustments, in order to take advantage of new markets, and even then, the contention is that the upside potential for Canadian exports will be “relatively minor in nature.”
This messaging stands in stark contrast to lobbying demands from Detroit-based automakers in Canada, that Canada needed secure “free and fair access” to the automotive markets of those countries with which it is engaged in bilateral trade negotiations.
So which is it? Do we have Canadian capacity to exploit new markets given the right access or don’t we? How much time is enough for OEMs with plants in Canada to make the adjustments needed to take advantage of these new markets? As noted earlier, negotiations with Europe began back in May 2009 and the government started negotiations with South Korea in 2005. It would therefore seem reasonable that OEMs in Canada might have started thinking as much as a decade ago about adjustments required for this new reality of expanded global trade and how to take advantage of it.
In every automotive market, the old adage applies — success or failure comes down to the same thing — product. Decades ago, when European, Japanese and Korean vehicles first came to North America, competition increased significantly and this made Detroit-based OEMs up their game. Today’s hyper-competitive automotive market is a good thing — it spurs innovation and provides the consumer with a broad range of world class vehicles, with the most advanced technology, at what are arguably, in real terms, the lowest relative prices ever. In other words, it gives consumers more reasons than ever to buy a car.
