Ottawa, Ontario -- August 15, 2016 -- A new study released by the Canadian Centre for Policy Alternatives (CCPA) indicates that the Trans-Pacific Partnership (TPP) will have negative impacts for the Canadian automotive industry, one of the primary drivers of the nation’s economy. In brief, the study outlines how the TPP may undermine the competitiveness of assembly and small and medium-sized auto parts plants.
“TPP will be a game changer for the global automotive industry,” says Queen’s University professor and auto industry expert John Holmes, who co-authored the study with Jeffrey Carey, also from Queen’s. “The proposed treaty will significantly affect decisions regarding what, where, and how automotive products will be produced within the wider TPP region, with Canada getting the short end of the stick.”
The Devil is in the Details: The TPP’s Impact on the Canadian Automotive Industry highlights how a critical side deal in the TPP, negotiated between the United States and Japan but applicable to all TPP parties, further reduces how much of a vehicle or automotive part needs to be produced within the TPP region for it to get duty-free access under the agreement. As a result, vehicles assembled using parts made outside the TPP region (e.g., in China) will benefit in North America without any reciprocal gains in Asia for North American auto firms.
“Weakening regional content requirements for vehicles and automotive parts to qualify for preferential tariff treatment could have a greater adverse impact on Canadian assembly and parts operations than removing tariffs per se,” notes Carey.
Holmes and Carey also point out the following in their report:
• The large difference in vehicle import tariff phase-out periods between US and Canada will favour locating new assembly investment and reinvestment in the US rather than Canada;
• Increased Canadian import penetration by vehicles built in Japan is possible with an attendant negative impact on domestic vehicle production and, in turn, domestic parts production; and
• Small and medium-sized Canadian parts makers will face increased competitive pressure from parts produced in low-cost non-TPP countries due to the weaker rules of origin for both vehicles and parts. Suppliers furthest from the assembler in the supply chain and producing discrete parts for components such as engines, suspensions and brake systems will be most vulnerable.
“While undoubtedly there will be winners and losers, the automotive provisions in the TPP, if implemented, will have overall negative consequences for automotive production and employment in Canada,” Holmes says.
The Devil is in the Details is part of the CCPA’s ongoing research series on the TPP, What’s the Big Deal: Understanding the Trans-Pacific Partnership and is available for download at this link.