Trans-Pacific Partnership signed, set to impact auto sector

Signatories to the TPP include some of the world's largest economies, including Canada, the US and Japan.

By Jeff Sanford

Toronto, Ontario — October 7, 2015 — Negotiating countries, including Canada, have reached an initial agreement on the Trans-Pacific Partnership (TPP) free trade deal. The deal may have the potential to disrupt many industries here at home. Two areas of particular concern are auto parts manufacturing and vehicle assembly. Japan is part of the deal. As the third largest economy in the world, and one of the biggest auto manufacturing nations, there are concerns that  the TPP could deal a serious blow to Canada’s auto industry. In an immediate bid to soften the blow, Prime Minister Stephen Harper announced more than $1 billion in new funding for automotive innovation. 

Many experts are busy figuring out just what the effects might be. The range of opinion is wide. During negotiations the terms of the deal were famously kept very close to the vest, secret basically. A wikileaks dump of one leaked early version was the only information on actual terms to have been released. So it has only been very recently that the full text of the deal can be perused.

Some of the basics: The TPP will phase out the current 6.1 per cent tariff on imported vehicles over five years. So foreign cars will likely become a little less expensive in the years ahead for consumers. Those cars will likely be assembled from auto parts sourced from countries like Malaysia, Vietnam and China. The latter country is not part of the TPP. But countries within the deal will be able to source parts from countries outside the TPP up to certain limits.

The current requirement that 62.5 per cent of a car be made in North America to be sold here will be lowered. Under the terms of the deal, 80 percent of the “parts” in a car will have to come from one of the 12 signatories to the TPP in order for a company to qualify for reduced tariffs. But those car parts, say a steering wheel, only have to contain pieces from TPP signatories comprising 40 to 45 percent of that part. That is, the majority of any given part’s materials may come from low-cost manufacturers outside of TPP signatories.

How will this all work out? Good question. Unifor’s National President Jerry Dias, has condemned the deal, saying it will have a “disastrous impact” for Canada. The Canadian auto workers’ union warns that the Trans-Pacific Partnership could cost the sector 20,000 jobs. One early take is that some smaller parts makers will lose out as more foreign cars will come into Canada with very cheap parts. But bigger parts makers like Linamar and Magna will do okay as these companies, with large global footprints, will be able to harness the terms of the agreement to their benefit and generate business exporting parts to the Asia Pacific region.

The Automotive Parts Manufactuers’ Association issued an official take on the TPP. Its analysis reflected the split opinion. According to its official release, “On one hand, prospects to supply vehicle assembly in foreign markets will open for large Canadian suppliers with multinational footprints and access to mobile capital. On the other hand, small and medium sized suppliers to Canada’s vehicle assembly supply chain will face new competitive pressure from large, multinational firms from TPP countries and further abroad. The 81,000 people employed in the Canadian automotive parts manufacturing sector are fairly evenly split between companies facing new opportunities and those facing new challenges.” So it’s a wash, basically, for those working in auto parts manufacturing. 

The TTP involves a dozen Pacific Rim countries, including Canada, the United States, Mexico, Chile, Singapore, Australia, Japan and Malaysia. After the TPP is ratified, companies within these countries will now have tariff-free access to a market of 800 million consumers accounting for nearly $30 trillion in economic activity. So there may be opportunities for recyclers to export product to other countries.

It is also worth noting that Canada, along with other signatories, must ratify the deal before it can take effect. Whether or not that happens will depend on the results of the upcoming federal election. Harper has indicated he will sign it, while Justin Trudeau of the Liberals says it needs to be examined carefully. Thomas Mulcair of the NDP has gone on record saying that his party will refuse to ratify the deal if they form the next government. 

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