Driving in the wrong direction
July 11, 2016
The Trans-Pacific Partnership (TPP) will negatively impact the Canadian automotive industry, according to a new study co-authored by Queen’s researchers John Holmes and Jeffrey Carey who are affiliated with the Automotive Policy Research Centre (APRC) at McMaster University.
The researchers argue that the TPP will undermine the competitiveness of Canadian assembly operations as well as small and medium-sized auto parts plants.
“TPP will be a game changer for the global automotive industry,” says Dr. Holmes (Geography and Planning), an auto industry expert. “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 in Asia 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,” says doctoral candidate Jeffrey Carey (Geography and Planning).
Other issues raised in the report include:
• Growth in Canadian vehicle exports to markets outside North America will be limited at best.
• The large difference in vehicle import tariff phase-out periods between U.S. and Canada will favour locating new assembly investment and reinvestment in the U.S. rather than Canada.
• Increased Canadian import penetration by vehicles built in Japan is possible, leading to a 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,” says Dr. Holmes.
The Devil is in the Details is the latest study in the Canadian Centre for Policy Alternative’s ongoing research series on the TPP, What’s the Big Deal: Understanding the Trans-Pacific Partnership and is available on the CCPA website.