Thank you very much, Mr. Chairman, and good afternoon, members of the committee.
The Canadian Vehicle Manufacturers’ Association has had over 85 years of national experience representing Canada’s leading manufacturers and distributors of heavy and light duty vehicles in Canada.
Each of our members has different business interests and strategies. I'm happy to speak to you with respect to common concerns and viewpoints, but will also advise you if certain subject areas are better suited to be answered by those companies, I'll certainly provide you with the appropriate references and contacts.
As of today, CVMA member companies include Chrysler Canada Inc.; Ford Motor Company of Canada, Limited; General Motors of Canada Limited; and Navistar Canada, Inc.
For today's presentation I thought I'd give you a bit of a perspective on Canada's automotive industry, the closed nature of Japan’s automotive market, and the challenges of trying to access the Japanese vehicle market.
Last year our members accounted for 70% of all domestic vehicle production and 47% of vehicle sales in Canada. Approximately 85% of those vehicles are exported, mostly to our primary market in the United States. In addition, CVMA member companies export Canadian-built vehicles to more than 50 countries around the world, and that number actually is growing.
CVMA members recognize the mutual benefits of a well-structured free trade agreement and support the enhancement of Canada’s economic interests through expanding and opening new global markets. We are committed to free trade and are engaged constructively with the Department of Foreign Affairs and International Trade to work towards the best possible outcomes, recognizing the important role that auto manufacturing plays in our economy across the country.
Last year the auto industry produced vehicles and parts worth $69 billion, which accounted for 12% of Canada’s manufacturing GDP. The auto industry was the second largest exporter, accounting for 12% of Canada’s total exports, valued at $53 billion at the end of 2011.
Over 40,000 Canadians work in auto assembly plants. Each one of those jobs generates nine other spinoff jobs. This is the highest ratio of any other manufacturing sector. In total, 112,000 Canadians are directly employed in the Canadian auto industry. Indirectly, the auto sector accounts for over 400,000 jobs.
Obviously, the manufacturing industry is essential to Canada’s overall economy, but it is even more critical to Ontario’s economy where the auto industry accounts for 22% of the province’s manufacturing GDP. As a result, the federal government’s international trade strategy must ensure that growth opportunities for all sectors are accrued, and that includes the automotive sector.
Since the signing of the 1965 Auto Pact, Canada’s auto industry has been built around free trade, including the subsequent U.S. FTA, and ultimately, NAFTA itself. NAFTA has actually been a tremendous benefit for Canada's auto industry, not to mention many other industries.
After nearly 50 years of carefully executed and irreversible policy decisions, Canadian auto production is geared to support an integrated North American market providing larger economies of scale to offer the best products at the most competitive prices for consumers. Trade agreements must recognize the high levels of North American integration, designed to maximize efficiency and investment opportunities.
When this is taken into account, CVMA members generally support well-structured free trade agreements with countries that demonstrate commercially meaningful, open market access. Last year with sales of about five million vehicles, Japan ranked as the third largest vehicle market in the world, behind China and the United States. By comparison, 1.6 million vehicles were sold in Canada in 2011.
Unfortunately, in the case of Japan, a decade of import history confirms a lack of significant penetration by foreign automakers, and objectively demonstrates that Japan's auto market is not an open one. Despite the fact there is zero duty on finished vehicles imported into Japan, over 95% of the vehicles sold in Japan are being produced domestically.
The graph the clerk was kind enough to distribute to you earlier demonstrates the situation quite clearly when you look at the penetration level of imports into Japan of less than 4%.
Despite applying no duty whatsoever to imported vehicles, Japan ranks last of all the OECD countries in terms of market access for imported vehicles. This is entirely inconsistent with market trends observed in developed economies around the world.
The average market penetration of imported vehicles across the OECD, as you will see in that graph, is 54%. That's 13 times more than that of Japan.
In Canada's case, Canada is one of the most open markets in the world with just 19% of vehicles sold in Canada actually being produced in Canada. Over 80% of the vehicles sold in Canada are built elsewhere.
Twenty-five per cent of the vehicles sold in Canada are built outside of NAFTA, notwithstanding Canada's 6.1% duty. Forty-five per cent of the vehicles sold in Canada are built in the United States. Ten per cent of the vehicles sold are built in Mexico.
So while the Japanese market consumes about five million vehicles a year, Japan actually produces double that number, and policies are clearly directed to ways to find homes for those vehicles elsewhere in terms of export opportunities. The closed nature of Japan's auto market did not happen by accident but was deliberately created by active public policy tools. It has been the subject of intense scrutiny since the 1960s, including a number of different bilateral U.S. initiatives in the 1980s and 1990s that attempted to open the automotive market in Japan. Unfortunately, not one of those resulted in any meaningful improvements.
In general terms, Japanese non-tariff barriers include a largely unique set of auto standards and regulations, an opaque rule-making process, and a certification regime that remains difficult and costly. I'll give you one example.
For instance, although Japan has made progress in harmonizing some of its auto regulations with the European regulations, significant differences remain, and Japan continues to opportunistically adopt new and unique regulations. The prevailing stance of regulatory unpredictability makes it extremely difficult to ascertain, for business planning purposes, whether a product will be commercially viable in Japan's automotive market.
Certification for sale in Japan is also very costly—usually millions of dollars per new vehicle—essentially limiting sales of most foreign automobiles to fewer than 2,000 units per year under a streamlined small-volume approval process, but Japan has sought to limit consumer demand for even the smaller number of vehicles imported through the small-volume approval process. Again I have an example. Vehicles sold under the small-volume approval process were initially excluded from the eligibility of the cash for clunkers program, a government stimulus program. Under international pressure, Japan subsequently relented, but only allowed a small number of imported vehicles to qualify.
Before starting negotiations, Japan must show a commitment to opening its market that results in a significant increase in imports at levels comparable to those of other OECD countries. Discussions with Japan must comprehend the significant challenges that I've identified. Without doing so, an economic partnership agreement would not be beneficial to all sectors and may in fact prove to be detrimental to Canada's auto industry.
Mr. Chairman, I'll stop there. I'll certainly be glad to address any questions the committee may have. Thank you.
