Thank you very much, Mr. Chairman.
Good morning, members of the committee. Thank you for providing this opportunity to speak to you today about international trade and CETA in particular. CVMA is the industry association representing Canada's leading manufacturers of cars and light trucks. Our membership includes Chrysler Canada, Ford Motor Company of Canada, and General Motors of Canada.
As the number one contributor to Canada’s manufacturing GDP, the automotive manufacturing sector is one of our country’s most important economic drivers. Last year, Canada manufactured almost 2.4 million vehicles, both cars and trucks, with Chrysler, Ford, and General Motors accounting for roughly 62% of that total. But our effect in the economy spreads well beyond assembly plants. For every auto assembly job, nine other jobs are created elsewhere in the economy. No other manufacturing sector can boast such a high job multiplier. That adds up. There are about 500,000 Canadians directly or indirectly related to employment in the automotive industry from coast to coast.
Trade plays a very important role in our industry, which has evolved in response to a series of trade initiatives dating back to our earliest days. Front and centre, as some of you may recall, was the Auto Pact in 1965, which literally created tens of thousands of jobs in Canada, the principles of which were entrenched in the Canada-U.S. FTA and later in NAFTA itself. The end result was not just the integration of our Canadian and U.S. economies, but also the complete integration of the automobile manufacturing industry and its supply chain, which operates seamlessly on both sides of the border.
Now after 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. I think as we go forward it's really important that I touch upon the global competitiveness reality that we now face in the automobile industry.
Trade is indeed critical to our industry’s growth globally and in terms of our competitiveness in that regard. Motor vehicles and parts represent about 15% of Canada’s overall trade. That’s about $64 billion annually. Already the automotive sector in Canada exports about 85% of all of its production. While the primary export destination is the United States, Canadian produced vehicles are also being exported to more than 30 countries around the world, including countries in South America, Europe, the Middle East, and Asia Pacific. This is also why we need agreements with favourable transshipment rules to assist us to export to countries outside the United States.
Canada’s auto sector has consistently punched above its weight, making economic contributions disproportionate to the sector’s already large size. But make no mistake, other competing jurisdictions and countries around the globe consistently and very aggressively take measures to nurture and grow their own domestic industry. Most notable is Mexico through its highly effective ProMexico organization, as well as the southern United States.
Canadian negotiators must not become complacent about the role that governments in other jurisdictions play in ensuring their automotive industry’s capacity to generate employment and economic growth.
There are a number of principles that must underpin trade agreements in order for the auto industry to benefit. I would just like to comment on them briefly.
All trade agreements must recognize the high levels of North American integration, designed to maximize efficiency and investment opportunities. This fact is also a challenge for Canadian negotiators as they attempt to negotiate agreements that are actually beneficial to the auto industry, whilst not detracting from the benefits of North American integration.
Pursuing free and balanced trade was one of the key recommendations from the “A Call to Action” report, which by the way is a report that the CVMA delivered to each one of you and all members of Parliament late last November. It's a report that makes a recommendation specifically as follows as it relates to trade:
Free trade must be mutually beneficial. Canada is a trading nation and its auto industry has long been an advocate of increasing prosperity through mutually beneficial trade. As it seeks to develop new trade agreements, Canada should ensure that it gains meaningful and sustained access for Canadian-produced vehicles and encourages investment in the Canadian auto industry. Trade policy initiatives should be motivated by a goal of strengthening investment and production in Canada.
Successful trade deals must create a level playing field for Canadian companies by removing market-distorting non-tariff barriers. Free trade isn’t free if Canadian businesses spend all their time arguing about the rules while their products sit on the dock in abeyance. Let’s remember it only takes one non-tariff barrier to trade, such as a unique technical standard, to prevent entry into the party country.
Successful trade must include mechanisms to ensure regulatory consistency and fair trade in foreign markets. As the world moves toward regulatory homogeny, the affordability of goods for everyone improves.
Ultimately, it’s important to remember the significant contributions Canada's existing automakers have made, and continue to make, to Canada’s economy and manufacturing sector. These large-scale capital investments were made within the context of an integrated North American marketplace. Adjusting for new opportunities outside North America will take time, which is why appropriate tariff transition periods are necessary. We must proceed with caution to ensure the business case for manufacturing in Canada is not diminished.
New trade agreements should not put Canada’s existing automotive production footprint at risk and should focus on markets that provide meaningful opportunities to grow exports of Canadian-produced vehicles on a sustained basis, with timelines that allow the existing footprint to adjust accordingly.
Let’s talk about CETA specifically. CVMA commends Canada and the European Union for concluding a high standard and comprehensive agreement in principle. CVMA and our member companies look forward to continuing the dialogue regarding the automotive-related aspects of the agreement and working closely with our Canadian negotiating team to take the devil out of the detail.
Fortunately, CETA is an agreement between mature economies. However, it is very important that we have a full understanding of the key elements of the deal in order to fully assess the auto industry’s ability to benefit from its provisions.
I have already mentioned that bilateral trade agreements, whether CETA or agreements with other countries, must recognize that high level of North American integration, designed to maximize efficiency and investment opportunities. This is a primary challenge when negotiating bilateral agreements, which, as we’ve learned, sometimes requires creative approaches regarding rules of origin and regional value content calculation methodologies, as Canada’s negotiators engage in FTA discussions. The same needs to apply to other bilateral agreements such as the Canada-Japan economic partnership agreement. In this regard, we believe our negotiators have been able to get an agreement on certain provisions in CETA which over time will benefit our industry and other integrated manufacturing sectors.
In this instance, I refer to the rules of origin and what, in essence, is a placeholder for the accumulation of content provision in the case of a U.S.-EU agreement, the discussions now under way, which would allow parts originating in the United States to count towards the originating status of vehicles produced in Canada or the EU. This is extremely important as it recognizes that the EU, which has 27 member states from which auto parts, or content, can be sourced for content calculations, versus achieving content levels from within Canada alone, had the integration of the industry not been recognized. Failure to do so would ensure no duty-free access for Canadian-built vehicles. Once again the details around the applicable conditions will indeed tell the story.
The language included in the agreement concerning the content rule for parts, including the 50% transaction value exports, is also a subject requiring further discussion and clarification. It is important that the auto rules of origin methodology be as consistent as possible—that is, allowing net cost option, with averaging—with the Canada and U.S. FTAs to avoid adding unnecessary administrative costs and burdens on the industry and government. The automotive rule of origin methodology harmonization has successfully been accomplished in the FTAs involving both Canada and the United States. The burden of having to meet different rules would actually undermine the expected benefit to our industry.
While the timing of an EU-U.S. agreement remains unclear, the agreement in principle sets out a derogation of 100,000 units under which a more liberal rule of origin applies for non-originating materials. While it is our view that effective bilateral agreements should not be achieved through quotas, the derogation agreed to seems to provide sufficient levels of access until the EU-U.S. negotiations are concluded. We submit that we will need to have more clarity around the allocation sharing framework.
Again, Mr. Chairman, I want to thank you for the opportunity to appear today, and I would certainly be available to answer any questions members may have.