Thank you, Mr. Chairman.
Good morning, honourable members.
The members of the CVMA are supportive of fair and balanced trade opportunities. To achieve this, we submit the following as key provisions necessary to create the proper foundation for free and open trade in automotive goods: first, that there be no differentiated outcomes between Canada and the U.S. with respect to automotive trade, with FTAs that are favourable to the industry and to our economy; second, free trade agreement rules of origin must fully consider and align with our strong dependence and ongoing reliance on sourcing within North America; and third, currency disciplines are required to ensure that market access provisions in the final agreement are not undermined by a country's inclination to manipulate its currency, given the intersection of trade and finance.
The CVMA appreciates government's continued focus on the NAFTA negotiations, as indeed, these are central to Canada's automotive manufacturing footprint. NAFTA must remain the number one focus. The high level of consultation with the industry as part of the NAFTA negotiations has been, and is, very helpful, and we would in fact recommend that it be a model that is to be extended to all FTAs that Canada pursues.
Trade agreements have a significant role in determining where companies invest and where jobs are created, maintained, or lost. As complex as these trade agreements can be, they have traditionally been focused on reducing tariffs. The reality, however, is that some nations—for example, Japan and now Korea—don't have any automotive import tariffs. Instead, they maintain a long-standing industrial strategy that uses other non-tariff protectionist measures or barriers to protect their markets from vehicle imports regardless of trade agreements. They have a strategy to keep their automotive market largely to themselves, while also tooling up their factories for vehicle exports to North America.
Trade agreements help them reduce our auto tariffs to accelerate a one-way flow of exported vehicles, while protecting their jobs at home. As we sign trade agreements that unilaterally bring down Canada's remaining auto tariffs, we essentially hand an incentive worth hundreds of millions of dollars annually to automobile importers who produce nothing here. They don't use our Canadian auto suppliers and they don't generate Canadian production jobs.
In Canada, when we sign trade agreements that incentivize more access to our rich and lucrative Canadian auto-buying market for Korean and Japanese vehicle exporters that do not manufacture in Canada, it reduces the incentive for auto manufacturers that do produce and employ people here. I'll say that again. When we sign agreements that give hundreds of millions of dollars of new incentives for car companies that do not produce any vehicles or manufacturing jobs here, that reduces the incentive for our manufacturers to keep producing here and keep employing here.
That is your policy. Despite all the intentions and efforts, that is what Canada is doing with the CPTPP. Like CPTPP, Mercosur represents a potential opportunity for increased Canadian vehicle exports, but also represents significant market access challenges to broadly apply protectionist domestic policies in those countries.
Let me give you an example. Argentina continues to apply a 35% tariff, the maximum common external tariff allowed in Mercosur, to passenger cars. Until December 2017, tariff rates for vehicle imports to Brazil were 30%. Details remain forthcoming regarding Brazil's new Rota 2030 program, which is designed to replace the country's Inovar-Auto incentive program. The Inovar-Auto program came under WTO criticism as it unfairly favoured automakers with plants in Brazil. Brazil is now finalizing the new Rota 2030 program, which we understand is a 12-year incentive program that will offer millions in annual tax credits for automakers and auto parts manufacturers doing business in the country.
It doesn't stop there. Non-tariff barriers, including complex federal and state tax regimes, import licensing requirements, and complex legal and custom procedures, are creating significant challenges for countries exporting vehicles to existing Mercosur member countries. This is illustrated by the marked decrease in the value of Canadian vehicle exports to key Mercosur markets since 2014. For instance, Argentina went from $1.8 million in value down to $623,000. In Brazil, the market went from just over $23 million to $235,000 in 2017.
Acceptance and recognition of technical and safety standards pursuant to the Canadian motor vehicle safety standards and the federal vehicle safety standards in the United States, to which they are aligned, will also be critical to access Mercosur markets. Alignment with and recognition of North American regulatory standards, which are underpinned by scientific evidence and rigorous compliance requirements, would encourage more automotive trade and create new supply chains between the North American trade bloc and Mercosur countries.
In summary, it is paramount that both existing and future non-tariff barriers are addressed to achieve reciprocal market access for the Canadian industry. Companies expend significant resources in both time and dollars to address non-tariff barriers, often with very limited results. Related to this, dispute settlement mechanisms need to be rigorous, time-efficient, and legally binding. The members of the CVMA provide quality middle-class jobs for tens of thousands of Canadians. It is very important that Canada demonstrates its commitment to the automotive manufacturing sector by achieving trade outcomes that do not reduce the incentive to keep producing and employing here in this country.
Thank you very much, Mr. Chairman. I would be pleased to answer any questions the members may have.