Good morning, Mr. Chair and honourable members. I'm pleased to join you today.
I would like to thank you for this opportunity to share with you our views and perspectives about the impact of the Trans-Pacific Partnership on Canadian automotive parts manufacturers and to discuss the best course of action for the Government of Canada in the final ratification phase of this process.
To start, let me introduce the Automotive Parts Manufacturers' Association. The APMA is Canada's national association representing OEM producers of parts, equipment, tools, supplies, and services for the worldwide automotive industry. The association was founded in 1952. Its members account for 90% of independent parts production in Canada. In 2015, automotive part shipments were over $25 billion, and the industry employment level was at over 81,000 people. Approximately half of those people are employed by small and medium-sized parts producers in Canada, and the other half by the larger firms. These firms can be characterized as Canadian-owned private and public, or foreign-owned private and public. It's a very good mix.
The TPP is an agreement that originated with four small countries looking to formalize trade relations in the South Pacific. It was subsequently overtaken by the U.S.A. and Japan looking to wrap a bilateral agreement in the flags of several other countries, and was finally populated by countries that asked—by some reports, begged—to be included so as not to have been left behind by the marriage of these two giants. Canada's membership card was punched in this last group. With a new, inauspicious entry into mature negotiations between two major players, focused on their geopolitical interests and their own relationships with a non-party, China, Canada did not participate in this negotiation with a strong hand.
Other witnesses called before this committee have described consultations with officials and ministers in the lead-up months and years to this year's agreement completion, but the automotive parts manufacturers were not among that group. Canada, and reportedly Mexico, handed over its negotiating obligations in automotive rules of origin, safeguard measures, and snap-backs to the U.S. in bilateral discussions with Japan.
According to Mexican sources, the U.S. and Japan concluded a bilateral agreement in April 2015 that included a reduction of automotive regional value content in auto parts to 30% and in finished vehicles to 45%, with flexibility provisions allowing for a further reduction of 10% in the vehicle content number. The NAFTA standard, upon which the most integrated and lucrative commercial supply chain in the world had been based, was 62.5% and 60% respectively, and the NAFTA partner negotiating position was 55%.
That the U.S. did not inform Canada and Mexico until the Maui round in late July 2015 of its agreement with Japan is a matter of public record. I will not add to it here.
In the interim, the APMA met with senior officials, the minister of international trade, and the prime minister in the period between the April U.S.-Japan agreement and the July negotiating round. None in that group either knew of the April agreement or, if they did, cared to consult with the industry to understand its impact. I believe firmly that it was the former and not the latter.
Therein lies the problem with the TPP for Canada's auto parts manufacturing sector. No one in a position of authority invested in industry consultation before being dealt a terrible hand by major trading partners that did not have Canadian interests at heart when they negotiated the terms in our absence.
The APMA was very firmly and publicly involved in the period between the July Maui meeting and the finalization of the agreement in October. We coordinated policy positions between our Mexican and U.S. counterparts, and wrote public letters warning of the adverse effects of the proposed terms to our respective chief negotiators. We organized wide and deep industry consultations, attended and hosted meetings and calls on specific terms' impacts, and played a strong role in trilateral and quadrilateral auto term negotiations with our NAFTA partners, and subsequently with Japan.
The final terms undermine the continental dynamics of the most integrated automotive supply network in the world. The rules by which Canadian, U.S., and Mexican firms have successfully operated for over 20 years have been severed. Not only do the new TPP rules-of-origin terms allow for parts and vehicles whose vast majority is sourced from non-TPP countries to be sold tariff-free in North America, but dispute resolution, tariff elimination, and safeguard measures are also subject to Japan-U.S., Canada-U.S., and Canada-Japan side agreements that are bilateral and different.
A U.S.-Japan trade dispute that triggers a safeguard measure, such as a snap-back, could have an adverse effect upon Canada's automotive industry, and we lack the provisions to deal with it or an understanding of the causal dynamics.
Furthermore, and very importantly, the U.S. administration is preparing a trade adjustment assistance bill to deal with the effects of the TPP on the U.S. industry. If history is any guide, it will contain worker training provisions, beneficial tax credits, and very likely direct assistance to U.S.-based automotive assembly. A Canadian auto parts industry that is dealing with regional value content provisions that in some cases are almost halved, and with the Japan-Canada tariff elimination schedule that is five years versus the Japan-U.S. schedule of 25 years, faces the real prospect of being doubly burdened by a U.S. industry that will receive federal adjustment assistance. This will further adversely affect our transition into a post-NAFTA world.
This government has inherited a TPP that failed the auto supply sector, specifically the prospects of its small and medium-sized members and the Canadian-based production growth capacity of its larger members. It must approach ratification with caution. The U.S. may not ratify, although that is unlikely. If it is to ratify, it will certainly do so with compensatory legislation wrapping the agreement for our counterpart companies based in that country.
Official negotiation has already failed this industry in this process. The ratification process must be carefully conducted to address shortcomings, foreseen or otherwise.
Thank you.
