Thank you very much, Madam Chair.
On behalf of the 15 members of the Global Automakers of Canada, I appreciate the opportunity to appear before you today.
Our members include Canada's largest automaker, Toyota, which last year produced more vehicles than Ford, GM and Stellantis combined, and Honda, Canada's second-largest automaker last year, in addition to 13 exclusive Canadian distributors of their brand in our country. Last year, our members represented 62% of all vehicle sales in Canada and 65% of all light-duty vehicle production. Further, our members were responsible for providing 56% of the EVs to consumers who purchased them under the Canadian government's iZEV program.
As other witnesses have already alluded to in their representations before the committee, the protectionist actions currently being pursued on a variety of fronts by the American administration represent an existential threat not only to the softwood lumber and automotive industries, but to the broader Canadian economy.
With respect to our industry, the proposed EV tax credit included under the build back better bill, which is the subject of this committee's investigation, is very problematic. However, I would suggest that the mere threat of this EV tax credit has already had the desired effect from a U.S. public policy perspective by creating an uncertain economic climate that has encouraged more foreign direct investment in the United States, while largely freezing out the consideration of Canada as an investment jurisdiction.
Having been around this industry through the negotiation of the Canada-U.S. FTA, NAFTA and the recent CUSMA, what is clear is that trade agreements only work if the signatory parties support a rules-based international order by upholding the precepts of free and fair trade agreements to which their leaders have attached their signatures. The CUSMA/USMCA trade deal is less than two years old and already in the automotive industry we have two flagrant violations of the provisions of that agreement, which have strained our historically beneficial trading relationship with the U.S.
Where does that leave Canada? The reality is that policy-makers in the United States do not consider Canada and the effect of their decisions on our trading relationship. We are not on their radar screen, and Canada is caught right now in the geopolitical crossfire between the United States and China—and, to a lesser degree, Europe—when it comes to the issue of the new decarbonized automotive industry. The United States has fallen significantly behind those leading jurisdictions when it comes to both electric vehicle production and battery production, and is now in the fight of its life to ensure the key components of EVs and the vehicles themselves are built in America and sold to Americans. In this regard, Canada is collateral damage.
Looking more closely at the EV tax credit, one can observe that one component, the extra $4,500 credit if the vehicle is built in a union plant, is derivative of President Biden's strong union support from the UAW, which he will need to continue to curry favour with through this year's mid-term elections. On this issue, I will say only that many of my members' parent and sister companies produce EVs in non-union facilities in the United States. Not only does this provision discriminate against these companies on the basis of union representation, or the lack thereof, but it will create a significant hurdle for the President to overcome in reaching his own targets of 50% zero-emission vehicle sales by 2030 when only a small subset of the vehicles are eligible for the more robust credit.
On this issue, American legislators frankly see the inequity of the discrimination based on whether or not workers in America are represented by a union; it is far more difficult to get any American legislators to take up the mantle and argue against American taxpayers' money going to incentivize only vehicles built in the United States, aside from the fact that such a stance is offside American international trade obligations.
What should Canada do? Canada should act forcefully to ensure that the negotiated provisions of CUSMA are enforced, and explore all measures to defend itself against this flagrant violation. Canada, in consultation with the automotive industry, should consider all appropriate retaliatory mechanisms should the provisions of the EV tax credit reappear in a new build back better bill.
Canada should not seek a so-called carve-in for Canadian-built EVs, meaning that we should not accord EVs built in the U.S. with the same basic $7,500 incentive, an additional $4,500 if built in a union plant and an additional $500 if the battery is built in Canada. This is poor public policy. Two wrongs do not make a right, and Canada could expect to be challenged at the WTO for taking such a stance. Such an incentive would severely hinder Canada's objective of achieving 50% zero-emission vehicle sales by 2030 and 100% by 2035. It would also set up a significant competitive disadvantage for those not building zero-emission vehicles in North America to meet what we understand will be a mandated emissions target.
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