Thank you, Madam Chair. It's good to see you again.
Thank you to the committee for inviting me to this august panel to talk about something that is, from time to time, the biggest issue for our industry in trade with other countries.
I'm going to frame my remarks with our relationship with commercial and diplomatic relations with Japan, because I think it's illustrative of where some of the non-tariff barriers play in a real and practical manner in the auto sector, where we can ground a couple of examples, but I want you to keep in mind that countries like Vietnam, which are now our CPTPP partners, are emerging players in the auto sector.
Anybody who's been to the Yorkdale mall in Toronto can see that you can buy a VinFast, which is a Vietnamese-produced, -engineered, and -supplied vehicle. It's a very competitive product for sale to Canadian consumers.
We spent a lot of time with this government and the previous government in updating, renewing, and starting new trade relationships and formal trade agreements with great existing trade partners like Japan. During the TPP discussion and negotiation that started with the former government and finished with the current government, one thing that we were seized with was how to deal with our Japanese partners' global-leading automotive products and the local demand here. How do we properly work out an agreement that is accretive to operations in both countries? Also, how do we balance a scenario in which Canada does not have a domestic automaker and does not make decisions on product allocation and design, as even the Vietnamese do?
Specifically, Toyota and Honda manufacture vehicles here and sell vehicles here. Some of the vehicles that they manufacture they sell here. Some of the ones that they sell here they manufacture in other parts of the world, including, especially, in Japan.
We tend to conduct these negotiations as if we're equal partners, at least in the automotive space, but we're not. We're the world's 10th-biggest automotive jurisdiction, by units of production, but we have not had a sustainable Canadian car company for 100 years. Malcolm Bricklin gave it a shot in the the seventies, and it didn't work.
I draw attention to the fact that different countries have different vehicle import penetrations that are starkly different from Canada's. In Canada, 85% of the vehicles sold have foreign origins. In Japan, that number was 6.9% in 2017, when we started the TPP negotiations.
We talked with both governments, the previous one and the current one about this. Some of the reasons are that the non-tariff barriers in Japan take the form of ownership taxes. For example, Japan charges private vehicle owners three annual taxes for vehicle use, paid at registration time: automobile tax, which is on the dimensions; automobile weight tax; and on-the-road tax. They're all charged on a sliding scale. The first two are by vehicle weight and size and the third is by engine displacement.
We'll use this example. For a Canadian car made in Brampton on the Stellantis, Dodge and Chrysler line, the LX cars that we all know—the Chargers, Challengers and 300s—those three taxes would have totalled 105,000 yen at the time. A Japanese domestic market Nissan Maxima with a base engine would annually cost a Japanese customer about 79,000 yen. For that comparison that we used, for a similar product into that market, the annual ownership difference was the equivalent of about $1,500 to $2,300 Canadian.
On the fuel side, the fuel costs in Japan are 40¢ a litre higher. A lot of that difference—52%—is in taxes. This adds a disproportionate cost for the less fuel-efficient vehicles that we manufacture here for the North American market.
Using the regular Transport Canada duty cycle of 24,000 kilometres a year at $1.60 for a litre of gas, the difference in operating a Canadian-made vehicle from Brampton and a Nissan Maxima was somewhere between $989 and $1200 in incremental tax. This is the ownership price difference.
There are no distribution dealerships for Canadian cars in countries like Japan. There are Japanese car companies that operate dealerships here. The cost of importing a vehicle would be borne by the consumer.
It makes it price-prohibitive for a consumer in Japan to buy a vehicle made in Canada. We signed up to do a free trade agreement, the CPTPP, with the view that one of the advantages would be we would open up a great Japanese market in the same way that we opened up a Canadian market. However, we are not organized the same, from an industrial point of view; we don't have Canadian-domiciled companies. The Japanese non-tariff barriers in the form of taxes, both for the ownership and on the gas, make it prohibitive, and that is a bigger barrier than anything else in terms of customer preference.
If we're going to continue to do these trade agreements—Vietnam is inside the CPTPP—we're going to have the same challenges, with an imbalance in trade between them and us on those vehicles. It's the same thing with Europe and CETA.
I hope we take a deeper look to see the other barriers to consumer entry the next time that we reopen or start a trade negotiation with another car-making country, rather than just saying what we usually say, which is that if you're competitive, you can sell there.