Madam Chair and committee members, thank you very much for the opportunity to appear today on behalf of the 15 members of the Global Automakers of Canada to discuss the important topic of non-tariff barriers to trade under Canada’s international trade agreements.
A fundamental tenet of the Global Automakers of Canada has been its long-standing support for transparent, open, rules-based trade in automotive goods.
Let me begin by stating that Canada’s automotive industry is a product of trade agreements, from the 1965 Automotive Products Trade Agreement, or Auto Pact, with the United States through to the CUSMA of 2020. While the Canada-Korea FTA, the CETA and the CPTPP facilitated some automotive trade, it should be understood that Canada’s automotive industry was built on the premise of supporting an integrated North American automotive market and is reliant on barrier-free access to that market. For all five manufacturers of vehicles in Canada, the market for their production is almost exclusively North America. The Canadian manufacturing entities of both American and Japanese companies were established in Canada via trade agreements and trade policy dating back more than 50 years.
The intent of North American automotive trade policy was to produce vehicles in factories on either side of the 49th parallel and for both markets to take advantage of the economies of scale that arise from longer production runs. Thus, whether we are talking about Toyota or General Motors, roughly 85% of Canadian vehicle production is exported almost exclusively to the United States. Therefore, the non-tariff barriers this committee should be concerning itself with are those related to access to the U.S. market, as far as the automotive sector is concerned.
While manufacturers have flirted with the idea of using facilities in Canada as export platforms to countries overseas, the reality is that those markets are generally served by localized production from the same Japanese and American automakers that are operating in Canada. The vehicles built in Canada by any auto manufacturer are designed to suit the needs and proclivities of North American consumers.
With respect to Canada’s broader automotive sector, what assures the success of the Canadian automotive parts manufacturing sector is its proximity to Canadian-based vehicle manufacturers and, to a certain extent, those in the United States. While it was pivotal when Honda and Toyota established vehicle manufacturing facilities in Canada in the late 1980s, the untold story is the hundreds of parts manufacturers that also followed them to Canada to support vehicle production. The “build where you sell” orientation of both Toyota and Honda, as well as most of our other GAC members, has led to the establishment of vehicle manufacturing facilities in the CUSMA region to service the North American automotive market. By point of reference, in 2022 only 1.3% of Honda’s sales in Canada were built outside of North America. For Toyota, that number was 18.9%.
Few Canadians would appreciate that Toyota Motor Manufacturing Canada is Canada’s largest vehicle producer and last year produced more vehicles in Canada than Ford and General Motors combined. Honda Canada, the association’s other manufacturing member, was the third-largest vehicle producer in the country last year.
As we have observed over the last three to five years, the automotive industry has become increasingly regionalized in nature, owing primarily to geopolitical concerns. We have all been witness to the tools of industrial policy being applied to further accelerate and codify country-specific or region-specific automotive or automotive parts production, such that industrial policy seemingly trumps trade policy on any given day. Canada needs to be vigilant in this regard, especially with respect to the practices of the United States, while also ensuring that it has clean hands in not emulating these similar practices.
In conclusion, the Canadian automotive industry exists to service the United States. In addition to continuing to ensure access to that market, we need to be constantly vigilant with respect to non-tariff barriers in that relationship, whether they arise in the form of different standards, labelling provisions or the use of subsidies, etc.
I would be pleased to answer questions from committee members.
Thank you very much.