Evidence of meeting #2 for International Trade in the 45th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was rules.
A video is available from Parliament.
Conservative
Adam Chambers Conservative Simcoe North, ON
A billion dollars from the industry is committed to purchasing credits. Is that what I understand?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
That is correct.
Conservative
Adam Chambers Conservative Simcoe North, ON
Also, currently, there's only one seller of credits. Is that not correct?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
There's one company that would have surplus credits and only produces electric vehicles and would be in a position to sell, yes.
Conservative
Adam Chambers Conservative Simcoe North, ON
Okay. Is that $1 billion number for money that has already gone to Tesla, or is that money that is committed to go?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
I can't tell you how much already would have gone. It's committed to a multi-year contract, such that you could effectively option these credits as required over the coming years.
On the current gap right now between the mandated sales level by the federal government and the current sales level, we're at 7.7%. We have to get to 60% sales by 2030. There is no way to close that gap without significant credit purchases, and while it's an option, companies will have to go down that road.
Conservative
Adam Chambers Conservative Simcoe North, ON
Okay. Is that $1 billion just for your members or for the entire sector together?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
That's an estimate of the entire sector based on the gap.
Conservative
Adam Chambers Conservative Simcoe North, ON
Okay, so that would also include other manufacturers that are not currently in your domestic organization.
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
That's correct.
Conservative
Adam Chambers Conservative Simcoe North, ON
Okay. That's very helpful.
I have heard that hundreds of millions of dollars have already gone to Tesla. Cash has gone to purchase credits by one manufacturer. Would that be your understanding? Would you ballpark how much cash you think has already gone to Tesla shareholders? Do you have an idea?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
Well, given that we're already in the 2026 model year and the gap is so significant, I think it's safe to say that hundreds of millions would have already been exercised, but I can't give you an exact figure.
Conservative
Adam Chambers Conservative Simcoe North, ON
Right, so for the Canadian government's electric vehicle policy, just so I understand, the result is that Canadian auto manufacturers—the domestics you represent, plus the ones from overseas that came here and invested billions of dollars in property, plants and equipment—have to send cash to a foreign automaker who has no manufacturing footprint in Canada and has no intention of having a manufacturing footprint in Canada. Is that how I understand it?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
That is correct.
Conservative
Adam Chambers Conservative Simcoe North, ON
Madam Chair, I'll yield my time to the floor. Thank you.
Thank you, Mr. Kingston.
Liberal
Liberal
Yasir Naqvi Liberal Ottawa Centre, ON
Thank you very much, Chair, and thank you to all the witnesses for being here today and, as my colleague mentioned, for helping the committee undertake, as we start this new Parliament, a very important fundamental question around the impact—and I like to think it's a positive impact—of the rules-based trading system and why it's been important for the Canadian economy. I really appreciate the different sectors for being here.
I will start my line of questioning with Mr. Kingston, whom we have known for some time. I may test your skills from the time when you and I were doing our graduate work in international trade policy. You were not famous at that time, but I knew you would be one day, so I'm glad you are here.
The Canadian auto sector is a great example of a rules-based trading system. The existence of automobile manufacturing in Canada is a result of that. Can you help us trace back to a time when we did not manufacture cars in Canada and how that industry came about? Could you maybe touch upon the Auto Pact and the unique features around that, please?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
The auto industry has been building cars and employing Canadians for 125 years. If you go back to the foundation of the industry, of course, we used to have significant trade barriers, so manufacturers would put a facility here to overcome those barriers and build in this market. Over time, as we got to the Auto Pact in the sixties, it was recognized that this is deeply inefficient. If we actually got rid of tariffs and created an integrated North American market, we could lower the costs of production, build a vehicle for one North American market and move it back and forth across the border.
That's what happened in the sixties when we started to remove those barriers and encourage that supply chain. The result, and we reference this stat regularly, is that a part or a component can cross the Canada-U.S. or U.S.-Mexico border seven or eight times before it's installed in a finished vehicle. That has been the foundation of the success of this sector. It's currently under challenge because of U.S. section 232 tariffs on the industry, but rules-based, open trade is what has enabled this industry to thrive in Canada.
Liberal
Yasir Naqvi Liberal Ottawa Centre, ON
The Auto Pact, according to my memory, was signed in 1965. Is that right?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
Yes, that was in 1965.
Liberal
Yasir Naqvi Liberal Ottawa Centre, ON
One could argue that it was in fact the genesis of the Canada-U.S. Free Trade Agreement, NAFTA, and the CUSMA that we entered into with the U.S. Is that your impression as well?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
Yes, absolutely. Autos have been at the centre of trade discussions between Canada and the U.S. going back 60 years.
Liberal
Yasir Naqvi Liberal Ottawa Centre, ON
It probably behooves us all to recognize we are finding ourselves at a point where we've demonstrated the success of a rules-based trading system in breaking down barriers and reducing tariffs. It's helping manufacturing and creating good-paying jobs in both American and Canadian jurisdictions, and now we're going back to erecting those barriers again.
There have been challenges as well, and to me, the dispute resolution mechanism of these rules-based trading systems is another very important feature. Even with the existing free trade that we've had with the U.S., can you talk about some of the key challenges in manufacturing and how those agreements have assisted Canadian auto manufacturers?
President and Chief Executive Officer, Canadian Vehicle Manufacturers' Association
First of all, dispute settlement mechanisms are critical components of trade agreements, because they give you that avenue when you have a disagreement. We have had challenges with the CUSMA. There's been a dispute with our American partners over what's called the super-core roll-up, which is a unique component of the rules of origin. Canada and Mexico won that case, but the U.S. did not comply with the ruling. We have had challenges.
We also had a side letter in CUSMA on section 232 tariffs that exempted Canadian production of up to 2.6 million vehicles from any future U.S. tariff actions, and that has not been adhered to. These are critically important parts of agreements, but of course all parties have to agree to implement them, and we've had some challenges recently, which has resulted in the current situation.
