Canadian auto parts makers take on TPP

In March, Flavio Volpe, president of the Automotive Parts Manufacturers Association (APMA) presented a brief to the House of Commons Committee on International Trade at hearings about the Trans Pacific Partnership.

The APMA is Canada’s national association representing OEM producers of parts, equipment, tools, supplies and services for the worldwide automotive industry. The Association’s members account for 90 percent of independent parts production in Canada.

In 2015, automotive parts shipments were over $25 billion and the industry employed more than 81,000 people. Approximately half those people are employed by small- and medium-sized firms.

Volpe began by noting that Canada was late to the TPP negotiating table, and furthermore, the auto parts manufacturers were not consulted. He characterized the talks as “mature negotiations between two major players [the US and Japan] focused on their geopolitical interests and their own relationships with a non-party, China.”

Volpe went on to point out that Canada, and reportedly Mexico, handed over negotiating obligations in automotive manufacturing rules of origin, safeguard measures and snap-backs to the US in bilateral discussions with Japan.

“According to Mexican sources,” he continued, “the US and Japan concluded a bilateral agreement in April 2015 that included a reduction of automotive regional value content in auto parts at 30 percent and in finished vehicles at 45 percent, with ‘flexibility’ provisions allowing for a further reduction of 10 percent 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 percent and 60 percent respectively, while the NAFTA partner negotiating position was 55 percent.

In the interim, the APMA met with senior officials, the minister of international trade and the prime minister (Harper) in the period between the April US-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 industry to understand its impact. I believe firmly it was the former, not the latter,” Volpe said.

This is the crux of the APMA’s issue with the TPP, Volpe asserted. “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 terms in our absence.”

The APMA was very publicly involved in the period between the July Maui meeting and the finalization of the final agreement in October 2015.

The association coordinated policy positions between its Mexican and US counterparts and wrote public letters warning of the adverse effects of the proposed terms to the chief negotiators. They also organized wide and deep industry consultations, attended and hosted meetings and calls on the impacts of specific terms, and played a strong role in trilateral and quadrilateral auto term negotiations with Canada’s NAFTA partners and Japan.

The APMA believes “the rules by which Canadian, US and Mexican firms have successfully operated under for 20-plus years have been severed.”

The association asserts that the new TPP final rules of origin terms allow for parts and vehicles whose vast majority is sourced in non-TPP countries to be sold tariff-free in North America.

As well, dispute resolution, tariff elimination and safeguard measures are subject to Japan-US, Canada-US and Canada-Japan side agreements that are bilateral and different. The APMA fears that under these circumstances a US-Japan trade dispute that triggers a safeguard measure such as a snap-back could have an adverse effect for Canada’s automotive industry.

There is also concern about a Trade Adjustment Assistance Bill to deal with the effects of the TPP on US industry.

“If history is any guide, it will contain worker training provisions, beneficial tax credits and very likely, direct assistance to US-based auto assembly,” Volpe said.

“A Canadian auto parts industry that is dealing with regional value content provisions that in some cases are almost halved and a Japan-Canada tariff elimination schedule that is five years versus the Japan-US schedule of 25 years faces the real prospect of being doubly burdened by a US industry that will receive federal adjustment assistance. This will further adversely affect our transition into a post-NAFTA world.”

Finally Volpe asked the new federal government to “approach ratification with caution. Official negotiation has already failed this industry in this process—the ratification process must be carefully conducted to address the shortcomings—foreseen or otherwise.”