For­get TPP un­til NAFTA deal is done: auto groups

The Globe and Mail (BC Edition) - - REPORT ON BUSINESS - GREG KEENAN STEVEN CHASE

Two ma­jor auto-in­dus­try groups in Canada are urg­ing the fed­eral govern­ment to hold off ne­go­ti­at­ing a mas­sive pan-Pa­cific trade deal while the coun­try is in the midst of try­ing to rene­go­ti­ate the North Amer­i­can free-trade agree­ment with the United States and Mex­ico.

Some of the au­to­mo­tive sec­tions of the Trans-Pa­cific Part­ner­ship deal will harm Canada’s auto-parts mak­ers and the Cana­dian units of the Detroit Three auto mak­ers, groups rep­re­sent­ing those com­pa­nies say.

Agree­ment on the TPP, which in­cluded Canada, the United States, Mex­ico, Ja­pan, Chile and seven other coun­tries, was reached in 2015, but the Amer­i­cans with­drew last Jan­uary in one of Pres­i­dent Don­ald Trump’s first acts af­ter be­ing sworn in.

The re­main­ing 11 coun­tries are con­sid­er­ing set­ting up a new round of ne­go­ti­a­tions, although part of the at­trac­tion of be­ing in the deal for some of the coun­tries was that it would have given them duty-free ac­cess to the U.S. mar­ket.

The pos­si­bil­ity of res­ur­rect­ing the TPP comes amid fears that NAFTA will fall apart as Mr. Trump re­it­er­ates his long-stand­ing crit­i­cism that the deal has been bad for Amer­i­cans.

“The No. 1 pri­or­ity should be NAFTA,” said Mark Nan­tais, pres­i­dent of the Cana­dian Ve­hi­cle Man­u­fac­tur­ers’ As­so­ci­a­tion, which rep­re­sents the Detroit Three auto mak­ers in Canada. “We should be ne­go­ti­at­ing th­ese [other] agree­ments as a NAFTA bloc be­cause of the high in­te­gra­tion of our in­dus­try.”

The level of con­tent in ve­hi­cles nec­es­sary for duty-free ship­ment was sub­stan­tially lower un­der the TPP than in NAFTA and thus is “very neg­a­tive for Cana­dian auto parts,” said Flavio Volpe, pres­i­dent of the Au­to­mo­tive Parts Man­u­fac­tur­ers’ As­so­ci­a­tion of Canada.

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NAFTA, which is be­ing rene­go­ti­ated with talks in their fourth ses­sion near Wash­ing­ton this week, re­quires that ve­hi­cles con­tain 62.5 per cent North Amer­i­can con­tent in or­der to qual­ify for duty-free ship­ment. U.S. ne­go­tia­tors are ex­pected to de­mand that that num­ber be raised to 85 per cent in a new NAFTA – a de­mand that could be for­mally made as soon as Fri­day.

For some com­po­nents, the TPP re­quire­ment was as low as 30-per-cent con­tent, Mr. Volpe said, and that in­cludes con­tent from some low-cost Asian coun­tries.

“It not only means that you have to do less to qual­ify [for duty-free treat­ment], you can do it in Viet­nam,” he said.

The Trudeau govern­ment is defending the fact it’s ac­tively con­sid­er­ing new free-trade talks on a pan-Pa­cific deal even while rene­go­ti­at­ing NAFTA.

Trade Min­is­ter François-Philippe Cham­pagne’s of­fice says the govern­ment has the ca­pac­ity to man­age more than one big trade ne­go­ti­a­tion.

For­eign Af­fairs Min­is­ter Chrys­tia Free­land is over­see­ing NAFTA talks while Mr. Cham­pagne han­dles other trade mat­ters.

“We have a strong and deep bench of of­fi­cials, re­spected and ad­mired the world over,” said Joseph Pick­er­ill, spokesman for Mr. Cham­pagne.

“The dis­cus­sions now on whether and how to pro­ceed … are be­ing led by an en­tirely dif­fer­ent team re­spon­si­ble for Asian trade en­gage­ment, so there isn’t a draw down on re­sources.”

Crit­ics say, how­ever, that NAFTA talks and TPP ne­go­ti­a­tions could con­flict with each other, par­tic­u­larly on thorny mat­ters such as the re­gional con­tent rules for au­tos.

No de­ci­sion has been made yet to em­bark on new TPP talks, but Mr. Pick­er­ill said it’s im­por­tant Canada be at the TPP ta­ble.

A TPP deal would likely mean greater ac­cess to the his­tor­i­cally shel­tered Ja­panese mar­ket.

“Now more than ever, di­ver­si­fi­ca­tion is im­por­tant and our pri­or­ity is to be am­bi­tious and seize the op­por­tu­ni­ties while be­ing mind­ful of the se­quenc­ing, tim­ing and ap­proach to any new mar­kets in such a way as to max­i­mize the op­por­tu­ni­ties for mid­dle-class Cana­di­ans across the board,” Mr. Pick­er­ill said.

The Ja­pan Au­to­mo­bile Man­u­fac­tur­ers As­so­ci­a­tion of Canada sup­ports a new TPP agree­ment, pres­i­dent David Worts said.

“We need a trade agree­ment with Ja­pan to cre­ate a level play­ing field for us with [South] Korea and with Europe,” he said.

The Canada-South Korea and Canada-EU agree­ments elim­i­nate the 6.1-per-cent duty Canada levies on ve­hi­cles im­ported into this coun­try from out­side NAFTA.

With­out a TPP or a Canada-Ja­pan bi­lat­eral trade agree­ment, Ja­pan-based auto mak­ers still face that tar­iff even though two of them op­er­ate as­sem­bly plants in Canada and have made cap­i­tal in­vest­ments of bil­lions of dol­lars since the plants were opened in the 1980s. With files from Adrian Morrow

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