NAFTA has damaged Canada’s auto industry

There is a lot of storytelling getting in the way of a new NAFTA deal. It will be a stretch to get a new agreement unless everyone starts to separate fact from fiction.

This is nowhere more apparent than with the auto industry. Auto is Canada’s most valuable export, an essential source of good jobs and a highly visible measure of what’s going on in the economy. It’s no surprise that U.S. Commerce Secretary Wilbur Ross suggested last week that talks will fail without addressing auto. On that we agree. Failure is not an option for our 2,800 members at the GM plant in Ingersoll, Ont. Despite award-winning quality and productivity, they’re on the picket line fighting to ensure their jobs are not shipped to Mexico, with wages of $2.50 an hour courtesy of corrupt governmentcontrolled unions. Ingersoll is the poster child for what’s wrong with NAFTA.

Last week saw two contenders for the fiction prize in NAFTA auto talks. A new report argued that NAFTA has been great for our auto sector; while another pointed the finger at rules of origin (the share of a vehicle that needs to be made in North America to trade duty free), as the core problem. Both entirely miss the point. Admitting there is a problem is the first step. I continue to be amazed by arguments such as those in a new report from Scotiabank, that NAFTA has been great because access to extremely cheap labour has supposedly made the region “globally competitive.” How anyone argues that NAFTA has been good for auto is beyond me. Since NAFTA, Canada’s auto trade deficit with Mexico has quadrupled to $12 billion, and the U.S. deficit has grown a stunning 18fold. We’ve lost half our Detroit Three members, and Canada has shed one in four auto jobs in the last decade alone.

NAFTA has resulted in a straight shift of production to Mexico as the U.S. lost a net of 10 assembly plants, Canada four, and Mexico gained eight. Although there are four million more vehicles being built in North America today than when NAFTA was signed, two-thirds of the added production went to Mexico, one-third to the U.S., and Canada has seen no growth.

It’s so unbalanced that Mexico now has nearly half the auto jobs in North America, but only 8 per cent of the auto market. Amazingly, wages in Mexico are lower today in real terms than before NAFTA. There’s also been no success on the global stage. We continue to sell just 3 per cent of our auto production outside of North America, just as we did before NAFTA, thanks to tariffs and other measures that keep out North American vehicles, while we import five million vehicles a year from overseas.

The second new work of fiction was a Department of Commerce report pointing to falling U.S. content in NAFTA auto imports as the core problem, to be fixed by stronger rules of origin. Ross astonishingly pointed to an $85-billion auto trade deficit with “Canada and Mexico,” despite Mexico accounting for 90 per cent of it. Canada is not the low-wage country poaching auto investment, our auto trade with the U.S. is overwhelming- ly balanced, and our industry has suffered just as much.

If the report was fair, it would have also examined U.S. auto exports and found exactly the same trend of growing offshore content. Why? Because the U.S. has created an open-door for imports from Asia and Europe by having no tariffs on parts, and meaningless tariffs of 2.5 per cent on most finished vehicles.

Strengthened rules of origin without any reason to meet them will be simply side-stepped, only encouraging more imports. It’s like patching a hole in the tub, but leaving the drain open.

Ultimately, we can’t fix the problems with auto trade by pretending there aren’t any, or just by fiddling with rules of origin. We need to tackle the real problems: government-enforced poverty wages in Mexico, wildly unbalanced auto trade within North America and the need for a meaningful global price of entry for our markets. Anything less is just tinkering.

Canada is not the low-wage country poaching auto investment, our auto trade with the U.S. is overwhelmingly balanced

Jerry Dias is the national president of Unifor and has been an adviser to the Canadian negotiating team at the NAFTA talks.