CIIT Pre-study of the Trans Pacific Partnership

Transcription

1 CIIT Pre-study of the Trans Pacific Partnership Submission on the TPP Automotive Provisions David Worts, Executive Director Japan Automobile Manufacturers Association of Canada April 14, 2016 (Note: This paper is a follow-up to our testimony to the CIIT Pre-study of the TPP on March 8, 2016.) In summary, quick tariff phase-outs and forward looking, flexible rules of origin in the TPP are vital to maintain a balanced and competitive auto market in Canada. If our members products become less competitive, this will affect economic activity and jobs along the whole chain, including our head offices and plants in Ontario, as well as our upstream Canadian suppliers and our downstream dealers across the country. As Japan and other TPP countries are likely to ratify the TPPA in the next few months, Canada should also ratify as soon as possible to send a positive signal to Japan and the US, both trading partners that are critical to the TPP. If the TPP is delayed or fails in the US Congress, Canada and Japan should resume and quickly conclude bilateral EPA negotiations. Tariffs & Phase-outs: The TPP tariff provisions on motor vehicles are important as they will restore a level playing field that was lost after Canada signed trade deals with Mexico, Korea and most recently Europe. Canadian and US tariffs are not aligned (in fact Canada s 6.1% tariff is two and a half times higher than the US passenger vehicle tariff), so there s no reason for phase-outs to be aligned. As imports from Korea will be duty free in 2017, it would have been preferable to eliminate auto tariffs on implementation of the TPP. However, we accept the compromise of the 5 year phaseout, which is between the 3 year period in the Canada-Korea FTA and 7 year phase-out in CETA. At the same time, the 5 year phase-out gives Canada preferential access to the US market for 20 years over Japan which offers the opportunity to boost production & exports from Canadian plants. Canada has implemented the CKFTA and plans on ratifying the CETA in But without the TPP or the Canada-Japan EPA, only Japanese vehicle imports will face duties in Canada. With no Korean or European auto plants in Canada, this is not only unfair, but also sends a negative message to Japanese investors with significant Canadian manufacturing operations.

2 Automotive Rules of Origin (ROO): The ROO for autos in the TPP reflects the realities of current global supply chains and recent FTA's in Asia-Pacific. The high RVC thresholds for vehicles and auto parts in the NAFTA ROO were driven by the US-Japan trade disputes of the 1990's - over 20 years ago. Flexible and forward-looking rules of origin will effectively update the NAFTA rules, while expanding trade and business opportunities for Canadian suppliers among TPP members in Asia-Pacific. It is important to understand that NAFTA doesn't guarantee any country-specific RVC sourcing. At the same time, the actual RVC in NAFTA is closer to 75% - much higher than the 62.5% RVC threshold in NAFTA for preferential treatment. As most automakers embrace just-in-time or lean manufacturing, as well as a business philosophy of build where we sell in close proximity with key suppliers, the auto parts industry in Canada does well when automakers' plants in Canada are strong and have flexible rules that allow them to compete globally. Honda's Alliston plant is now the global lead for the new Civic, and Toyota's commitment for the next generation Lexus RX and second RAV-4 plant in Cambridge illustrate this reality - and competitive Canadian suppliers will continue to benefit. These supplier relationships have been forged over almost thirty years, and will not change just because the TPP ROO is different from NAFTA. Original equipment (OE) auto parts have been duty-free in Canada since 1998, following the end of the duty remission programs in the NAFTA. This means that Canadian vehicle manufacturers currently import parts and components without any tariff or rule of origin test. Only aftermarket parts are currently subject to an import tariff. Some reports suggest the lower RVC in the TPP automotive rule of origin will result in an estimated 20,000 jobs lost. However, an analysis by Mike Moffatt, Chief Economist at the Mowat Centre concludes that this is unlikely as there are dubious assumptions and faulty calculations see Appendix 1. Automobile Manufacturing Plants in Canada, Since the Canada-US FTA was implemented in 1989, the auto manufacturing industry in Canada has undergone considerable transformation. Production rose 53% from 1.94 million units in 1989 to a peak of almost 3 million light vehicles in In 1997, Toyota started production at the North Plant in Cambridge. In 1998, Honda opened Plant 2 and engine production in Alliston. On the other hand, plant closures included the Volvo plant in Nova Scotia, the Hyundai plant in Quebec and the GM Van Plant in Scarborough. After 1999, a number of other US auto vehicle and parts plants closed in Quebec and Ontario, while the only greenfield auto manufacturing plant in Canada was opened by Toyota in

3 Woodstock in In 2015, total light vehicle production in Canada was 2.27 million units, a decline of 24.3% from the peak in With only US and Japanese automakers building vehicles in Canada after 1999, total US light vehicle output dropped 48.2% to 1.29 million in 2015 from almost 2.5 million at the peak in 1999 as a result of plant closures. During the same period, Japanese light vehicle production in Canada has increased 94.7% to 975,705 units in (see Appendix 2: Light Vehicle Production in Canada 1989 to 2015) In 2015, Japanese vehicle assembly plants in Ontario accounted for 43% of total light vehicle production in Canada, and set new record levels of production and exports. Moreover, Canada has been a net exporter of Japanese brand vehicles every year since The True Nature of the Domestic Auto Market in Japan While some continue to claim that the auto market in Japan is closed to imports, including vehicles built in Canada and the US, the facts about the true nature of the domestic market in Japan will show that the market, while intensely competitive, is open to imports see Appendix 3. The key to achieving success, whether in Japan or any other market, is to design and build vehicles that consumers in those markets want to buy. 1. The Detroit-based auto companies say the Japanese auto market is closed to imports. Is that true? No, in fact since 1978, Japan has had zero import duties on cars. There are no barriers to the import and sale of foreign-made vehicles in Japan. The Japanese market is highly competitive, but European automakers that have committed time and resources to selling there, have been successful. While access doesn t guarantee success, a lack of success is not evidence of a closed market. 2. The Detroit-based companies say that their low market share in Japan proves that the market is closed to imports. Are they wrong? Yes. It is important to understand that about 90% of Japanese passenger car sales are very small cars, with engines under 2000cc. The Detroit-based companies only offered ten models in this market segment in 2014, while European automakers had 105 models in this segment. In short, U.S. market share in Japan is being determined by the U.S.-based companies themselves, not by Japan. 3. It has been reported that the U.S. auto industry has indicated that distribution is an issue that Japan needs to address in seeking to participate in the EPA and the TPP (Trans Pacific Partnership). What is the dealership situation in Japan? Japanese auto companies do not and have not influenced dealers as to what makes of cars the dealers sell. The Japanese Fair Trade Law prohibits any such action, and Japanese auto

4 Appendix: companies have told their dealers that is the law. The fact is that over the past 15 years the number of dealers selling European nameplate cars has gone up by 72 percent, but the number of dealers selling U.S.-made cars has gone down by 74 percent. 4. A few years ago GM, Ford and Chrysler had significant investments in Japanese auto companies. Now they don t. What happened? They withdrew. GM, for example, held 20% ownership in Suzuki and Fuji. GM also held 49% of Isuzu. Ford held 33.4% of Mazda, and DaimlerChrysler held 37% of Mitsubishi. Except for a minor residual ownership, all of this equity has been sold. The fact that the Detroit-based auto companies have disinvested in Japan is yet another indication that they have little or no interest in selling in the Japanese market. 5. Doesn t Japan impose stiff regulatory requirements on imported cars that limit imports? While the Type Approval System is applied to both domestic and imported models, Japan s certification requirements for emissions and safety are in line with those of many other autoproducing nations. Furthermore, Japan long ago agreed to a Preferential Handling Procedure for small volume vehicle imports that allows those cars to be imported if they comply with simplified and expedited procedures. Moreover the threshold for the PHP has been raised to 5,000 units per model. 1. Why the TPP won t cost 20,000 manufacturing jobs in Canada, Mike Moffatt, Canadian Business, Jan. 25, Web blog: 2. Table: Light Vehicle Production in Canada: Infographic: The True Nature of Japan s Automobile Market

5 Light Vehicle Production in Canada: % change (1999/1989) % change (2015/1999) 1989 share 1999 share 2015 share Chrysler 480,153 Chrysler 796,727 FCA 514, Ford 590,965 Ford 685,535 Ford 200, GM 740,339 GM (incl. CAMI) 1,012,742 GM 577, Total US 1,811,457 Total US 2,495,004 Total US 1,293, Honda 86,447 Honda 274,908 Honda 384, Toyota 20,859 Toyota 211,082 Toyota 590, Suzuki (CAMI) 660 Suzuki (CAMI) 15,079 Suzuki (CAMI) Total Japanese 107,966 Total Japanese 501,069 Total Japanese 975, Volvo 8,004 Volvo 0 Volvo Hyundai 14,780 Hyundai 0 Hyundai Total Others 22,784 Total Others 0 Total Others Grand Total 1,942,207 Grand Total 2,996,073 Grand Total 2,268, Total US Total Japanese Total Others share Volvo 0.4 Hyundai share 16.7 Honda 9.2 Toyota 7.0 Suzuki share Honda 17.0 Toyota Honda 4.5 Toyota 1.1 Suzuki 0.0 Chrysler 24.7 Ford 30.4 GM(CAMI) Chrysler 26.6 Ford 22.9 GM(CAMI) FCA 22.7 Ford 8.8 GM 25.5 Source: DesRosiers Automotive Consultants/JAMA Canada/Ward's

6 JRMRI aren AurouoBrlE MewurecruRERs Assocu.rroN, INc. 5.7olo THE TRUE NATURE OF JAPAN,S AUTOMOBILE MARKET Breakdown of Japan's Domestic Market For Passenger Cars by Vehicle Ctass (cc) and Number of lmported Models ( U.S. Deaterships European Deaterships 35,000 o IA o E CM FORD CFIRYSLER VW AUDI I Radio rt Magazines I TV Newspapers Source: JAMAn/ideo Research Ltd. JAMA UsA I th Slreet NW I Suite 410 lwashington, DC tel ljama.org