Ending the Auto Pact


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The government is considering ending all tariffs (taxes on imports) in the auto industry. This will mean the end of the Auto Pact and open the Canadian market to more automotive imports from overseas.

  • Why is the government doing this?
  • What will the impact be?
  • What can we do about it?

Wait-a-sec..

Don't We Already Have Free Trade ?

Since the North American Free Trade Agreement (NAFTA) we've moved towards free trade on this continent. But there is still a tariff on cars from overseas of 7.3% (dropping to 6.8% in 1998) and on parts of 0-7.3% (depending on the part and also dropping to 0-6.8% in 1998).

Under the Auto Pact, companies who historically made certain commitments to jobs and investment here (like GM, Ford, Chrysler, and CAMI) don't have to pay this tariff; others (like Honda and Toyota) didn't come under the auto pact and don't get this break.

Why Would The Government Want To Change This ?

Good question...

The Japan-based companies, especially Honda and Toyota, are arguing that they should be treated the same as the Big Three. Since they now assemble vehicles here, they should - like the Big Three - also be able to import auto products into Canada without any tariff.

They also argue that getting rid of the tariff they face will lower prices and help the consumer.

What About Fairness...

Why Should We Support American Multinationals Against Japanese Multinationals ?

The issue isn't the nationality of the companies; the issue is the commitment of any company to Canadian jobs.

The Big Three sell 4 times as many vehicles in Canada as the Japanese- based companies. Yet, over the last decade, they have committed almost 6 times as much investment, account for almost 15 times the number of direct jobs in major auto and about 30 times the jobs in the supplier industry. If the Big Three had the same commitment to Canada as Honda and Toyota (even after Honda and Toyota's new investments here), we'd have about 100,000 fewer jobs in our overall auto industry!

Big three jobs adjusted to level of commitment of Japanese-based companies

  Big 3 Big 3 potential adjusted job loss
direct jobs 60,000 16,500 43,500
independent parts 65,000 9,000 56,000
total auto 125,000 25,500 99,500
related, non-auto 142,000 25,500 116,500
total 267,000 51,000 216,000

source : Stats Canada; CAW estimates

Honda and Toyota had a chance to come under the same rules as the Big Three (ie the Auto Pact); they refused. Now they want the same privilege without making the same commitment.

Who's unfair?

Besides - how can these companies argue we're unfair to them when we actually have a deficit(!) in auto trade with Japan and the most recent data shows that Japanese auto exports to Canada are rising faster than any other part of the world (63% increase in first half of 1997 relative to first half of 1996):

Increase in Exports From Japan 1997 (6 months)

Exports from Japan to: Increase
Canada 67.3%
U.S. 22.3%
Europe 23.2%
South America 45.2%
Asia 1.5%

But Won't The Consumer Benefit From Lower Tariffs ?

They might,depending on how the corporations price their product. But note that there's already a great deal of choice and competition in the Canadian auto market - in fact our market is one of the most open in the world.

More important, workers are also consumers. Taking away their jobs hardly helps them buy more goods.

We've had freer trade in the total economy for almost a decade now....has it helped your living standard?

"Every [domestic] auto is better than any import because it contains features you can't get on any import - schools, crime prevention, roads, bridges, defense, health care, social security, etc."

Business Week

So How Bad Is This ?

The end result of this is unclear. But there are three main concerns that suggest we better watch what we're doing.

First, if the Japanese companies can bring cars and parts in cheaper, this may help them increase their market share at the expense of the Big Three. Since the Big Three provide so many more jobs per vehicle sold, encouraging more Japanese sales doesn't sound like a very positive way to deal with Canadian unemployment.

Relative to their market, for every job the Japanese-based companies provide, the Big Three provide well over four.

For every job in auto assembly, there are another 3 jobs created in the economy: 2 jobs in industries that supply goods and services, and an additional job as the workers hired spend their income.

 

Global market 50 M *
Global capacity 68 M
Excess capacity 18 M (75 assembly plants)
Excess projected (2001) 22 M (90 assembly plants)

* M = 1million vehicles

Second, the issue isn't just the Japanese companies. South Korea, for example, with a domestic market of 1.5 million units is moving towards producing 6 million units. The excess is for export and we don't want to risk becoming a dumping ground for such vehicles.

Globally, excess capacity by the turn of the century is projected to reach 18-22 million - the equivalent of 75-90 assembly plants. Not a great time to initiate a further opening up of our own market.

Third, Canadian auto policy has always been based on regulating trade.

The tariff is now, however, the only lever we have left.

Before we give it up, we should have a pretty clear sense of the benefits to our industry of doing so... In this case, there are no benefits, only costs.

Won't The Next Round Of International Trade Negotiations Get Rid Of Our Tariff Anyway ?

There may be plans to reduce it or even get rid of it entirely. But why would we do it without even getting something in return? And why not send a message to the government now so that they won't get rid of the tariff in those negotiations?

So What Can We Do About This ?

The first step is getting our members informed and concerned. If they won't fight for their own jobs, no-one else will either.

The second is letting the community know about the possible negative implications of what the government is considering. This pamphlet launches that campaign to get the message to our members, to our communities, and to the government.

We already confront enough job insecurity... from economic restructuring, slow growth, excess capacity, a growing deficit with Mexico. the last thing we need is this additional threat.

Backgrounder on Tariffs

The Canada-U.S. Autopact allowed companies to bring parts and vehicles from anywhere in the world into Canada without any tariff (import tax) - but there was a condition. They had to have a certain level of commitments to jobs and investments in Canada to qualify.

When Canada entered into the FTA (Canada-U.S. Free Trade Agreement) and NAFTA (North American Free Trade Agreement), the Auto Pact was eroded. The result was that any company that had a significant presence somewhere in North America, could bring parts and vehicles from the U.S. and Mexico into Canada.

Although weakened, the Auto Pact still had some bite because the tariff still applied to parts and vehicles coming in from overseas. For example, cars from South Korea or parts from Japan currently pay a tariff of 7.3% (cars) and 0 - 2.3% (depending on the kind of part).

Now the federal government is considering dropping these tariffs entirely and essentially killing what is left of the Auto Pact.