Canadian Manufacturing

Canada and Europe hash out resolution for auto trade: leaked documents

Rules of origin a sticking point for Canadian manufacturers and parts suppliers

OTTAWA—Leaked documents on the free-trade talks between Canada and Europe suggest the two sides have the bare bones for an agreement in the troublesome field of automotive.

The Canadian Press has obtained a European list of outstanding issues on rules of origin, which have long been a barrier to a final Canada-EU free trade agreement (CETA).

 The list includes a proposed short-term solution for the auto sector, giving Canada a quota of cars that it could ship and sell to Europe with no penalty.

But a longer-term solution that would limit foreign content in Canadian cars to 40 per cent would be dependent on talks with the United States about how to count American auto parts in vehicles shipped from Canada.

 The 40 per cent limit on foreign content would not include US content in Canadian-made cars—a recognition of the deeply integrated Canada-US market.

Europe generally requires 60 per cent or more local content for automotive products—nearly impossible for Canadian companies to satisfy.

“We have to negotiate our way through that issue but at the end of the day I think it’s going to open up markets in Europe for Canadian companies,” said Jayson Myers, president and chief economist of Canadian Manufacturers & Exporters (CME).

“The other part of it of course, is labour mobility…[CETA] is going to help manufacturers bring in some highly skilled technical people from Europe, and will also enable manufacturers from Canada to take highly skilled technical employees and work on projects in Europe.”

Canadian automotive suppliers are optimistic about CETA, though they’re not expecting a dramatic increase in exports to Europe in the short term, added Steve Rodgers, president of the Automotive Parts Manufacturers’ Association (APMA) in Toronto.

“One of the problems we do face as auto parts suppliers in Canada is we have become heavily integrated [with the US], as a result of the NAFTA agreement,” said Rodgers.

Like other free trade agreements though, CETA will make automotive companies more competitive and encourage global expansion, he added.

The APMA hopes an increase in Canadian sales of European vehicles will translate into supply opportunities for domestic parts manufacturers.

“It’s about just-in-time and generally, parts suppliers want components that come locally,” he said.

As of now though, the only European automotive OEM operating in Canada is Fiat, through its partnership with Chrysler. The Lancia Theme is assembled at Chrysler’s Brampton, Ont. facility.

Aside from that, Canadian tier one and two automotive suppliers have been accessing European OEMs via their operations in the US and Mexico.

For instance, Canadian firms supply about $62 million to the Volkswagen facility in Chattanooga, Tenn., Rodgers said.

Automotive imports from the EU continue to increase, far exceeding Canadian automotive exports to its second-largest trading partner, according to the CME.

“Just because we don’t export a lot of cars to Europe today doesn’t mean we won’t 10 years from now,” added Jean-Michel Laurin, vice-president of global business policy at CME.

“That’s why this chapter is so important. Renegotiating trade agreements doesn’t happen very often—it tends to never happen. So the point is we have to get it right the first time.”

The Canada-EU trade talks are in their final stages, with arrangements on beef, pork, procurement, financial services and pharmaceuticals still to be worked out.

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