Free trade and the auto industry

NAFTA-style free trade agreements can only hurt Canada’s already-poor automotive industry, a new report says.

The single-minded pursuit of free trade agreements modelled on the NAFTA template can only make Canada’s already-poor auto trade predicament even worse, claims Jim Stanford, economist at Unifor, in a report titled Canada’s Auto Industry and the New Free Trade Agreements, published by the Canadian Centre for Policy Alternatives, in Ottawa.

Stanford notes that the NAFTA template features full market access, no requirements for proportional domestic content, and no link to future investments decisions. If applied to free trade agreements with Europe, Japan and Korea, this template would cement and exacerbate existing bilateral imbalances with each of these trading partners, incrementally undermine Canadian automotive production and entail severe consequences for future investment decisions by original equipment manufacturers (OEMs).

The overarching fact of Canada’s automotive industry, says the report, is that it is 100% dependent on decisions by OEMs based in other countries to establish and maintain production facilities here. That fact should tailor Canada’s trade policy to enhance the incentive for OEMs to maintain and expand their operations in Canada.

Such a positive impact is dearly required, Stanford says. The automotive trade peaked in 1999, generating a surplus of $14 billion. It’s been downhill ever since, the sector registering a record deficit of $ 18 billion in 2013. In 2006, for the first time, imports surpassed exports and continued to decline, Canadians consuming more automotive value-added than they produced.

"This painful reality should be front of mind for Canada’s trade negotiators", says Stanford. "Trade policy should not be motivated by a naïve faith that liberalization will automatically lift all boats. Rather, trade negotiators should be focused on using trade policy deliberately to enhance domestic investments."