Québec Droite

Cahier spécial : A policy vision to escape the race to the bottom

Auto investment, supply chains, and marketing strategies have all become intensively globalized in recent decades – like many other sectors of our economy. Major automakers all oversee global operations, and run their businesses with a global strategic outlook. They allocate investment, design models, and organize supply chains on the basis of conditions and developments in the various locations where they operate.

Canada-U.S. Auto Pact

The international orientation of Canada’s auto industry was cemented in 1965 with the implementation of the Canada-U.S. Auto Pact. This visionary trade agreement eliminated tariffs on bilateral trade in finished vehicles and components between the two countries (for companies which opted to participate in the arrangement).

But it was not a “free trade” agreement,
in which tariff-free access would be granted unconditionally.

Rather, to qualify under the Auto Pact each participating manufacturer needed to meet Canadian content and value-added targets, thus ensuring that the Canadian industry retained its proportionate footprint as a new, integrated continental auto industry emerged.

The Auto Pact was enormously successful, and laid the groundwork for a subsequent 35 years of expansion and prosperity for the Canadian auto industry.

World Trade Organization

In 1999, however, the World Trade Organization first ruled (following a complaint from Japanese automakers) that the Auto Pact violated commitments to “national treatment” made when Canada joined the WTO as a founding member in 1995. (In retrospect it is odd that Canadian officials did not seem to contemplate this important implication of Canada’s membership in the new WTO – or, if they did, their concernswere never communicated to the public.) After a half hearted appeal, the Canadian government went along with the ruling and the Auto Pact was dismantled in 2001.

Nevertheless, the CAW warned at the time that the elimination of even these residual targets for Canadian content would have major long-run implications for the Canadian auto industry, by removing one of the few remaining levers with which government policy could influence investment location.

Trade Balance

Sadly, we were proven correct in this regard: no sooner had the Auto Pact been formally abolished in 2001 than Canada’s industry began turning downward. A crucial dimension of the subsequent decline has been the utter reversal of a once proud international trade success. Today Canada carries much less than its weight in global auto production, evidenced by a large and chronic deficit in our automotive trade.

Figure 5 illustrates Canada’s overall automotive trade balance, including both finished vehicles and components. This overall balance reflects the compilation of offsetting sub-balances. The aggregate trade surplus evaporated, undermined by both a diminished trade balance with the U.S., and soaring deficits with other trading partners. The overall balance first slipped into deficit in 2006.

Last year the automotive trade deficit reached an all-time record of $15.6 billion. Based on the average job content reflected in a billion dollars of automotive shipments (representing a proportionate blend of finished vehicles and parts), that trade deficit corresponds to the loss of some 23,000 jobs.

Figure 6 provides more detail regarding the composition of that large overall automotive trade deficit. We maintain a bilateral surplus in automotive products with the U.S. (which was worth just under $6 billion in 2011).

This bilateral surplus is small relative to the enormous two-way trade in automotive products between the two countries (worth almost $100 billion in 2011).

But this success in two-way trade with our neighbour is swamped, now, by very large deficits with all other major auto-producing jurisdictions – and these deficits overwhelmingly reflect largely one-way flows (with hardly any exports from Canada to offset growing imports from our partners).

Mexico

Canada’s largest single bilateral automotive trade deficit, however, is now with Mexico: reflecting the accelerating southward migration of manufacturing investment to that jurisdiction.

Companies are continuing to exploit the opportunities provided them under the NAFTA to manufacture products there with ultra-low-cost labour, and then sell the output without tariff anywhere else in North America.

The growing concentration of manufacturing activity in Mexico, and Mexico’s modest purchases back from Canada, throws into severe question the standard assumption that Canadians are benefiting from NAFTA.

Même situation dans l’industrie aéronautique.

Tables des matières

1.       A policy vision to escape the race to the bottom

Summary :

Global pressures on the industry are more severe all the time

Impacts of a Canadian dollar

we must adopt a new approach

2.       Decline in auto manufacturing employment in Canada

To Hell and Back – Canada’s Auto Industry After the Crisis

Industrialized countries experienced a decline

Preventing plant closures

Government intervention

3.       Automotive trade deficit reached an all-time record of $15.6 billion

Auto  Industry - Free Trade

Canada-U.S. Auto Pact

World Trade Organization

Trade Balance

Mexico

4.       CANADIAN Petro-Dollar

CANADIAN Petro-Dollar

5.       Race to the bottom

Race to the bottom

Donc, à qui profite la mondialisation ?

Les gagnants

6.       Productivity, Investment and Technology

Productivity, Investment and Technology

Productivity

Investment and Technology

7.       Center of gravity is clearly shifting south

Re-thinking Canada’s : A New Policy Vision

And it won’t stop there

We do not accept this grim scenario as natural, efficient, or inevitable.

8.       Free trade theories failures

Re-think Trade Policy

With every other trading partner

Optimistic predictions of the free trade theories failures

Canadian trade negotiators have a responsibility

9.       The Bank’s power to bring down the dollar is unquestioned

Intervene to Reduce the Canadian Dollar Exchange Rate (1)

Canadian dollar r far above value

Theory freely floating exchange failures

Bank of Canada interventions.

10.    Restrict foreign resource takeovers

Intervene to Reduce the Canadian Dollar Exchange Rate (2)

Slowing down resource developments (especially in the oil sands)

Preventing foreign takeovers of Canadian resource assets

11.    Canada back is a lack of political creativity

Conclusion

Willingness by policymakers to play an active role.