Driving the Partnership Forward

David Worts on why eliminating the tariff on auto imports from Japan to Canada will be good for both countries.
By: /
April 30, 2013
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Canadian trade with Japan exceeds $25 billion a year and is a major driver of economic prosperity in both countries. This is due in large part to a number of bilateral initiatives over the years that were established to facilitate trade and investment.

But our two-way trade has begun to stall.  While overall global trade continues to grow, Canada-Japan trade has remained fairly stable over the past five years. That’s why it’s more important than ever for the Canadian and Japanese governments – and the private sector – to engage in a broader dialogue in order to deepen and strengthen the Canada-Japan economic and trade partnership.

Motor vehicles and auto parts represent about a quarter of total bilateral trade between Canada and Japan.  It’s no surprise then that the Japan Automobile Manufacturers Association of Canada enthusiastically supports efforts to negotiate and ratify a Canada-Japan Economic Partnership Agreement. A Canada-Japan EPA will not only deepen our bilateral commercial relationship by addressing current impediments to trade and investment, it will also create an impetus for collaborative opportunities between Canadian and Japanese business in other markets in Asia and around the world.

Japanese automakers began selling their cars in Canada in 1965. As an expansion into a new foreign market, it started modestly with a handful of employees at a couple of companies, distributing and selling a few vehicles made in Japan. But it didn’t stay modest. After a total investment of more than $9 billion in Canada and the opening of several automobile manufacturing facilities and parts plants, Japanese automakers have become an integral part of Canada’s economic and social fabric.

More than 69,000 Canadians in every province and the Yukon are directly or indirectly employed in the manufacture, export, import, distribution, sales or service of Japanese vehicles and parts in Canada. There are also more than 1,250 dealerships across Canada selling and servicing Japanese automobiles, and over 50 Japanese parts-related plants supplying Japanese and non-Japanese manufacturers in Canada and elsewhere.

Honda was the first Japanese automaker to make cars in Canada, opening an assembly plant in Alliston, Ontario in 1986. Toyota soon followed, with its first assembly plant in Cambridge, Ontario two years later. Since then, there have been many expansions of these plants, additional plants have been built and new manufacturers have set up shop here, bringing the combined production capacity of Japanese automakers in Canada to 890,000 per year, or almost 40 per cent of all light vehicle production in Canada.

Many of these vehicles made in Canada are exported, primarily to the United States, but also to other countries around the world.  Since 1993, Japanese automakers have been net exporters of vehicles from Canada. In 2012, Canada exported almost four times as many Japanese vehicles as it imported from Japan. And over the past 20 years, Japanese automakers have exported over three million more vehicles than we have imported from Japan and other countries.

This creates jobs and wealth in Canada and contributes significantly to Canada’s balance of trade.

There are many reasons for the success of Japanese automakers in Canada, one of which is we build a full range of high-quality vehicles for all price ranges with the kind of advanced technology and fuel efficiency that customers demand. But there’s another very important factor: liberalized trade.

The North American auto industry has become highly integrated thanks to a number of trade agreements since the 1960s.  These have created economic benefits for consumers and automakers on both sides of the border. It started with the Canada-U.S. Auto Pact in 1965 – which, coincidentally, was the same year Japanese cars were first sold in Canada – and has since been followed by the Canada-U.S. Free Trade Agreement in 1989 and the North American Free Trade Agreement in 1994.

As a result of that North American integration and strong consumer demand for Japanese automobiles, it made good economic sense for Japanese automakers to establish manufacturing plants in North America. Today, those plants build many of the high-volume vehicles – such as the Civic, Corolla, Accord, Camry, Altima and Sentra – as well as larger vans, SUVs and trucks. The result is that two out of every three Japanese vehicles sold in Canada are made right here in North America.

So what about the other third of Japanese vehicles sold in Canada?

Our members still rely on imports from Japan to meet a wide range of transportation needs for our Canadian customers.  These include some of our most technologically advanced vehicles, including several alternative energy and next-generation ones. These are the types of environmentally friendly vehicles that Canadians increasingly want to buy.

But the 6.1% tariff that Canada imposes on all imported vehicles from Japan means they’re all more expensive for Canadian consumers than they need to be. 

Canada’s tariff is almost two-and-a-half times higher than the one imposed by the United States on imports of passenger vehicles. And it’s unilateral: Japan doesn’t impose import tariffs on either vehicles or parts shipped from Canada to Japan.

The auto tariff on imports is bad for several reasons.  It limits the potential for importing new, advanced-technology, eco-friendly vehicles, as well as other popular vehicles currently made only in Japan, by unnecessarily adding non-manufacturing costs for Canadian consumers. This reduces consumer choice and affects employment at dealerships across Canada that sell and service Japanese vehicles.

Canada’s 6.1% tariff also adds the cost and administrative burden of tariffs and other regulation on Japanese automakers at a time when global competition is intensifying and automakers are looking for ways to reduce costs in order to boost sales and preserve jobs.

That’s why JAMA Canada and its member companies support a Canada-Japan Economic Partnership Agreement. An EPA would reduce tariffs and add further impetus to opening up new business between Canada and Japan and would help to expand trade, investment, jobs and advanced technology in various sectors, including the automotive sector.

It’s not just the auto sector that would benefit from a Canada-Japan EPA. A joint study by the governments of Canada and Japan has concluded that gains from bilateral trade would increase significantly for both countries under a Canada-Japan EPA.  For Canada, the joint study estimated that GDP gains would be between US$3.8 billion and US$9 billion, while for Japan the gains would be between US$4.4 billion and US$4.9 billion.

Those are gains of between US$8.2 billion and US$13.9 billion dollars, on top of the current two-way merchandise trade of more than US$25 billion a year.

In the words of the study’s authors:  “An EPA would not only foster trade in goods and services, but also enhance investment opportunities, thereby improving the competitiveness of both Japanese and Canadian companies in each other’s market and vis-à-vis competitors from other countries already benefiting from preferential treatment.”

The steady growth of the Japanese auto industry in Canada over the past 25 years and the now expanding Canadian automotive presence in Japan has begun to add depth to the range of mutual benefits. Two decades of industrial cooperation and investment in Canada has opened up business opportunities, technology transfer and Canadian parts investment in Japan, including local sales and engineering offices of several large Canadian auto parts manufacturers.

With Canada in the midst of an ambitious round of negotiations for trade agreements with more than 50 countries and regions, it’s critically important that there be a level playing field among all these agreements to ensure all companies are treated in a fair and balanced manner.

Any free trade agreements that reduce or remove the 6.1% tariff only on vehicles from other jurisdictions – such as the European Union or South Korea, both of which are significant producers and exporters of automobiles – would have an immediate and direct effect on Japanese automakers in Canada – and on Canadian consumers who want to buy the cars we make and on the tens of thousands of people who have highly skilled, well-paid jobs because we make, export, import, sell and service those cars.

The easiest way to protect those benefits – and to enhance them – is to negotiate and ratify a Canada-Japan Economic Partnership Agreement that would maintain equivalent tariff treatment for all automakers in the Canadian market.

The long-term partnership between Japanese automakers and Canada has grown stronger as the relationship has deepened.  It’s a partnership that can become even stronger with a Canada-Japan EPA, through more liberalized trade and investment rules, as well as enhanced intellectual property rights and more consumer benefits through diversified market choices.

In short, it is simply the right thing to do – so let’s get it done.

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