Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Canada's Auto Industry & Auto Parts Industry Concerned About Korea FTA

On February 18, 2011, Canada's auto industry met with Canada's Industry Minister about the Canada-Korea FTA negotiations. The meeting included representatives from five automobile manufacturers in Canada and representatives from affected labour unions.

The following representatives were in attendance:

  • Chrysler Canada president Reid Bigland,
  • Ford president David Mondragon
  • Magna International Inc. CEO Don Walker
  • Ken Lewenza, CAW president
  • Sandra Pupatello, Ontario minister of economic development and trade

The Canadian auto industry is asking Canada to not sign a free trade agreement with Korea at this time. According to the Montreal Gazette, the top three issues are:

1) Controlled/Staged Tariff Reductions in Canada: The Canadian auto manufacturers would like the Canadian government to ensure tariffs are not immediately lifted by Canada (even though the immediate lifting of tariffs in Korea would be welcomed). The Canadian industry will need time to adjust to the decreases in cost of vehicles manufactured in Korea. Staged reductions in tariffs would allow for staged adjustments and would reduce the need for reactionary steps by the Canadian industry.

2) Improved Market Access: Korean vehicles (Kia and Hyundia) currently are imported into Canada in large numbers; however, vehicles manufactured in Canada are not imported into Korea in relevant numbers. As a result, the Canadian auto manufacturers would like the Canadian government to ensure that Canadian export numbers will match the Korean import numbers.

3) Reduction in Non-Tariff Barriers/Technical Barriers to Trade: Canadian auto manufacturers want the Canadian government to negotiate free trade agreement provisions to ensure that punitive regulations are not imposed relating to imports of Canadian vehicles. A non-tariff barrier is a law, regulation, policy, rule or other governmental measure that disadvantages the imported goods at the border. A technical barrier to trade is a law, regulation, policy, rule or other governmental measure that disadvantages the imported goods in the marketplace.

To read the Montreal Gazette article (which I have expanded upon in my discussion above), please go to the following link - http://www.montrealgazette.com/business/Free+trade+worries+automotive+leaders/4313228/story.html

See also - http://www.nationalpost.com/news/canada/Hyundai+unstoppable/4312032/story.html

http://www.windsorstar.com/business/Free+trade+loonie+worry+auto+leaders/4312489/story.html

The Canadian auto parts manufacturers also have serious rules of origin concerns. These concerns are complex and involve concern of trade diversion that may result from a Canada-Korea FTA. Currently, Canadian automobile manufacturers must abide by NAFTA rules of origin and regional value content requirements. In complying with the NAFTA rules of origin, the Canadian manufacturers pick significant assemblies and ensure that the rules of origin are satisfied (because North American made large assemblies help the auto manufacturers meet the NAFTA rules of origin requirements on vehicles as a whole). Once Canada enters the Canada-Korea free trade agreement and the Canada-EU CETA, the auto manufacturers will have other significant sources of auto parts. There is a risk of diversion from Canadian auto parts manufacturers to Korean and European auto parts manufacturers (bigger concern may be Korean auto parts manufacturers).

What I have learned from the application of the NAFTA textile rules of origin is that once a manufacturer of a finished goods (in the auto industry, that would be the OEM) cannot meet the NAFTA rules of origin, there is no incentive to use domestic inputs. Translated into the auto sector, once an OEM cannot meet the NAFTA rules of origin, then there will be an incentive to use as many Korean imported auto parts and a disincentive to continue to buy North American auto parts. As a result, new free trade agreements with countries/unions that have strong auto sectors may upset the auto parts cart.

For more information, please contact Cyndee Todgham Cherniak (416-307-4168). Cyndee is a trade lawyer in Canada and an adjunct law professor at Case Western Reserve University School of Law teaching a course on NAFTA and bilateral trading arrangements. Also, Cyndee's Grandfather, Ronald Walter Todgham, was President of Chrysler Canada and an architect of the North American Auto Pact.

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