Strategic Automotive Policy

For a small country, Canada benefits immensely from a disproportionately large and successful auto industry. We assemble substantially more new motor vehicles in Canada than we purchase here, and we enjoy a large trade surplus in automotive products.

Moreover, the unique economic features of the auto industry have ensured that its success has sparked growth and development in a range of other related industries – both the "upstream" industries that supply vehicle and parts-makers with a myriad of supplies and services, and the "downstream" industries that are stimulated by the incomes generated by the auto industry. The success of the auto industry has also generated major fiscal benefits for Canadian governments, stimulating billions of dollars annually in tax revenues.

Canada’s successful automotive industry is not an accident of history, nor some automatic or natural result of our national economic endowments. Rather, active public policy in the form of managed trade with the United States under the 1965 Automotive Products Trade Agreement (known as the "Auto Pact") played a crucial historical role in developing our large and productive auto sector (see Automotive Trade). The Auto Pact, essentially created sectoral free trade allowing automotive products, both finished vehicles and parts, to move duty free across the Canada-U.S. border, provided certain conditions were met. Economic and business realities have resulted in an automotive sector that has become truly global in nature.

The need to re-focus the attention of both federal and provincial governments on the automotive industry became apparent after the dismantling of the Canada U.S. Automotive Products Trade Agreement in 2001, that had underpinned automotive investment and trade policy in Canada since the mid-1960’s. Additionally, the announced closures of Western Star Trucks (Kelowna – 2001), Thomas Built Bus Assembly Plant (St. Thomas – 2001), GM Broisbriand Assembly Plant (Ste. Therese – 2002), DaimlerChrysler Pillette Assembly Plant (Windsor – 2003), International Truck and Engine Corporation Assembly Plant (Chatham – 2003) and Ford’s Ontario Truck Plant (Oakville – 2004) represent 6,000 high wage and high skill jobs lost, without any commensurate "greenfield" investment. This raised the level of concern and in 2002, the CVMA member companies’ called for a new automotive policy framework from government, industry leaders, industry observers, academics and union representatives.

Both the federal and Ontario governments responded. The Canadian Automotive Partnership Council (CAPC) was established by the Minister of Industry on June 26th, 2002 after convening a National Forum on Automotive Innovation and Investment. Reminiscent of the Automotive Advisory Committee (AAC) that was established in the late 1980’s to provide advice to the Minister on matters affecting this strategic sector, the CAPC membership is comprised of chief executive officers of Canada’s automotive assemblers and leading parts manufacturers, the Canadian Auto Workers (CAW), representatives from automobile dealers and the automotive aftermarket, academia and the economic development Ministers of Canada, Ontario and Quebec. The mandate of the Council is to identify actions to strengthen the Canadian automotive industry in the short and long term.

The more detailed mandate is as follows:

	To identify and prioritize actions needed to strengthen the Canadian automotive industry in the short and long term
	To identify the key issues and objectives in relation to the competitiveness of the industry
	To identify opportunities for future innovation and investment in the automotive industry, and to establish priorities and approaches for addressing them
	To establish objectives for the Council and to issue an annual report card on its progress towards these objectives
	To review an annual report by governments on Canada’s automotive industry performance and world-wide industry trends

Six working groups have been established under the auspices of the CAPC which reflect what the industry believes are the "key pillars" for a new automotive policy framework. These working groups are:

	Fiscal and Investment Policy
	Human Resources
	Innovation
	Trade Infrastructure
	Regulatory Harmonization
	Sustainability (formerly, Kyoto Working Group)

Each of these working groups meet several times over the course of the year pursuant to the direction provided to them by the Co-Chairs Michael Grimaldi, President, General Motors of Canada Limited and Don Walker, President and CEO, Intier Automotive Inc. The reports of the CAPC working groups are available at http://www.strategis.ic.gc.ca/autoe.

In December 2002, the Council received recommendations from each of the working groups, many of which found their way into a pre-budget letter sent by the Co-Chairs to the federal, Ontario and Quebec finance ministers.

CAPC Key Pre-Budget Recommendations:

	Eliminate the federal Corporations Tax and provincial capital taxes
	Establish an investment tax credit to encourage investment in new manufacturing machinery and equipment
	Continue to expand the manufacturing and processing deduction to reduce the effective federal and provincial tax rates and to gain a competitive edge in NAFTA
	Target funds to assist in automotive innovation to encourage the industry to increase research and development (R&D) in Canada
	Establish an Early Commercialization Investment Tax Credit, stackable on top of other assistance for early modules of production of a new technology to attract advanced technology production opportunities to Canada
	Enhance definitions of eligible automotive activities for SR&ED credits to encourage automotive product development and manufacturing process innovations
	Fund infrastructure improvements for new auto manufacturing locations, as well as any upgrades that may be necessary to service existing manufacturing facilities
	Provide fiscal incentives for environmental investments in facilities that will result in reductions to emissions from manufacturing facilities and/or remediation of existing properties

At its recent meeting (November 2003), the CAPC's working groups identified additional priorities for the Canadian automotive industry including the need for greater flexibility and coordination in government automotive investment programs, resolution of uncoordinated regulatory initiatives, further tax changes to encourage industry-driven research and development, innovation, investment and more urgent implementation of border crossing improvements. The Council is also considering a longer-term vision that would focus on several key attributes of the industry, as well as potential goals relating to the assembly and parts industries, investment, employment, innovation, sustainability and the regulatory environment.

CVMA and its member companies are committed to the success of the CAPC and look forward to the achievement of its goals in the formation of the new strategic automotive policy for Canada.