The success of Canada’s highly integrated automotive industry which has brought unparalleled economic benefits across the country has been underpinned by the North American Free Trade Agreement (NAFTA).
Renegotiation of the North American Free Trade Agreement (NAFTA):
CVMA recommends that the Canadian government adopt an approach that preserves NAFTA provisions which support the long term competitiveness of the auto sector and leverages the existing, deep integration of the North America’s supply chain to drive additional economic growth and job creation in Canada. As the next chapter in the NAFTA unfolds, CVMA and its member companies are committed to working with Canada’s negotiators and providing specific recommendations to ensure the long term competitiveness of the auto sector.
A negotiated and modern NAFTA must:
- Recognize and promote harmonized North American automotive standards;
- Further strengthen our shared border infrastructure, customs clearance and logistics advantage;
- Add strong and enforceable currency manipulation disciplines. The U.S., Canada, and Mexico have not manipulated their currencies, but strong and enforceable currency manipulation disciplines established in NAFTA would set an important precedent and establish a platform for collaboration in opposition to other countries that use currency manipulation as an unfair trade practice to advantage their domestic industry exporting vehicles to North America;
- Update labor & environmental provisions to reflect a strong commitment to maintain a level playing field with parties to the agreement and ensure fair trade with other automotive trade blocs;
- Must retain NAFTA’s current 62.5% rule of origin for vehicles is already the highest in any US trade agreement and avoid disruption of the North American auto trade logistics or auto jobs with higher tariffs, taxes or regulations. Displacing select Mexican auto part imports with Asian alternatives (parts enter NA duty free) does not strengthen North America competitiveness or jobs; and,
- Foster the NAFTA region as a global leader in new automotive technology development to grow employment and strengthen regional competitiveness versus other auto trade blocs.
The CVMA and its U.S. counterpart, the American Automotive Policy Council (AAPC), along with our respective member companies are all focused on enhancing and improving the competitiveness of the North American region and the important tri-lateral automotive trade relationship within NAFTA.
The North American auto sector is competitive globally when it functions as a highly integrated, seamless single sector within North America. As a result, our recommendations to Canada for the modernization of NAFTA are aligned with recommendations made by our colleagues in other NAFTA countries.
Benefits of the North American Free Trade Agreement
Much has changed in the global and North American economies in the more than 23 years since NAFTA was first negotiated. The potential opportunity for modernization and improvement exists, while retaining aspects of the agreement that have benefited Canadian vehicle manufacturers, their parts suppliers and their workers. The benefits of NAFTA are clear and they are significant for automotive and related jobs in each of the NAFTA countries.
The North American auto sector began to integrate into one common sector for the production of automotive vehicles and parts under the 1965 Canada-U.S. Auto Pact, which laid the basis for the subsequent Canada-U.S. Free Trade Agreement (“CAFTA”) and ultimately, NAFTA. Today, the three NAFTA countries build vehicles seamlessly across the borders resulting in a more competitive North American trade block. Canada, Mexico and the United States produced more than 17.8 million light vehicles in 2016 and operate in a highly integrated NAFTA light vehicle market of 20 million units.
In more than two decades since the implementation of NAFTA, the North American economy has expanded, with the combined GDP for Canada, the U.S. and Mexico reaching $20.7 trillion in 2015. Canada is dependent on exporting outside of its own borders, with domestic consumption of just 12% of the vehicles it manufactures within its borders.
NAFTA provides Canada with duty-free access to the U.S. and Mexican automotive markets. Parts and components may cross the NAFTA countries’ borders as many as 8 times before being installed in a final assembly plant in one of the 3 partner countries.
Additionally, NAFTA’s current Automotive Annex sets out a framework of trade rules that respects and reflects the deeply integrated and highly efficient supply chain between Mexico, the United States and Canada.
Auto-related trade between Canada and the U.S. is largely balanced given the high level of U.S. content in Canadian assembled vehicles. In fact, 75% of the value of U.S. automotive parts exports are shipped to NAFTA partners (split roughly evenly between Canada and Mexico; Canada represented the largest export market representing $22 Billion in parts value exported from the U.S.).
NAFTA duty-free access and the associated 62.5 percent minimum regional value content requirement – the highest of any Canadian trade agreement and possibly any trade agreement in the world — promotes the free flow of vehicles and parts across the borders of the three NAFTA partners (U.S., Canada and Mexico). Any changes that are likely to disrupt that established framework will inevitably lead to the reduction of the massive benefits that the integration of the North American automotive sector has afforded the auto industry in the three countries, impairing the sector’s global competitiveness with commensurate losses in high skilled jobs and a stifling of economic growth overall.