In a recent article in, The Japan Times, details about Ford’s decision to move out of the Japanese market was discussed. Poor market conditions were the main reason for the decision along with a bleak economic outlook. With the signing of the new TPP deal, of which Japan is a part of, Ford foresaw even tougher competition in its already uphill battle with domestic automobile manufacturers. Last year Ford only sold 5,000 cars in Japan. What negative results will Japan see with Ford pulling out of the automobile market? Where else may Ford be able to get a foothold in Asia? How does this affect Ford’s business going forward?
Canada and Mexico are looking for a compromise on auto-sector rules in TPP as they try to bridge the gap with Japan. Seeking these changes would boost their domestic content requirement for the most sophisticated of car parts. The TPP deal would eclipse the North American free-trade agreement in importance and reduce the level of domestically made auto parts in vehicles sold in Canada but also boost the access granted to Japan.
Canada and Mexico were very disappointed in the Maui meeting where Japan and US struck a deal to lower domestic content. In Atlanta, the Japanese agreed to raise it to 35% from 30 of the parts to be made locally under TPP. The United States and Japan are the biggest players in the TPP.
Sources familiar with the TPP talks say Ottawa has secured the removal of tariffs of as high as 5 per cent that other TPP countries currently apply to Canadian aerospace goods, such as engine aircraft parts shipped to Australia or aircraft seats sold to New Zealand. Canada has also obtained a commitment by other TPP countries to strike tariffs, again as much as 5 per cent of which is slapped onto Canadian manufactured goods such as medical, surgical or laboratory machinery.
Canada is at the center of two major obstacles that have delayed the final agreement including dairy and most importantly autos. An agreement will almost certainly expose the Canadian auto-parts sector, which employs 80,000 people, to far more foreign competition and erode the preferential position that the industry enjoys under NAFTA.
It will also open up Canada’s dairy industry, currently protected by high tariffs, to significantly more foreign imports. Canadian beef, pork and canola producers are big winners in the final TPP deal because the agreement as drafted has significantly lower barriers to selling products in Japan.
Read more: http://www.theglobeandmail.com/news/politics/trade-minister-ed-fast-at-atlanta-meetings-pushing-for-trans-pacific-partnership-deal/article26597742/
An article in Business Canada (October 5, 2015) titled “Trans-Pacific Partnership Could Devastate Industry, Brampton Auto-Worker Warns” (http://www.huffingtonpost.ca/2015/10/05/trans-pacific-partnership-could-devastate-industry-brampton-auto-worker-warns_n_8248252.html) describes the impact of the TPP on the Canadian Auto industry. The deal could phase out the 6.1% tariff on imported vehicles after reducing the percentage of North American content needed in order to remain the cars duty free. The agreement supports that the Canada’s automotive sector is an export-based industry that will be boosted through the access in global markets. Ontario is concerned that the agreement will expose the auto concessions to a stiffer global competition, potentially impacting the jobs and livelihoods of the Canadians. By how much will the Canadian unemployment rate increase after the implementation of this decision?
An article in Business (October 4, 2015) titled “Trans-Pacific Partnership Agreement: How it could affect Canada’s Auto, Dairy Sectors” (http://www.huffingtonpost.ca/2015/10/04/trans-pacific-partnership-agreement_n_8241614.html) describes the most sensitive issues for Canada’s auto and dairy industries in regards to the TPP agreement. Currently under NAFTA an auto part needs to contain 60% of North American content to remain duty free. Through the TPP Japan is pushing for only 30% to guarantee a tariff free movement of vehicles and auto parts across the TPP members. This proposal may cause Canadian auto parts makers to lose business to low-cost Asian producers that aren’t part of the TPP such as China and Vietnam. Also experts of the University of Windsor predict that 10,000’s of jobs in the auto sector could be at stake in Canada due to the TPP. How will Canada compensate for the unemployment rate that might increase due to the TPP agreement? What may be the optimal percentage for Canada of North American content in the auto parts industry to guarantee an internal economic equilibrium in this sector?