March 12, 2014 – 8:00 am ET
TORONTO (Reuters) — A new free of charge trade agreement with South Korea will throw a wrench into Canada’;s automobile sector recovery, union leaders and an automaker warned on Tuesday, highlighting the strain on an business already struggling with competitors from Mexico.
The pact, which quickly drew fire from Ford Motor Co. of Canada Ltd. and Canada’;s biggest private-sector union, underscores issues with the dimension and cost of automobiles becoming developed in the country’;s industrial heartland, experts stated.
“We do not, in Canada, construct the sort of automobiles that are a lot in demand in South Korea,” mentioned Tony Faria, a University of Windsor professor and auto market specialist. “It’;s not as if any trade deal we set up with South Korea is automatically going to outcome in more automobiles being exported.”
Canada and South Korea said earlier on Tuesday they had wrapped up talks on a lengthy-delayed totally free trade deal, Canada’;s 1st in fast-increasing Asia. Canada’;s Conservative government touted the advantages of the deal, which it expects to increase exports by 32 %, equivalent to C$ one.7 billion ($ one.53 billion) a yr.
But Unifor, a union representing more than 39,000 staff in the country’;s car sector, estimates that 33,000 manufacturing jobs in Canada could be lost from the pact, like up to 4,000 auto assembly and parts jobs.
“I would not say it truly is the death of the market, but it really is yet another nail (in the coffin),” stated Jerry Dias, Unifor’;s nationwide president.
The federal government pointed to a 2012 study prepared by a University of Toronto professor for the Department of Foreign Affairs, Trade and Development, which concluded the elimination of the tariff on autos imported from South Korea would have only a modest affect on domestic production, cutting output by just more than 4,000 automobiles.
In 2013, the automobile sector employed 117,200 people in Canada, according to Statistics Canada. Some 96,700 of those jobs, or nearly 83 %, have been in Ontario, the most populous province.
Ford Canada CEO Dianne Craig was also harsh in her view of the deal.
“No Canadian producer can compete with a market place controlled by non-tariff barriers and currency manipulation. The trade agreement negotiated by the Canadian government with South Korea fails to handle these troubles,” she stated in a statement.
Canadian Prime Minister Stephen Harper said that Ford was being hypocritical offered its assistance for the U.S.-Korea totally free trade deal.
Ontario’;s government was disappointed that the 6.one percent tariff on South Korean automobile imports will be phased out in 3 yearly cuts and not a longer period. South Korea’;s 9 percent tariff on imports will be eliminated quickly.
Ontario’;s Minister of Financial Advancement, Trade and Employment Eric Hoskins, explained he was also unhappy that Canada was unable to negotiate the same “snap-back provision” integrated in the U.S.-Korea deal. This kind of snap-backs would roll back tariff reductions if it was shown that Korea used non-tariff barriers to defend its marketplace.
A spokesman for Canadian Worldwide Trade Minister Ed Fast stated the government believed the Canadian agreement is as strong, and in some areas stronger, than the U.S. agreement when it comes to dealing with non-tariff barriers.
Canadians bought a lot more new vehicles in 2013 than ever just before, as customers brushed off higher debt to purchase more trucks and luxury cars. Revenue jumped 4 percent, topping the previous record-setting year in 2002.
Nevertheless, Canada’;s automobile sector has observed a slow, long-term decline, in terms of its share of North American car manufacturing and investment.
Because the North American Free of charge Trade Agreement was signed 20 years in the past, auto production in Mexico has far more than tripled, even though manufacturing in Canada has only edged larger, Scotiabank senior economist Carlos Gomes stated in a report.
“Your dilemma is Mexico at this stage, it genuinely, really is,” said Sean McAlinden, chief economist of the Center for Automotive Investigation, who pointed to a surge of production plant investment in the minimal-value jurisdiction.
Inside of 2 years, Mexico will most likely create 2 automobiles for every single motor vehicle assembled in Canada, he explained.
“To offset the Mexican advantage … Canada requirements far more cost-free trade agreements to promote cars globally. Period. You just can’;t rely on the Canadian or even the North American market place,” McAlinden said.
But there seems to be small appetite in South Korea for the massive vehicles assembled in Canada, which includes vans, sedans and SUVs.
Ford Canada stated that Canadian vehicle and components exports to South Korea totaled C$ 15 million in 2013, while similar imports from that nation additional up to C$ 2.8 billion.
Mixed market response
Not all automakers with manufacturing in Canada had been opposed to the trade deal.
The Japanese Automobile Manufacturers Association of Canada, a group that contains Toyota Motor Manufacturing Canada Inc. and is chaired by Honda Canada CEO Jerry Chenkin, endorses the agreement due to the fact it could pave the way for a equivalent pact with Japan.
“We urge the government to rev-up trade negotiations with Japan and the twelve countries in the Trans Pacific Partnership,” explained the group.
Basic Motors Co., whose GM Korea Co. subsidiary is that country’;s third-largest automaker, explained in 2010 that it supported the U.S.-Korean totally free trade deal. Hyundai Motor Co. and its affiliate, Kia Motors Corp., dominate the Korean marketplace.
“We will continue to operate closely with the Canadian and Korean governments to ensure the agreement is implemented in a way that brings the full benefit of honest competition to customers in each markets,” GM Canada stated in a statement.
Chrysler Canada, a unit of Fiat Chrysler Vehicles , declined comment. Fiat CEO Sergio Marchionne said last month that he dropped his opposition to the deal after Canadian Prime Minister Harper reminded him that his organization did not reject the U.S. trade deal with South Korea.