Canada-EU free trade deal could change auto industry

Auto analysts have mixed opinions on what a new trade agreement between Canada and the European Union means for Canadian car makers.

Some think it will create new manufacturing jobs. Others think it will bolster European sales in Ontario, cutting into the manufacturing of luxury cars in the province.

The deal includes more market access to everything from cheese to beef to patents on prescription drugs.

Of particular interest is that the deal will allow more North American cars to be sold overseas, and all those vehicles must have a certain amount of Canadian content.

Rajeeva Sinha of the University of Windsor's Odette School of Business said a new trade agreement could encourage American automotive companies to export more cars from its Ontario plants.

"So this could mean more jobs - potentially," Sinha said. "It would be an incentive for them to send [or] export their cars from their Ontario plants."

Last year Canada exported 13,000 cars across the Atlantic. Under the new agreement, should the tentative deal be signed, a maximum of 100,000 vehicles will be exported, duty free.

"I don’t think anyone can definitively know what the impact of the current EU Agreement will be on the automotive sector," said longtime auto analyst Dennis DesRosiers of DesRosiers Auto Analysts.

He said there is still debate over what impact NAFTA had on the industry.

"The [Canadian] industry also peaked in the year 2000 and has been struggling since and, indeed, just finished one of its worse decades in history and continues to deteriorate. Was this the long term result of FTA and NAFTA? We don’t know but it could be," DesRosiers said. "If so, then in the short term, the industry won big and in the long term, the sector is losing big. These issues are so complicated that it is near impossible to ‘blame’ any policy."

Influx of European imports predicted

Sinha and DesRosiers both said there could, indeed, be an increase in the number of European vehicles imported to Canada.

The 6.1 per cent tax that was slapped on European cars coming to Canada Is also being lifted.

"But then this is the nature of adjustments that will have to be worked out over a period of time," Sinha said.

DesRosiers said "a very high percentage of vehicles imported from the EU are luxury products," including BMW, Mercedes-Benz, Audi and Porsche.

"The premium/luxury vehicle market is currently Canada’s fastest growing segment and we are on record that the current decade will go down as the ‘decade for European brands' and this agreement will add to that," DesRosiers said. "Lesson No. 1: buy a European or luxury dealership."

There are premium automakers in Ontario, including Lexus in Cambridge, Cadillac in Oshawa, Lincoln in Oakville and Acura in Alliston.

"There could be some downside for these plants and their workers. But they do have seven years to adjust so any negative would happen slowly and companies may be able to adapt," DesRosiers said.

Union against deal

Unifor, the union representing auto workers at Windsor Assembly Plant where Chrysler makes its flagship minivans, said a Canada-European trade deal will not be good for the Canadian auto industry and manufacturing.

"Just in the automotive industry, by example, you already have an imbalance in trade of about $10-$12 billion. You could easily get another $3 billion in trade imbalance because the tariffs are going to be zero going to Europe and zero coming from Europe," said Dino Chiodo, the Ontario Chair of Unifor and the president of Unifor Local 444, which represents about 4,500 hourly workers at Chrysler.

The union said a study by Unifor economist Jim Stanford for the Canadian Centre for Policy Alternatives found that a CETA deal could cost the Canadian economy more than 150,000 jobs.

DesRosiers isn't surprised by the union's stance.

"[Trade agreements] do cause disruption, especially in the labour force, since inefficient elements of any economy are forced to adjust or disappear and this is usually hard on workers and thus labour is always against these agreements," he said.

 

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Date Posted

October 18 2013