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OTTAWA – The proposed Comprehensive Economic and Trade Agreement (CETA) will only exacerbate the Canadian auto industry’s recent decline, says a study released today by the Canadian Centre for Policy Alternatives (CCPA).
The study, by Unifor economist and CCPA vice-president Jim Stanford, analyses CETA’s likely effects on Canadian automotive trade, investment, and employment and claims the trade deal will make Canada’s current trade imbalance with the EU incrementally worse. The study estimates that the existing $5.3 billion trade deficit with Europe will widen significantly as a result of the CETA, exceeding $7 billion within a decade.
“A major factor in the auto industry’s recent decline has been the very lopsided nature of automotive trade relationships between Canada and every other auto-producing jurisdiction, with the exemption of the U.S. Our virtually one-way auto trade relationship with the EU is a major part of this trade problem,” says Stanford.
According to the study, the growth in automotive exports resulting from the trade deal will be much larger for the EU side than the Canadian side, for several reasons, including:
- Europe’s much larger initial market share (100 times larger than Canada’s market share in Europe);
- the well-developed marketing infrastructure of European producers in Canada;
- the lack of manufacturing investment in Canada by European automakers;
- the depressed macroeconomic conditions that will prevail in Europe for several years to come;
- and the distorting impact of a depreciated Euro on relative competitiveness.
The study argues that the growing bilateral deficit and resulting decline in net demand for Canadian-made automotive products arising from this widening bilateral deficit will negatively affect Canadian production, investment, and employment opportunities.
“Despite its recent challenges, Canada’s automotive manufacturing sector still plays a vital role in Canada’s national economy. The sector produces Canada’s second-largest flow of exports and is our largest manufacturing industry. Hundreds of thousands of Canadians depend—directly or indirectly—on its success,” Stanford says.
The study concludes with recommendations for the Canadian government to help make the proposed CETA less harmful for Canada’s auto industry:
- Prepare a detailed statistical inventory on Canadian-made vehicles currently exported to Europe.
- Provide specific supports for automakers producing in Canada, to assist them in developing offshore market opportunities.
- Require European automakers to invest in Canadian production opportunities.
- Establish a mutual understanding between the two parties regarding an appropriate valuation for their respective currencies, and a prohibition of policy efforts aimed at attaining a competitive advantage through deviation of the exchange rate from its underlying fair value.
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