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Japan’s Canadian auto units want Ottawa to strike free-trade deal

Globe and Mail, Toronto

Japan’s Canadian auto units want Ottawa to strike free-trade deal

By Greg Keenan — Auto Industry Reporter

7 December 2011

Tokyo. The Canadian units of the Japanese auto makers are spearheading an effort to persuade Ottawa to begin negotiations with Japan on a bilateral free-trade agreement amid a new, more liberal attitude the Asian nation is taking toward such deals.

The key issue for Japanese auto makers in Canada is eliminating the 6.1-per-cent duty they pay on vehicles imported into Canada from outside North America, a change that would allow them to remain competitive with South Korean and European auto makers if the tariff is removed in Canadian trade deals with those two regions.

The effort by the auto makers comes as Canada and Japan look for free-trade partners, including agreements Canada is negotiating with South Korea and the European Union.

Japan is pursuing a potential three-way pact with China and South Korea and separate agreements with Australia and a group of southeast Asian countries.

In addition, both Canada and Japan have agreed to enter talks on the multilateral Trans-Pacific Partnership (TPP) among Pacific Rim nations.

“What I’m hearing is a lot of warm support on this side of the ocean,” Toyota Canada Inc. managing director Stephen Beatty said in an interview in Tokyo.

Mr. Beatty made his comments a few weeks after several high-ranking representatives of the Canadian units of Japanese auto makers – including Toyota Canada president Yoichi Tomihara and Nissan Canada Inc. president Allen Childs – lobbied members of Parliament to support a deal.

The meetings with MPs came in the same month that the Canadian Chamber of Commerce issued a report urging the federal government to seize the opportunity offered by Japan’s new embrace of bilateral free trade agreements.

“Until quite recently, Japan, unlike many of its Asian and G8 competitors, had avoided trade liberalization done with other advanced economies on a bilateral basis,” the chamber said. “That stance has changed under the leadership of former Prime Minister Naoto Kan, as the Japanese government has signalled it would ambitiously revisit its traditional trade policy and market-access issues so as to negotiate and conclude high-quality free-trade agreements with both advanced and large developing partner economies.”

That change in policy is driven by a structural issue within Japanese society, Fujio Mitarai, chairman and chief executive officer of camera and copier giant Canon Inc., told The Globe and Mail.

“I think above all the Japanese people now have a clear understanding and recognition that we are into an era of low fertility with an aging society as a whole,” Mr. Mitarai said in an interview at Canon’s head office in Tokyo. “That means that in order for us to continue to grow we need to expand the free-trade areas as much as possible.”

As part of a deal, Canada would likely look to expand access to the Japanese market for agricultural and forest products as well as services. Japan is the world’s largest net importer of agricultural and seafood products with imports of about $67.9-billion, including about $3.2-billion from Canada.

Its home renovation market is estimated at $50-billion, which represents an opportunity for Canadian forest products companies to boost their business in the country. In total, Japan was Canada’s fifth-largest merchandise trade partner in 2010. Exports to Japan totalled $9.2-billion, while Japan shipped goods worth $13.4-billion to Canada.

For the Japan-based car companies in Canada, the main issue is the 6.1-per-cent tariff that Canada levies on vehicles imported from outside North America.

If Canada signs South Korean and EU deals that eliminate that tariff for auto makers from those regions, Japanese auto makers bringing vehicles into Canada from outside North America will be at a disadvantage, even though Honda Motor Co. Ltd., and Toyota Motor Corp. have large assembly plants in Ontario that combined employ about 10,000 people.

Eliminating the tariff on subcompacts and other entry-level vehicles such as the Hyundai Accent imported from South Korea would have an impact on sales in that segment, where profit margins are razor thin and products are priced only a few hundred dollars apart.

“In the entry-level car market you’re separated by dollars in monthly payments,” said Toyota Canada’s Mr. Beatty.

The subcompact segment has become more competitive in recent years with the addition of new offerings by Mazda Canada Inc., and the North American-built Ford Fiesta and Fiat 500 from Chrysler.

The tariff issue also plays out to a lesser extent in the luxury segment where prices and margins are higher, so a 6.1-per-cent change is less noticeable. Nonetheless, eliminating the duty on European-built vehicles would give Audi Canada, BMW Canada Inc. and Mercedes-Benz Canada Inc. an advantage over Toyota’s Lexus models imported from Japan as well as Acuras brought into North America by Honda Canada and Infiniti brand vehicles sold by Nissan Canada.