TRADE-LABOUR: WTO Sounds Death Knell of Canada-US Auto Pact

By Paul Weinberg Reprint | | Print |

Paul Weinberg

TORONTO, Oct 19 1999 (IPS) - Canadians are smarting under another ruling against them by the World Trade Organization (WTO).

The WTO had “slammed the door on an alternative managed trade arrangement that was designed to help a natural resources oriented country like Canada create manufacturing jobs,” said Steve Shrybman, executive director of the Vancouver based West Coast Environmental Law Association.

Shrybman, author of the newly published “Citizen’s Guide to the World Trade Organization” was referring to the recent WTO ruling against a key section of the 34 year old Canada-US Auto Pact which helped build an auto manufacturing sector in Canada and thereby boosted its national economy.

“A terrible development, but not a surprising one,” said Shrybman. ” The Auto Pact represented the epitome of a contemporary trade agreement. It represented a counterpoint to deregulation.”

The WTO struck out legal provisions in the Auto Pact which stipulated that, in exchange for locating a certain percentage of their production facilities in Canada, the big three U.S. based automobile companies – Daimler-Chrysler, General Motors and Ford – would be allowed to import vehicles into this country duty free.

“[The Auto Pact] was based on the very simple notion that if you want to sell cars in Canada, you should build some here and use tariffs to punish those who don’t,” says Shrybman.

Nevertheless, European and Japanese car manufacturers, which invest less in Canada, successfully argued before the WTO that a 6.1 per cent Canadian tariff on their vehicles constituted “trade discrimination.”

Many trade experts in Canada now believe that, essentially, the Auto Pact was dead.

On the other hand Stephen Beatty, spokesman for Toyota, applauded the WTO ruling.

“What we’re hoping is that the Canadian government looks at the spirit of it and decides not to appeal and, instead, moves straight ahead to implement tariff reductions.”

So far, Ottawa has not indicated its next move.

Shrybman, however, believed that the Auto Pact was not a priority for the Canadian Liberal government under Prime Minister Jean Chretien, a major booster of deregulated trade arrangements.

In the short-term, it is generally agreed in Canada that the immediate impact of the WTO decision would be minimal. The ruling primarily affected high-priced luxury cars, representing a small portion of the vehicles sold in Canada by the auto giants through their dealerships.

But some significant long-term implications loomed for Canada.

Buzz Hargrove, president of the Canadian Auto Workers – representing about 49,000 workers in Ontario and Quebec – pointed out there were no incentives for the Japanese to expand car manufacturing in Canada.

“The decision, if left to stand, will cost Canadians jobs in the auto industry – there is no requirement for investment,” he said

The Auto Pact was the latest in a series of WTO decisions that had gone against Canada and “essentially undermined the ability of the country’s democratically elected representatives in Parliament to manage the national economy,” said Hassan Yusseff, executive- vice president of the Canadian Labor Congress.

Yusseff defended the Auto Pact’s bias in favour of General Motors, Ford and Dailmer Chrysler. He estimated that their investment in the Canadian auto industry represented six times what has been spent by their European and Japanese counterparts.

Currently, the Canadian auto industry, both in direct manufacturing and parts supplied by third party companies, employs about 125,000 workers, largely in Southern Ontario, which is the industrial heartland of Canada.

Yusseff stated that, if the three U.S. auto giants were to reduce their investment in Canada country to the level maintained by European and Japanese companies, job losses would reach the 100,000 mark.

For the short-term, the US auto giants were unlikely to take such drastic action, because they were well established in Canada, with their industrial plants, array of parts suppliers and a skilled work force, Yusseff said.

Nonetheless, Yusseff is concerned that the commitment by the three US auto giants will begin to erode as the glut of cars in the global market continues to grow.

Yusseff said that the auto industry is producing annually about 68 million cars around the world, 18 million more vehicles than what is annually purchased by consumers. “That is the equivalent of 75 assembly plants.”

He foresaw more mergers, leading to a more consolidated world auto industry. “Down the road there is going to be a shakeout in the industry. The question is when the shakeout happens, what incentive do we provide the big three to keep to the same level today.”

Steve Shrybman added that the underlying message of the WTO’s latest ruling was that the only way countries were allowed to compete is on the basis on who has the worst environment standards or lowest wages.

“The only route for countries under trade is to go by the ‘beggar thy neighbor’ route.”