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Trans-Pacific Partnership Agreement: How It Could Affect Canada's Auto, Dairy Sectors

10/04/2015 05:53 EDT | Updated 10/04/2015 05:59 EDT
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The auto sector is one of the key sectors involved in the negotiations for the Trans-Pacific Partnership. Here are a few things to know about Canada's auto manufacturing sector -- and how a possible TPP could affect it:

Economic impact: The manufacturing of vehicles and auto parts contributes roughly $20 billion to the country's GDP and directly employs 120,000 people, not including spin-off jobs, according to a 2014 report from the Automotive Policy Research Centre at McMaster University.

NAFTA: Under the North American Free Trade Agreement, or NAFTA, an auto part needed to contain 60 per cent North American content and a fully assembled vehicle needed to have 62.5 per cent North American-made content in order to remain duty free.

TPP: Japan was pushing to allow for the tariff-free movement of vehicles and auto parts that contain as little as 30 per cent content produced in the countries that are part of the trade agreement. Stakeholders say that it increased the ratio very slightly in these talks - although the sides are also said to have reached a more complex formula that includes exceptions for different parts. Concern has been expressed that Canadian auto parts makers will lose business to low-cost Asian producers that aren't part of the trade deal, such as China, Vietnam and Thailand.

Jobs: Canadian auto parts manufacturers employed roughly 81,700 people in 2014, according to a report from the Conference Board of Canada. Tony Faria, an auto industry expert at the University of Windsor, predicts that roughly 10,000 of those jobs could be at stake due to the TPP.

Challenges: In recent years, manufacturers of both auto parts and vehicles have been shifting production from Canada to Mexico and the southern United States, where labour costs are cheaper. More than 200 auto parts manufacturing facilities have been shuttered over the past decade, according to the Automotive Policy Research Centre, and layoffs have been made at assembly plants as well. General Motors announced in April that it will lay off 1,000 workers at its Oshawa plant as it shifts production of the Camaro to Michigan, and more job losses are expected.

Trade: Although Canada once exported more automotive products than it imported, the surplus shrank to a deficit in 2007 and has remained that way ever since. Some industry observers are concerned that the proposed trade deal could widen that deficit even further.

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Things to know about Canada's dairy supply management system:

What is it: Supply management controls levels of milk production by tying it to Canadian consumer demand and limiting foreign competition through high tariffs. Similar systems also regulate production of cheese, poultry and eggs.

History: Canada established a national system in the early 1970s to stabilize prices and dairy producer incomes, although its origins can be traced to provincial marketing boards in place decades earlier.

Farms: The number of dairy farms has shrunk from 145,000 nearly 40 years ago to less than 13,000 today. The system supports 215,000 jobs and contributes about $19 billion to Canada's GDP and $3.6 billion in taxes. However, the Conference Board of Canada says dairy production quotas cost the economy $28 billion per year.

Prices: The price for milk paid to the producers is based on the costs of production set by farmers, not the market. As a result, Canadians pay about twice as much for milk than Americans. One litre of milk sold for $2.33 in Canada on average in August, according to Statistics Canada, compared to US$3.39 per gallon -- or C$1.20 a litre -- according to the U.S. Bureau of Labor Statistics. However, milk prices vary by province. Recent prices for filtered milk were about $5.49 for two litres in Quebec and $3.99 in Ontario.

Subsidies: Canadian dairy farmers receive no direct government subsidies, while the United States pays about US$4 billion a year and the European Union 55 billion euro to their farmers.

Imports: Imports are limited through high tariffs. The system originally banned all imports, but that ran afoul of global trade rules. So now about five per cent of dairy products on Canadian shelves are imported tariff-free. Another 18,500 tonnes of cheese will be imported from Europe under a proposed trade deal. That will mean European cheese will rise to nine from five per cent of cheese consumed in Canada.

Exports: Milk production caps limit export opportunities, especially to rapidly growing Asian markets. Global dairy export volumes have been growing by seven per cent annually, but the OECD projects that butter demand will increase 21 per cent from 2013 to 2022, cheese by more than 11 per cent and whole milk powder by 13 per cent. It said ending the system could see Canada add six to 12 billion more litres of milk annually and generate $1.3 billion in efficiency gains.

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