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Report warns of sharp rise in auto trade deficit from Canada-EU deal

A new BMW luxury car of the 5 series is pictured at the production line of the German car manufacturer’s plant in the Bavarian city of Dingolfing.

MICHAELA REHLE/REUTERS

The trade deal between Canada and the European Union will deepen and lock in the massive Canadian automotive trade deficit with the EU, says a study done for the Canadian Centre for Policy Alternatives.

Canada posted a record $5.34-billion trade deficit with Europe last year and that number could grow to $7-billion within a decade, says the study, written by Jim Stanford, an economist with the Unifor union, which represents workers at six of Canada's 10 light vehicle assembly plants.

"Accepting this unbalance as somehow normal and acceptable and locking it in with unconditional market access commitments constitutes a historic failure of vision and responsibility," Mr. Stanford wrote in a 35-page analysis of the impact of the agreement on the auto industry in Canada.

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Industry officials and governments once pointed proudly to this country's surplus in automotive trade, which hit $15-billion in 1999, the peak year for vehicle production in Canada, when it was the fourth-largest vehicle producer in the world. That surplus has evaporated and Canada now runs a deficit in automotive trade over all, posting a surplus only with the United States and deficits with other major auto-producing jurisdictions such as Japan, South Korea, Mexico and the EU.

"The failure to ensure a proportional global foothold for Canadian facilities in this crucial, strategic industry has facilitated the descent of Canada's auto industry from leader to laggard," Mr. Stanford wrote in the report, which is scheduled to be released Tuesday. "Our once-impressive surplus has dissolved into an equally large trade deficit. Canada fell right out of the ranks of the top 10 assemblers and over 50,000 well-paying jobs in auto manufacturing were lost."

The federal government has not offered any specific information on how the Canada-EU deal will increase exports of Canadian-made vehicles to Europe, but says the elimination of tariffs and other changes will allow auto makers to ship as many as 100,000 Canadian-made vehicles annually to Europe.

Mr. Stanford casts doubt on that number, however, pointing out that there is little appetite among European consumers for vehicles made in Canada and that the Chevrolet Camaro, which is one vehicle being exported to Europe, will be built in Michigan as of late 2015, instead of at a General Motors Co. plant in Oshawa, Ont.

The government is touting other aspects of the deal, such as better access to European markets for several other industries and the possibility that the deal could boost Canada's national income by $12-billion annually.

The automotive trade deficit with the EU is reflected mainly in shipments of vehicles. European auto makers shipped 118,093 vehicles to Canada last year. Auto makers in Canada exported 10,023 cars, minivans and crossover utility vehicles to Europe in 2012 and an annual average of 8,180 vehicles between 2007 and 2012.

European auto makers' sales in Canada doubled between 2004 and 2014, although not all of that sales increase came from plants in Europe because BMW AG, Volkswagen AG and the Mercedes-Benz division of Daimler AG opened plants in the United States to supply vehicles to that country and the Canadian market.

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But their sales are expected to grow in Canada as they add dealerships and as wealthy baby boomers increase purchases of luxury vehicles, which represent the bulk of European auto makers' sales in Canada.

This article has been corrected from an earlier version to note that the study was published by the Canadian Centre for Policy Alternatives.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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