Canadian free trade negotiators are going all-out to get a deal with the EU on a new free trade agreement. The Harper government wants a deal badly for largely symbolic and ideological purposes, to show that the free trade agenda is back on track under this “stable majority government.” Many valid concerns have been raised about the implications of a deal on pharmaceutical costs, on public procurement, and more. What would a Canada-EU deal mean for the auto industry? Here are a few summary points:

– Canada’s auto industry would be especially hard hit by a free trade deal with Europe.

– Europe sells billions of dollars of auto products in Canada, but buys virtually nothing back from the Canadian auto industry.

– In 2010, Canada imported $4.4 billion in auto products from the EU (three quarters of it from Germany). Canada sold less than $200 million back the other way. That’s a 22-to-1 imbalance.

– The resulting trade deficit (over $4.2 billion) corresponds to the loss of some 8000 high-wage Canadian auto jobs (based on the average employment content of automotive products).

– During the first 8 months of 2011, our bilateral auto deficit grew by 5 per cent (compared to year-earlier levels), due to surging imports from Europe. At that rate, Canada’s automotive trade deficit with Europe will likely reach an all-time record for 2011.

– Europe’s auto sales in Canada have grown substantially in recent years, as European automakers (especially luxury brands like Mercedes and BMW) have expanded their market share here.

– However, Canada’s auto sales to Europe have been shrinking, in large part because of the severe and continuing economic crisis there. Canada’s auto sales to Europe have fallen over 60 per cent since 2007.

– Canadian manufacturing exports to Europe will not increase, even after a free trade agreement, for several reasons. Europe’s economy is in a deep crisis that will restrain demand for several years to come. European countries (led by Germany) are emphasizing exports, and restraining imports, in order to try to escape that crisis. Europe is mostly interested in Canadian resources, not manufactured goods, and those resources already face very low tariffs — hence the economic effects of European tariff reduction would be very small.

– According to my study last year for the CCPA, free trade with Europe would worsen the bilateral auto trade balance by between $1.8 billion and $4.7 billion per year, and lead to the loss of between 3000 and 9000 further auto jobs. (Source: Out of Equilibrium, Canadian Centre for Policy Alternatives, October 2010.)

– Even the federal government’s own economic study (jointly commissioned with European officials in 2008) acknowledges that Canada’s auto industry will lose sales under a trade deal with Europe. According to the government study, Canadian auto imports from Europe will grow three times as much as Canadian auto exports to Europe, resulting in a $600 million deterioration in auto trade. Moreover, the study acknowledges that this is a best-case scenario, since it is likely that many Canadian auto exports would not qualify for tariff-free access to EU markets because of failure to meet Canadian rules of origin (since most Canadian products have substantial parts content from the U.S. and Mexico). (Source: Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership, Department of Foreign Affairs and International Trade, 2008).

– Federal trade officials are prepared to sign a deal with Europe anyway, despite the job losses in auto and other sectors which they acknowledge, because they believe that the potential gains to other sectors (especially agriculture and energy) will outweigh the harm done to Canadian manufacturing. They are prepared to sacrifice manufacturing jobs in order to “get a deal.”

– Auto industry insiders acknowledge that there is no realistic prospect that free trade with Europe will spark any significant growth in sales of Canadian-made automotive products in Europe. Canadian-made products are not designed for the European market. Tariff-elimination will have no meaningful impact on our existing, minuscule auto exports to Europe.

– The Canadian and Ontario governments took important, dramatic measures in 2009 to help stabilize Canadian auto assembly and parts production in the face of the global financial meltdown (including participating in a joint U.S.-Canada initiative to restructure General Motors and Chrysler). Why would the federal government now, after making those important investments, undermine the viability of Canadian-based producers by signing a free trade agreement that can only exacerbate the one-way trade imbalance with Europe that has already destroyed thousands of Canadian auto jobs?

– Canada’s auto industry is trying to get back on its feet after the unprecedented crisis of 2008-09. Some 10,000 auto jobs have been recouped in Canada since the worst point of the financial crisis in June 2009. Now is not the time to jeopardize that progress, and put the industry back on a declining trajectory, with a free trade agreement that would have no feasible positive impact on Canadian-based auto producers, but would create substantial new risks for them.

This article was first posted on The Progressive Economics Forum.

Jim Stanford

Jim Stanford is economist and director of the Centre for Future Work, and divides his time between Vancouver and Sydney. He has a PhD in economics from the New School for Social Research in New York,...