U.S. NAFTA position to ‘Buy American’ could savage the Canadian auto parts sector

By Gerry Barker

August 21, 2017

The economic wellbeing of Guelph is now threatened with pronouncements by U.S. North American Free Trade Agreement (NAFTA) negotiators.

There is real concern about the future of the Canadian auto parts manufacturers. Most significant is Linamar, headquartered in Guelph, that employs 6,000 in its complex of 19 plants. The company is the largest private employer in the city and is supported by a number of smaller specialized manufacturers feeding materials and components to the Linamar parts assembly plants.

Linamar is not alone in the potential danger that may culminate in job losses and plant shut downs as the work is shipped to the U.S. Magna International is facing the same dilemma if the U.S. negotiators force auto parts manufacturing back to America from Canada and Mexico.

Both Linamar and Magna have operations in Europe and Mexico. Those plants are equally vulnerable, as the U.S. has already threatened to place tariffs as high as 35 per cent on foreign made parts. In fact, the U.S. government has already arbitrarily placed a high tariff on Canadian softwood lumber products. Canada has retaliated with support for lumber exporters with subsidies. This long-term dispute will be a major issue as talks proceed.

This issue has been fought for several years with Canada winning in the arbitration process. Today, the U.S. NAFTA negotiators are stating they want to eliminate Rule 19, the dispute mechanism system that has worked well for 24 years. Instead, they want all disputes to be conducted in U.S. courts. Canada is opposed to such a proposal that would destroy the independent arbitration system that has worked successfully.

Canada could counter with a demand to have full bidding access to U.S. and State government contracts.

There is no question that the ‘Buy American’ policy as originated by President Donald Trump, and how he fails to understand how well NAFTA works on both sides of the border. The U.S. States bordering Canada are concerned that their economies would be affected if the ‘Buy American’ policies are incorporated in a new NAFTA agreement.

And for good reason, Canada is their biggest market. Placing tariffs on Canada goods at the border would cost jobs and product shortages on both sides of the border.

The whole idea about free trade is to create greater volumes of goods moving across our border. The bigger the markets the more jobs are created.

Yet Trump told his supporters that he would shut down NAFTA in his first week in office. He described it as a terrible agreement, bad for America, one that never should have been negotiated. Since then, he has been convinced that the Trade pacts should be renegotiated.

Here’s an example of how the President pops off at the slightest rejection of his rhetoric.

U.S. wants to eliminate Canada’s supply-side management of agriculture products

The U.S. trade negotiators have told the Canada counterparts that Canada’s dairy industry’s supply-side management system must be scrapped to give U.S. producers free access to Canada markets. The present impact on Canadian consumers is that the 13,000 dairy farmers in Canada, most of who are multi-millionaires, are charging high prices and Canadians are perpetually subsidizing them.

Australia, New Zealand and a number of U.S. dairy producers have scrapped supply-side management in order to compete globally. The Canadian dairy farmers represent a tiny part of the Global market. It’s because they don’t have to compete. The producers’ lobby hard to protect their interests, not those of the citizens who pay high prices for their products.

This is the epitome of a monopoly. Shut out foreign competitors, fix prices, control supply to manipulate profits and you could own a winter home in Miami.

The supply-side management monopolies also exist in egg production, the poultry, beef and pork producers who are all benefiting from the ultimate in market protection with some tariffs exceeding 300 per cent to shut out foreign imports.

This represents a rip-off of the Canadian consumer by those producers. They have control of the supply of their products that has guaranteed inflated incomes and prices for some 30 or more years.

These monopolies are skilled at protecting their gold mines of guaranteed profits. They spend a lot of money on lobbyists to protect their interests with provincial and federal politicians. As one commentator in favour of abolishing Canadian supply-side management system’s domination of Canadian agriculture stated: “These critical trade negotiations are no place for alternative facts,” (as used by lobbyists representing the agriculture producer industries). ”

The auto parts sector of our economy is vital to the future of the country. Most are global companies that compete all over the world. Now is the time for the food supply sector to follow the lead and compete globally. If it does and spends its money on marketing globally, Canadian consumers will benefit and so will the producers.

These NAFTA negotiations could have a direct impact on Guelph in terms of job losses and industrial assessment if plants close. The city’s dismal track record attracting industry could result in greater taxes on the residential assessed community. It is one that already is carrying 84 per cent of the property tax load.

While NAFTA negotiations are just underway, the future is uncertain and scary. It could take years to complete unless any of the three parties involved walk away in frustration.

Something Canadians will never do but there is a big question mark about whether Mexico will stay the course. There remains bad blood between the U.S. and Mexico starting with the President’s promise to build a wall between the two countries and that Mexico would pay for it.

The Mexican President told Trump that the country would not pay for the wall.

But then he promised to build an economic wall between Canada and the U.S. by renegotiating NAFTA.

We’ll see about that.

 

 

 

 

 

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5 Comments

Filed under Between the Lines

5 responses to “U.S. NAFTA position to ‘Buy American’ could savage the Canadian auto parts sector

  1. Louis

    Yea supply management will be the one thing that could ruin us, Canada won’t negotiate because Screwdeau decided to put it in. Some days I wish the Trudeau’s weren’t in politics. Bunch of idiots

  2. Guido

    Supply management may not be the answer, but assuring our food supply domestically is very important. Our retail industry is almost dead, US domination. Do we want to depend on other countries to control our food supply as well ????

    • Louis

      The problem with NAFTA is negotiating. If the US wants something Canada and Mexico have to negotiate.

      Same with Canada or Mexico

      Canada wants to keep supply management, they may have to suck it up if the US threatens it with the buy American thing.

      If they deal that card, Trudeau I hope isn’t that dumb to destroy the auto industry here.

  3. Glen

    Gerry. You have missed the latest position of a number of US states wrt dairy supply management. They have come out in support of it and have told the US trade negotiators to leave it alone & perhaps the US should have something similar for US dairy farmers. The US gov’t subsidies to farmers is in the hundreds of billions of dollars.

    • Glen: I didn’t miss it. The point I was making was the complete control that supply-side management of agriculture products are monopolies in Canada. Their actions make the Family Compact control of Upper Canada in the 1800’s look look amateur hour. Compare this to today’s 13,000 dairy famers who have no competition, no incentive to fairly serve the consumer.

      This is a monopoly that controls all the prices of dairy products across the country. The lily livered politicians let them get away with it regardless of the interests of the consumers.

      They fix prices without recourse, as there is no competition, control supply and are even into producing yogurt products as a side business. The U.S. dairy industry is fragmented and also heavily subsidized but there is real competition. Australia and New Zealand have dumped their supply-side management system and now compete globally. The Canadian agriculture monopoly makes little effort to compete outside Canada because they don’t have to … they own the market.

      Paying almost $6 for a pound of butter when it costs half of that in the U.S. illustrate my point. It has nothing to do with economy of scale. This bunch fought hard to maintain tariffs on imported European cheeses during the Canada-European Trade negotiations.

      Glen, we are not an island, we must trade to survive.

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