Canada and Europe Hash out Resolution for Auto Trade: Leaked Documents

Article excerpt

Canada and EU plot resolution on autos

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OTTAWA - Leaked European documents on the free-trade talks with Canada suggest the two sides have the bare bones for an agreement in the troublesome field of autos.

The Canadian Press has obtained a European list of outstanding issues on rules of origin, which have long been a barrier to a final Canada-EU free trade agreement.

The list, dated Feb. 5, is included in a memo from the European Commission's director-general for trade, addressed to the trade policy committee.

Included in the list is a proposal for a two-step solution to the problematic auto sector -- a sector that has proven difficult for negotiators to handle because Canada's auto production is so deeply intertwined with the U.S. market, making it nearly impossible to define what a "Canadian" car actually is.

The first step involves setting up a quota -- an approach used frequently by Canadian and European negotiators to deal with contentious issues -- while the second step involves negotiating arrangements with the United States.

The short-term quota "should be reasonable and based on current investment plans and export possibilities," the document states. "It is also linked to any growth clause."

That kind of quota design is unusual, since quotas are often based on historical production patterns and don't anticipate future changes.

However, the document does not say where the quota should be set. Canada proposes 100,000 passenger cars per year, but there is no indication that the EU would agree to that level.

Nor does the document say how Canada would divvy up the quota among auto manufacturers in Canada.

The quota -- which the EU calls "derogation" -- would eventually be removed after Canada, the EU and the United States reach an understanding of how to account for North American content in cars being shipped from Canada. Instead, it would be replaced with a stipulation that Canadian passenger vehicles should have no more than 40 per cent non-North American content.

"Derogation to cease, and maximum foreign content to be brought down to 40 per cent if and when there is an agreement with the U.S. providing for cumulation with Canada," the document states.

The "cumulation with Canada" part is key because it signals that the European Union is ready to recognize and deal with the deep integration of the Canada and U.S. markets.

"The reality of a Canadian-made car is that it crosses the border and contains parts that are intermingled with the American sector, and that's just the reality of the Canadian auto industry," said the NDP's trade critic, Don Davies. …

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