What does the CPTPP mean for the automotive sector?

Summary/overview

• All CPTPP countries will eliminate their tariffs on motor vehicles and motor vehicle parts.
• Non-tariff barriers faced by Canadian exporters will be reduced through binding, enforceable commitments.
• The CPTPP will support diversification of export opportunities for Canadian motor-vehicle and parts manufacturers.

Tariff elimination

• Under the CPTPP, all countries will eliminate their tariffs on motor vehicles.
• Canada will eliminate its 6.1% tariff on imports of originating passenger vehicles for all CPTPP countries over 4 years, through five annual back-end loaded cuts (to 5.5%, 5%, 2.5%, 2%, then 0%).
• A special transitional safeguard for motor vehicles will protect Canadian manufacturers in the event of a surge in imports from Japan.
• With respect to motor vehicle parts:
• Malaysia and Vietnam will eliminate their tariffs of up to 50% within 10 years.
• Australia will eliminate tariffs of up to 5% within 3 years.
• New Zealand will eliminate tariffs of up to 10% within 7 years.
• Brunei will eliminate tariffs of up to 20% within 7 years.

Rules of origin

• The CPTPP regional value content requirement for motor vehicles is 45%.
• The CPTPP regional value content requirement for motor vehicle parts ranges from 35% to 45%.
• As the United States is not part of the CPTPP, the NAFTA rule of origin for passenger vehicles, not the CPTPP rule of origin, will continue to govern Canada-U.S. trade in motor vehicles and motor vehicle parts.
• The majority of Canada’s motor vehicle and parts production is for export to the U.S. market, reflecting a highly integrated North American auto sector. To meet the NAFTA rule of origin, Canadian vehicle manufacturers must source the majority of their parts from within North America.

How the CPTPP benefits exporters

• While the vast majority of Canada’s auto and auto parts production is for export to the U.S. market, the CPTPP will support diversification by providing access to new markets in the Asia-Pacific region.
• Other CPTPP provisions will address non-tariff barriers through broad commitments on technical barriers to trade, transparency and regulatory coherence, including a new committee structure and a dispute settlement mechanism as channels for parties to address non-tariff barriers.
• In addition to the elimination of tariffs, Canada also secured commitments from Japan and Malaysia to address automotive standards and regulations as well as rules of origin.

Trade snapshot

• Canada is the tenth-largest vehicle-producing nation in the world. The motor vehicle industry is Canada’s largest manufacturing sector. In 2016, the sector directly employed more than 125,000 Canadians and accounted for 11% of manufacturing GDP or over $103 billion in factory shipments.

Key facts and figures

• From 2014 to 2016, Canada exported an annual average of $721-million worth of passenger vehicles to CPTPP countries.
• From 2014 to 2016, Canada exported an annual average of $1.7-billion worth of motor vehicle parts to CPTPP countries.

Tariff elimination