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National auto strategy ready in ‘next few months’

Industry Minister David Emerson planning fall meeting of car manufacturers, government officials

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The Liberal government’s national policy on the automotive sector will be ready in the “next few months,” says new Industry Minister David Emerson.

The new MP from British Columbia also said he plans to organize a fall meeting of the Canadian Automotive Partnership Council (CAPC), a relatively new group of car assemblers, parts manufacturers, and provincial stakeholders struck by the federal government in 2002. He said an interim report to be finalized “in the next few weeks” by CAPC will kick start the process leading to the creation of a new national policy.

“Personally, I will use this CAPC report both as a starting point for our future policy work, and as a foundation for engaging in the CAPC process along with my provincial counterparts from Ontario and Quebec,” he said in an email interview with The Hill Times.

Mr. Emerson (Vancouver-Kingsway, B.C.) was one of Prime Minister Paul Martin’s star candidates in the June federal election. He comes with an impressive background. He boasts a PhD in economics from Queen’s University, served as deputy minister of finance in the British Columbia, and was appointed president and chief executive officer of Canfor Corporation, B.C.’s largest forestry company.

An edited transcript of the interview follows.

According to the Canadian Auto Workers union, Canada’s auto industry is in the midst of its worst downturn in a generation and that a particularly alarming trend has been the southward migration of new North American auto investments. How would you rate the health of Canada’s automotive industry today?

“It is true that industry output is less than it was at the peak five years ago. This is true across North America. Still, production levels at the assembly level are still higher than they were a decade ago and are at the trend level. Assemblers continue to invest in Canada, with the introduction of several new vehicles over the past 2-3 years. So I believe there is still a strong foundation for this industry to move forward in Canada. However, like many industries, the automotive sector will need to continue to innovate and adapt to changing competitive conditions.”

Why are car manufacturers not building new assembly plants in Canada anymore? Of the 18 new plants built or announced in North America since 1990, Canada got only one. How do you plan to address this?

“Since 1990, government support for the auto sector has focussed on ensuring that the business climate is right for attracting investment, that R&D programs encourage innovation, and that skills and training remain front and centre. This approach has worked well. For example, since 1993, Canada has maintained its share of assembly capacity at around 16 per cent of North American light vehicle production, even though Canada represents only eight per cent of North American light vehicle sales.

“Canada is a competitive environment for automotive production and parts assembly within North America, as demonstrated by the recent independent KPMG international comparison of 11 industrialized countries, released in February 2004. Amongst those studied, it identified Canada as the most cost competitive country in the G7 in which to do business, including a cost advantage over the U.S. Capital expenditures have averaged $3-billion annually for the overall auto sector, and Canadian assembly plants continue to attract significant investments: DaimlerChrysler has invested $1.4-billion at its Brampton assembly plant, and $860-million in Windsor; Toyota invested $650-million in Cambridge; Ford invested $600-million in Oakville; General Motors invested more than $1-billion in Oshawa and CAMI in Ingersoll; and Honda invested $32-million to expand its operations in Alliston, Ontario.

“Thus, we continue to gain substantial reinvestment, and while there have been no new greenfield sites in recent years, our manufacturers, in aggregate, have increased production through a more innovative use of existing plants and through productivity increases.”

During the election, the Liberal government promised to invest $1-billion for the Canadian Skills and Innovation Project, which is designed to encourage research, development and innovation in the manufacturing sector. How much of this will go to help the automotive sector?

“You are referring to the June 14, 2004 announcement by my colleague Minister Volpe. Details are still being worked out. Officials from a number of key departments are developing options and details which will be brought to Cabinet for consideration.”

How will the money ensure that companies like Ford, General Motors and DaimlerChrysler see Canada as a place to invest and do business?

“I think it is safe to say that GM, Ford, and DaimlerChrysler and many other companies in many other industries already find Canada a great place to invest. The Government of Canada has created strong conditions for growth – we have produced budget surpluses, a competitive tax regime, low inflation, low interest rates, a liberal trade policy with increased market access, and a strong commitment to innovation programs through initiatives to support training and R&D.

“Some of the companies you mention have approached the federal government ­ as well as the government of Ontario ­ for support for their investments. All I will say at this point is that we are in discussions with them, and that we are committed to working to ensure that these investments take place in Canada.”

What do you make of the Conservatives’ position that the auto industry would benefit from a reduction of corporate taxes?

“In fact, by 2005, our corporate tax rates will fall about five per cent below average U.S. rates. And our sharp cuts to capital gains taxes have brought the average top Canadian rate down lower than the typical top American rate.

“The Conservative’s position that a reduction of corporate taxes would benefit the auto industry is much too simplistic of a view. Considering the complexity of the automobile industry, we as a government should be providing strategic and targeted support to the industry in order to sustain it and its growth. Skills development, research and innovation, infrastructure, are all things we can do now to secure the future growth of the automobile industry.”

As for the NDP, they have argued that the auto industry’s downturn is the result of the Liberal government sitting idly by while the World Trade Organization has stripped away the historic Auto Pact between the U.S. and Canada. How do you respond?

The Auto Pact was a historic agreement when it took effect in 1965, and helped build the auto industry in Canada. However, the Auto Pact was largely superseded by NAFTA in 1994. Since that year, we have had record auto production, with a historic high in 1999-2000.

“It is important to clarify that we have not stood ‘idly by.’ As I mentioned, the Government of Canada has been successful in attracting automotive assembly investment to Canada, thanks to our labour costs, skilled workforce, universal healthcare system, and investment-conducive business climate. As well, both levels of government have and continue to work extremely hard to bring new assembly plants to Canada.”

When will the federal government come out with a new national automotive policy and what will it look like?

“The 2004 federal budget acknowledged the vital importance of the automotive sector to the Canadian economy and committed the government to work with industry, labour and Members of Parliament to develop a National Strategic Framework for the Automotive Sector, with a strong emphasis on R&D. The budget also committed an additional $800-million for environmental technologies, a portion of which could be used for innovative work on fuel-efficient and alternative-fuel vehicles, lightweight materials, and renewable fuels.

“The National Strategic Framework for the Automotive Sector will be developed over the next few months. The framework will address national objectives and horizontal issues which affect the long-term health of the sector, including investment, human resources, innovation and R&D, trade infrastructure, regulatory harmonization, market access, climate change and sustainable development. These efforts will provide a comprehensive framework to guide future policies, initiatives and programs directed at the Canadian automotive sector.

“The Framework will be developed in collaboration with key federal departments and agencies, and in consultation with industry, labour, academia, Members of Parliament, and the provinces. It will build upon the recommendations and strategic vision of the Canadian Automotive Partnership Council.”

What is the status of the relatively new Canadian Automotive Partnership Council and what role will it play in forging a new national automotive strategy?

“I understand that the work which has been done to date by CAPC has been very well received by industry stakeholders and observers. I have been briefed on CAPC by Industry Canada officials, and I, too, have been impressed by the substantial progress it has made over the past two years. I will be seeking CAPC’s assistance in the development of the new National Strategic Framework for the Automotive Sector.

“As for next steps, we expect CAPC to finalize an interim report over the next few weeks, which will then be presented for consideration by governments and others. Personally, I will use this CAPC report both as a starting point for our future policy work, and as a foundation for engaging in the CAPC process along with my provincial counterparts from Ontario and Quebec.”

The CAPC has had four meetings since its creation in September 2002 and none since the fall of 2003. When is the next one?

“I am looking forward to participating in the next meeting of CAPC, which I hope can be scheduled for early autumn.”

Will the plan address promoting advanced technology vehicles to the market place such as fuel cell and electric gas-powered hybrid vehicles into the market?

“Following the announcement in budget 2004, the proposed National Strategic Framework for the Automotive Sector will include strong emphasis on research and development and address the role of advanced auto technologies such as fuel cells and hybrid vehicles in improving the fuel and environmental performance of vehicles. We see these developments as of course good for the environment, while at the same time enhancing the competitiveness of the Canadian automotive industry.

“That said, the Government of Canada has already made a significant commitment in this regard. Last October, the government announced a $215-million investment to advance the development of the hydrogen economy. Accelerating the development, commercialization and early adoption of advanced technologies is the key element of these investments. Measures to expedite the entry of advanced technology vehicles to the market are being considered collaboratively by various federal departments.”

How can the government effectively turn consumers on to this new technology?

“The Government of Canada, through its various funding agencies and programs, is partnering with the industry to demonstrate the advantages of fuel cell and alternative fuels vehicles. Sustainable Development Technology Canada (SDTC), Technology Partnerships Canada (TPC), and the Canadian Transportation Fuel Cells Alliance (CTFCA) are some the major federally- supported institutions that are very active in supporting industry-led demonstration and technology commercialization projects. Through such demonstration projects, the consumer will be able to see the benefits of fuel cell driven vehicles. Demonstration projects will also provide data necessary for commercialization. It is expected that as fuel cell technology matures, consumer acceptance will widen as savings realized over the life of a vehicle compensate for the additional up front cost of hybrid and fuel cell vehicles.

“As for encouraging consumers to use some of the newer technologies, the auto industry itself has a role to play, and we are beginning to see, for example, more models with advanced hybrid technologies being brought to market. Other technologies, such as fuel cells, will of course take longer.”

Can you picture a day when auto- makers might be mandated to make vehicles fuel-efficient?

The Government of Canada and the Canadian automotive industry have negotiated a number of voluntary agreements in the past, including the Company Average Fuel Consumption Standards and National Low Emission Standards for 2001-2003.

“The industry continues to improve the fuel efficiency of its vehicle fleets, and has invested heavily to bring new fuel technologies to market, including hybrids. As consumers become more aware of the existence and benefits of these types of technologies through various information programs and demonstration projects, demand will no doubt grow and more automotive manufacturers will in turn respond to this increase in demand. Government departments, not just my own, are in continuing discussions with the industry on issues such as fuel efficiency.”

How does Kyoto fit into the federal government’s auto industry strategy?

“Improving new vehicle fuel efficiency is one of the key objectives of the government’s efforts to meet our goals related to climate change. The government is working with the auto manufacturers towards a voluntary agreement that will effect a 25 per cent reduction in fuel consumption of new vehicles sold in Canada by 2010. The industry is committed to action in this regard, as evidenced by the overall commitment to automotive R&D, particularly in the field of fuel cells and the hydrogen economy. Talks with the industry are well underway and I am confident that we will be able to agree on the best ways to realize our fuel efficiency goals.”

Are you concerned by the current mood in American politics, exemplified by politicians like Democratic presidential candidate John Kerry who has come across as protectionist in promising to fight hard to protect manufacturing jobs from moving to Canada and other countries?

“I think any time there is heightened talk about protectionist measures, we should be concerned. Canada can compete with the best in the world. Our preferred approach is for free and open borders and the free flow of goods and services across those borders.”

How concerned is the federal government about the way regulations are making it onerous for auto makers to do business?

Regulatory burden to the industry is of great concern to the government. We want regulations to be efficient, rationalized and harmonized within Canada, and with the U.S. whenever it is in the public interest of Canadians. With this aim, the government has recently initiated a task force on Smart Regulation with a vision where government, citizens and business will work together to build a national regulatory system that both enables Canadians to take advantage of a new knowledge economy and supports Canada’s participation in the international economy. The Canadian Automotive Partnership Council is also examining this, and I look forward to hearing more about these concerns in the weeks ahead.”

What do you drive at home and how energy efficient is it?

“A newer model of family sedan BMW.”

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