TORONTO - Canada's auto sector is at a disadvantage because domestic rules for car safety, fuel consumption and the environment differ from American standards, adding compliance costs that manufacturers can no longer sustain, a former free trade negotiator says.
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In an commentary published Tuesday by the C.D. Howe Institute, Michael Hart recommends that Ottawa and Washington eliminate regulatory differences between the two countries and ensure new differences aren't introduced.
The article was released by the economic think-tank as Canadian and American governments grapple with a myriad of problems that threaten the auto industry.
Most prominently is the possibility that General Motors Corp. (NYSE:GM) or Chrysler LLC or both will collapse if they fail to complete restructuring efforts, using billions of dollars in U.S. and Canadian government funds.
The Canadian federal and Ontario governments have offered to provide aid that's proportionate and consistent with what's provided to the U.S. auto sector by the American government.
But Hart, a former Canadian federal official who helped negotiate the North American Free Trade Agreement, focuses on barriers that remain between Canada and its largest customer, the United States.
“Today, the industry faces new, but equally challenging issues. The solution, however, remains the same: the two federal governments need to work together to facilitate further and deeper cross-border integration,” writes Hart, one of Canada's foremost trade policy experts.
“The barriers to that integration today are not tariffs, subsidies and other industrial policy measures, but regulatory differences and border administration.”
Those differences have arisen over the years as policymakers on both sides of the border seek to address consumer needs, desires and expectations but take different approaches in doing so, he writes.
For example, he says:
- Canada requires day-time running headlights, the United States doesn't.
- Canadian metric and bilingual standards require unique speedometer and odometre clusters.
- Canada has proposed fuel and emission requirements along the U.S. approach, but hasn't adopted compatible fuel-quality standards.
While the differences between state, provincial and federal regulations in Canada and the United States are minimal compared with the schism between North American standards and those in the rest of the world, once they're in place they're hard to get rid of, Hart says.
“Once a regulatory regime is in place, officials will fight hard to maintain or even enlarge it, aware that their jobs and careers depend on it. Ministers, on the other hand are reluctant to reduce, change or eliminate regulations that serve, at best, marginal public policy purposes for fear that they will be criticized for failing to ensure the welfare or safety of their constituents.”
More than three quarters of Canada's auto production at assembly plants in Ontario run by GM, Chrysler and Ford as well as Japanese carmakers Toyota and Honda, is shipped to the United States market.
Meanwhile, auto parts producers, located in southern Ontario mainly, feed into a continental market across the Canada-U.S. border.
Hart says the auto industry's has repeatedly called for greater attention to restricting the border administration and regulatory differences, but with little success.
He concludes that “this situation is not sustainable. The Canadian market alone is far from sufficient to justify unique regulatory requirements, particularly those that serve no discernible public policy purpose.”
Hart is currently at Carleton University's Norman Paterson School of International Affairs in Ottawa.
In a commentary by the C.D. Howe Institute, Michael Hart recommends that Ottawa and Washington eliminate regulatory differences and ensure new ones aren’t introduced.
Those differences have arisen over the years as policy-makers on both sides of the border seek to address consumer needs, desires and expectations but take different approaches in doing so, he writes.
While the differences are minimal compared with the schism between North American standards and the rest of the world, once they’re in place they’re hard to get rid of, Hart says.