I have said often that it’s not where something is made that matters, but how it is made, or more accurately, how well it is made. News arising from Trans-Pacific Partnership negotiations have forced me to revisit my assertion.
Hurriedly signed by our former Prime Minister in the weeks leading up to the election – with many details unreleased (and many relating to the automotive sector still to be worked out) – the Trans-Pacific Partnership (TPP) Free Trade Agreement would create an economic bloc embracing 12 countries on both sides of the Pacific: Canada, the United States, Mexico, Australia, Japan, New Zealand, Malaysia, Singapore, Vietnam, Chile, Peru, and Brunei.
With the globalization of manufacturing and the services that support it, it is rare indeed to find a company that does not have some part of its business conducted outside the borders of this country or this continent. Even companies that manufacture their products here often rely on far-flung companies for Web design, accounting, call centre support, and other discrete parts of their business.
While these realities may seem far afield from your local dealings, they do affect you and your customers every day, in ways that aren’t always predictable.
The discussion takes me back to when the Canada-U.S Free Trade Agreement was still new. At the time, there was seemingly endless discussion about what constituted Canadian goods; these “rules of origin” seem simple on the surface, but as negotiations continued, a multitude of exceptions served to blur the lines considerably, to the point that some cars built in Canada were judged to be not Canadian, or not Canadian enough, and were blocked at the U.S. border.
As the recent negotiations regarding the TPP trade agreement have shown, rules of origin continue to lie at the core of controversial trade agreements.
The push that was reported earlier this year at the Hawaii round of TPP negotiations for a 30% tariff-free threshold for parts and 45% for light-duty vehicles (currently at 62.5%), was predictably met with cries of foul by Canadian and Mexican parties, who offered that anything less than 50% content could prove disastrous.
Granted, the most vocal of these parties are tightly connected to the original equipment parts supply chain, where the impact of such changes would likely be felt most keenly.
The potential impact on aftermarket suppliers is a bit of a question mark, though I do know that the Automotive Industries Association of Canada is monitoring the situation closely. Furthermore, as neither Taiwan nor China – where much aftermarket production is conducted – are part of the bloc, any direct impact may be negligible.
Still it is important to think of TPP countries as both suppliers and markets; TPP could mean that competition from bloc countries increases dramatically here, or demand for products increases as tariffs drop in those countries, thereby making it harder to secure supply here. Malaysia, for example, is the third-largest vehicle producer in the region, with 45 Tier 1 suppliers protected by a 30% tariff on imported vehicles. There is sure to be an impact should that barrier disappear. On the upside, TPP rules might also drive some companies to perform finishing work within our borders to qualify for tariff-free status. And it could mean all of these things for different players, as the tide of business shifts under the new rules.
And that should serve as a reminder that even as the complexity of fulfilling your local demand increases, there is a deepening, global complexity to this business – to every business, really – and that cannot be ignored. I can’t imagine trying to go it alone.
— Andrew Ross, Publisher firstname.lastname@example.org
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