Globalization Buzz

Buzz Hargrove, the president of the Canadian Auto Workers union, is calling on Ottawa to conjure up the spirit of the old Canada-U.S. Auto Pact to save this country’s embattled auto manufacturing industry. Negotiated in 1964, the Auto Pact allowed American car companies to avoid paying duties so long as they built one vehicle here for every one they sold. The result was a surge of investment in Canada by Ford, General Motors, and Chrysler, especially throughout the 1960s and ’70s.

The treaty was struck down by the World Trade Organization in 2000 and rescinded by Ottawa last year. The WTO said the deal gave preferential treatment to U.S.-based auto companies at the expense of other foreign manufacturers, namely Honda and Toyota. These days, there’s no such animal as an American vehicle manufacturer, the WTO ruled. They’re all multi-nationals.

So, for that matter, are truck manufacturers. Last month, the first Western Star tractors rolled off the assembly line in Portland, Ore. Freightliner LLC, parent of Western Star and a division of DaimlerChrysler, closed its plant in Kelowna, B.C., after more than 30 years of production. And Navistar International announced plans to close its truck plant in Chatham, Ont. Next summer, the company’s flagship highway tractor, the 9000i series, will be made only in Mexico.

Traditionally, quality distinguishes Canadian goods from those made elsewhere. Navistar said its decision to leave Chatham has nothing to do with product quality. It’s economics. The company simply operates a more productive plant in Mexico where workers cost the equivalent of $4 US an hour, including benefits, and still produce a fine truck. A line worker in Chatham costs $33 US. At those rates, you can’t say the CAW could have saved this plant.

Hargrove wants Ottawa to punish Navistar for selling trucks here without a manufacturing commitment, for viewing Canadians “solely as potential customers, rather than human beings who need work and income in order to maximize the potential of their lives,” he says. “If International won’t live up to its responsibility, then they need to face a constraint in consequence. That constraint should be exclusion from the Canadian market.”

That idea hearkens back to the glory days of the Auto Pact, before the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement allowed any company with a presence in North America to bring parts and vehicles into Canada from the United States and Mexico.

Don’t believe for a second that Hargrove will get his wish. But the alternatives aren’t so appealing, either. One is for governments to open the vaults to manufacturers, ponying up millions in grants, tax credits, and other incentives to keep work here. That’s how PACCAR came to build trucks in Ste-Therese, Que., again. The result is a state-of-the-art factory with good, high-paying jobs. When the plant was rebuilt, contracts granted to local construction firms were worth close to 70 per cent of the $135-million cost. Today, when workers head to their cars in the parking lot, they can’t help but look across the street at the hulking plant Chevy plant GM closed earlier this year.

With an auto plant, though, we’re talking huge money: Ohio, for example, has offered Ford $223 million US over the next 10 years to produce Escape sport-utes at a plant in Cleveland that was destined to close.

The other option is to let economic Darwinism run its course. Already, three of Canada’s 13 auto plants are scheduled to be mothballed, and another has no future product commitment. Auto assembly in Canada has fallen from a 1999 record of more than 3 million units to a projected 2 million this year, and 15,000 jobs have been lost in the industry.

Maybe a Mexican-made 9900i really won’t match the production quality of a truck built in Chatham, and this decision will come back to bury Navistar in a pile of warranty claims. I don’t know, but Mexico is not a sleepy nation saddled with a corrupt bureaucracy, lazy workforce, and a weak peso. Ford, General Motors, Nissan, DaimlerChrysler, and Volkswagen have poured billions of dollars into the country since NAFTA, to the point where auto makers — with more than a half-million workers — are the country’s largest private employer. Labour costs there are about one-eighth of what you’ll find here or in the United States.

An editorial is supposed to draw a conclusion, and I have to tell you, as I run out of room on this page, I’m struggling. I don’t want to see high-paying industrial jobs leave Canada any more than you do. And the CAW’s idea that companies owe customers some respect for their social circumstance is a noble one. But I don’t believe price supports, protective tariffs, and government intervention should sustain an industry. They only delay the inevitable, painful outcome.