Combination of Brexit and Ceta - Moving Vehicle Platforms from 1
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COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 1 UK TO CANADA Combination of Brexit and CETA - Study on the Possibility of Motor Corporations Moving Vehicle Platforms from UK to Canada Junxi YU Engineering and Public Policy, McMaster University COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 2 UK TO CANADA Abstract With the help from Canada-European Union Comprehensive Economic and Trade Agreement (CETA) signed in 2016, enormous opportunities and benefits have been created for the automotive industry in Canada. Specifically, European Union(EU) tariffs immediately eliminated on all Canadian auto parts that exported to EU. In the European market, UK has been a competitor to Canada in the automotive industry. After Brexit, without the benefits of free trade within EU, vehicles manufactured in the UK will start to lose their appeal in price gradually. In the thesis, a comparison on the current situation of five motor corporations in Canada and the corresponding motor corporations in the UK was made. It was found that only Honda Canada and Honda UK have an identical vehicle platform referred as Honda Civic platform, which produces same vehicle models, namely Honda Civic Type R and Honda CRV. On the contrast, the other four auto corporations don’t possess a same vehicle platform, producing same vehicle models in Canada and UK. A thorough analysis on Honda Motor Company was conducted. The total costs including vehicle price, shipping costs, tariff and currency exchange rate for EU consumers to purchase a car from the same platform in Canada and UK was calculated separately. By comparing the total costs of the two purchasing routes, the conclusion and recommendations was provided. It was concluded that Honda Motor Company could beneficially move vehicle platforms from UK to Canada, and the results also held for the other motor corporations. Keywords: CETA, Brexit, European market, Motor Corporations, Automotive manufacturers, Canada, UK, Vehicle platforms, Honda, Moving, Possibility COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 3 UK TO CANADA 1. Introduction With the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) agreement reached by the European Union (EU) and Canada in 2016, enormous opportunities and benefits have been created for the automotive industry in Canada. Specifically, all Canadian auto parts that exported to European Union(EU) holds the tariff free advantage. After Brexit, without the tariff benefits within EU, vehicles manufactured in the UK will start to lose their appeal in price gradually. With the combination of CETA and Brexit, it is clear that Canada has more favorable environment for the development for automotive industry, especially for long-term investments. Particularly, the current policy situation is beneficial for five auto corporations in Canada, including Toyota, Ford, General Motors, Fiat Chrysler Automobiles (FCA) and Honda. The thesis will be focused on a detailed comparison regarding the current situation of vehicles sold in Canada and UK, and the corresponding vehicle platforms. The cost of purchasing a specific vehicle model produce by an identical vehicle platform from Canada and UK will be calculated separately. By comparing the calculation results, conclusion and recommendations will be provided. 2. The Current Policy Situation in the Canada and in the UK 2.1 CETA “The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) signed in 2016 is a progressive trade agreement that upholds and promotes the values that Canada shares with the EU.” COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 4 UK TO CANADA Resource: http://www.international.gc.ca/trade-commerce/trade-agreements-accords- commerciaux/agr-acc/ceta-aecg/index.aspx?lang=eng 2.1.1 CETA and Automotive Industry in the Canada “How will CETA benefit Canadian automotive sector exporters?” Fig. 1 EU tariff elimination under CETA (Chart 1) Resource: http://www.international.gc.ca/gac-amc/campaign-campagne/ceta- aecg/automotive-automobile.aspx?lang=eng Upon CETA’s application, EU tariffs will be immediately eliminated on all Canadian auto parts. Fig. 2 EU tariff elimination under CETA (Chart 2) Resource: http://www.international.gc.ca/gac-amc/campaign-campagne/ceta- aecg/automotive-automobile.aspx?lang=eng COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 5 UK TO CANADA “Tariffs on all remaining types of vehicles will be phased out over the following 7 years.” Resource: http://www.international.gc.ca/gac-amc/campaign-campagne/ceta- aecg/automotive-automobile.aspx?lang=eng 2.2 Brexit “Brexit is the popular term for the United Kingdom's intended withdrawal from the European Union. In a UK referendum on 23 June 2016, 51.9% voted to leave the EU.” Resource: https://en.wikipedia.org/wiki/Brexit 2.2.1 Brexit and Automotive Industry in the UK The automotive industry in UK has been trapped in an incredibly difficult circumstance after Brexit, which could lead to an increasing cost of manufacturing vehicles for all auto corporations in the UK. Resource: https://www.autovistagroup.com/news-and-insights/concern-over-impact-brexit- european-automotive-industry Moreover, without the tariff free in the EU, the tariff benefits will be highly impacted. After Brexit, “the tariff on vehicles imported into the European Union from UK is forced to fall back on basic World Trade Organization rules, which is up to 10%, unless some extra further agreements signed by UK and the EU, such as a tariff-free deal.” Resource: http://www.independent.co.uk/news/business/news/brexit-latest-tariffs-on-uk-car- exports-to-europe-would-be-disastrous-for-jobs-says-jaguar-land-a7334991.html COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 6 UK TO CANADA In more detail, “tariffs, for instance, could amount to 10% for passenger cars, 10 – 22% for commercial vehicles, and 3 – 4% on average for parts and components.” Resource: https://www.autovistagroup.com/news-and-insights/concern-over-impact-brexit- european-automotive-industry “SMMT analysis suggests that EU tariffs on cars alone could add at least an annual £2.7 billion to imports and £1.8 billion to exports.” Resource: https://www.smmt.co.uk/industry-topics/brexit/ Without a shadow of doubt, vehicles manufactured in UK will lose their appeal in price within the European Union after Brexit. 2.3 The combination of current policy situation in the Canada and in the UK With the combination of CETA and Brexit, it is clear that Canada has more profitable and sustainable environment for the development of automotive industry, especially for long-term development. 3. The current situation of vehicle platforms in Canada “Canada is currently the ninth-largest auto producer in the world, producing 2.1 million cars a year. However, China, Spain, India, Brazil, Mexico recently surpassed Canadian production for the first time.” Resource: https://en.wikipedia.org/wiki/Automotive_industry_in_Canada COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 7 UK TO CANADA To date, there are five automotive manufacturers in Canada in total, including Toyota Canada, Lexus Canada, Ford Canada, General Motors Canada, and Fiat Chrysler Automobiles (FCA) Canada. 3.1 Toyota’s vehicle platforms in Canada 3.1.1 Toyota’s vehicles sold in Canada COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 8 UK TO CANADA Fig. 3 Toyota’s vehicles sold in Canada Resource: https://www.toyota.ca/toyota/en/ 3.1.2 Toyota’s vehicles manufactured in Canada RAV4 is manufactured in the Toyota Woodstock Plant by the Toyota New MC platform. Corolla Sedan is manufactured in the Toyota Cambridge Plant North by the Toyota B platform. 3.1.3 Toyota’s vehicle platforms in Canada Toyota New MC platform Visit https://en.wikipedia.org/wiki/Toyota_MC_platform for more information. Toyota B platform Visit https://en.wikipedia.org/wiki/Toyota_B_platform for more information. COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 9 UK TO CANADA 3.2 Lexus’s vehicle platforms in Canada 3.2.1 Lexus’s vehicles sold in Canada Fig. 4 Lexus’s vehicles sold in Canada Resource: http://www.lexus.ca/lexus/en 3.2.2 Lexus’s vehicles manufactured in Canada RX 350 and RX 450h are manufactured in the Toyota Cambridge Plant by the Toyota K plant. 3.2.3 Lexus’s vehicle platforms in Canada Toyota K platform Visit https://en.wikipedia.org/wiki/Toyota_K_platform for more information. COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 10 UK TO CANADA 3.3 Ford’s vehicle platforms in Canada 3.3.1 Ford’s vehicles sold in Canada Fig. 5 Ford’s vehicles sold in Canada Resource: http://www.ford.ca/ 3.3.2 Ford’s vehicles manufactured in Canada Ford Edge is manufactured in the Oakville Assembly Complex by the Ford CD3 platform (2007 – 2014), and the Ford CD4 platform (2015 – present). Ford Flex is manufactured in the Oakville Assembly Complex by the Ford D4 platform (2009 – present). Lincoln MKX is manufactured in the Oakville Assembly Complex by the Ford CD3 platform (2007 – 2014), and the Ford CD4 platform (2016 – present). Lincoln MKT is manufactured in the Oakville Assembly Complex by the Ford D4 platform (2010 – 2017). COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 11 UK TO CANADA 3.3.3 Ford’s vehicle platforms in Canada Ford D3 and D4 platform Visit https://en.wikipedia.org/wiki/Ford_D3_platform for more information. Ford CD3 platform Visit https://en.wikipedia.org/wiki/Ford_CD3_platform for more information. Ford CD4 platform Visit https://en.wikipedia.org/wiki/Ford_CD4_platform for more information. 3.4 General Motors’ vehicle platforms in Canada 3.4.1 General Motors’ vehicles sold in Canada Chevrolet’s vehicles sold in Canada Fig. 6 Chevrolet’s vehicles sold in Canada Resource: http://www.chevrolet.ca/?eVar25=gmca_canada_chevrolet COMBINATION OF BREXIT AND CETA - MOVING VEHICLE PLATFORMS FROM 12 UK TO CANADA Buick’s vehicles sold in Canada Fig.