Canada and Mexico are looking for a compromise on auto-sector rules in TPP as they try to bridge the gap with Japan. Seeking these changes would boost their domestic content requirement for the most sophisticated of car parts. The TPP deal would eclipse the North American free-trade agreement in importance and reduce the level of domestically made auto parts in vehicles sold in Canada but also boost the access granted to Japan.

Canada and Mexico were very disappointed in the Maui meeting where Japan and US struck a deal to lower domestic content. In Atlanta, the Japanese agreed to raise it to 35% from 30 of the parts to be made locally under TPP. The United States and Japan are the biggest players in the TPP.

Sources familiar with the TPP talks say Ottawa has secured the removal of tariffs of as high as 5 per cent that other TPP countries currently apply to Canadian aerospace goods, such as engine aircraft parts shipped to Australia or aircraft seats sold to New Zealand. Canada has also obtained a commitment by other TPP countries to strike tariffs, again as much as 5 per cent of which is slapped onto Canadian manufactured goods such as medical, surgical or laboratory machinery.

Canada is at the center of two major obstacles that have delayed the final agreement including dairy and most importantly autos. An agreement will almost certainly expose the Canadian auto-parts sector, which employs 80,000 people, to far more foreign competition and erode the preferential position that the industry enjoys under NAFTA.

It will also open up Canada’s dairy industry, currently protected by high tariffs, to significantly more foreign imports. Canadian beef, pork and canola producers are big winners in the final TPP deal because the agreement as drafted has significantly lower barriers to selling products in Japan.

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