Four Frequently Asked Questions to Better Understand the Canada-US Dispute Over Electric Vehicle Subsidies | The Canadian News

It might be hard to imagine Prime Minister Justin Trudeau arguing against a climate-friendly tax credit.

But that is exactly what happened last week in Washington, DC during the so-called “Three Friends” summit between Trudeau, US President Joe Biden and Mexican President Andrés Manuel López Obrador.

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The summit got off to a charged start when Trudeau opposed a proposed $ 12,500 tax credit for US-made electric vehicles included in the Biden administration’s $ 1.5 billion “Better Reconstruction” Act.

The bill was approved by the U.S. House of Representatives on Friday and is awaiting Senate approval before sending it to Biden for confirmation.

Trudeau’s concern is that the tax credit could devastate Canada’s auto sector just as manufacturers are converting plants to make zero-emission vehicles for sale in North America.

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Canada will respond to US-made EV tax credits If approved: Champagne

Several prominent Canadian cabinet ministers echoed these concerns, including Innovation Minister Francois-Philippe Champagne, who in early November warned the US that Canada would respond “appropriately” if the tax credit becomes law. .

So what does this disagreement between friends mean for Canada?

Here are four questions and answers that help explain the key issues.

What does Canada have to lose?

Canada has a lot to lose. Canadian-made car exports were valued at around $ 43 billion in 2020, according to the Canadian Vehicle Manufacturers Association (CVMA). About 93 percent of these, or $ 40 billion, ended up in the US.

Automakers, including auto parts companies, directly employ 125,000 Canadians, according to recent government statistics. The industry also indirectly employs some 370,000 people in Canada, including auto sales and finance.

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Automobile manufacturing is one of the largest sectors of the Canadian economy, accounting for at least $ 12.5 billion of the country’s GDP. It is also the second largest sector in terms of exports, only behind the oil and gas industry.

Manufacturing giants like General Motors also plan to spend billions of dollars upgrading plants in Ontario to build new electric vehicles destined for the US market.

Click to play video: 'Focus Ontario: Ontario looks to a future of electric vehicles'

Focus Ontario: Ontario looks to a future of electric vehicles

Focus Ontario: Ontario looks to a future of electric vehicles

But it’s unclear exactly how much of Canada’s auto industry could be at risk from Biden’s proposed “Buy America” ​​tax credit.

Some experts have suggested that the problem could be solved once US lawmakers realize that the tax credit could hurt jobs on both sides of the border, due to the “interdependent” nature of American car manufacturing. from North. Others say there are good reasons to be concerned, especially if Biden remains steadfast in his commitment to putting “America first.”

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Electric Vehicle Tax Credits: Good or Bad?

Whether EV tax credits are good or bad depends on who you ask. Many environmentalists and climate change advocates support tax credits and rebates for zero-emission vehicles.

The subsidies help offset some of the higher production costs compared to cars and trucks with combustion engines. Tax credits and rebates also provide incentives to manufacturers interested in stopping producing traditional vehicles because they know there will be a market for the products they make.

But Ontario Prime Minister Doug Ford scrapped a long-standing provincial rebate for electric vehicles in 2018, shortly after his election victory.

Click to Play Video: 'Ontario Government Increasingly Focused on Electric Vehicles'

Ontario government increasingly focuses on electric vehicles

Ontario government increasingly focuses on electric vehicles

The rebate, which offered buyers up to $ 14,000, was criticized by Ford as elitist and as a subsidy for the wealthy who didn’t need government help to buy a new car.

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As recently as last week, Ford said before the last election it “didn’t believe in giving millionaires refunds” for $ 100,000 cars, according to a report from the Toronto Star.

But Ford’s position may have softened a bit ahead of next year’s Ontario election. He said last week that the province is investing billions of dollars into electric vehicle manufacturing and is considering whatever the “market can support” in terms of financing and possible subsidies.

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A report by Electric Mobility Canada released in December 2019 showed that the number of electric vehicles sold in Ontario dropped by 55 percent in the six months after Ford eliminated the provincial rebate program.

Proponents of electric vehicles said this was evidence that subsidies work and are an important part of the transition to a climate-friendly transportation economy.

Does Canada have no tax credits for electric vehicles?

Electric vehicle tax credits have also been featured on political platforms in Canada.

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During the most recent federal election, Liberals proposed extending a $ 5,000 federal rebate for zero-emission and electric vehicles. Meanwhile, the NDP proposed a $ 15,000 subsidy for zero-emission and electric cars “made in Canada”. The Green Party proposed exempting electric vehicles from federal sales tax.

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Many provinces also offer grants, including British Columbia, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

Quebec offers buyers up to $ 8,000 in rebates for electric and hybrid vehicles. Combined with the federal discount, these subsidies bring many zero-emission cars closer to the retail price of combustion engine equivalents.

Does ‘Buy America’ break trade agreements?

Trudeau and his ministers have clearly stated their belief that the proposed “Buy the United States” tax credit would violate the United States-Mexico-Canada Agreement (USMCA) and the rules of the World Trade Organization (WTO).

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Trade Minister Mary Ng wrote a letter to US congressional leaders in late October saying the proposed loan could cause “serious and irreparable damage” to the Canadian auto sector.

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Canada sent the US another letter, signed by foreign ambassadors from 25 different countries, saying that limiting credit eligibility to US-made vehicles is “inconsistent with US commitments.”

Foreign Minister Melanie Joly criticized the proposed loan during a visit to Washington. He added that Canada has a large amount of minerals needed to build electric cars, a possible clue to one of the steps Canada might be willing to take if the tax credit is approved.

“We have a lot to gain from working together,” Joly said on November 12. “Canadians know that we have to defend our interests and we can never take anything for granted.”

Click to play video: 'Trudeau says he spoke about the pandemic, CUSMA, more with Biden in the middle of visiting Washington, DC'

Trudeau says he discussed pandemic, CUSMA, more with Biden amid Washington, DC visit

Trudeau says he discussed pandemic, CUSMA, more with Biden amid Washington, DC visit

Deputy Prime Minister Chrystia Freeland has offered what is perhaps Canada’s strongest objection to the tax credit.

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During a press conference on November 17 in Washington, he said the proposal has the potential to become the “dominant issue” in the Canada-United States relationship.

He also said that Trudeau told top US House and Senate lawmakers that Canada is “sure” the incentives would violate the T-MEC, according to a report of Politico.

“Do you really want to violate it in such a significant way so soon after approval?” Freeland said. “That was one of the points we made. I think they heard us. “

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But Americans were quick to disagree with Trudeau’s arguments, Politico wrote.

“In our opinion, EV tax credits are an opportunity to help consumers in this country,” White House press secretary Jen Psaki said Nov. 18.

“It is not the first time that there are incentives and tax credits for consumers, to lower prices for consumers [and] help fuel a movement toward a clean energy industry. “

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