Threat to Canadian electric vehicle industry dissipates with US Senate deal

An electric vehicle is charged in Ottawa on Wednesday, July 13, 2022.Sean Kilpatrick/The Canadian Press

A deal struck among Democrats in the US Senate appears to have eliminated a threat hanging over the nascent electric vehicle manufacturing industry in Canada.

An agreement announced late Wednesday between Senate Democratic leader Chuck Schumer and Senator Joe Manchin of West Virginia gives the Democrats the votes they need to pass a key plank of US President Joe Biden’s agenda.

The deal would amend Mr. Biden’s climate and health bill and change the terms of tax credits for electric vehicles that as previously written would have only applied to autos assembled in the United States.

The amended language does away with the made-in-America criteria and instead says the tax credit would apply to electric vehicles assembled “within North America,” which means not only the United States but Canada and Mexico.

The proposed changes also require that the critical minerals used to build batteries for the electric vehicles “are extracted or processed in any country with which the United States has a free trade agreement.”

Canada’s auto industry and the Canadian government are celebrating the development. International Trade Minister Mary Ng had previously warned that a Buy-America-style tax credit would “serious and irreparable harm” to the Canadian automotive sector.

“Now we can all breathe a sigh of relief,” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said.

Ms. Ng lauded the news of the revised tax credit proposal, and credited “Team Canada advocacy” by Canadian industry and provincial governments for the change. Prime Minister Justin Trudeau raised the matter in his White House meeting with Mr. Biden last November.

“This is good news for Canadian workers, jobs and our manufacturing industry,” the international trade minister said in a statement. “We are encouraged by integrated recognition of the unique North American trading relationship and the tightly Canada-US supply chains.”

“Since the Prime Minister’s first meeting with President Biden last year, we have been relentless in underscoring that the original proposal would be harmful to both Canada and the US, so we’re glad to see that recognized in the new version of the bill, “Ms. Ng said.

Canada late last year threatened tens of billions of dollars in trade retaliation against the United States – including US auto workers – if Washington approved legislation on made-in-America electric vehicle incentives that could devastate auto assembly in Canada.

Retaliatory measures contemplated by Ottawa would have targeted not only the US auto sector but also block dairy shipments to Canada and suspended copyright protections sought by the United States in a 2018 trade deal.

The Canadian and Mexican governments previously warned the proposed credits could damage the future of EV production in Canada and Mexico. Offering the tax credits only for US-made vehicles could cut Canada and Mexico out of the production of electric vehicles by encouraging auto companies to put their plants in the US It could also hurt the auto industry and drive up costs for consumers by disrupting supply chains , which currently stretches across all three countries.

Ottawa last year said it estimated the US-only EV credit to be the equivalent of a 34-per-cent tariff on Canadian-assembled electric vehicles.

-With files from Reuters