Fourth Annual Meeting of the Bilateral Dialogue on Motor Vehicle Regulations Videoconference – November 26, 2021

(by videoconference)

The fourth meeting of the Bilateral Dialogue on Motor Vehicle Regulations, as established under the Comprehensive Economic and Trade Agreement (CETA), took place on November 26, 2021 by videoconference. Canada was represented by officials from Transport Canada, Environment and Climate Change Canada, and Global Affairs Canada, while the European Union (EU) was represented by officials of the European Commission from the Directorate General for Internal Market, Industry, Entrepreneurship and SMEs; Directorate General for Climate Action; and the Directorate General for Trade.

1. Regulatory Developments

CETA implementation update (Canada)

With respect to motor vehicle regulations, Canada affirmed the value of ongoing cooperation with the EU in international fora and noted that multiple standards listed in CETA Annex-4A are currently being developed as Global Technical Regulations (GTRs) in the context of the World Forum for Harmonization of Vehicle Regulations (WP.29). Recognizing some of the challenges related to virtual engagement during the pandemic, Canada and the EU reiterated that they look forward to continuing their collaboration to take forward these as quickly as possible at WP.29.

In addition, Canada emphasized that it regularly assesses whether other international standards, including United Nation (UN) regulations, are appropriate in a Canadian context and provide an equivalent level of safety to the Canada Motor Vehicle Safety Standards. For example, it was noted that in April 2021, Canada published a draft regulation related to minimum sound requirements for hybrid and electric vehicles that would incorporate a UN Regulation.

The EU welcomed the willingness to consider the incorporation of other international standards including UN Regulations.

Proposal for a luxury tax in Canada (EU & Canada)

The Commission reiterated its concerns regarding the proposed tax in Canada on the sale of new luxury cars, boats and aircraft as expressed in its response, on behalf of the EU, to the public consultation on this issue in September 2021. The Commission stressed, in particular, the fact that the proposed tax would apply to a substantial part of EU exports of cars and could have a disproportionate negative impact on them compared to domestically produced ones.

The Commission also underlined that this measure could undermine Canada’s green agenda, as it would hit low and zero emissions vehicles more than traditional ones. In the light of this, the Commission called for ensuring that vehicles imported from the EU are not de facto discriminated, and notably the exclusion of zero and low emitting vehicles from the scope of the measure.

Canada took note of these concerns and said that they would be assessed, along with the other responses to the consultation, by the Department of Finance Canada, which is responsible for this proposal. Following the meeting, Canada also shared the specific technical questions on the matter the Commission asked during the meeting with the Department of Finance Canada.

2. Policy discussion

Canada’s plans to encourage zero-emission vehicles (Canada)

Canada highlighted priorities in the Government’s Speech from the Throne on November 23, 2021 related to COVID-19 and economic recovery, rules-based trade, strong and resilient supply chains, and bolder climate action, including the statement that “Investing in public transit and mandating the sale of zero emissions vehicles will help us breathe cleaner air.”
 
Canada noted that on June 29, 2021, the Government announced a mandatory target that 100% of new light-duty vehicle sales will be zero-emission vehicles (ZEVs) by 2035, which was reiterated at COP 26. In support of meeting this target, Canada provided an overview of specific measures being taken to encourage the uptake of ZEVs, including investments in charging infrastructure across the country and providing purchase incentives through the iZEV program to reduce the upfront costs of ZEVs for Canadian consumers.

Canada further confirmed that it will be consulting with industry, non-governmental organizations, and other levels of governments on its approach to meet its 2035 ZEV sales target, including on interim targets. Consultations will also include engaging Inuit and Northern communities to address barriers to ZEV uptake in remote regions.

From a regulatory perspective, Canada noted that it is taking ambitious action to transform the transportation sector and will align with the most stringent standards in North America to drive down emissions. Canada noted that it is engaging in regulatory work related to electric vehicles in WP.29, including recent GTRs on power determination and battery durability.

Commission presentation on new CO2 emission targets and support for recharging infrastructure (EU)

The Commission gave a short overview of key transport related policies included in the July 2021 package of proposals to implement the strengthened EU 2030 climate target of at least 55% greenhouse gas reduction compared to 1990, in light of the climate neutrality target for 2050. This includes a proposal to revise the CO2 standards for cars and vans with strengthened targets (based on tailpipe emissions) as follows:

• by 2030 - 55% emission reduction for new cars and 50% reduction for vans compared to 2021 (from 37.5% and 31% reduction respectively); and
• by 2035 - 100% reduction - meaning that from 2035 onwards all new cars and vans registered in the EU will need to be zero-emission.

The revised standards maintain the existing system for manufacturer annual compliance and retains the existing annual monitoring and governance system. The proposal also introduces, from 2025 onwards, a biennial report on the progress towards zero-emission road mobility.

The Commission also gave a short overview of the CO2 standards currently in place for heavy duty vehicles, with a 15% reduction target for 2025 and 30% for 2030, based on a 2019 baseline.

3. International regulatory co-operation

Follow-up on recent agreement on battery durability (EU & Canada)

The Commission stressed the importance of international regulatory cooperation. The automotive industry is a global industry and hence needs global solutions. Canada and the Commission are key partners for such cooperation and they look to strengthen such cooperation especially within the context of the WP.29 framework.

An excellent example of this cooperation has been on battery durability where there has been close co-operation between Canada and the Commission in the UN Economic Commission for Europe Informal Group on Electric Vehicles. The Commission and Environment and Climate Change Canada have worked closely on the development of a methodology to control in-vehicle battery durability. The collaboration has been very effective and, on November 12, 2021, the first ever GTR on in-vehicle battery durability was agreed.

4. Any other business

U.S. tax credit on certain zero-emission vehicles (Canada & the EU)

Canada and the EU reiterated their concern with the discriminatory elements of the proposed U.S. tax credits for electric vehicles that require vehicles to be assembled in the U.S. and with U.S.-manufactured battery cells, which would be inconsistent with open, rules-based trade and would undermine North American and global efforts to combat climate change and accelerate the transition to ZEVs. Canada and the EU spoke to the ongoing collaboration and information sharing between their respective U.S. embassies on this matter.

Supply chain challenges for the auto industry in Canada and the EU (Canada & the EU)

Canada

Canada provided an overview of the impact of global supply chain disruptions to the Canadian economy, with a focus on the auto sector. It was noted that several interrelated factors have contributed to broader supply chain disruptions in 2020 and 2021, including, among others, disruptions from extreme weather events, global shipping container shortages, and shortages of parts due to COVID-19 restrictions. Canada noted that it is working to address supply chain challenges on many fronts, for example by continuing to invest in Canada’s trade corridors infrastructure and positioning Canada as a global supplier of choice for critical minerals.

EU

The Commission confirmed that it was experiencing similar supply chain challenges as Canada. Tackling these challenges is a high priority for the Commission and, in particular, to build up the resilience of strategic sectors of the European economy such as the access to critical raw materials and microchips. This is a key objective of the Commission’s updated industrial strategy adopted in May 2021.

Broad timing for next Dialogue in 2022 (Canada & the EU)

Canada and the EU thanked one another for their ongoing cooperation and constructive engagement on motor vehicle safety and regulations, and agreed that the discussion highlighted the commonalities in their respective objectives and challenges in this area.

The next meeting is likely to be held during the third quarter of 2022.