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interest in this matter. While he is not a member of my subcommittee, he is a member of the full committee. He has been punching me around for the last 6 months to get some action on this automobile pact business. I am happy to have Mr. O'Hara with us.

Mr. O'HARA. I might say, Mr. Chairman, that it wasn't hard to get you started. Your leadership in this area is well known.

Mr. Leonard, it might be useful to the members of the committee as well as to the press and those who are gathered here in the hearing room if you could briefly review with us the history of the United States-Canadain auto trade. In other words, this agreement didn't just pop out of clear air, a vacuum. There were some things that led up to the agreement, a duty-remission scheme and other kinds of problems.

If you would explain to the committee briefly outline for us not just what the agreement itself provided but about the letters of undertaking so we can understand the history of United States-Canadian auto trade in context.

Mr. LEONARD. I refer to the Commission's report. Beginning on page 24 of the Senate Finance Committee print, the Commission gives the history leading up to the agreement. That history indicates the U.S. automobile market was dominated in the period prior to the agreement by the consumption of United States-Canadian-type vehicles, most of which were produced in the United States. The population of the United States and per capita registration of motor vehicles during that time were growing. The U.S. market was growing, in other words.

The Canadian motor vehicle market during this period was quite different from its counterpart in the United States however. For example in 1960, consumption of United States-Canadian-type vehicles accounted for only 74 percent of Canadian consumption, and Canadian per capita registration of automobiles was lower than in the United States.

However, various factors indicated that there was a greater potenial for growth in consumption in Canada than in the United States for the kinds of cars produced in these countries.

Canadian production of motor vehicles was dominated and still is dominated by the Canadian affiliates of the major U.S. motor vehicle manufacturers.

It became the policy of Canada to seek measures to increase its proportion of United States-Canadian-type motor vehicle production order to equal its proportion of United States-Canadian-type motor vehicle consumption. In other words they wanted to bring up Leir share of production to equal their share of consumption of those kinds of cars.

The United States enjoyed a steadily increasing surplus of original quipment parts as well as a small surplus in completed vehicles in ade with Canada during the period from 1960 to 1964. As a result anada attempted to do something about the problem of having in fect underproduction vis-a-vis consumption of the kinds of cars and parts produced both in Canada and the United States.

Mr. O'HARA. If I could interrupt for a second, at that time as I derstand it Canada consumed or represented 6.4 percent of the w passenger automobile market but produced only 4.6 percent of the ars produced in North America.

Mr. LEONARD. That is correct. In other words they consu lot more cars proportionate to what they produced, obvious difference being cars produced here in the United States. They w to, if not reverse that trend, at least maximize Canadian produ The Canadian tariff schedule for vehicles and parts was des to encourage the production of cars and parts in Canada and it in several ways.

First, their rates were relatively high, 17.5 percent for the fir car and, for most parts, 17.5 or 25 percent. The manufactu Canada would enjoy a substantial advantage in terms of pricing an import.

Second, for a large number of vehicles generally used in the pr tion of motor vehicles the basic tariff rate would not apply an articles would be entitled to enter duty free if the articles wer kind that were not made in Canada and were imported by a Can producer who met a certain Canadian content requirement. ineans that in order to encourage more production in Canad tariff law permitted a Canadian producer to import certain parts duty free if he were to make sure that he were producing and more Canadian content in the country to go along with imported parts.

Mr. O'HARA. That is the so-called duty-remission scheme.

Mr. LEONARD. The pattern precedes the duty-remission plan it has somewhat of the same effect. The duty-remission plan adopted in 1962. It was expanded a year later. It provided that o would be remitted on imports of motor vehicles and parts to the e that the manufacturer importing the articles increased the conte its exports of all products over that achieved in a base period. was an add-on or a followup to their basic tariff schedule.

That duty remission plan to which you referred, Congress did contribute to increased exports of Canadian products to United States and it led to the filing of a counter vailing duty plaint against the plan by certain parts manufacturers in the U States.

The followup to that filing of the countervailing duty complain the eventual negotiation and finalization of what we now know a United States-Canadian automotive agreement, that taking pla 1965.

Mr. O'HARA. The agreement itself does not provide for incr Canadian share of North American production. Along with the a ment there were binding letters of undertaking by the big thre the United States-Canadian auto manufacturers, in which they as that they would increase their share, the Canadian share, of the N American auto production.

Mr. LEONARD. That is correct. There were first commitmen "letters of undertaking" requiring Canadian manufacturers-alth they were subsidiaries, affiliates, of U.S. manufacturers of automo -to maintain Canadian value-added in the production of vel and parts at a certain percentage of the cost of the vehicles of sp classes sold in Canada. For example, 60 percent for passenger & mobiles. That was one of the collateral commitments agreed t "letters of undertaking" by the Canadian motor vehicle manufactu The second commitment in the "letters of undertaking" requ the manufacturers to increase the Canadian value-added in

production of motor vehicles and parts by a certain absolute sum, a ump sum, by 1968, requiring an increase in the value of Canadian production regardless of what the level was of sales in Canada.

That, the Commission's report concludes, was the most important of the restrictive effects in these letters of undertaking.

Mr. O'HARA. So from its inception the United States-Canadian uto agreement provided for an increase in the Canadian share of North American production. That was what it was designed to do. That was what it did.

The only thing that could be said on its behalf at that time from y point of view was that, well, maybe it was better than the dutyemission plan from the standpoint of U.S. production and U.S. jobs, nd U.S. concerns who did not at the same time operate in Canada. As I recall the alleged goal, it was that it was quite reasonable and ir for the Canadians to want to produce the same share of North merican production that they consumed. But in fact they are producg a greater share than they consume today, don't they?

Mr. LEONARD. Yes; that is correct. As I think you indicated earlier, ey are producing a greater share obviously than they produced fore. For many years, I should say, they were producing a greater are than they were consuming in Canada.

There were a lot of claims and goals set at the time of the agreement. r example, with respect to the act which put the agreement into ect here in the United States one of the committees' reporting on the leading to the act indicated that the intent of the pact was to have arket forces, the free marketplace, in other words, determine the st economic pattern of investment, production and trade. That was be a major objective of the agreement. The conclusion of the Comsion in its report was that market forces really are not allowed to ermine the most economic pattern of investment, production and de.

Mr. DENT. Jim, at that point I think it would be good to put in the ord the percentages as of February 1976: 90 percent of American duction stays at home; 8 percent is exported to Canada; 2 percent where.

n comparison, 68 percent of Canadian production is exported to United States; 5 percent to third-country sources or countries 26 percent of their productivity stays in Canada.

The record ought to have this because the question was asked. Proceed.

Ir. O'HARA. But in addition of course until the recent drop in sales within the United States over the last couple of years, ada had increased its share of production not only up to the point t it was equal to its share of consumption but beyond that point. course, the aberration of the last couple of years may have made = less clear.

ut these were supposed to be transitional provisions, weren't ? When some sort of parity was reached, then we weren't going to her with those kinds of private undertakings and tilts in the ement anymore. Wasn't that represented to be the case?

r. LEONARD. They were characterized at various times as being sitional provisions. Some people have said they have been phased that they are no longer in effect. Our information indicates that

if they are transitional provisions, the transition is still going cause they are still in effect according to our study and investig Mr. O'HARA. So in effect the treaty when considered in conn with the additional undertakings and transitional provisions { forth was designed to increase the Canadian share of North Am auto production and it has done so. In effect it has achieved w set out to achieve.

Mr. LEONARD. If that were the only goal of the agreement, t certainly did achieve greater Candian production of motor ve I might say though that in the parts area, for example, the I States has for almost the entire period had a surplus in trade Canada.

Mr. O'HARA. I would like to make one final point. We have 1 about trade adjustment assistance. Trade adjustment assistance scratches the surface of the problem because as long as the U.S market was growing it wasn't so much a problem of people losing jobs because of production that had been moved to Canada.

An even greater part of the problem was new production, new new facilities that otherwise would have been located in the C States and because of the impact of the agreement were being lo in Canada so that jobs that would have been created in the U.S. industry for people in Michigan, for instance, were not created. just didn't come into being. They came into being somewhere And those people aren't eligible for any help. They can't establish damage, any loss of earnings. What they have lost is an employ opportunity. I would dare say there must be 10 or 100 of thei every single one who might be eligible for trade adjustment assist Mr. DENT. Jim, on that point, the Chrysler Corp. built a $60-m installation in New Stanton in my own district. I have been pro chastised because I talked a lot of farmers into selling their farm 1 so that Chrysler could get 2,900 acres of land on the turnpike. crossroads of the interstates is New Stanton, Pa.

That plant was built and completed. And the only employme it is a man that is supposed to be the superintendent of a nonexi work force and a couple of guards that walk around. After that was built and completed Chrysler built a plant up in Canada. Chrysler is shipping back to the United States more produc from Canada than would have been required to keep that plant w ing in full force plus overtime. Last year, they shipped back to United States 225,545 automobiles. And that plant was geared full production, a 52-week year, 40-hour week production, times around the clock, to produce 200,000 cars. That is pote employment that has been lost to us.

Mr. LEONARD. Mr. Congressman, even without regard to the gestion you have just made about the people who never would received jobs because of the operation of the agreement, we di some compilation of data that indicated what were the adverse ef on automobile final assembly employment as a result of the trade balance over much of the period of time between the United St and Canada in cars and comparing data available from several sou on the number of man-hours required to assemble passenger a mobiles of various sizes, the best estimate that our staff could c up with for total U.S. assembly line employment in the productio cars in the United States lost to Canada in trade in completed a

mobiles would be 11,300 workers in 1970; 11,700 workers in 1971; 11,800 workers in 1972; 9,600 workers in 1973; 8,200 workers in 1974 and 5,500 workers during the first 6 months of 1975.

We have made some estimates as to how much we think that trade imbalance with Canada and the resulting employment situation was was accounted for specifically by the United States-Canadian automotive agreement, but we have come to no real conclusions in that respect. But these other figures seem to indicate how many workers lost their jobs here in the United States as a result of the trade imbalance between the United States and Canada in completed cars.

Mr. O'HARA. What do you use as your base in that computation? What do you compare the current situation to, the proportions of North American production that existed prior to the agreement and the proportion of production that is equivalent to the proportion of consumption?

Mr. LEONARD. May I ask Mr. MacHatton about that?

Mr. MACHATTON. Taking the first 6 months of 1975 as the base, we had a trade imbalance of 161,000 vehicles-the excess of imports of vehicles into the United States from Canada over exports of vehicles from the United States to Canada.

We had several questionnaries for various motor vehicle manufacturers, indicating, by class of car, how many man-hours it took to produce a car on the assembly line. We applied this to the various types of cars that were involved in that trade imbalance and came ip, for 1975, with 5,521 workers that would have been dislocated. That is an estimate.

Mr. O'HARA. At the bottom of the doldrums in the U.S. auto Industry.



Mr. O'HARA. At other times it was 11,000 assembly workers.

Mr. O'HARA. Do you have any notion of what proportion of U.S. automotive employees are assembly workers? In other words could ve extrapolate from that?

Mr. MACHATTON. According to some data we received from United Auto Workers in connection with our investigation last year about 0 percent of their membership in the United States was involved in assembly of trucks, buses and automobiles. What we are looking at here is only automobiles. The figure that I gave you, 5,500, is the oss of U.S. jobs to Canada in automobile final assembly operations during January-June 1975.

Mr. O'HARA. So roughly two out of every five are assembly workers. f the same proportions would hold true-and I am not sure they would-then the total number of those who are not employed in the United States would be two-and-a-half times the figure that you gave. The treaty, as I recall, has a provision that allows either side to brogate the treaty on a 1-year notice. I believe that is correct. Mr. LEONARD. Yes, sir.

Mr. O'HARA. As I say, about the only argument that made any ense to me-and it didn't make enough sense to get me to vote for he United States-Canadian auto agreement-was that it wasn't ad. It is like the woman that was asked, "How is your husband?" nd she said, "Well, compared to whom?"


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