54 46 proposes that chassis-cabs and chassis for trucks should be considered completed vehicles regardless of the final use to which the fully assembled vehicles are put. Many major motor-vehicle manufacturers sell chassis or chassis-cabs to smaller outfitters that outfit the vehicles into trucks (eligible for duty-free treatment), or into special-purpose vehicles such as snowplows, mobile clinics, firefighting vehicles, tow trucks, and the like (not eligible for dutyfree treatment). The major United States motor-vehicle manufacturers are liable for duties on imports of chassis or chassis-cabs if they are subsequently outfitted into special-purpose vehicles. turers feel that the administration of this aspect of the agreement is unduly burdensome in light of the small amount of revenue involved in the payment of these duties. The manufac Another suggestion of this kind is a proposal that all motorvehicle parts should be allowed duty-free entry into the United States and Canada in bilateral trade, whether to be used as original equipment in the assembly of motor vehicles or whether to be used as service or replacement parts. tubes was also suggested. The United States motor-vehicle manufacturers especially support such extension of the agreement for replacement parts and tires and tubes if imported into Canada or the United States by or for the use of the motor-vehicle manufacturers. States parts producers support such extension to all parts regardless of whether they are imported into either country by or for the use of the motor-vehicle manufacturers or whether they are imported by Extension of the agreement to cover tires and The United 55 47 or for independent parts importers, parts wholesalers, parts retailers or private persons. The Canadian parts industry opposes such proposed extensions of the agreement. Many United States interests suggest that Canada should not prohibit the entry of used motor vehicles. This suggestion does not concern the agreement itself, but it is alleged that this provision in the tariff structure of Canada has the tendency to curtail price competition in Canada for new and used motor vehicles. 1/ Suggestions To Eliminate or Modify the Conditions Imposed by the A familiar theme in comments upon the operation and terms of the agreement has been the concern expressed about the conditions imposed by Canada on duty-free treatment under the agreement, and the collateral commitments in the "letters of undertaking." 2/ The Committee on Ways and Means and the Committee on Finance have both expressed concern over the continued existence of these restrictions and collateral Commitments, and their effects upon the attainment of the objective of the agreement of allowing market forces to determine the most Canada. and conditions in annex A would be entitled to import used vehicles However, only "qualified manufacturers meeting the restrictions free of duty, unless annex A were modified to provide for duty-free treatment on used motor vehicles imported by any firm or person in 2/ One novel suggestion made by Canadian parts manufacturers is that under the agreement should be replaced by a regulatory scheme, whereby the current restrictive measures imposed by the Government of Canada excessive surpluses or deficits in motor vehicles or motor-vehicle parts trade between the United States and Canada would be limited to a relatively narrow would monitor the operation of the agreement and its effect upon employment, production, and investment in the United States and Canada. margin established by a bilateral commission that 56 48 economic pattern of investment, production, and trade in the United States and Canada. 1/ The proposed Trade Act of 1970, as reported to the Senate by the Committee on Finance, contained an amendment to the Automotive Products Trade Act of 1965 which provided that the President should endeavor to secure the elimination by the Government of Canada of its duties and other import restrictions on automotive products produced in the United States, and if the elimination of such duties and import restrictions were not secured before January 1, 1973, the President should consider termination of United States parti cipation in the agreement. It is apparent that the executive branch of the Government, Committees and individual members of Congress have always regarded these restrictions and commitments imposed by the Government of Canada relating to the agreement as transitional 2/; the Commission has no information that the Government of Canada has ever regarded the limitations in annex A or the collateral commitments in the "letters of undertaking" as transitional, or that they would ever phase out these restrictions and commitments. It appears that the Government of Canada has explored the possibility of making the collateral commitments more burdensome, at least in its discussions with one Canadian manufacturer. 3/ 1/ Report of the Committee on Ways and Means to accompany H.R. 18970, H. R. Rep. No. 91-1435 91st Congress, 2nd Session 53 (1970). Report of the Committee on Finance to accompany H.R. 17550, S. R. Rep. No. 91-1431, 91st Congress, 2nd Session 286 (1970). 2/ See Report of the Committee on Finance to accompany H. R. 9042, con tained in appendix IJ of this report. 3/ Hearing before the Committee on Finance on the Canadian Automobile Agreement, 90th Cong., 2d. Sess. 88 (1968). 57 49 Many United States interests favor the elimination of Canada's restrictions in annex A of the agreement--so that the right to import automotive products duty-free would extend to any person or firm in Canada--and the elimination of the collateral commitments in the "letters of undertaking." Failing the complete elimination of Canada's restrictions in annex A and the collateral commitments in the "letters of undertaking," several suggestions were advanced on how they could be made less restrictive: 1. The separate production to sales ratio requirements for each class of motor vehicle produced or sold in Canada by each firm should be combined into single production to sales ratio requirements for all classes of vehicles produced or sold in Canada by each firm. In this way, over fulfillment of such requirements for passenger automobiles could be balanced against under fulfillment of requirements on trucks or buses. The separate "Canadian value added" requirements should likewise be combined. 2. The production/sales ratio requirements and the "Canadian value added" requirements should be converted from annual model-year requirements to a 3-to 5-year requirement, with over fulfillment surpluses in 1 year being balanced against underfulfillment deficits in other years in the 3-to-5 year period. The Commission received one suggestion involving a proposal to terminate an alleged restriction on automotive trade imposed by the Government of Canada which does not involve the agreement itself. 58 50 restriction, which appears to involve a possible violation of Article III of the GATT. It was alleged that the taxable value of United States made vehicles may include certain costs not included in the taxable value of Canadian-made vehicles, which would have the effect of placing a higher tax on United States vehicles, and it was suggesti that the valuation methods used for assessing the Canadian sales tax should be the same for United States-made vehicles sold in Canada as it is for Canadian-made vehicles sold in Canada. Suggestion To Terminate the Agreement Many of the foregoing suggestions concerning the agreement involv recommendations to limit the discriminatory impact of the preferential tariff treatment accorded under the agreement. The Commission is awar of only one bill currently pending before the Congress of the United States (S.2468), which would have the effect of terminating the duty-f treatment accorded motor vehicles and certain parts there for imported from Canada under the agreement. While this proposed legislation του as presently drafted, no doubt breach the obligations of the Governmen the United States to the Government of Canada under the agreement, 1/ it is not certain that Canada would revoke the Motor Vehicles Tariff Orders of 1965, which Canada has used to implement the agreement. 1/ Art. III of the agreement provides that either Government has the right to terminate its participation upon 12 months' written notice of its intention to terminate. |