370 E-2 ARTICLE IV (a) At any time, at the request of either Government, the two Governments shall consult with respect to any matter relating to this Agreement. (b) Without limiting the foregoing, the two Governments shall, at the request of either Government, consult with respect to any problems which may arise concerning automotive producers in the United States which do not at present have facilities in Canada for the manufacture of motor vehicles, and with respect to the implications for the operation of this Agreement of new automotive producers becoming established in Canada. (c) No later than January 1, 1968, the two Governments shall jointly undertake a comprehensive review of the progress made towards achieving the objectives set forth in Article I. During this review the Governments shall consider such further steps as may be necessary or desirable for the full achievement of these objectives. ARTICLE V Access to the United States and Canadian markets provided for under this Agreement may by agreement be accorded on similar terms to other countries. ARTICLE VI This Agreement shall enter into force provisionally on the date of signature and definitively on the date upon which notes are exchanged between the two Governments giving notice that appropriate action in their respective legislatures has been completed. ARTICLE VII This Agreement shall be of unlimited duration. Each Government shall however have the right to terminate this Agreement twelve months from the date on which that Government gives written notice to the other Government of its intention to terminate the Agreement. IN WITNESS WHEREOF the representatives of the two Governments have signed this Agreement. DONE in duplicate at Johnson City, Texas, this 16th day of January 1965, in English and French, the two texts being equally authentic. For the Government of the United States of America: For the Government of Canada: ANNEX A 1. (1) Automobiles; when imported by a manufacturer of automobiles. (2) All parts, and accessories and parts thereof, except tires and tubes, when imported for use as original equipment in automobiles to be produced in Canada by a manufacturer of automobiles. (3) Buses, when imported by a manufacturer of buses. (4) All parts, and accessories and parts thereof, except tires and tubes, when imported for use as original equipment in buses to be produced in Canada by a manufacturer of buses. (5) Specified commercial vehicles, when imported by a manufacturer of specified commercial vehicles. (6) All parts, and accessories and part thereof, except tires, tubes and any machines or other articles required under Canadian tariff item 438a to be valued separately under the tariff items regularly applicable thereto, when imported for use as original equipment in specified commercial vehicles to be produced in Canada by a manufacturer of specified commercial vehicles. 2. (1) "Automobile" means a four-wheeled passsenger automobile having a seating capacity for not more than ten persons; (2) "Base year" means the period of twelve months commencing on the 1st day of August, 1963 and ending on the 31st day of July, 1964; (3) "Bus" means a passenger motor vehicle having a seating capacity for more than 10 persons, or a chassis therefor, but does not include any following vehicle or chassis therefor, namely an electric trackless trolley bus, amphibious vehicle, tracked or half-tracked vehicle or motor vehicle designed primarily for offhighway use; ་་ (4) Canadian value added" has the meaning assigned by regulations made under section 273 of the Canadian Customs Act; 371 E-3 (5) "Manufacturer" of vehicles of any following class, namely automobiles, buses or specified commercial vehicles, means, in relation to any importation of goods in respect of which the decription is relevant, a manufacturer that (i) produced vehicles of that class in Canada in each of the four consecutive three months' periods in the base year, and (ii) produced vehicles of that class in Canada in the period of twelve months ending on the 31st day of July in which the importation is made, (A) the ratio of the net sales value of which to the net sales value of all vehicles of that class sold for consumption in Canada by the manufacturer in that period is equal to or higher than the ratio of the net sales value of all vehicles of that class produced in Canada by the manufacturer in the base year to the net sales value of all vehicles of that class sold for consumption in Canada by the manufacturer in the base year, and is not in any case lower than seventy-five to one hundred; and (B) the Canadian value added of which is equal to or greater than than Canadian value added of all vehicles of that class produced in Canada by the manufacturer in the base year; (6) "Net sales value" has the meaning assigned by regulations made under section 273 of the Canadian Customs Act; and (7) "Specified commercial vehicle" means a motor truck, motor truck chassis, ambulance or chassis therefor, or hearse or chassis therefor, but does not include: (a) any following vehicle or a chassis designed primarily therefor, namely a bus, electric trackless trolley bus, amphibious vehicle, tracked or halftracked vehicle, golf or invalid cart, straddle carrier, motor vehicle designed primarily for off-highway use, or motor vehicle specially constructed and equipped to perform special services or functions, such as, but not limited to, a fire engine, mobile crane, wrecker, concrete mixer or mobile clinic, or (b) any machine or other article required under Canadian tariff item 438a to be valued separately under the tariff item regularly applicable thereto. 3. The Government of Canada may designate a manufacturer not falling within the categories set out above as being entitled to the benefit of duty-free treatment in respect of the goods described in this annex. ANNEX B (1) Motor vehicles for the transport of persons or articles as provided for in items 692.05 and 692.10 of the Tariff Schedules of the United States and chassis therefor, but not including electric trolley buses, three-wheeled vehicles, or trailers accompanying truck tractors, or chassis therefor. (2) Fabricated components, not including trailers, tires, or tubes for tires, for use as original equipment in the manufacture of motor vehicles of the kinds described in paragraph (1) above. (3) Articles of the kinds described in paragraphs (1) and (2) above include such articles whether finished or unfinished but do not include any article produced with the use of materials imported into Canada which are products of any foreign country (except materials produced within the customs territory of the United States), if the aggregate value of such imported materials when landed at the Canadian port of entry, exclusive of any landing cost and Canadian duty, was (a) with regard to articles of the kinds described in paragraph (1), not including chassis, more than 60 percent until January 1, 1968, and thereafter more than 50 percent of the appraised customs value of the article imported into the customs territory of the United States; and (b) with regard to chassis of the kinds described in paragraph (1), and articles of the kinds described in paragraph (2), more than 50 percent of the appraised customs value of the article imported into the customs territory of the United States. 373 F-1 APPENDIX F LETTERS OF UNDERTAKING Hon. C. M. DRURY, GENERAL MOTORS OF CANADA, LTD., DEAR MR. MINISTER: This letter is in response to your request for statement with respect to the proposed agreement between the Governments of Canada and the United States concerning trade and production in automotive products, as you have described it to us. The following comments assume that the proposed agreement for duty-free treatment has the full support of the respective Governments, and that the program may be expected to continue for a considerable period of time. It is our understanding that the important objectives of the intergovernmental agreement are as follows: (a) the creation of a broader market for automotive products within which the full benefits of specialization and large-scale production can be achieved; (b) the liberalization of United States and Canadian automotive trade in respect of tariff barriers and other factors tending to impede it, with a view to onabling the industries of both countries to participate on a fair and equitable basis in the expanding total market of the two countries; (c) the development of conditions in which market forces may operate effectively to attain the most economic pattern of investment, production, and trade. We subscribe to these objectives and agree with the suggested approach of removing tariff barriers and moving in the direction of free trade even in this limited area. Such an approach is fully compatible with General Motors' expressed position with respect to the desirability of free trade in automotive vehicles and components, not only in Canada, but in all other countries in the free world. It is noted that under the proposed agreement the right to import vehicles and certain automotive parts, free of duty, into Canada will be available to Canadian vehicle manufacturers who (1) maintain Canadian value added in the production of motor vehicles in ensuing model years at not less than the Canadian value added in motor vehicle production in the 1964 model year; (2) produce motor vehicles in Canada having a net factory sales value in a ratio to total net factory sales value of their motor vehicle sales in Canada and those of their affiliated companies in Canada of not less than the ratio prevailing during the 1964 model year; (3) increase in each ensuing model year over the base model year, Canadian value added in the production of vehicles and original equipment parts by an amount equal to 60 percent of the growth in their market for automobiles sold for consumption in Canada and by an amount equal to 50 percent of the growth 374 F-2 in their market for commercial vehicles sold for consumption in Canads (for this purpose, growth in their market means the difference between the cost of vehicles sold in Canada during the ensuing model year and the cost of vehicles sold in Canada during the base model year net of Federal sales tax in both enses); and (4) undertake, in addilion to meeting the above three conditions, to achieve a stipulated increase in the annual Canadian value added by the end of the model year 1968. With respect to General Motors, in connection with the conditions outlined in the previous paragraph, it is our understanding, in the caso of (1) that Canadian value added would be decreased in circumstances where the value of General Motors sales declined below that achieved in the base year, and in the case of (3) that in the event of a derline in General Motors net value of vehicle sales for consumption in Canada, a decrease in Canadian value added of 60 and 50 porcent in cars and trucks, respectively, is acceptable. In addition, it is our understanding, with respect to (4), that for General Motors the stipulated annual increase in the Canadian valuo added by the end of the model year 1968 is $121 million. We understand that certain changes are proposed in the regulations pertaining to the determination of Canadian value added. We believe that several of these changes require further review and consideration as in our opinion they tend to impede rather than aid in the attainment of the objectives of the agreement. In particular, these are (a) the elimination of the profit on components purchased from affiliated Canadian companies; (b) the elimination of profit on sales of vehicles and parts by General Motors of Canada or by Canadian affiliated companies to affiliated companies outside of Canada; and (c) the elimination of depreciation on nonCanadian facilitios used in the manufacturing process both in our plants and in those of our Canadian suppliers. (a) We believe that the elimination of the profit element on purchases of components purchased by Genoral Motors of Canada from affiliated Canadian companies is discriminatory. McKinnon Industries, a major supplier of components, has boon an affiliate of ours since 1929. McKinnon prices to us are competitive with those for similar components manufactured by other manufacturers. It is a policy of Goneral Motors that pricing between affiliated operations be competitive and the purchasing unit has the obligation of negotiat ing the best possible price with the supplying unit. McKinnon and other affiliated Canadian parts manufacturers supply parts to other Canadian vehicle manufacturers and the profit on these transactions is not required to be eliminated by those manufacturers. We feel that at most any elimination of profit from value added should be confined to the elimination of profit above the percentage level in the base period. (b) It is our opinion that the elimination of the profit on sales of vehicles and parts produced in Canada by General Motors of Canada and affiliated Canachan companios to affiliated General Motors companies in the United Statesi and other countries in also discriminafory and should be given added consideration. It is recognized in the tariff regulations of most countries that the value of imported goods includes a "reasonable” rate of profit. Further, on sales by iomalliliated Chindian suppliers to General Motors Corp. In the 375 F-3 United States and its oversea subsidiaries the profit in such salos would be considered as Canadian value added. (e) On the matter of exclusion of depreciation on non-Canadian machinery and equipment used in the production of automotive products in Canada, it seems that this only hinders the attainment of the objectives of the plan. In order to increase production in Canada, additional capacity is a necessity either in our plants or those of our suppliers. As much of this required equipment is either unavailable or more costly in Canada, it appears that not allowing deprociation on such equipment as Canadian valuo added discourages rather than oncourages the enthusiasm required to effect the desired increase in Canadian value added. It should be noted, however, that it is our intention to maintain our present policy of obtaining any additional machinery and equipment in Canada whenever cconomically feasible. You have requested that we should increase Canadian value added in our products by $121 million between 1964 and the end of the model year 1968, as outlined under condition (4). Also you have requested that the amount should be further increased to the extent required under condition (3) stated above. We think that this objective in that time is extremely ambitious, particularly in view of the fact that . one-half of the first model year has already passed. We have carefully reviewed our situation in the light of your proposals and requests and have asked that our affiliates do the same. We can see areas where we can and will achieve a significant portion of your suggested objective of $121 million increase in Canadian value added by 1968. This is possible because General Motors of Canada and our affiliated Canadian companies have recently engaged in the Canadian manufacturo of cortain automotive components heretofore importod. Those include the fabrication and assembly of automatic transmissions at Mckinnon Industries Windsor plant not only for Canadian roquiromonts but for export to assembly plants in other countries as woll. In addition, in the 1964 model your the oversen markot for North American-type passenger cars and commercial vehicles has been incrousingly sorved by our plants in Canada. Of course, any slowing down in the rate of growth in the industry or any adverse developments in the economies of Canada, the United States, or other principal markets, or failure to achieve duty-free entry into the United States would make this achievement more difficult. To attain your stated objective ratably over the 4 years of the plan amounts to an increase in Canadian value added of $30 million a year plus growth. Our plans, which have been underway for more than a year, should accomplish about $60 million of the total or, putting it another way, we can see our way clear to accomplish that portion applicable to the first 2 yours of the plan. Studios are underway of various stops wo might take to accomplish that portion applicable to the last 2 years. However, we are and have boon oporating our facilities in Cannda at full capacity, and so, I believe, havo most of our suppliers. Therefore, the Canadian value added applicable to the last 2 years will probably require added! facilition on our part, or on the part of our suppliers, or both. A further reappraisal of our present facilities and our capacity and there of our suppliers mitist be made. The extent and nature of any addi tional facilities can be determined only in the light of the plan as |