Ninth Annual Report of the President to the Congress on the Operation of the Automotive Products Trade Act of 1965 443 I. Summary During 1974 automotive production, retail sales and employment declined substantially in the United States but only slightly in Canada. Vehicle production in the United States dropped 21 percent while in Canada the decline was 3 percent. New investments by the major vehicle manufacturers increased 9 percent in the United States and 24 percent in Canada, to $1842 and $107 million respectively. While the price gap narrowed Canadian car prices remained The above U.S. car prices. For the year the United States had 87 percent of the total U.S. and Canadian motor vehicle production and 90 percent of total motor vehicle sales. 1974 US-Canada automotive trade balance was a $1.2 billion US surplus, compared to a U.S. surplus of $426 million during 1973. The United States and Canada negotiated the Automotive Agreement in 1964 to head off potential bilateral conflicts over Canada's efforts to improve the performance of its relatively inefficient automotive industry. The high-cost Canadian industry had been structured to serve a small domestic market behind a high tariff wall. The measures Canada proposed to take to encourage production, such as duty remissions to Canadian manufacturers, were creating a serious irritant in our economic relationship. Under those circumstances it seemed desirable for the two countries to agree on a mechanism that would allow Canada to develop a more rational and efficient automotive industry but would not adversely affect U.S. industry. The resulting Automotive Agreement, which was signed by both sides on January 16, 1965, created the basis for an integrated automotive market by, in effect, removing duties on trade between the two countries in specified motor vehicles and original equipment automotive parts. The Agreement sets forth three objectives: (1) the creation of a broader market for automotive products within which the full benefits of specialization and large-scale production can be achieved; (2) the liberalization of United States and Canadian automotive trade in respect to tariff 1/ Appendix A page 48 445 barriers and other factors tending to impede it, with a view to enabling the industries of both countries to participate on a fair and equitable basis in the expanding total market of the two countries; and (3) the development of conditions in which market forces may operate effectively to attain the most economic pattern of investment, production, and trade. It was agreed that it shall be the policy of each government to avoid actions which would frustrate the achievement of The Agreement is of unlimited duration, but each government has the right to terminate it by giving these objectives. 12 months' notice. The Agreement, as implemented in the United States by the Automotive Products Trade Act of 1965,2/ and approved by Congress on October 21, 1965, resulted in the removal of U.S. duties on specified new and used Canadian motor vehicles and original equipment automotive parts. The President proclaimed the entry into force of the tariff modifications retroactive to January 18, 1965.3/ Since the United States removed its duty on automotive products only for Canada, it was necessary to obtain a waiver of its General Agreement on Tariffs and Trade (GATT) obligations concerning most-favored nation tariff treatment in order to put the Agreement into effect. waiver was approved by the GATT in December, 1965. The Canada implemented its side of the Agreement somewhat differently, by according duty-free treatment to specified new motor vehicles and original equipment parts on an MFN 2/ Appendix B page 51 Appendix C page 60 72-532 0-76-37 |