Information from these sources, when compiled, showed prod of motor vehicles in the United States and Canada, prod of original-equipment motor vehicle parts, United States-Car trade in motor vehicles and original equipment motor vehicle imports of original equipment motor vehicle parts into the U States and Canada from third countries, employment level vestment, capital flows and the like.

In addition, information was received on the extent to whic so-called transitional provisions embodied in annex A to the ment and the original letters of undertaking affected the operati the motor vehicle producers and their suppliers in the United and in Canada.

Information was also supplied on the extent to which these visions had been phased out, augmented, or extended.

Questionnaire responses, fieldwork and telephone contact respondents were used to determine the extent to which Can motor vehicle manufacturers met, failed to meet, or exceede production and sales requirements of the Government of Canada The results of the Commission's study were presented as a volume report to the Committee on Finance on January 22, 1976 two letters of transmittal and the Commission's two-volume r were combined into one volume and were released to the publ the Senate Committee on Finance on January 30, 1976.

Since it is my feeling that the report on the United States-Canɛ Automotive Agreement together with the letters of transmitt the most comprehensive and most accurate study of the U States-Canadian Automotive Agreement that has been undert by the U.S. Government in the more than 11 years since the a ment was signed, I submit this copy of the Finance Committee for the record in these proceedings. [Included in appendix.]

Mr. DENT. Without objection it will be made a part of the manent record.

Mr. LEONARD. Thank you, sir.

Let me try to summarize briefly the findings and conclusions of study.

One, although the United States-Canadian Automotive Agreer was characterized by its supporters in 1965 as a free-trade arra ment, providing for duty-free trade in motor vehicles and p between the United States and Canada, which is beneficial to 1 the United States and Canada, the Commission concluded that agreement as implemented by Canada is not a free-trade agreen and it has primarily benefited the Canadian economy.

Two, the Commission concluded, as reflected in the report, that United States-Canadian Automotive Agreement represents E change from Canada's prior tariff policies in which Canada used relatively high most-favored-nation rates of duty to protect Canadian automotive industry from foreign competition but grai duty-free treatment to certain firms for their imports of automo products if they met certain conditions imposed by the Governm of Canada. These conditions had the effect of increasing the valu. Canadian production of automotive products.

Three, the Commission concluded, as the report notes, that I implementation of the agreement was relatively simple, provid for an elimination of duties on U.S. imports of motor vehicles t

contained a minimum percentage of United States-Canadian content-now 50 percent-and an elimination of duties applicable to motor vehicle parts containing a minimum percentage of United States-Canadian content-now also 50 percent-and which were by bona fide motor vehicle manufacturers. The requirements for being certified as a bona fide motor vehicle manufacturer were minimal. Four, Canada, on the other hand, while granting duty-free treatment to imports of motor vehicles and parts of the types covered by the agreement, continued to make such duty-free entry contingent upon the meeting of conditions imposed by the Government of Canada, some of which were embodied in the letters of undertaking to the Government of Canada which were signed by the Canadian motor vehicle manufacturers. The Commission found that the dutyfree treatment granted by Canada under the agreement was little different from the conditional duty-free treatment granted by Canada under the duty remission and earlier programs, with failure to meet the conditions resulting in the termination of the duty-free status of a firm's imports. The net effect of the conditional duty-free entry under the United States-Canadian Automotive Agreement was the promotion of Canadian automotive production and Canadian automotive exports to the United States.

Five, during the course of the congressional hearings on the proposed executive branch of the U.S. Government characterized the Canadian Automotive Products Trade Act of 1965, representatives of the due course could be phased out with the full integration of the United conditions on duty-free entry as "transitional provisions" which in States-Canadian automotive industry. It was implied that such a phasing out would be considered in the joint comprehensive review that was to take place no later than January 1, 1968.

The report, however, indicates that the 1968 review had little of the agreement are still in effect, and that the commitments made facturers in their letters of undertaking" are still binding according to the Government of Canada by the Canadian motor vehicle manuto the terms of the letters themselves, which continue in full force

and effect.

ments made in the last eight annual reports of the President to the
As a result the Commission concluded that contrary to the state-
Congress on the operation of the Automotive Products Trade Act of

undertaking did not expire on July 31, 1968, or on any subsequent

date.

Six, the Commission found that the duty-remission plans that prepent in the Canadian automotive industry. The agreement in turn itial impetus for increases in investment, production, and employded the United States-Canadian Automotive Agreement provided an rovided a further impetus for increases in investment, production, employment in the Canadian automotive industry. Such increases Canadian production and employment continued through the early United States-Canadian automotive trade from 1965 until the early

$70's.

Seven, in studying the period since 1973, the Commission that the rate of improvement in the balance of U.S. automotive with Canada could well moderate if the U.S. economy streng vis a vis the economy of Canada. Such a strengthening in the economy could well provide a larger market for Canadian-assei motor vehicles, and increased automotive production in the U States would provide an increased market for Canadian-made or equipment parts. The relatively weak U.S. economy as com with that of Canada has provided for increasing U.S. autom trade surpluses with Canada since 1973.

With that brief summary, Mr. Chairman, I am happy to att to answer any questions that you and the subcommittee mer have, although I realize that there are probably time constr under which you are holding this session this morning. If I an able to answer your questions sufficiently in oral fashion, of cou will be happy to supply additional material in writing.

Mr. DENT. I want to thank you for a very frank and impo

statement.

I was saying to my colleague, Mr. O'Hara from Michigan, th: was hearing historic words this morning. I have been waiting fo years for someone to say a few of the things contained in your s ment. You've made some very significant points with respect tc trade agreements, imports and jobs, and I, for one, am pleased at least one agency of the Federal Government has seen the wis of pursuing this subject.

Moreover, it should come as no surprise that at the last mee held by the foreign ministers and the President of the United St. a German representative said the primary reason for the meeting to find out how soon the American economy would recover. question was not raised out of friendly concern for the United Sta but rather to ascertain when export purchases in the United St would be up.

Such is the danger of our world trade structure. When we suff recession and our market goes down, all the other economies su because they have not created the internal markets to sustain t own production. They depend on the United States to sustain it, we cannot continue to do so.

Your statement vividly points this out. Canada has an auto indu that it cannot sustain unless it ships 75 percent of its production the U.S. market.

You might be able to tell me how many automobile workers h been certified for trade adjustment payments.

Mr. LEONARD. If I recall correctly, your statement, which I beli appeared in an issue of the Congressional Record of this month, indicated a number of thousands have been certified. Howeve don't recall the specific number of workers that have been certi for adjustment assistance under the provisions of the Trade Act

1974.

As you know, under the Trade Act of 1974, the U.S. Internatio Trade Commission, which was formerly the U.S. Tariff Commissi no longer has as its responsibility the determination of eligibility workers or firms for adjustment assistance. Those responsibilities ht been given to the Departments of Labor and Commerce respective

ot only to determine eligibility but in fact to deliver benefits to the workers and firms.

Mr. DENT. I probably shouldn't have asked that. I forgot that the abor Department will be testifying. They will be able to supply

hose answers.

What if any recommendations are being considered in this matter? We have the responsibility for it, which we have ignored and bandoned for 10 years. I think it is time that we do accept our esponsibility.

Mr. LEONARD. The Commission in its report to the Senate Finance Committee first of all was not requested to make recommendations, nd in its usual role of not being a policymaking organization chose lot to make recommendations to the Finance Committee. Of course, vere the Commission to be requested by your Committee or any Committee of Congress I am sure we would attempt to do that.

We did note in the report that certain recommendations have been nade. For example, there was a recommendation made in the course f our hearing and our investigation, which recommendation I am ure will be commented on by a later witness here today, having to do with an increase in the required United States-Canadian content of notor vehicle parts that are imported into the United States under the greement.

Under current practice, the foreign content can be up to 50 percent of the value of the parts coming into the United States from Canada. Those parts can in fact enter into Canada from a third country duty ree and then come into the United States.

Mr. DENT. That is exactly the point I was going to ask you. I Fould like you to elaborate on that and tell us to what extent this * taking place.

Mr. LEONARD. The Commission noted in its report that the volume f original-equipment parts imported into Canada from third counries-that means countries other than Canada or the United Statesor assembly in vehicles to be sold in either the United States or anadian motor-vehicle market is increasing. This increase in the olume of original-equipment parts imported into Canada from third ountries may be a result of the operation of the automobile agreement. Under the provisions of the agreement, original-equipment parts anufactured in third countries may be assembled into complete notor vehicles in Canada and then imported into the United States nd no duty will be payable on the components either to Canada or he United States as long as the completed vehicles are what we call anadian articles, that is, that no more than 50 percent of the content f the article is from the third country.

It would appear that the duty-free treatment these originalquipment parts are receiving upon entry into Canada and then bsequently upon entry into the United States when incorporated to a vehicle assembled in Canada provides some incentive for using rticles produced in third countries.

The United Auto Workers during the course of the Commission's vestigation submitted a proposal to reduce the permissible thirduntry content in vehicles imported duty-free into the United tates from Canada under the agreement from 50 percent to 25 pernt third-country content. That would have the effect of curtailing e volume of third-country original-equipment parts imported into

Canada for assembly into vehicles to be sold in the United Stat limiting the incentive for such activity provided by the terms agreement.

That was one recommendation that was made during the cou our investigation. We have commented on that in our report 1. Senate Finance Committee. Certainly, of course, congres action on such a recommendation is a possibility.

Mr. DENT. It has been suggested that nowhere in the Can pact is there authorization or any mention of third-country pro being embodied in the spirit and the letter of the agreement be the United States and Canada. Nowhere did it say that you incorporate a Japanese, German, an Italian, or any other third-co item under the umbrella of that agreement. So it is in com violation.

In reading the various features of our reciprocal trade agree there is soundness in many of the provisions. But the problem is are ignored.

For example, Mr. Kissinger, the Secretary of State, will mal agreement. It becomes binding upon the Congress of the U States and the peoples of the United States. And he doesn't kn fiddler's stick from a punkmaw about trade.

But any nation that allows the inexact science of foreign rela and diplomacy to supplant the exact science of international tra doomed to problems.

We are just ignoring all of the instructions of Congress, all the passed, all of the provisions of the act itself. And you sit here and us very frankly that third-country products are being brought the United States duty free via Canada as a result of a bilaagreement while that same product coming from that same cou into the United States would have a duty on it.

Brazil, one of the largest manufacturers of automobiles, is pla a little bit of a 1-2-3 game. I suppose that these international corp tions are exactly what they call themselves, "international." Id know how many stars in their flag. But they have got a hell of of stripes on our backs, from the unemployed in this country.

We have right now at least 7% million permanently unempl American production workers. When I say "permanently" I loo the figures from last year and we find 12,600,000 workers last; were paid a little over $18 billion in unemployment compensation

I will ask the Labor Department people when they appear befor where they get their statistics. How do they jive with the fa They tell us that in my district we have unemployment of about 72 percent. I can show you that many fellows sitting on f benches.

I am probably too disturbed over the matter because so man! my people are unemployed and they don't understand why Cong can't do anything about it. Maybe the only way they can do so thing about it is to make some of us Congressmen unemployed get some new ones to come in. But with the new ones I have loo at, I am afraid we would be worse off.

Mr. SIMON. Present company excepted.

Mr. DENT. Excluding my good colleague from the State of Illin Mr. Leonard, I may have some more questions later. I wo yield to the gentleman from Michigan at this point. He has an inte