APMA (CANADA), Hon. J. H. DENT, Chairman, Subcommittee on Labor Standards, Toronto, Canada, May 5, 1976. DEAR MR. DENT: I am attaching, for your interest and information, a copy of a submission dealing with your current investigation of the Canada-United States Automotive Agreement and its impact on employment in the United States. As you know, we were originally scheduled to appear in person, but after due consideration we would prefer to make the following submission without appearing. We would be pleased, however, to answer any questions the committee might have, in written form, and have no objection to those answers being made public. I am sure that you and your colleagues will find the attached information of interest, particularly as it relates to the present situation in Canada vis-a-vis the United States in the automotive assembly and independent parts industry. As we point out in our statement we urge the continuation of the Agreement provided it is thoroughly reviewed by both countries and provided that a continuing mechanism is established to oversee developments in automotive parts trade between the two countries. We appreciate your invitation to appear and will look forward to the publication of your committee's findings. Yours sincerely, Enclosure. PATRICK J. LAVELLE, President. STATEMENT OF PATRICK J. LAVELLE, PRESIDENT, AUTOMOTIVE PARTS MANUFACTURERS' ASSOCIATION OF CANADA The Automotive Parts Manufacturers' Association of Canada represents close to 220 independent automotive parts manufacturers who supply both the original equipment and the aftermarket in Canada, the United States and other world markets. Both multi-national parts manufacturers and independent Canadian firms are members of the Association. It should be pointed out that, contrary to certain beliefs, Canada has a large competitive and prosperous auto parts manufacturing industry. According to a recently released survey conducted by the Federal Department of Industry, Trade and Commerce, close to 1,000 firms with employment in excess of 40,000 are engaged in the manufacture of automotive parts. The Automotive Parts Manufacturers' Association of Canada was the only Canadian witness to appear before the International Trade Commission hearings on the Automotive Agreement in Detroit in December of 1975. At that time the Association took the position that the Automotive Agreement had been mutually beneficial but that Canada's "fair share" of the total benefits of the Agreement had not been achieved. We argued further that the Agreement should be reviewed with a view to ensuring equitable growth in both Canada and the United States in the future. We support the concept of a North American automotive market provided the benefits accrue equally to both countries. I would like to quote briefly from our presentation to the United States International Trade Commission. "We do feel, as an industry and as a partner in a free-trade arrangement, that once considered and acknowledged this situation should be put behind us and the future of the overall North American industry become a paramount consideration. "Both countries have a large stake in the renewed growth and health of the North American automotive industry. There is-it seems to us-no need to engage in a lengthy discussion over the relative merits of an agreement which was designed ten years ago to meet economic conditions which existed at that time. "What is required now is the endorsement of the principle of mutual benefit and cooperation which will eventually restore a sense of balance to the Agreement and move to satisfy criticisms in both countries aimed at the various inadequacies in the Agreement. "While we do not intend to engage in any lengthy discussion as to how the Agreement should be altered, we would like to put forward some suggestions for the record and for consideration by the Commission. "We want a review to encompass the whole area of automotive trade between Canada and the United States, including the so-called safeguards, the tariff on new cars, the embargo on used cars, and the future of the industry itself. "First, any negotiations must take place with the parts industry firmly separated from the automotive assemblers. I do not say this in an argumentative sense. The Canadian parts industry is a totally different entity with different problems and different prospects than the manufacturers. Of course, we have common interests but our interest will not be served by a reviewed Auto Pact which only protects one aspect of this huge industry. "We have proposed that the trade deficit be controlled by agreement and we feel that the trade balance for the various automotive sectors should be averaged out over a number of years so the deficits in favour of one country or another can be evenly determined by the automotive companies under the supervision of a joint commission. "There is also the question as to the desirability of determining the value of the Agreement based solely on the yearly trade balances. While the parts industry has never had a surplus in the ten years since the signing of the Agreement, the Canadian automotive industry as a whole has had some surpluses, although a good portion of those surpluses were snowmobile shipments to the United States. "The Association has suggested that the balance should be negotiable. We further suggested that this agreed to deficit be averaged out over a period of years so that the usual cyclical swings and the luck of the draw insofar as auto production is concerned be compensated over a period of years. "We would like to see the focus on the effectiveness of the Agreement switch from the trade balance to such important economic indicators as employment, investment, and research and development. All of these issues are critical to the future of the Canadian industry and are not in any way negotiable at the present time. "The abolition of the safeguards and the replacement of them by a new set of criteria more directly related to today's economic realities would have to be overseen by a joint Canada-United States commission on the automotive industry which hoepfully would and could be expanded to deal with all matters of trade between the two countries. With or without the Automotive Agreement, it is time such a body was established to mediate bilateral trade disputes between our two countries. This can be done without political or economic union. The present processes involved in the settling of economic disputes between the two countries is lengthy and involved, whereas a joint economic commission could reach agreement on issues before they become major irritants which force governments to take public positions and bring about delays. "The failure of governments to discuss the irritants which have arisen as a result of the Automotive Agreement on a day-to-day basis, has led to the current situation. It is clear that some mechanism must be established on International agreements of this kind for constant evaluation and consultation. "Any bilateral trade agreement, such as the one entered into by our two countries ten years ago, should be seen to act to the benefit of both countries overall, rather than provide one-sided advantages for individual sectors in both countries." Our purpose is to attempt to put in perspective the employment benefits of the Agreement in Canada. We do not deny these benefits but it is our impression that they have been overstated in the United States. To support our contention that the Canadian parts industry has not received equity under the Agreement, I would like to refer to two important matters. (1) The trade deficit in automotive parts and accessories between Canada and the United States, and (2) The unemployment these deficits have caused in the Canadian independent parts industry. The deficit in parts trade between Canada and the United States over the past ten years has exceeded $13 billion. In overall automotive trade Canada has sustained a deficit in excess of $6 billion-despite three years when small surpluses were registered by Canada. Recent figures released by the International Trade Commission indicate that the trend is continuing to strong U.S. surpluses. First quarter trade figures indicate that Canada sustained a $600 million deficit, an increase of over $70 million from the previous year. As indicated earlier, we attach great importance to the trade statistics between our two countries in the automotive sector but it is far from the only indicator of importance. Certainly employment and investment are major trend indicators and in the case of Canada there have been noticeable declines in recent years. We have noted the comments of Mr. Joel Segall, Deputy Under Secretary of Labour for International Affairs when he appeared before your committee on April 14th that the unemployment rate in the U.S. industry had dropped to 4 percent. As of April 1st, 1975 the unemployment rate in the Canadian parts indus try was at 10 percent of the labour force and overall employment had decline by close to 8,000 jobs over the employment levels in the industry two years ago For a further discussion of the employment impact of the Agreement in Canad: I would like to make reference to a report which has been published recently by the Ontario Department of Labour entitled, "A Brief Examination of Employ ment Aspects of the Canadian Auto Industry." This report which I would like to table today and which I would like to se included in the minutes of this hearing contends that Canada has experienced net loss of 25,851 jobs in 1975 as a result of the Agreement. These figures take into consideration the surpluses Canada has had in the assembly of vehicles as indicated by the excess of vehicle exports over imports in every year since the Agreement was signed in 1965. The report notes "In the original equipment parts and accessories industry, Canadian consump tion of parts by motor vehicle manufacturers has typically surpassed Canadian production (see Table 2). However, since 1970 the deficit between parts production and parts consumption in Canada has worsened drastically. In 1970, the deficit between parts production and consumption stood at 667 million dollars U.S. as compared to a deficit of 514 million dollars U.S., and in 1975, this deficit stood at 2,069 million dollars U.S. This represents an increase of over three times between 1970 and 1975. The estimated number of jobs lost due to the deficit between Canadian production and consumption of original equipment alone rose from 11,556 jobs lost in 1972 to 31,035 jobs lost in 1975 (see Table 4). "The net effect on employment in the auto industry in Canada of the Canadian surplus with respect to motor vehicles and the deficit with respect to original equipment parts and accessories vis-a-vis the U.S. is shown in Table 6. These estimates show that Canada experienced a net loss of 3,461 jobs in 1970, which has increased to 25,851 jobs in 1975. "However, it can be argued that not all parts 'consumed' by motor vehicle manufacturers in Canada are used in vehicles actually pruchased by Canadians, since a significant proportion of Canadian vehicle production is exported to the U.S. Even when the parts consumed by motor vehicle manufacturers in car exports to the U.S. from Canada are discounted, the number of jobs lost in the original equipment parts and accessories industry in Canada is estimated at 12,996 in 1974 and 20,040 in 1975 (see Table 5). The above estimate of jobs lost is based only on the component of total deficit estimated to include only the original equipment parts used in vehicles produced in Canada but sold outside the U.S. market." We would like to commend you and your committee for your exhaustive investigation of the Agreement and its effect on U.S. domestic employment. We share some of your concerns and are hopeful that your investigation will lead to a full review of the Agreement. As we indicated at the ITC hearings, we support the Agreement and its concept. It has worked to the advantage of both countries and we feel, once examined, it can be mutually advantageous once more. Canada represents a large market for United States produced vehicles and parts. We have no desire in Canada to eliminate or in any way hinder the free flow of goods and services between the two countries, as has been the case in other jurisdictions, but we must be convinced that we are obtaining our fair share, and that the benefits as well as the deterrents are shared equally by both partners. A BRIEF EXAMINATION OF EMPLOYMENT ASPECTS OF THE CANADIAN AUTO INDUSTRY Employment (By Farid Siddiqui and Christien Deacon) HIGHLIGHTS In the motor vehicle assembly industry, Canada has traditionally registered a surplus of exports over imports since 1966 (see Table 1). However, in recent years the surplus between Canadian exports and imports to the U.S. has been declining. In 1972, Canada had a net surplus of 565,000 motor vehicles, which has declined to 216,000 in 1975. The number of jobs created due to the surplus of 565,000 motor vehicles in 1972 is estimated at 11,865. In 1975, the estimated number of jobs attributable to the surplus of 216,000 motor vehicles is 5,184. In other words, the impact of this decline in surplus between 1972 and 1975 on employment in the auto assembly industry in Canada is estimated to be a loss of 6,681 jobs. In the original equipment parts and accessories industry, Canadian consumption of parts by motor vehicle manufacturers has typically surpassed Canadian production (see Table 2). However, since 1970 the deficit between parts production and parts consumption in Canada has worsened drastically. In 1970, the deficit between parts production and consumption stood at 667 million dollars U.S. as compared to a deficit of 514 million dollars U.S. in 1964. By 1974, this deficit has increased to 1,565 million dollars U.S., and in 1975, this deficit stood at 2,069 million dollars U.S. This represents an increase of over three times between 1970 and 1975. The estimated number of jobs lost due to the deficit between Canadian production and consumption of original equipment alone rose from 11,556 jobs lost in 1972 to 31,035 jobs lost in 1975 (see Table 4.). The net effect on employment in the auto industry in Canada of the Canadian surplus with respect to motor vehicles and the deficit with respect to original equipment parts and accessories vis-a-vis the U.S. is shown in Table 6. These estimates show that Canada experienced a net loss of 3,461 jobs in 1970, which has increased to 25,851 jobs in 1975. However, it can be argued that not all parts 'consumed' by motor vehicle manufacturers in Canada are used in vehicles actually purchased by Canadians, since a significant proportion of Canadian vehicle production is exported to the U.S. Even when the parts consumed by motor vehicle manufacturers in car exports to the U.S. from Canada are discounted, the number of jobs lost in the original equipment parts and accessories industry in Canada is estimated at 12,996 in 1974 and 20,040 in 1975 (see Table 5). The above estimate of jobs lost is based only on the component of total deficit estimated to include only the original equipment parts used in vehicles produced in Canada but sold outside the U.S. market. Consumption vs. production In the motor vehicle assembly industry, Canada's share of North American vehicle sales increased from 6.7 per cent in 1964 to an estimated 10.2 per cent in 1975. Canadian vehicle production increased from 6.7 per cent of the total in 1964 to an estimated 13.7 per cent in 1975 (Table 1.) For the original equipment parts and accessories industry, the Canadian share of North American parts consumption (by motor vehicle manufacturers) increased from 6.3 per cent in 1964 to an estimated 12.5 per cent in 1975. Canadian production of original equipment, however, increased from 3 per cent of the total in 1964 to only 6.5 per cent (estimated) in 1975. Canadian consumption of original equipment (by motor vehicle manufacturers) has exceeded production each year since 1960 (Table 2). Productivity and wages 1 Productivity in the original equipment industry in Canada in relation to the U.S. increased from 66.8 per cent in 1967 to 79.3 per cent in 1972, and decreased somewhat to 74.7 per cent in 1973. (Table 8; note that 1973 is the latest year for which data are available). However, data on the ratio of production employment to production suggests that Canadian productivity has continued to improve into 1975 in this industry (see Table 4). In the motor vehicle assembly industry, Canadian productivity in relation to the U.S. improved between 1967 and 1969, but has been declining since 1970. The average hourly wage rate ($U.S.) in the motor vehicle assembly industry in Canada increased from 78.9 per cent of the U.S. level in 1967 to 95.2 per cent in 1973; this ratio rose to 97.8 per cent in 1974, and then fell to 93.5 per cent in 1975 (Table 8). In the original equipment industry, the average hourly wage rate has increased from 72.6 per cent of the U.S. level in 1967 to 86.3 per cent in 1973, reaching 90.5 per cent in 1975 (Table 8). Although relative productivity is higher in the original equipment industry than in the assembly industry, and although relative wages have been lower in the original equipment industry than the assembly industry, the trade deficit in original equipment continues to grow (Table 2), while the assembly industry continues to register a surplus (Table 1). 1Defined as value added per production man-hour, in U.S. dollars. TABLE 1.-PRODUCTION, IMPORTS, AND EXPORTS, AUTO ASSEMBLY INDUSTRY: 1 CANADA 1960-1975 1 U.S. International Trade Commission data on production, consumption, imports and exports are for United StatesCanadian-type passenger automobiles and United States-Canadian-type truck and buses, for a total of United StatesCanadian-type on the highway motor vehicles. U.S. International Trade Commission, "United States International Trade Commission Report on the United StatesCanadian Automotive Agreement: Its History, Terms, and Impact," Washington, January 1976, tables 26 and 68, pp. 238 and 280. Data were compiled from automotive production data published in Automotive News, Ward's Automotive Reports, and material supplied to the United States International Trade Commission by the Motor Vehicle Manufacturers Associations (United States and Canada) and by individual manufacturers. 3 Ibid, tables 12 and 61, pp. 224 and 273. Ibid, tables 46 and 77, pp. 258 and 289 (compiled from data on the destination of factory sales by the U.S. Motor Vehicle Manufacturers Association). Ibid, tables 37 and 73, pp. 249 and 285 (compiled from data on the destination of factory shipments by the U.S. Motor Vehicle Manufacturers Association). Statistics Canada, "Motor Vehicle Manufacturers" (catalog 42–209, annual), 1961–73. Data for 1960-73 were obtained from the annual census of manufactures, which covers the operations of establishments primarily engaged in manufacturing or assembling complete motor vehicles such as passenger automobiles, commercial cars and buses, trucks and special purpose motor vehicles (SIC) 323). Data for 1974 and 1975 were estimated from Statistics Canada's "Employment Earnings and Hours" (catalog 72-002, monthly), which provides estimates of employment in establishments with 20 or more employees, for the auto assembly industry (SIC 323). The estimates of employment for 1974 and 1975 in table 1 were obtained by assuming the same historical relationship between employment reported in the census of manufactures and employment Earnings and Hours" as for previous years. 7 Ibid. See explanation for estimates for 1974 and 1975, above. Data are for all wage earners. Statistics Canada, "Employment Earnings and Hours," (catalog 72-002, monthly), 1960-75 (September), Table 2. Data are for average hourly earnings (hours reported) for wage earners at establishments of more than 20 employees. Average hourly earnings are obtained by dividing total weekly wages of hourly rated wage earners by their total weekly hours (including overtime hours). Note that these data have been converted into U.S. dollars based on the following exchange rates: US$0.925 C$1 for 1960-69, US$0.958 C$1 1970, US$0.990 C$1 for 1971, US$1.009-C$1 for 1972, US $0.9997 C$1 for 1973, US$1.022-C$1 for 1974, and US$0.974-C$1 for 1975. |