OVERSIGHT HEARINGS ON THE IMPACT OF THE CANADIAN-AMERICAN AUTOMOTIVE AGREEMENT ON EMPLOYMENT IN THE UNITED STATES

WEDNESDAY, APRIL 14, 1976

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON LABOR STANDARDS,

COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C.

The subcommittee met at 9:12 a.m., pursuant to notice, in room 2261, Rayburn House Office Building, Hon. John H. Dent (chairman of the subcommittee) presiding.

Members present: Representatives Dent, Cornell, Simon, Erlenborn, and Sarasin.

Also present: Representatives O'Hara and Ford.

Staff present: Julie Domenick, research assistant; Charles Sheerin, minority counsel; and Cindy Fox, secretary.

Mr. DENT. Good morning. The Subcommittee on Labor Standards will now come to order for the purpose of taking testimony and discussing the problems surrounding the Canadian-American Automotive Agreement.

These hearings are very important and come at a time of great interest.

[Prepared statement of Hon. John H. Dent follows:]

PREPARED STATEMENT OF HON. JOHN H. DENT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

In the year interim since the Subcommittee's series of oversight hearings on the impact of automotive imports on employment in the United States, a considerable amount of activity has surrounded this issue: the Department of the Treasury, at this Subcommittee's request, is conducting an antidumping investigation of unprecedented scope, and will issue a final finding by May 11 of this year; the International Trade Commission has just completed its report to the Congress on the Canadian-American Automotive Agreement, wherein the arrangement between the United States, Canada, and its auto manufacturers is the subject of considerable scrutiny; the UAW has filed for trade adjustment assistance for nearly 100,000 workers whose jobs have been lost as a consequence of imported cars; additionally, the Department of the Treasury is pursuing, although somewhat less diligently, the possible restructuring of the duty valuation methods used for automotive imports; they are likewise in the process of reexamining various tariff schedule classifications accorded cabs, chassis, and trucks.

From an economic standpoint, at this time a year ago, very few people publicly recognized the potential impact of auto imports. The industry was confident that the import penetration of the market was merely an aberration and that the record high share of the market held by imports would fall quickly for one reason or another. Unfortunately, such was not the case as imports took record shares of the market. At a time later than expected, but which I welcome in any event, the import share of the market finally declined, and now rests at 13.8%, as opposed to

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22 percent of the market at this time last year. (This percentage excludes Canadian imports which reflect a different trend. Adjusted for inclusion of Canadian imports, I expect that total import penetration in this country is close to 22 percent.) I would suggest that at least two reasons for the decline in the import share of the market include the rise in the price of imports, in part attributable to manufacturer response to the antidumping investigation, coupled with the American industry's ability to produce a car at comparable price and fuel efficiency, when trade in the marketplace is more fair.

It is the purpose of this series of hearings to focus on the Canadian-American Automobile Agreement and its impact on employment in the U.S. since its implementation in 1965. In doing so, it will be necessary to look at the effects of other aspects of the Agreement, and for that reason witnesses before this Subcommittee will necessarily discuss trade regulations, balance of payments, transfer pricing, industry rationalization, and similar topics. The subject is a complicated one, and, of course, one of a sensitive nature.

The nature of U.S.-Canadian Automotive trade has changed considerably in the last ten or fifteen years, largely as a consequence of the Canadian-American Agreement, but also because of the pre-Agreement duty remission plan instituted by Canada in 1962. For example in 1960, Canada represented 9 percent of the total North American population (U.S. 91 percent), consumed 6.4 percent of the new passenger automobiles in North America, and produced 4.6 percent of these automobiles. In 1974, Canada represented 9.6 percent of the North American population, consumed 9.1 percent of the cars, but produced 13.8 percent of the cars. Virtually all of the excess production, or that production not consumed in Canada, is destined for the U.S. market. In 1975, that amounted to the following percentage for each of the manufacturers:

Presently one in ten cars bought in the U.S. is made in Canada. In 1974, that represented 802,000 cars. The U.S. market in 1974 received 94 percent of all of Canada's automotive exports up from 6.3 percent in 1964. In that same year, one in three cars imported into the country came from Canada. The U.S. has not had an export market in cars to speak of since the 1950's but over 80 percent of what we did export in 1974 (485,000 units) went to Canada (compared to 7.6 percent in 1964). These U.S. exports represent 79 percent of all Canadian auto imports (compared to 18.5 percent in 1964).

Just what effect these changes have had on employment in the U.S. is the focus of these hearings.

Mr. DENT. I hope we can get information required and needed by this committee to make some decisions in the very near future.

I have the pleasure of welcoming this morning as a witness Will E. Leonard, chairman of the International Trade Commission.

Mr. Leonard, will you please proceed to give us your comments and, if you wish, your recommendation?

STATEMENT OF WILL E. LEONARD, CHAIRMAN, U.S. INTERNATIONAL TRADE COMMISSION, ACCOMPANIED BY COMMODITY ANALYST JOHN MacHATTON, ATTORNEY WARREN DEAN, AND COMMODITY ANALYST GEORGE WHITNEY

Mr. LEONARD. Thank you, Mr. Chairman.

Members of the Subcommittee on Labor Standards, ladies and gentlemen, I wish to present my views regarding the United StatesCanadian Automotive Agreement. In appearing here today I will be presenting my own views as one member of a six-member Commission. My views may or may not be in accord with the views of the majority of the U.S. International Trade Commission or with the individual views of other members of the Commission. The Commission is not a policymaking body, but rather serves to provide information and advice on matters of international trade to both Congress and the executive branch; therefore I will attempt to provide information and some judgments as to economic impact of the automotive agreement to the extent that I am able. My statement concentrates on the background of the investigation of the United States-Canadian Automotive Agreement that the United States International Trade Commission recently concluded and upon certain aspects of the agreement and of the trade to which such agreement relates.

With your permission, Mr. Chairman and members of the committee, I have with me available for questioning three stalwarts of the Commission staff that worked in this particular investigation. To my left is Commodity Analyst John MacHatton

To my right is Attorney Warren Dean.

We also have with us seated behind me to my left, Commodity Analyst George Whitney.

Mr. DENT. They are certainly welcome. We are happy to have them.

Mr. LEONARD. Thank you.

On July 9, 1975, the Committee on Finance of the U.S. Senate requested that the U.S. International Trade Commission undertake a thorough study of the history, terms, and economic impact of the United States-Canadian Automotive Agreement. The committee requested that special emphasis be placed on the so-called transitional provisions imposed on the automotive industry by the Government of Canada and the impact of the post-1973 decline in motor vehicle sales in the United States and Canada on the motor vehicle industries in the two countries.

As a result of the Finance Committee request the Commission conducted an exhaustive survey of the United States and Canadian automotive industries and the impact of the United States-Canadian Automotive Agreement and its predecessor arrangements on those industries. Among the Commission's investigative methods used in gathering information were questionnaries, a public hearing held in Detroit, Mich., on December 11, 1975, solicitation of written responses from interested parties, and compilation of data presented in trade and other publications.

Information from these sources, when compiled, showed production of motor vehicles in the United States and Canada, production of original-equipment motor vehicle parts, United States-Canadian trade in motor vehicles and original equipment motor vehicle parts, imports of original equipment motor vehicle parts into the United States and Canada from third countries, employment levels, investment, capital flows and the like.

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

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

Questionnaire responses, fieldwork and telephone contact with respondents were used to determine the extent to which Canadian motor vehicle manufacturers met, failed to meet, or exceeded the production and sales requirements of the Government of Canada.

The results of the Commission's study were presented as a twovolume report to the Committee on Finance on January 22, 1976. The two letters of transmittal and the Commission's two-volume report were combined into one volume and were released to the public by the Senate Committee on Finance on January 30, 1976.

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

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

Mr. LEONARD. Thank you, sir.

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

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

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

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