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

THURSDAY, MAY 6, 1976

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON LABOR STANDARDS,

COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C.

The subcommittee met at 9 a.m., pursuant to call, in room 2257, Rayburn House Office Building, Hon. John H. Dent (chairman of the subcommittee) presiding.

Members present: Representatives Dent, Gaydos, Cornell, Zeferetti, Ashbrook, Erlenborn, and Goodling.

Staff present: Julie Domenick, research assistant; J. Charles Sheerin, minority counsel.

Mr. DENT. The hearing will come to order.

This morning we are privileged to have with us William D. Eberle, president and chief executive officer of the Motor Vehicles Manufacturers Association, and Frank S. Day, president, The Condamatic Co. of Warren, Mich.

The purposes of these hearings is to exercise our oversight capacity on matters dealing with international trade as it pertains to employment in the United States. Accomplished within this particular jurisdiction, of course, is the American-Canadian Auto Pact. We are conducting these hearings because we are still in the midst of heavy unemployment in the auto and related industry.

The concern of this committee is with one economic factor-jobs and production work. So, this morning, I'm happy to have with us Mr. William D. Eberle, and I'm sure his testimony will be very valuable to the committee.

You may proceed.

STATEMENT OF WILLIAM D. EBERLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MOTOR VEHICLES MANUFACTURERS ASSOCIATION

Mr. EBERLE. Mr. Chairman, thank you very much. I am delighted to be here. To facilitate our discussions, I'd like to offer two statements for the record: One, a long background statement; the other, a short overall statement with our positions. I'd like to be able to summarize the key points of this, if I may.

Mr. DENT. That's satisfactory with the committee. [Documents referred to follow:]

72-532-765

(61)

BACKGROUND STATEMENT OF MOTOR VEHICLE MANUFACTURERS ASSOCIATION OF THE UNITED STATES, INC.

INTRODUCTION

This statement is submitted by the Motor Vehicle Manufacturers Association of the United States, Ine. (MVMA),1 for the hearing record of the Subcommittee on Labor Standards of the Education and Labor Committee of the U.S. House of Representatives. It is intended to assist the Subcommittee in its deliberations on the impact of the U.S.-Canada Automotive Products Trade Agreement upon employment in the United States.

MVMA appreciates the opportunity to participate in the Subcommittee's investigation. The Agreement has now been in effect for just over eleven years. Because of its unique and highly complex nature, and because of the high level of economic activity associated with it, it is appropriate that its effects be reviewed. The study prepared by the U.S. International Trade Commission and issued in January of this year provides a good starting point for a dialogue. This Subcommittee's investigation will continue the process.

This statement is divided into three sections. The first details the events leading up to the negotiation of the U.S.-Canada Automotive Products Trade Agreement, viewing it from two perspectives: as a compromise to avert a potential trade dispute and as a tool to integrate the automotive industry in North America. The second section outlines the objectives and the terms of the Agreement. The third section describes the operation of the Agreement in the eleven years it has been in force with respect to its effect on production, employment, trade and other aspects of the North American automotive industry.

An appendix to this paper takes up the problem of measuring trade transactions under the U.S.-Canadian Automotive Products Trade Agreement. Inconsistencies in the measurement of these transactions have been a source of continuing controversy and have affected every evaluation of the Agreement, leading to misunderstandings of the total impact of the Agreement on both the United States and Canada.

Perspective on the agreement

The U.S.-Canadian Automotive Products Trade Agreement must be viewed in its two aspects: first, as an imaginative solution to a complex problem in U.S.Canadian bilateral trade relations; and second, as an instrument that promoted the rationalization and integration of the automotive industries of both countries. Confronted with a large and persistent trade deficit and a stagnant automotive industry in the late 1950's and early 1960's, the government of Canada, in the fall of 1962, unilaterally conceived and implemented a duty remission plan to combat both problems. The plan was soon alleged by some interests in the United States to be an unfair trade practice, a violation of the U.S. countervailing duty statute. Had an investigation been conducted and a finding been reached confirming the allegations, the U.S. government would have been compelled to take action to neutralize the Canadian plan.

The prospect of a resulting trade war between the two countries, each of whom was the other's best customer, was very real and threatened disruptive repercussions far beyond the automotive sector. Once this danger was averted by negotiation of the Agreement, President Lyndon Johnson stated: "We were faced by the prospect of a wasteful contest of stroke and counter-stroke, harmful to both Canada and to the United States and helpful to neither. Our broader good relations with our Canadian friends would have suffered strain." 2

In addition, it had long been recognized in both countries that there were economic benefits to be reaped from integrating automotive production in both countries into a truly North American industry. By 1964 it was possible to view the Canadian market for automobiles as a "natural extension" of the U.S. market. The two countries made up a "single great North American industry." 2 Three facts bear out these assertions.

(1) Production in Canada was overwhelmingly (over 97 percent) by subsidiaries of United States motor vehicle manufacturers.

1 MVMA represents nine of the United States' majer automobile and truck manufacturers. MVMA mem bers include: American Motors Corporation, Checker Motors Corporation, Chrysler Corporation, Ford Motor Company, General Mctors Corporation, International Harvester Company, Walter Motor Truck Company, Warner and Swasey Company, Badger Division, and White Motor Corporation.

2 President Lyndon Johnson's message on H. R. 6960, transmitted to the Congress on March 31, 1965 and reprinted in Hearings on H.R. 6960 Before the House Committee on Ways and Means, 89th Cong., 1st Session,

1965.

Hearings on H. R. 2042 Before the Senate Committee on Finance, 89th Cong., 1st Session (1965) [Hereinafter cited as 1965 Senate Hearings).

(2) Most of the workers on both sides of the border were organized by the same international union.

(3) To a considerable extent, the Canadian industry was located in Ontario, in close proximity to the border with the United States and the location of much of the U.S. motor vehicle manufacturing industry.

Thus the imperatives of an imminent trade war and the logic of industrial coordination and integration led to intense negotiation between the government of Canada and the government of the United States during the latter months of 1964 culminating in the U.S.-Canadian Automotive Products Trade Agreement. It is our belief that the Agreement represents a reasonable response to the problems and opportunities in the automotive sector in North America when viewed in the context of the available alternatives. The U.S. motor vehicle manufacturers did not initiate the negotiation of the Agreement. In hearings accompanying Congressional consideration of legislation implementing the Agreement, however, they maintained that it was a "workable solution," and they pledged their cooperation with the governments of both countries to implement the Agreement and related legislation.

On balance, the U.S.-Canadian Agreement has had a beneficial impact in terms of production, productivity, trade and employment. Evaluated against the outlook during the period before it was negotiated, the Agreement stands as a major success in U.S.-Canadian trade relations.

While the major U.S. motor vehicle industry took no position on the Agreement during its negotiation, it had adapted to the rules laid down by the governments of both countries and views the Agreement favorably today. Termination of the Agreement now would have a crippling effect on the U.S. motor vehicle manufacturing industry and thus on the U.S. economy. The effects on Canada of a termination of the Agreement would be equally devastating.

PART I. HISTORICAL BACKGROUND OF THE NORTH AMERICAN AUTOMOTIVE INDUSTRY

Since its earliest days, the automotive industry of Canada has been much smaller than the industry in the United States. The principal Canadian producers are subsidiaries of the U.S. manufacturers. At the same time, this industry has historically ranked among the largest of Canada's manufacturing industries, in a country eager to enlarge the manufacturing sector of its economy to reduce traditional dependence on primary (agriculture and mineral extraction) economic activities. The convergence of these factors guided both the evolution of the Canadian automotive industry and the policies and actions of the Canadian government toward it.

The beginnings of the Canadian automotive industry are usually traced to the formation of Ford Motor Company of Canada in 1904. Studebaker followed in 1910, General Motors in 1918, Chrysler in 1921, and the Nash Motor Company (predecessor to American Motors) in 1946. Until 1962, virtually all of the passenger cars and an overwhelming proportion of the commercial vehicles produced in Canada were the products of these five subsidiaries of U.S. companies. In 1963, Volvo, a Swedish concern, established a production facility and was followed by several other non-American producers. Nevertheless, the overwhelming proportion (more than 97 percent) of vehicles produced in Canada continued to be turned out by subsidiaries of the major U.S. motor vehicle manufacturers.

In the beginning, motor vehicle manufacturing in Canada was little more than the assembly of the finished product from parts imported from the United States. This was less true as time went on and components began to be supplied by local sources. By the 1920's indigenous Canadian production covered a wide range of parts, including engines, wheels, and body components. From the outset, Canadian commercial policy had encouraged manufacturing in Canada. The primary instruments employed were the tariff and local content requirements.

The Canadian market was attractive to U.S. companies because of its recognized potential for growth. Assembly in Canada for the Canadian market was attractive because in the early years of the industry, the Canadian tariff on imported vehicles was 35 percent. In addition, Canadian automotive exports (if they contained at least 50 percent Canadian content) enjoyed preferential access to British Empire markets.1

This access explains, in part at least, the high level of Canadian exports prior to World War II. This factor was of less significance after World War II, however, because of the declining competitiveness of North American type cars abroad.

Mr. O'HARA. But whether or not the Canadians had done that would have depended somewhat on what steps the United States would have taken in retaliation. I am not at all sure that the situation is quite the same with Australia because there are a number of things the United States could have done in retaliation that would have had a very severe impact on Canada. I think in the final analysis it would have caused Canada to hesitate.

Mr. WOODCOCK. At that time, yes. But that situation has changed. All they have got to do is shut off that natural gas in northern Minnesota. We are not the strong, strong power that we were. Another thing is, we have got to have tranquillity between nations for the peace of the world.

Mr. O'HARA. I think that is fine as long as it is confined to agreements that don't relate to the principal industry of my congressional district.

Mr. WOODCOCK. You are aiming for a wider constituency.

Mr. O'HARA. I think that would be the principal industry there,

too.

Mr. WOODCOCK. I would like to correct one rumor that was around that Woodcock has the position he has because when he was first elected president it was with the margin of the Canadian votes. That isn't true at all.

Mr. O'HARA. You mean it wasn't the margin of the Canadian votes?

Mr. O'HARA. No; I don't think it was, as I recall. There aren't nearly that many Canadian auto workers.

I thank you, Mr. Woodcock, for your testimony.

The Chairman of the committee, who had to leave, unfortunately, it is good that he has undertaken to look into the impact of the agreement because I don't think Congress does understand it. I think there is a lot that none of us understand about it. And I think we had better find out.

I thank you, Mr. Chairman.

Mr. SIMON. Before I toss a question to Mr. Ford-and incidentally, I applaud the UAW's stand, historically, for liberal trade, which I think is the only ultimate sound policy-I realize that these figures that you have indicated are very difficult to come by precisely. But you probably have a rough idea of how many jobs we are exporting or not exporting in this trade between new cars and auto parts.

Mr. WOODCOCK. We really don't. In 1973 the membership of the UAW, which of course included both sides of the border, had an alltime high of approximately 1,600,000 until the impact of the worst recession since the 1930's. The low point of our membership was 1,230,000. That gets distorted because if there are individuals on layoff who are getting supplemental unemployment benefits they pay $5 per month dues, which is much lower than the regular dues. They are counted among those numbers. But that contrasts with a low point in the 1958 recession when our membership tumbled to 850,000.

So if we look at those gross numbers, the general working of the pact has been beneficial to both economies.

I might also say now as against a year ago the non-North American imports have tumbled from 22 percent of the market to a little over 13 percent of the market. At first they were saying that was happening