alter any part they would alter the entire agreement, and we would feel no longer obliged to be parties to the agreement.

Senator HARTKE. Did we get any quid pro quo when we agreed to this section?

Mr. TREZISE. Which section?

Senator HARTKE. This section here regarding the definitions of

terms.

Mr. TREZISE. The agreement as a whole stands on its own feet. We think it was in the American interest, taken in its totality, and we will receive substantial benefit from it.

Senator HARTKE. As I understand it, it is bound by section 273, isn't that it, of the Canadian Customs Act? Is that true?

Mr. TREZISE. You have the document.

Secretary CONNOR. I have it in front of me. It reads as follows:

Net sales value. Has the meaning assigned under regulations by 273 of the Canadian Customs Act.

Senator HARTKE. The regulations of 273 are then binding?
Secretary CONNOR. As they existed at that time; yes, sir.

Senator HARTKE. I understand that.

Let me read from section 273 to you for your edification and information, and I want to know just exactly where we are. This is from the Customs Act of TRSC 1952, chapter 58 as amended in 1953 and 1954, chapter 3 in 1955, and chapter 32 and 1958 chapter 26. Let me read that first paragraph to you under section 273:

The Governor in council may from time to time and in the manner hereafter provided in addition to the other purposes and matters in this act mentioned make regulations for or relating to the following purposes and matters.

This gives the Governor in council complete authority for the Canadians, as the agreement is now written, to make modifications as long as they follow the procedures which are set forth in the sections. Mr. TREZISE. I would like to say we are dealing with the Government of Canada, a friendly government, not with an enemy government. We don't anticipate that the Canadians are going to use any power which may reside in the Governor generally to cheat us. This is not an expectation of reasonable probability.

Senator HARTKE. You say this is a friendly government. Was it a friendly act when they put into effect a remissions scheme in violation of our own laws and which would have required us to come up with a counterstroke? Was that the action of a friendly government?

Mr. TREZISE. I don't think the Canadians viewed this as a hostile act to us, and there never was a legal determination, that it was contrary to our laws. In addition, now we are speaking of a formal agreement. I don't think their

Senator HARTKE. I will guarantee there never was any determination. We tried to get the Treasury Department to act for 15 months, and they never did, and you finally came up with this agreement as a substitute.

Mr. TREZISE. There is a substantial body of legal opinion that the countervailing duty act did not apply.

Senator HARTKE. It has never been determined in the courts. The whole question about it was, there was substantial detriment at least to these people in the United States, who thought it was a detri

ment to them because they thought their jobs were being taken away from them as a result of unilateral action; isn't that true?

Mr. MANN. Senator, we don't dispute it is inimical to U.S. interests and something had to be done to remove it, and it has been removed by this agreement.

Senator HARTKE. I think that is a fair statement. Thank you, Mr. Mann.

Let us come back to section 273 again. Under 273, isn't it true that if this is followed that they have again the unilateral right to make any modifications in regard to what is termed "the net sales value" or the definition of the term "Canadian value added" which in effect are similar to the content?

Mr. MANN. Senator, if I may undertake to answer that, I think we should get an opinion from our Legal Adviser, which we will be glad to file for the record. Subject to that, I would say that all sovereign governments have the right to change all of their regulations up until the time they commit themselves in an international agreement or a treaty along a certain way. Then that treaty itself or agreement becomes a part of the law of the land. I do not think it is possible that the Canadian Government could alter the terms of this agreement simply because it is a sovereign state and has the right to change its own regulations.

If I understand the import of your question, that is it, and they contracted. They make a contract, they are bound by the contract, and they cannot alter the terms of this agreement in a unilateral way.

Senator HARTKE. I am not disputing that at the moment. But let me point out to you that what you have here, and this is why I wanted to bring up the history of it, was an action, as you have correctly stated, which was not necessarily in the best interests of our Government, to which we have tried to react without having a trade war on our hands; is that true?

Mr. MANN. I think that is substantially true.

Senator HARTKE. That is the background on which the whole situation has developed.

Mr. MANN. We did not like the remission of duty scheme. We thought it was harmful to our interests. We did protest.

Senator HARTKE. And you did not really want to put in countervailing duties; is that it?

Mr. MANN. We did not want to get into a trade war, as you say stroke and counterstroke.

Senator HARTKE. I think that is a fair assumption. That is exactly right.

Now we are presented with an agreement which refers to an annex which, in its terms, refers to some Canadian act, the Canadian Customs Act, section 273, which you say you want to receive a ruling on. But let me point out that the original clause gives them power to make such changes as they want to unilaterally. For example, under section (1) they could reduce the duty on any or all articles, whether natural products or products of manufacture. Section (m) prescribes the manner in which to proceed with penalties and forfeitures, how they shall be distributed, providing for the payment of awards, and so forth, a great variety of problems if you are following the section, and that is one thing. If you are going to put this legal opinion into the record,

I would hope you would have it for the committee before the time that the committee is asked to act upon this agreement. Could you do that?

Mr. MANN. Yes, sir.

(The document referred to follows:)

SEPTEMBER 17, 1965.

MEMORANDUM REGARDING POSSIBLE MODIFICATION BY THE CANADIAN GOVERNMENT OF CERTAIN DEFINITIONS INCORPORATED BY REFERENCE IN ANNEX A OF THE UNITED STATES-CANADIAN AUTOMOTIVE PRODUCTS AGREEMENT

A question has been raised as to the right of the Canadian Government during the life of the agreement concerning automotive products between the Government of the United States of America and the Government of Canada to modify certain definitions issued under section 273 of the Canadian Customs Act. The question arises because of subparagraphs 2(4) and 2(6) of annex A of the agreement. These subparagraphs state that "Canadian value added" and "net sales value" have "the meanings assigned by regulations made under section 273 of the Canadian Customs Act."

The agreement does not specifically limit the regulations that may be made by the Canadian Government under section 273 of the Canadian Customs Act. However, the regulations defining the terms in question appeared in Order in Council P.C. 1965-100, issued on January 16, 1965, the same days as signature of the agreement by President Johnson and Prime Minister Pearson. Thus, the "meanings" of these terms can be said to have been among the understandings which the two Governments relied on in entering into the agreement. Accordingly, while it is technically possible that the regulations may be changed, any substantive change in these meanings adversely affecting the interests of the United States as provided for in the agreement would be in violation of the agreement.

By making these terms subject to the regulatory authority of the Canadian Government, the agreement gives a certain amount of flexibility in defining terms of considerable technical complexity. It may be noted that the definition of "Canadian value added" in Order in Council P.C. 1965-100 is extremely lengthy and detailed. But the agreement itself contains the elements of the bargain within which such discretion as the respective national Governments have must be exercised.

The preamble of the agreement states that the parties are determined to strengthen their economic relations, and that they recognize this can best be achieved through economic growth and "the expansion of markets available to producers in both countries" by "the reduction or elimination of tariffs and all other barriers to trade" in the light of the important place that the automotive industry occupies in the two countries. Again, the final paragraph of article I of the agreement states that it "shall be the policy of each Government to avoid actions which would frustrate the achievement of these objectives."

CONCLUSION

A modification of the Canadian regulations under consideration which would have any substantial effect of interfering with the development and growth of trade between the two countries would be clearly inconsistent with the agreement.

It may be added that, under article IV, each Government is obligated to consult with the other on request with respect to any matter relating to the agreement, which certainly would include a modification of these regulations. In the unlikely event that the U.S. Government, in any such consultations, should be unable to dissuade the Canadian Government from making modifications in the regulations adversely affecting U.S. interests, the United States would have the unqualified right under article VII of the agreement to terminate it by giving 12 months written notice to the Canadian Government. In addition, section 204 of H.R. 9042 would authorize the President at any time to terminate, in whole or in part, any proclamation issued pursuant to section 201 or 202 of the proposed

act.

LEONARD C. MEEKER,

The Legal Adviser,
Department of State.

Senator HARTKE. Let us go to another matter. Can a U.S. citizen buy an automobile in Canada at the present time, either now or under the agreement, and bring it back duty free? Can he at the present time without the agreement?

Mr. TREZISE. Yes.

Senator HARTKE. Bring it in duty free, a U.S. citizen? Can he go to Canada at the present time?

Mr. TREZISE. Since cars cost more in Canada, I think it is pretty hypothetical, Senator. I think the Customs Bureau had better respond to that.

Senator HARTKE. Let us get the Customs Bureau up here at the table, too, then.

I think for the sake of the record we will have you identify your self. You just sit down.

Mr. BOYETT. Thank you. I am Fred Boyett, Assistant Deputy Commissioner. What was the question again, sir?

Senator HARTKE. Can a U.S. citizen go to Canada now and buy a Canadian automobile and bring it back to the United States duty free? Mr. BOYETT. No, sir; he cannot.

Senator HARTKE. He cannot. All right. Can a Canadian citizen buy one in the United States and take it back to Canada with him duty free?

Mr. BOYETT. No, sir; he cannot do that.

Senator HARTKE. Let us come back to the first question. If this agreement is passed into law, then could a U.S. citizen buy an automobile in Canada and bring it back to the United States duty free? Mr. BOYETT. Yes, sir; he could.

Senator HARTKE. All right. Then can a Canadian buy one here and take it back to Canada with him free of any duty? Mr. BOYETT. No, sir; he could not.

Senator HARTKE. What is the difference?

Mr. BOYETT. The difference is that the agreement restricts the importations of the products from the United States to given manufacturers in Canada. There is no such restriction on our side.

Senator HARTKE. If this goes into law, what will this do to competition for sales to the U.S. citizens who live near the border? What will they do, what could they do?

Mr. BOYETT. Well, I would not think they would go into Canada to buy a car if the prices were 15 percent higher.

Senator HARTKE. I understand. But if they are higher-but I think the Secretary of Commerce says this is not going to occur very long. Is that correct, Mr. Secretary?

Secretary CONNOR. No, sir. I made no prediction as to how long the price disparity would last. I said over the long run that the elimination of these production differences would result in lower prices, but I made no prediction as to the time.

Senator HARTKE. This is what is really anticipated, Mr. Secretary. Secretary CONNOR. It is one of the objectives, yes, sir, that there would be the most economic pattern of investment, production, and trade. That is one of the objectives of the agreement.

Senator HARTKE. One of the ideas is that there will be certain models, is it not, that will be produced in Canada that may be possibly cheaper; isn't that true?

Secretary CONNOR. I think Senator Hartke, that could reasonably be expected, but it would depend upon the plans of each U.S. manufacturer and its Canadian subsidiary.

Senator HARTKE. Well, if this really occurs in certain models, then what do you think is going to happen in regard to a man who lives close to that border? Couldn't he go over there and buy a car cheaper and bring it back to the United States duty free, and that same privilege is not accorded in reverse?

Secretary CONNOR. I think you could expect him to consider the price aspect, among others.

Senator HARTKE. And the truth of it is that a U.S. citizen could do this, but the Canadian could not come down here and buy from our American-made products, isn't that true, duty free? Isn't that true

now?

Secretary CONNOR. Well, that is the present situation. As we stated, as we indicated, Senator Hartke

Senator HARTKE. That is not the present situation, but the situation under the agreement.

Secretary CONNOR. Under the proposed agreement.

Senator HARTKE. That is right.

Secretary CONNOR. And there are many matters involved that are subject to review as this goes along, and amendments to the agreement can be worked out.

Senator HARTKE. Did our negotiators whenever this went into effect, insist on symmetrical treatment on both sides of the border in this regard?

Mr. TREZISE. We understood, Senator, the Canadians had this arrangement in mind to protect their position in the vehicle assembly end of the business.

I would like to point out that the same automobiles, and if the prices come down in Canada, they will get the same price, not a different price from an American manufacturer.

Senator HARTKE. You want to go off into some other things. I want to stay with the agreement we are talking about. We are not going to go back and change this agreement according to what happens in terms of costs. If what the Secretary of Commerce has indicated is true, what they hope to do is to bring the prices down. Mr. TREZISE. To the U.S. level.

Senator HARTKE. Well, in some cases below that.

Mr. TREZISE. They are the identical cars, Senator. They are not different cars. They are the same Pontiac, the same Ford.

Senator HARTKE. They are not the same costs. They are not assembled in the same manner, they are assembled by different people. If they were the same costs

Mr. TREZISE. Parts.

Senator HARTKE. We have a 10-percent differential in cost now; isn't that true?

Mr. TREZISE. But I thought your question was, assuming their price had come down. I said it would come down to the U.S. cost and not below.

Senator HARTKE. I am not making these assumptions, I didn't make any assumptions. You people are making them. There are about four different departments making the assumptions, and I am trying