Senator HARTKE. I do not think I have taken very long, Mr. Chairman. I have been on 15 miniutes at first and now 25, so I have taken a total of 35 minutes, for a matter in which you have four departments now represented here which, if you divide it among the departments, averages out less than 10 minutes each on an agreement between two countries. I just do not want to feel that I have to be embarrassed publicly because other people took time to ask questions. I did not ask all these witnesses to appear at once. It was not my request.

The CHAIRMAN. I certainly do not intend to embarrass the Senator publicly or any other way.

Senator SMATHERS. Nor do I. I am just merely trying to see where we can go.

Senator HARTKE. Mr. Chairman, I am perfectly willing to come back. I cannot, due to commitments, be here Friday. I will be here Monday. The National Metropolitan Opera is opening its road show in Indianapolis, Monday. I would be willing to cancel that. It is quite an important event. We are having all the Washington people come out, but I will stay in whatever manner the chairman wants to call the witnesses.

I do think in due deference to some of the people who are scheduled this afternoon if we could hear them this afternoon they should be heard this afternoon.

The CHAIRMAN. The Senator will agree, then.

Senator HARTKE. That is fine.

The CHAIRMAN. The committee will recess until 2:30. The Government witnesses will yield to the out-of-town industry witnesses. The committee will then decide what we can do about recalling the Government witnesses for further questioning.

(Whereupon, at 1 p.m. the committee adjourned to reconvene at 2:30 p.m. of the same day.)

AFTERNOON SESSION

The CHAIRMAN. The committee will come to order.

The Chair places in the record a report on the bill from Ambassador William M. Roth, acting special representative for trade negotiations. (The report referred to follows:)

OFFICE OF THE SPECIAL REPRESENTATIVE FOR TRADE NEGOTIATIONS,

Hon. HARRY F. BYRD,

Chairman, Committee on Finance,
U.S. Senate, Washington, D.C.

EXECUTIVE OFFICE OF THE PRESIDENT,
Washington, September 14, 1965.

DEAR MR. CHAIRMAN: Thank you for your note of September 2, 1965, in which you request a report on H.R. 9042, the Automotive Products Trade Act of 1965. This Office supports this bill and believes that it provides a reasonable solution to a very difficult problem which existed in our relations with Canada. In particular, we believe that the elimination of duties on motor vehicles and original equipment between the United States and Canada will not have any substantial impact upon the trade of third countries. Nevertheless, we recognize that implementation of the agreement as proposed in the bill will be inconsistent with our obligations under article I of the General Agreement on Tariffs and Trade (GATT), which contains the principle of unconditional mostfavored-nation treatment. At the same time, the GATT makes provisions for waivers of obligations of contracting parties in "exceptional circumstances." We intend to seek such a waiver at the appropriate time and are hopeful that it will be approved by the other contracting parties.

The Bureau of the Budget has advised that there is no objection from the standpoint of the administration's program to the presentation of this report. Sincerely yours,

WILLIAM M. ROTH, Acting Special Representative.

The CHAIRMAN. The first witness is Mr. James M. Roche, president of the General Motors Corp.

Mr. Roche, will you make your statement? I am sorry you do not have a better audience. There will be more Senators in a few minutes.

Senator CARLSON. That works both ways, Mr. Roche.

STATEMENT OF JAMES M. ROCHE, PRESIDENT, GENERAL MOTORS CORP.

Mr. ROCHE. First I would like to express my appreciation to you, Mr. Chairman, for arranging the schedule so that I could testify this afternoon. As Senator Hartke explained, I have an appointment in Indianapolis tonight.

My name is James M. Roche. I am president of General Motors. At this time, I would like to read a brief summary of the statement filed with your committee. This statement is substantially the same as the statement made before the Committee on Ways and Means of the House of Representatives on April 28, 1965.

I will summarize briefly General Motors' position with regard to the agreement concerning automotive products between the Government of the United States and the Government of Canada and the proposed enabling legislation. General Motors had nothing to do with evolving either the prior remission plan, or this agreement, but we must respect its provisions and adjust our operations to comply with them. It is our belief that the automotive products agreement while not free of difficulties is, over a period of time, a workable plan.

This agreement assures the U.S. industry of continued participation in the faster growing Canadian market, and it would be most unfortunate if any action were taken which would result in Canada applying more restrictive measures to accomplish the objectives it seeks. There are several less desirable alternates available; for example, the Canadian Government could apply duty to many parts which have been imported into Canada duty free. Duty rates on dutiable items could be increased. The imposition of surcharges in addition to the prior statutory rate on imported vehicles is another avenue which the Canadian Government might choose to follow and there has been a precedent for this. Beyond any of these, the present Canadian content requirement of 60 percent could be increased to. say, 90 percent, as has been done in other countries.

The application of any or all of these alternates could be expected to greatly reduce or even eliminate the present volume of U.S. automotive exports to Canada. Some of these steps have been taken either individually or in combination by other countries in recent years for example, Argentina, Australia, Brazil-with the result that U.S. automotive exports to these countries have been substantially reduced or virtually eliminated.

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It is noted that in 1964, even with the effect of the automotivestrikes in both countries, General Motors operations in Canada imported $241 million in automotive parts and products from the United States, which contributed in the area of 17,000 jobs in the United States.

Growth prospects for the Canadian motor vehicle industry areconsidered better than for its U.S. counterpart. For one thing, with immigration a larger factor, the population of Canada is expected to grow faster than that of the United States. Starting from a lower base, personal income is expected to show a larger percentage increase. As Canadian incomes rise, more people will become car owners and more car owners will become two-car owners. Cars per 100 persons should increase from the present level of 26 in Canada much closer to the U.S. figure of 35. Canada now is scrapping cars at a rate of over 6 percent annually compared with a rate 5 years ago of about 5 percent. These rates compare with an American scrappage rate of 812 percent, which rate Canada can be expected to approach eventually.

Weighing all of these factors, it is estimated that by 1970 annual vehicle sales in Canada should average 850,000 units, up 33 percent from the 1962-64 average of 641,000. By comparison, U.S. industry sales by 1970 are estimated to average more than 10 million units, an increase of over 14 percent from 1962 to 1964.

Giving consideration to the U.S. content which will remain in all Canadian vehicles as well as to the dynamic forces for expanson in this country, it is apparent that the U.S. industry will maintain as substantial growth pattern even after taking into account the increased Canadian content sought by the Canadian Government. By 1970 total output of the U.S. industry in terms of cost of production should reach an estimated $17,500 million annually compared with an average annual figure of $15,100 million for the past 3 years.

In order to comply with the provisions of this agreement, some integration of Canadian and United States automotive production will be required. This will require substantial investments in and realinement of manufacturing and assembly facilities. Until these facilities can be fully coordinated for maximum efficiency, Canadian costs will continue to be higher than those in the United States. Over the long term, as the North American market grows, and after existing and additional capacity coordination and utilization is achieved, the economies of both the United States and Canada should benefit.

At this time, may I refer to a letter which I wrote to the Commissioner of Customs on June 19, 1964, in response to a request in the Federal Register for comments of interested persons. The final paragraph read as follows:

The development and growth of the automotive industry over the years in both the United States and Canada has proven beneficial to both countries. The export of U.S.-made parts for *** Canadian production of automobile, trucks, and motor coaches has provided significant employment in the United States. The automotive industry, in turn, contributes importantly to the Canadian economy. Any measures applied by either country which might disturb the present level of business or anticipated growth of the automotive industry could adversely affect the advantages which both countries currently enjoy.

Finally, let me say that General Motors operates plants and does business in many parts of the world. The conditions under which we operate and the laws governing our operations vary from country to country. In each country, however, we endeavor scrupulously to observe to the letter, the laws, local regulations, and customs as that particular country. We work to carry out our obligations as a manufacturer in a way that will be beneficial to our customers, to the economy of the United States, to the economy of the country itself, and to General Motors.

In the present instance, we see an obligation as a corporate citizen both of the United States and of Canada to attempt to accomplish the objectives of this agreement, which was freely negotiated by the two Governments and freely entered into in the belief that it was in the best interests of both countries. We are confident of our ability to operate under the agreement and to continue to make our contribution to the economies of both the United States and Canada.

In connection with this belief, we, of course, support the proposed legislation.

The CHAIRMAN. Thank you very much, Mr. Roche. I assume you want your statement put in the record.

Mr. ROCHE. Yes, we would like to have the full statement included as a part of the record, Mr. Chairman.

The CHAIRMAN. Without objection the full statement will be inserted in the record.

(Mr. Roche's statement in full is as follows:)

STATEMENT BY JAMES M. ROCHE, PRESIDENT, GENERAL MOTORS CORP.

SUMMARY OF GENERAL MOTORS STATEMENT ON UNITED STATES-CANADIAN AUTOMOTIVE PRODUCTS AGREEMENT

I. Introduction.

II. General Motors background: General Motors' volume cars and trucks are built in Canada, along with many parts and components. The Canadian subsidiaries import other parts and components from General Motors plants and other suppliers in the United States. Production in Canada totaled 293,000 units in 1964.

III. Canadian automotive industry background: By 1970 Canadian automotive sales are expected to grow by 33 percent over the 1962-64 average compared with a growth of about half this rate for the United States. General Motors is expanding in anticipation of this growth. U.S. production will benefit.

The

Because of its smaller size the Canadian industry has always been protected by tariffs, etc., and has not been able to specialize its production facilities. result has been higher costs and prices.

How the United States industry benefits from the Canadian market is indicated by the fact that in 1964 General Motors' Canadian subsidiaries imported $241 million of automotive components and product.

IV. The current problem: In recent years Canada has had an unfavorable current account balance originating in United States-Canadian trade and particularly in the automotive sector. The transmission duty remission plan was introduced in November 1962, and broadened a year later to cover all imported vehicles and most parts and accessories. General Motors was able to accommodate its operations to these changes.

V. The General Motors position: The General Motors position was set forth in a June 19, 1964, lettter to the Commisioner of Customs. It made these points: (1) That the growth of the Canadian industry was beneficial to both countries, (2) that U.S. participation through exports has helped both countries; (3) that the value of exports has been substantial, and in 1963 those of General Motors alone accounted for some 16,000 jobs; (4) that the Canadian practice of permitting certain duty-free imports was beneficial to both countries; (5) that the remission plan was a constructive measure from the standpoint of both coun

tries; (6) that U.S. exports could have been expected to continue to increase under the plan; (7) that Canada could take steps that would be much more disadvantageous to the United States industry.

VI. The automotive trade agreement: The proposed trade agreement, while not free of difficulties, is a workable plan. It assures the United States industry of continued participation in the Canadian market. Over the long term the economies of both countries should benefit.

VII. Conclusion: Any restritcions on the automotive industry could adversely affect both the United States and Canada. General Motors has an obligation to accomplish the objectives of the trade agreement and is confident of its ability to continue to make a contribution to the economies of both countries.

I. INTRODUCTION

My name is James M. Roche. I am president of General Motors. My address is 425 Dunston Road, Bloomfield Hills, Mich. The information I am about to present on behalf of General Motors is substantially the same as that contained in my statement before the Committee on Ways and Means of the House of Representatives on April 28, 1965. At that time, I was an executive vice president with jurisdiction over 15 manufacturing divisions, including our Canadian operations.

II. GENERAL MOTORS BACKGROUND

1. Origin of GM of Canada

General Motors of Canada was formerly the McLaughlin Carriage Co., whose president, R. S. McLaughlin, signed an agreement with William C. Durant in 1907, the year before General Motors was organized, to obtain Buick engines for the McLaughlin car. Mr. McLaughlin became a director of General Motors in 1910 and president of GM of Canada in 1918 when that company was formed. He is now chairman of the board of GM of Canada and is still active as a director of General Motors Corp.

2. Products made by GM Canadian operations

General Motors of Canada builds Chevrolet, Corvair, Pontiac, Oldsmobile, and Buick passenger cars and Chevrolet and GMC trucks at its Oshawa plants not far from Toronto. It also manufactures certain components and subassemblies used in the final assembly of both cars and trucks.

McKinnon Industries, with plants in St. Catharines and Windsor, Ontario, manufactures a variety of parts and components for GM of Canada and also for other vehicle manufacturers. They range from engines and transmissions to spark plugs and ball bearings.

Automotive parts as well as Frigidaire products are produced at the Frigidaire plant in Scarborough, Ontario.

GM Diesel, Ltd., assembles buses and locomotives at its plant in London, Ontario.

3. Relationship between GM's Canadian and U.S. operations

Almost all of the products and parts produced by these Canadian subsidiaries are similar to items made in GM's U.S. plants.

All of the Canadian subsidiaries import additional components and service parts from GM plants in the United States and from non-GM suppliers in this country as well. For the most part these are items that cannot be produced economically in low volume, and in many cases their entry into Canada is permitted duty free.

In 1964 such imports into Canada from GM plants in the United States included items like metal stampings for bodies and floor panels, transmission assemblies, engines and components, body hardware, instrument clusters, electrical equipment, and carburetor and steering assemblies. The total value of such 1964 imports was $173 million.

4. Imports into Canada from other U.S. suppliers

Imports into Canada from other suppliers in the United States amounted to almost $46 million in 1964. Three-quarters of these imports came from 130 major suppliers and include such items as cold-rolled sheet steel, frames, stampings, rubber parts, heavy-duty axles and transmissions, carburetors, castings and forgings, bumpers, mufflers, and brakes and brake parts.