of its total exports of automotive products in 1960, the share had increased to about nine-tenths by 1964.

Canadian exports of motor vehicles and parts thereof to the United States amounted to about $10 million annually in the early 1960's, but increased to $34 million in 1963 and to $89 million in 1964. Nearly all of its exports to the United States in the 1960's consisted of automotive parts, although in 1964 shipments of Studebakers materially increased the value of its exports of complete vehicles.

In recent years Canada has had an import balance of trade in motor vehicles and parts not only with the United States but also with the rest of the world. Its import balance on trade in automotive products amounted to $600 million in 1963, which was about equal to its aggregate import balance on current account.

ments made by Canadian motor vehicle manufacturers to the Goverment of Canada. On January 15, 1965, the Canadian Minister of Industry described the agreement as part of "a new, far-reaching program for the Canadian automotive industry." He stated that the two main features of the program were (1) the agreement itself, which was to be signed the following day, and (2) firm assurances of increased production by the individual Canadian motor vehicle manufacturers. Because of the evident importance of these "firm assurances," an analysis of them is essential to a meaningful analysis of the agreement.

This section deals with the obligations of the United States and Canada under the automotive agreement only to the extent necessary to permit analysis of the economic effect of the agreement and collateral' commitments. The terms of the agreement are also considered in the third major section of this report--the analysis of H.R. 6960.

Obligations of the United States Under the Agreement

1

Fundamentally, the automotive agreement obligates the United

States to accord duty-free treatment to imports from Canada of motor vehicles and of parts for use as original equipment in the manufacture of motor vehicles. This obligation is limited in various respects.

The text of the agreement is set forth in Appendix C.

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The agreement concerning automotive products between the United States and Canada was accompanied by important collateral commitments made by Canadian motor vehicle manufacturers to the Government of Canada. On January 15, 1965, the Canadian Minister of Industry described the agreement as part of "a new, far-reaching program for the Canadian automotive industry." He stated that the two main features of the program were (1) the agreement itself, which was to be signed the following day, and (2) firm assurances of increased production by the individual Canadian motor vehicle manufacturers. Because of the evident importance of these "firm assurances," an analysis of them is essential to a meaningful analysis of the agreement.

This section deals with the obligations of the United States and Canada under the automotive agreement only to the extent necessary to permit analysis of the economic effect of the agreement and collateral commitments. The terms of the agreement are also considered in the third major section of this report--the analysis of H.R. 6960.

Obligations of the United States Under the Agreement

Fundamentally, the automotive agreement obligates the United

States to accord duty-free treatment to imports from Canada of motor vehicles and of parts for use as original equipment in the manufacture of motor vehicles. This obligation is limited in various respects.

The text of the agreement is set forth in Appendix C.

53-606 0-65 26

First, duty-free treatment is not to apply to a number of "specialpurpose" motor vehicles; these would include electric trolley buses, three-wheeled vehicles, trailers accompanying truck tractors, and motor vehicles specially constructed and equipped to perform special services or functions (such as, but not limited to, fire engines, mobile cranes, wreckers, concrete mixers, and mobile clinics, and 1/ chassis for the foregoing). Second, duty-free treatment is not to apply to replacement parts, but only to parts (fabricated components) for use as original equipment in the manufacture of the identified motor vehicles. Trailers, tires, and tubes are specifically excluded. Third, the products of Canada will have to meet specified content requirements in order to qualify for free entry into the United States. These requirements will set maximum limits on the permitted content of materials produced in third countries, i.e., in countries other than Canada and the United States. For any article, the measure of such content will be the percentage that the aggregate value of such imported materials contained therein 2/ is to the

appraised customs value of the article on entry into the United States. The maximum permitted "foreign" content for various articles will be as follows!

The "motor vehicles specially constructed and equipped to perform special services or functions" are covered by item 692.15 of the Tariff Schedules of the United States.

2/ Canadian port of entry, exclusive of landing cost and Canadian duty.