Mr. KENDALL. Let me say this to you, I see exactly what you are driving at. The commitments which we have made we are able to live up to without sacrificing cost of parts to us.

Senator HARTKE. Yes; I agree with that.

Mr. KENDALL. This is the whole point, whether they are made in the United States or made in Canada.

Senator HARTKE. This is the point which causes the difficulty, because they can ignore cost in sacrifice to Canadian value added commitments. When you are talking about flexibility it is the same thing I am talking about, we are just using two different words. For the big three, this provides the type of flexibility whereby they can meet the requirements of the Canadian value added and at the same time go ahead and interchange in a manner which they cannot do at the present time.

By contrast, they are having to manufacture complete lines at the present time to meet the 60-percent quota or whatever it is.

Mr. KENDALL. This affects us more than it does the other two.
Senator HARTKE. That is right.

Mr. KENDALL. Because we make less than they do. We purchase outside parts more than they do.

Senator HARTKE. And the result of this can, however, be, that you don't get any overall reduction because the dollar value in the Canadian value added has to be held at that level and actually increased in the long run, doesn't it?

Mr. KENDALL. No, not necessarily.

Senator HARTKE. Under the agreement it has to.

Mr. KENDALL. That is right.

Senator HARTKE. You have agreed to it.

Mr. KENDALL. That is right, but the point about it, Senator, is that regardless of the commitment which we are going to make anyway, we don't sacrifice price or sacrifice cost, I guess, is a better way of putting it.

Senator HARTKE. Well, let me ask you about another matter quickly. How would this be as far as Volvo are concerned, do they come under this agreement?

VO

Mr. KENDALL. I don't know the answer to that. I suppose Vol

Senator HARTKE. How about Renault?

Mr. KENDALL. Our Renault or any other foreign country couldn't unless they met the requirements of the Canadian Government.

Senator HARTKE. Wouldn't this be an added incentive for those people to go ahead and build plants in Canada instead of in the United States for shipment to the United States?

Mr. KENDALL. I wouldn't think so unless they were-I don't know what sort of an arrangement they could make with Canada, but I would be very surprised were they to do it.

Senator Hartke, I think maybe it would be illustrative-I don't mean to interrupt your reading.

Senator HARTKE. That is all right.

Mr. KENDALL. I think it may be illustrative, their agreement would have nothing to do with the United States or any effect. It would have to do as between Italy or Germany or Japan or what have

and Canada.

you

Senator HARTKE. Yes.

Let me ask you one other question.

At the present time we know, of course, Canada does have a rather sizable trade with Communist China and also with Cuba, isn't that true?

Mr. KENDALL. I don't know about Cuba.

Senator HARTKE. I don't know what the size of it is, but they shipped some new buses down to Cuba not so long ago, at least it was so reported, and Canada is a part of the United Kingdom. We all agree with that. I might say for the record, Senator Douglas, with regard to GATT. I did talk to the British people, they are not very happy about this but they say it is a matter which they don't want to go into an inernational crisis.

Senator DOUGLAS. I suppose our help to the British pound has contributed to their acquiescence.

Mr. KENDALL. It is a part of the Commonwealth rather than the United Kingdom.

Senator HARTKE. Isn't it entirely possible some of these American buses and other motor vehicles which enter Canada duty free can find their way into Communist Cuba or these other countries?

Mr. KENDALL. It may be possible but it is not lawful from our standpoint.

Senator HARTKE. Well, is there anything in this agreement which would offer any protection?

Mr. KENDALL. No; but it is entirely outside of this agreement, Senator Hartke. You see, it is something that never was, really was, resolved, that wholly controlled American companies have a responsibility to my old Department of the Treasury with regard to shipment of goods in violation of the Trading With the Enemy Act. I would say this was highly unlikely.

Senator DOUGLAS. I didn't hear you, Mr. Kendall.

Mr. KENDALL. I would say this is highly unlikely, Senator Douglas. Senator DOUGLAS. But not illegal?

Mr. KENDALL. I think it is illegal.

Senator DOUGLAS. Do you think that your Canadian subsidiaries are bound by the laws which govern the American company?

Mr. KENDALL. It is highly probable that they are. Not every-
Senator DOUGLAS. It is reassuring.

Mr. KENDALL. Not every legal question, as you and I discussed a few minutes ago, is readily soluble.

Senator DOUGLAS. I am very glad to see some of the representatives of the State Department in the room and I hope they are taking due cognizance of the fact.

Mr. KENDALL. I am not representing the State Department or the Treasury either.

Senator DOUGLAS. With respect to trucks or buses made by Chrysler or other companies sent to Canada and going to Cuba we have your testimony to say that in your judgment it is highly probable this would be illegal?

Mr. KENDALL. For what it is worth, you mean.

Senator DOUGLAS. Well, you are a very eminent legal authority. You are certainly not a prejudiced witness.

Senator SMATHERS. Any other question of this witness?

Senator HARTKE. Just one.

Take these 70,000 Darts that are coming in, how are they going to arrange, in other words, how are you going to arrange through Chrysler, Ltd., in the United States in order that you can bring those automobiles in here, are you going to be able to bring them in here cheaper than you can sell them in Canada?

Mr. KENDALL. No. They will be the same price.

Senator HARTKE. In other words, the production cost is going to be more than in the United States?

Mr. KENDALL. That is right. But other savings we would hopeanyway we are going to bring them in and distribute them in the normal course just as if we made them in Highland Park or any other one of our plants.

Senator HARTKE. The Prime Minister of Canada announced on April 7, 1965, that he was going to investigate reports that Canadianbuilt cars are going to be sold for less in the United States than they are sold for in Canada.

Mr. KENDALL. He hasn't so communicated that to me.

Senator HARTKE. Well, this is what he said on April 7, 1965.

Mr. KENDALL. We have no difficulty with that.

Senator DOUGLAS. If this were sold in the United States than at a lower price in Canada this would be dumping.

Senator HARTKE. That is right, and they have very severe antidumping laws.

Senator DOUGLAS. We have?

Senator HARTKE. They have.

Senator SMATHERS. All right, sir, let me ask you one question. Should these cars come in that Senator Hartke was talking about, are they going to have American-made tires or Canadian-made tires on them?

Mr. KENDALL. They will probably have some of each, depending upon which supplier we buy the tire from for the automobile that is coming in.

Senator SMATHERS. That is a pretty good legal answer.

Mr. KENDALL. Thank you.

Senator DOUGLAS. The right wheels are American tires and the left ones Canadian tires.

Mr. KENDALL. They will all be the same.

Senator SMATHERS. All right, sir, thank you, Mr. Kendall.

The next witness is Mr. Frederick C. Holder, Director of Corporate Planning, American Motors Corp., United States of America.

STATEMENT OF FREDERICK C. HOLDER DIRECTOR OF CORPORATE PLANNING, AMERICAN MOTORS CORP.

Mr. HOLDER. Mr. Chairmna, my name is Frederick C. Holder and I am director of corporate planning of American Motors Corp. of Detroit, and I appear for the corporation in support of the bill under consideration, H.R. 9042.

We have filed with the clerk a compact statement, in keeping with the character of our company, outling our position and with the Chair's permission we would like to have it incorporated in the record.

Senator SMATHERS. Without objection it will be made a part of the record.

Mr. HOLDER. I would like now merely to make a few broad observations in support of the bill.

Senator SMATHERS. All right, sir, you proceed.

Mr. HOLDER. We supported the bill in testimony before the House Ways and Means Committee on April 28, and there have been no changes in our position since that time.

We have continued our studies of the implications of the agreement, and our studies confirm our earlier judgment that the automotive trade program represents a logical, practicable, and a feasible approach for both countries.

We believe that the objectives of the agreement will be met without adverse effects on U.S. industry, and we believe further that the elimination of trade barriers will create new economic opportunities to the long range benefit of the citizens of both our countries. For these reasons, and for the logic which we have outlined in our statement, we express our support of H.R. 9042, and hope that the committee will make an early and favorable recommendation for its passage by the Senate.

Thank you very much, Mr. Chairman.

(The statement of Mr. Holder referred to follows:

STATEMENT BY FREDERICK C. HOLDER, DIRECTOR OF CORPORATE PLANNING, AMERICAN MOTORS CORP.

My name is Frederick C. Holder. I am director of corporate planning of American Motors Corp., Detroit, Mich., appearing before this committee in support of H.R. 9042, the Automotive Products Trade Act of 1965.

I have a brief written statement which, with your permission, I should like to read. Copies have already been given to the clerk of the committee. Following that, I shall be glad to answer any questions the members of the committee may have.

AMERICAN MOTORS SUPPORTS 1965 TRADE AGREEMENT

American Motors supports the statement of principles and purposes set forth in the United States-Canadian Automotive Trade Agreement of January 16, 1965. For some years we have advocated the development of similar international trade bridges in all parts of the world, and we are encouraged by the economic logic of the new United States-Canadian trade approach.

By way of background, I might say that American Motors has 36 automotive and home appliance production operations outside the United States, in 26 countries around the world. Worldwide sales in our last fiscal year exceeded $1 billion. I would like today to summarize for this committee certain attitudes and conclusions that we have developed over the years from our international business relationships.

UNDERLYING ECONOMIC OBJECTIVES

The local development of industry within a growth country ordinarily starts on a modest basis. It often requires the importation of many components from outside countries, until the market develops to the point that it is a matter of national interest to move toward more complete or even full integration of production. All benefits that accrued to outsiders during this growth period, in which they were shipping significant quantities of materials into the country, are not necessarily lost when the growth country decides on a policy of greater integration.

We feel that automotive trade relationships between the United States and Canada have undergone a similar evolutionary development. Originally, Canadian car production consisted of the assembly of parts and components imported from the United States. As a second step, in 1936 the Canadian Government

began to specify minimum Canadian content of Canadian-built cars in a program to develop their own automotive manufacturing resources.

With the substantial expansion of the Canadian automotive market in the 1960's, however, it became apparent that Canada faced both a problem and an opportunity.

The problem of which I speak was the increasing exchange imbalance resulting from continuing heavy importation of U.S.-made parts in an expanding market, particularly such vital components as major body stampings, engines, and automatic transmissions. The Canadian opportunity in the situation was the possibility of improving participation in its own growing domestic market, even though not necessarily by manufacture of those same components primarily responsible for creating the exchange imbalance. The Canadian duty remission program started in 1962 was an effort to meet the new situation and this has now been supplanted by the new United States-Canadian Automotive Trade Agreement.

Canada could most readily have followed the traditional method, adopted by many other countries, of raising the prevailing Canadian content requirement to a much higher figure. While this would have achieved a reduction in their automotive trade imbalance, it would, in our opinion, have been harmful to both the Canadian and United States automotive industries because of the inherent cost penalties. We feel, consequently, that the present plan, because it will encourage continued growth of the Canadian automotive industry, and because the United States will continue to share importantly in that growth, is a more appropriate solution to the Canadian automotive situation.

This new approach to automotive trade relationships between our two countries is, we believe, a most promising one.

Broad changes in trade relationships, of course, involve the possibility of temporary dislocation and readjustment. Until the potential of the new program can be fully realized, it is proper, in our opinion, for Canada to expect industry cooperation; first, in avoiding any reverse impact from the immediate removal of Canadian import duties and, second, in planning toward achievement of longer run objectives.

NATURE OF THE UNDERTAKINGS

The undertakings into which American Motors of Canada, Ltd., has entered with the Canadian Government are, we understand, similar to those entered into by other Canadian automotive manufacturers. They can be summarized as follows:

1. Base content

To maintain Canadian dollar content in vehicles produced in Canada in an amount no less than in the 1964 base year, subject to relief for decreases in volume.

2. Value added on increased sales

To increase "Canadian value added" by an amount equal to 60 percent of any increase in the total cost of production of vehicles sold in Canada.

3. Ratio

To produce in Canada vehicles with a net sales value in at least the same ratio to vehicles sold in Canada as existed in the base year.

4. Value added on added Canadian production

By model year 1968, to increase "Canadian value added" by a specified amount over the 1964 base year, plus the normal growth referred to in (2) above.

OBJECTIVES CAN BE ATTAINED

While we are satisfied that we can meet these undertakings, we have not as yet reached any specific decisions as to the method of doing so. Our studies show that there are several alternative routes, or a combination of routes. These are still under analysis and I am not in a position at this time to predict specifically which direction we will take.

It is possible for us to say, however, that we do not foresee any major change in our present overall operations, although there may be some limited readjustments between Canadian and American production assignments.