producing articles such as standard hardware, including springs (both suspension and nonsuspension) and fasteners (bolts, screws, etc.).

Few

Production of automotive parts in the United States is heavily concentrated in the Great Lakes States. The New England and Middle Atlantic States are also significant suppliers of textile products, standard hardware, and electrical equipment for motor vehicles. areas of the United States today, in fact, do not supply parts or materials to the automotive industry. A number of the larger U.S. parts producers have facilities in Canada (e.g., Eaton, Borg-Warner, Stewart-Warner).

Information on Canadian automotive parts production is limited primarily to data reported by firms manufacturing metal automotive parts as their chief products. At present, approximately 140 plants are primarily engaged in the manufacture of such products (excluding facilities owned or controlled by motor vehicle manufacturers). Factory shipments by these plants, combined with similar shipments from facilities owned or controlled by motor vehicle manufacturers, amounted to $296 million in 1960 and $408 million in 1962. Shipments may have increased to $650 million in 1964, because of the sharp spurt in Canadian production of complete vehicles and exports of parts. 1/ These shipments were in large part comprised of axles,

1/Based on data reported by the Motor Vehicle Manufacturers' Association (Canada). The figures include a substantial amount of doublecounting because sub-assembly work is involved; they nevertheless are indicative of the current trend.

brake drums, differentials, engines, oil filters, spark plugs, standard hardware, steering gear assemblies, and transmissions.

Automotive parts production in Canada is concentrated overwhelmingly in the Province of Ontario. Independent parts producers located there and in other provinces are highly dependent on orders from large motor vehicle manufacturers--perhaps even more so than their U.S.

counterparts.

U.S.-Canadian trade in automotive products

In recent years U.S. exports of motor vehicles and parts to Canada have been many times larger than Canadian exports of such goods to the United States. Hence, the trade has resulted in a substantial export balance for the United States and, conversely, a substantial import balance for Canada. In 1962-64, the annual balance ranged between $450 million and $550 million.

The value of U.S. annual exports of motor vehicles and parts to . Canada increased from $387 million in 1960 to $515 million in 1963, and then to $622 million in 1964 (table 3). During the 1960's the United States regularly exported a considerable number of motor vehicles to Canada, but the annual number declined from 31,500 in 1960 to 10,100 in 1963, followed by an increase to about 16,200 in 1964. The bulk of U.S. exports of automotive products to Canada, however, consisted of motor vehicle parts, both for original equipment and for replacement; such exports have grown steadily. Whereas U.S. exports of parts to Canada accounted for about three-fourths

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 producte 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 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 produc tion 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' The terms of the agreement are also considered in the third major section of this report--the analysis of H.R. 6960.

commitments.

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.

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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 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.