I believe that in his statement he was working from approximately the same figures that you are working from, and here is what his figures indicated: That projecting what would happen under this agreement from model year 1964 in Canada you would have about $1,543 million of total sales and Canadian value added would be about $962 million and a net U.S. surplus in automobiles and products of $581.1 million.

Projecting this ahead, they estimate in 1968 you would have about $2,090 million and Canadian value added of $1,510 million, which would give you a trade surplus of the United States of about $580 million. Is that about what your studies indicate?

Mr. HENRY. Yes, sir; we would have no major difference with these figures.

Senator LONG. As I understand it, you added an addendum to the report to this committee in which you estimated that it would work out just about the same way if you proceed under the arrangement existing prior to this agreement. I was looking at page 24 of your report where you say:

By model year 1968 Canadian output in terms of Canadian value added will probably be materially larger than it would have been as a result of the preagreement level of Canadian tariff protection alone. On the other hand, it will perhaps not be much larger than it would have been if the 1963 Canadian rebate plan had continued in force.

Mr. HENRY. Mr. Chairman, in terms of Mr. Trued's figures, the U.S. net surplus in automotive products trade with Canada which he shows if Canada had continued its tariff protection including the Commonwealth content provisions

Senator GORE. Are you including the remission plan?

Mr. HENRY. No; not at this point. If Canada had continued its tariff protection, including the Commonwealth content, the U.S. surplus in trade with Canada in 1968 would be materially larger than $580 million because under that plan the Canadian value added would be substantially smaller than the $1,510 million which he shows here. If they had continued with their tariff remission plan, which, of course, was based upon and placed

Senator GORE. Could we have, as nearly as possible, the estimated surplus as we go along?

Mr. HENRY. Yes.

Senator GORE. You just stated that had the existing custom tariff situation prevailing before the rebate remission scheme was instituted continued, then the surplus would have been larger. Could you give us your estimate there?

Mr. HENRY. Yes, sir; I think the difference would have been about the amount which the Canadian automobile companies have committed themselves to in absolute terms in the collateral letters of undertaking; that is, $240 million. If Mr. Trued's figures are in Canadian dollars, it would be about $260 million. So that the U.S. net surplus on that basis would have been $840 million.

I think, also, according to our analysis, if Canada had continued its tariff remission plan which was placed on top of the tariff protection and the Commonwealth content provisions of the tariff and I may say that for the effect of this in our record we relied on the estimates of the Canadian Government itself as to what effect that plan

would have that the U.S. net surplus in automotive products trade with Canada would also have been substantially larger than this-no, I am sorry, might not have been much larger than this because under the remission plan they were encouraging exports to the United States and a higher Canadian production. On this, I don't have an estimated figure, but it would be somewhere between the $580 and $840 million, but perhaps closer to $580 million.

Senator LONG. Well, now, can you tell me whether on balance Canada has a trade surplus or trade deficit?

Mr. HENRY. In trade, merchandise trade?
Senator LONG. Yes.

Mr. HENRY. They have a surplus, I believe.

Senator LONG. They have a surplus in merchandise trade?

Mr. HENRY. I believe so, in merchandise trade. If you restrict it just to merchandise trade and all I happen to have here are the 1960figures.

Senator LONG. 1960?

Mr. HENRY. Excuse me, 1963 figures, they have a surplus of exports over imports.

Senator LONG. How do they stand in balance of payments?

Mr. HENRY. Well, this would balance. They have an outflow of payments, so in common terms they would have a deficit in the balance of payments.

Senator LONG. To what extent?

Mr. HENRY. In 1963, $557 million.

Senator LONG. Canada is only about 10 percent the size of the United States. If you roughly translated their deficit into 10 times the size, we would get, let's say, a $5 or $6 billion balance-of-payments deficit.

Mr. HENRY. Yes, sir; if you assume that, in our balance of payments it would be 10 times larger.

Senator LONG. It is a serious problem, isn't it, that needs to be corrected?

Mr. HENRY. Yes, sir.

Senator LONG. You are, no doubt, familiar with some of the things we have been doing in correcting our balance of payments. Do we have a right, for example, to curtail some of these items that are coming in?

Mr. HENRY. Yes.

Senator LONG. We have taken measures from time to time to protect American commodities for industry which is being injured and we thought they had a claim. Are you familiar with the impediments that some other competitors have placed on imports of automobiles? Mr. HENRY. Yes; I heard them in the testimony.

Senator LONG. You don't have any direct knowledge other than the testimony here?

Mr. HENRY. No, sir; not any substantial direct knowledge.

Senator LONG. What I want to know is does Canada, with a heavy imbalance of payments, have the right to place additional burden on trade moving into Canada; that is, imports moving into Canada ? Mr. HENRY. It partly depends, I think, on what you mean by "does Canada have the right.

At the Torquay negotiations under the General Agreements on Tariff and Trade, Canada granted the U.S. trade agreements con

cessions on automobiles. If they worsened-the conditions of trade between the United States and Canada on the automotive trade-I think, probably, they would be inconsistent with the undertakings which they made in the Torquay negotiations. I would agree with you as a sovereign nation they have the power to do that, but they did have some obligations to the United States under international commitments which they would have to take into consideration before they made their decision as to what they would do.

Senator LONG. I was looking at the Canadian balance and we have a favorable balance with Canada of about $1,183 million in trade, don't we?

Mr. HENRY. In trade? I am sorry, I don't have those figures with me, Mr. Chairman, but I am sure that is right.

Senator LONG. Those are the figures I looked at last night. Now, there is $1,183 million favorable balance, and Canada has a deficit against the world by about 50 percent of that amount.

Now, if she is going to correct her balance of payments, would not it stand to reason she would do something about those items which are causing the heavy deficit? What are these items, specifically?

Could you name them? Well, just look at the list; here they are: road motor vehicles and parts-that would include automobiles in 1964 $593 million from the United States, $64 million shipped to us; electrical machinery, $291 million, $70 million shipped toward us; machinery for special industry and not elsewhere classified, $538 million, $57 million shipped toward us.

There is a 10-to-1 advantage there. Agricultural machinery, $304 million, $145 million shipped to the United States; aluminum, $31 million that is one of their surplus items, aluminum, they shipped that toward us.

Now, it would seem to me if she is trying to correct that imbalance and it lies mainly with the United States-those are the items the flow of which she would have to correct.

I assume if we feel she is moving to make trade more burdensome, we have a right to restrict her imports toward us, and that would look to me as though it would be aluminum, of which we shipped them $31 million and they shipped us $112 million.

Petroleum and petroleum crude and partly refined, we shipped them zero, they shipped us $258 million.

Paper and paperboard, we ship them $47 million, they shipped us $747 million.

Woodpulp and wastepaper, we shipped them $12 million and they shipped us $346 million.

Wood, logs, and lumber, we shipped them $55 million they shipped us $352 million.

Iron ore and concentrates, we ship $58 million and they shipped $275 million to us.

Fish, fresh and preserved, we shipped them $8 million and they shipped us $123 million.

Alcoholic beverages, we ship them $2 million and they shipped us $103 million.

It looks to me, as the Senator from Louisiana, that if we were to get into a trade war with Canada, my State stands very much to benefit. The obvious items to cut would be oil, petroleum, paper, pulp, logs, lumber, and in those areas we would have a big advantage.

Wouldn't it stand to reason that looking at these high wage industries of agriculture and machinery-machinery for industries, electrical machinery, automotive, and trucks-that it is in those areas, being high-wage industries and being areas of their deficit, that that nation would be moving to protect its own position and to reduce that deficit.

Mr. HENRY. Well, this would be one method of attempting to take action which would help a deficit in the balance of payments. Of course, the balance of payments rests not only on merchandise trade but on services, capital movements, and many other factors and it would, of course, be Canada's decision if she felt Government action was necessary as to what she ought to do.

Senator LONG. Go ahead. I have no further questions at this time. Senator Gore?

Senator GORE. If I correctly understood your replies to the first questions of Senator Long, you state that it is the estimate of the U.S. Tariff Commission that a continuation of the tariff and duty relationship existing prior to the remission scheme would by 1968 improve U.S. export-import position with Canada_beyond the situation anticipated as a result of this agreement. Bv 1968, if I recall your estimate, by a continuation of the preremission scheme situation, our trade balance would have been favorable by about $841 million, did you say?

Mr. HENRY. $841 million is what I said, Senator Gore.

Senator GORE. $841 million.

Had the duty remission scheme been continued until 1968, what is your estimate of the balance?

Mr. HENRY. It is more difficult under that scheme to give an estimated figure. It would be considerably closer to the $480 million which Mr. Trued estimated would be the result under the agreement. Senator GORE. Or something less than that or something more than that.

Mr. HENRY. Something more than that; yes.

Senator GORE. About in what order, $100, $50 million, can you estimate it?

Mr. HENRY. It might be in the neighborhood of $650 million instead of $580 million.

Senator GoRE. Mr. Chairman, this verifies, it seems to me, the statement I made to Secretary Mann on the very first day of the hearing, which he seemed to resist, that this agreement is a better deal for Canada and the automobile concerns than even the duty remission scheme was.

Just why we should make an agreement to end a scheme which is contrary to the rules and give up more than the scheme would produce against us, I don't quite understand. But this is what we have done.

Senator LONG. If you directed that question toward me, could I respond to that?

Senator GoRE. Well, sure.

Senator LONG. Well, the point about it is that the Canadian market belongs to Canada, it doesn't belong to us, although we have a right to trade there. Brazil, for example, cut off imports of all our automobiles. Brazil requires that automobiles sold there be 100 percent

manufactured in Brazil. Also, as I understand it, trucks in Brazil must be 98 percent manufactured in Brazil.

Now, Argentina just got through putting a 90-percent requirement on us, so that automobiles had to be 90 percent manufactured in that country. Now, Canada is a sovereign nation and has that power to take the whole thing away from us, isn't that correct? As a sovereign power, doesn't she have the right to claim her own market for her own manufacturers?

Mr. HENRY. Yes; she could, Mr. Chairman. Of course, the parts which Canada is now importing from the United States to include in her automobiles are those in which she has the greatest cost disadvantage. This is what you would expect the companies to do.

So, if Canada did, for example, require 100 percent content the cost of production in Canada would rise, I should think rather materially, and result in a rather material increase in the prices of automobiles.

Senator LONG. Well, now, how much did that bother Brazil? The fact that it cost more to make automobiles there didn't bother her one whit. It doesn't bother Argentina one whit that it cost more to make cars down there.

Mr. HENRY. They went ahead and did it, Mr. Chairman, whether it bothered them or not.

Senator LONG. How about the European countries? Do any of them give free access to American automobiles to come in there?

Mr. HENRY. No; there are controls of various kinds in all European countries.

Senator LONG. My recollection is in a country like France they have five or six ways to hit you if you try to get an American automobile in there. Not just one. They have quotas, taxes, specialized tariffs to hit you with. How many American automobiles do we send into France?

Mr. HENRY. I don't know offhand, Mr. Chairman.
Senator LONG. Not many, do we?

Mr. HENRY. We don't export a large number; no.

Senator LONG. And it is because of restrictions, isn't that right? Even if ours cost more, there are people who would like to buy American automobiles over there because they are more comfortable. Mr. HENRY. That is one of the reasons; yes.

Senator GORE. The point here, which the distinguished chairman seems to overlook, is that this is a grab bag for the U.S. market. The movement of-what, in your opinion, will be the effect on the movement of parts of this agreement? What will be the effect of this agreement on automobile parts as between the two countries?

Mr. HENRY. Senator Gore, that is a very difficult question to answer. As we pointed out in our report

Senator GORE. I want to compliment you on the report. It is a good job. I thought you dealt fairly with the issue, and I want to say here that I recognize the independent status of the U.S. Tariff Commission.

I also recognize the delicacy of this issue, with administration pressure for it, and I do not wish in any way to put the Tariff Commission in an embarrassing position. I only expect factual answers and no opinions.