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Letter to the President of the Senate and to the Speaker of the House on the Automotive Products Agreement With Canada.

March 31, 1965

Dear Mr. President: (Dear Mr. Speaker:)

On January 16, Prime Minister Pearson of Canada and I signed an important agreement looking toward freer trade in automotive products between our two North American countries. This Agreement resolves the serious difference which existed between Canada and the United States over our automotive trade. More significantly, it marks a long step forward in United States commercial relations with her greatest trading partner. It testifies to the goodwill and confidence between us.

The automotive producers of the United States and Canada make up a single great North American industry. The same kind of cars, using the same parts, are produced on both sides of the border, in many cases in factories only a few miles apart. Over 90% of the automobiles sold in Canada are assembled by firms owned in part or in whole by United States companies. The men and women who work in the plants on both sides of the border are members of the same international union.

Tariffs and other restrictions involving Canadian-United States trade in automotive products have been the cause of significant inefficiency in this great industry. Canadian plants produce a great variety of cars, essentially identical with those made in far larger numbers in the United States. Because the Canadian market is relatively small, production runs have been short, and costs and prices have been high. High costs and prices, in turn--supported by the tariff and other restrictions--have contributed to keeping the market small.

Historically, Canada's share in North American automotive production has lagged far behind her share in automotive purchases. In 1963, in an attempt to increase its share of the North American market, the Canadian Government put into effect a plan, involving the remission of tariffs, which was designed to stimulate automotive exports. A number of United States manufacturers, believing they would be injured by the plan, called upon this Government to impose countervailing duties. In all probability, such action would have invited retaliation. We were faced by the prospect of a wasteful contest of stroke and counterstroke, harmful to beth Canada and the United States, and helpful to neither. Our broader good relations with our Canadian friends would have suffered serious strain.

To avoid such a dismal outcome, our two governments bent every effort to find a rational solution to the problems of a divided industry- The Automotive Products Agreement that the Prime Minister and I signed in January is the result of our joint labors.

The agreement will benefit both countries. We will have avoided a serious commercial conflict. Canada will have achieved her objective of increasing her automotive production. United States manufacturers will be able to plan their production to make most efficient use of their plants, whether in Canada or the United States. They will save the price of the tariff, and, over the longer run, we will benefit from the faster growth in the Canadian market which lower prices will make possible.

The Agreement has already brought results. The Canadian Government revoked its controversial plan and, on January 18, reduced all relevant duties to zero. I am informed that the Canadian Parliament will be asked to give its approval in the near future.

We recognize, of course, that full integration of the North American automobile industry cannot be brought about all at once. To allow time for adjustment, the Canadian sector of the industry--less than 1/20 the size of ours--will operate initially under special arrangements. The Agreement itself will be subject to comprehensive review no later than January 1, 1968. We should then be in a position to judge what further steps are necessary.

In signing the Agreement, I pledged myself to ask the Congress to authorize the President to remove all United States duties on Canadian automobiles and parts for original equipment. I am today sending to the Congress draft legislation which would give the President that authority. The proposed legislation would also authorize the President to make similar automotive agreements with other countries, and to make agreements leading to mutually beneficial reduction of duties on replacement parts.

I repeat: In my judgment, the Agreement will benefit both Canada and the United States, and the automotive industry and automotive workers in both countries. However, we recognize that adjustments in an industry of such size could result in temporary dislocation for particular firms and their workers. To provide appropriate relief, the Bill I propose will make applicable the adjustment assistance of Title III of the Trade Expansion Act of 1962.

The tariff change contemplated in the automotive agreement is, however, a special case. Tariffs will be cut to zero, all at one time. Furthermore, dislocation, if it should occur, may well be due as much to the decrease in exports of certain products as to an increase in imports. Therefore, this Bill calls for special procedures for obtaining adjustment assistance. These special procedures will be limited in application to this Agreement and to a transition period of three years. If a similar agreement is made with another country, or if we should make agreements affecting replacement parts, appropriate adjustment assistance legislation will be recommended to the Congress.

The Agreement and this Bill are designed to lead to a more efficient organization of the North American automotive industry. It is based on mutual trust and will result in mutual benefit--benefit to producers, to labor, and to consumers on both sides of the border.

Canada has acted. It is our turn. In order that we may act, I ask the Congress to approve promptly this legislation.



Note: This is the text of identical letters addressed to the Honorable Hubert H. Humphrey, President of the Senate, and to the Honorable John W. McCormack, Speaker of the House of Representatives.

For remarks of the President and Prime Minister Lester B. Pearson of Canada on January 16 upon signing the U.S.-Canadian agreement on trade in automotive products, see Item 21.

The bill providing for the implementation of the agreement was approved by the President on October 21, 1965 (see Item 574).

Lyndon B. Johnson, Letter to the President of the Senate and to the Speaker of the House on the Automotive Products Agreement With Canada. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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