Saturday 16th January 1965
United States President Lyndon B Johnson and Canadian Prime Minister Lester Pearson signed the United States & Canada Automotive Trade Agreement. It removed tariffs on cars, trucks, buses, tires, and automotive parts between the two countries, greatly benefiting the large American car makers. In exchange the big three car makers (General Motors, Ford, and Chrysler) and later Volvo agreed that automobile production in Canada would not fall below 1964 levels and that they would ensure the same production-sales ratio in Canada.
Before the Auto Pact the North American automobile industry was highly segregated. Because of tariffs, only three percent of vehicles sold in Canada were made in the United States, but most of the parts were manufactured in the U.S. and overall Canada was in a large trade deficit with the States in the automobile sector.
The Pact caused vast and immediate changes. Canada began to produce far fewer different models of cars. Instead, much larger branch plants producing only one model for all of North America were constructed. In 1964, only seven percent of vehicles made in Canada were sent south of the border, but by 1968, the figure was sixty percent. By the same date, forty percent of cars purchased in Canada were made in the United States. Automobile and parts production quickly surpassed pulp and paper to become Canada’s most important industry. From 1965 to 1982, Canada’s total automotive trade deficit with the U.S. was $12.1 billion; this subsumed a surplus of around $28 billion worth of assembled vehicles and a deficit of around $40.5 billion in auto parts.
The two nominal goals of APTA were to reduce production costs in Canada by dint of more efficient production of a smaller range of vehicles and components, and to lower vehicle prices for consumers.The agreement is said to have benefitted Canadian workers and consumers by dint of lowered prices and increased production creating thousands of jobs and increasing wages. These newly created jobs were highly localised to southern Ontario, with little employment benefit to the rest of Canada. The jobs created by the new market conditions under the pact were almost exclusively blue collar; administration, research and development remained in the United States. This transfer of control of Canadian automaking operations to their US parent corporations substantially reduced the autonomy of the Canadian operations with respect to vehicle and component specification, design, and sourcing; manufacturing and production, branding and marketing, corporate policy, etc.
The agreement also prevented Canada pursuing free trade in automobiles elsewhere internationally, and this North American exclusivity led Transport Canada to adopt the technical regulations of the U.S. National Highway Traffic Safety Administration rather than participating in the European-based development of international consensus on auto safety and emissions regulations.
The Auto Pact was abolished in 2001 after a World Trade Organization ruling declared it illegal, though by that time the North American Free Trade Agreement had effectively superseded it.