Conflict over Cars

WORLD TRADE

When the world's monetary powers agreed to realign their currencies in return for an end to the U.S. import surcharge, one important country was missing from the revaluing ranks. Canada, the largest U.S. trading partner, had already allowed its dollar to float to higher levels more than a year earlier. Ottawa officials hope that their dollar will float down again so that Canadian exports will be cheaper in the U.S., and the Nixon Administration so far has not pressed Canada to fix a formal rate for its dollar.

U.S. trade officials expect a major concession in return for their permissiveness: revision of the 1965 Canadian-U.S. automotive agreement. In seven years, the pact has helped turn a $658 million U.S. auto-trade surplus with Canada into an annual deficit of close to $200 million. Washington wants to renegotiate in order to aid the awful U.S. balance of payments situation, but the government of Pierre Elliott Trudeau steadfastly refuses. In consequence, economic relations between the two countries may be headed for a crisis.

Brief Happiness. The auto pact was concluded by President Lyndon Johnson and Prime Minister Lester Pearson to help give Canadian subsidiaries of Detroit's automakers a fairer share of the total North American market. Johnson and Pearson envisioned eventual free trade in cars, trucks and auto parts once the U.S.-controlled Canadian industry was strong enough to participate on an equal basis. To strengthen it, the two political leaders loaded the agreement with safeguards that favor Canada. Under its terms, Canadian-built cars have duty-free access to the U.S. market. But only Canadian manufacturers can bring cars built by their Detroit parent companies across the border without paying duty; individual Canadians importing U.S.-made cats must pay a 15% tariff. Also, the ratio of cars assembled in Canada to cars sold there must not fall below 1964 levels. Canadian plants were then turning out four cars of every seven sold.

For a while, both sides were happy. Then, after 1965, Detroit's automakers launched an expansion in Canada to take advantage of lower labor costs and to help maintain the ratio in the face of an expected sales rise. The plants began turning out large numbers of autos, but the sales rise never came. Instead, Canadians started buying inexpensive European and Japanese imports. So the unwanted cars--many of them Mavericks, Pintos and other compacts and subcompacts--were sent duty free into the U.S., where such models were becoming highly popular.

Border Rush. U.S. officials say that the pact provides an unfair trade advantage for Canada. To increase the sales of U.S.-made cars, they want to scrap the 1964 ratio and the tariff on cars imported by anyone but a dealer.

On the other side, Canadians point out that it was Detroit's decision, not Ottawa's, to build more cars in Canada. "If the safeguards were lifted," said one official, "there would be no incentive for car manufacturers to stay in Canada." Because of higher taxes, a smaller market and other factors, Canadian-built cars retail for $200 to $800 more than equivalent models made in the US. The Trudeau government is afraid that Canadians would rush across the border to buy U.S. cars if the tariff were dropped. Finally, the auto pact has become a symbolic issue in Canadian politics and could affect the outcome of the federal election that is expected next June. Canada's auto-parts industry and its 120.000-member arm of the United Auto Workers are pressuring Prime Minister Trudeau not to budge. All together, the auto workers have sent 25.000 form letters to Trudeau urging him "Do not sell us out."

President Nixon plans to visit Ottawa in the spring. Canadian diplomats would like to have an agreement covering many other trade issues--notably relaxation of U.S. restrictions on purchases of Canadian uranium, aircraft and farm-machinery parts--ready for the President's signature. But if neither side tempers its stand on the auto pact, Nixon may sign nothing more important than Trudeau's guest book.

This file is automatically generated by a robot program, so reader's discretion is required.