Autonomous State: The Epic Struggle for a Canadian Car Industry from OPEC to Free Trade by Dimitry Anastakis (review)

The automotive industry was central to the emergence of Canada’s manufacturing sector, and in particular that of Southern Ontario, in the post-World War II period. Current fears regarding the decline of manufacturing in Canada and the fear of again becoming an economy dominated by natural resource exports make this work a timely and valuable addition to the literature on Canada’s economic development.

The Auto Pact negotiated in 1965 between Canada and the United States shaped the automotive industry in Canada. It had two key features. It created a free trade zone for car and truck production between the two countries, allowing production to be rationalized on a continental basis. But it was a managed free trade agreement that included specific guarantees to ensure a certain minimum level of production in Canada. Dimitry Anastakis explored the emergence of this managed free trade arrangement in Auto Pact, 2005. Autonomous State is a follow-up study examining the process of continental rationalization under the Auto Pact, the tensions between Canada and the United States over the benefits from the sector, and its eventual demise under the 1989 Free Trade agreement.

There is much to like about this work. It is a solid piece of academic research. It reaches beyond the mere facts of how the industry evolved under managed trade, to explore what the Auto Pact meant for relations between states and multinational companies, the stresses it created within the Canadian federation, and how the Auto Pact paved the way for the 1989 Free Trade agreement.

Anastakis begins with a review of the conditions that led to the Auto Pact. He documents the ongoing tensions between Canada and the United States over the deal and the differing interpretations of the arrangement. For US policy makers, the Auto Pact was a free trade agreement with transitional guarantees to assure Canada would retain some production. It was assumed that after this transitional period, the Canadian industry would compete on its own merits without any further protections or guarantees. For Canadian policy makers, the Auto Pact was an agreement to ensure Canada a “fair share” of automotive jobs proportional to Canadian consumption. These guarantees were needed on an ongoing basis in light of the structure of the industry dominated by US-based vehicle assemblers and parts manufacturers.

To ensure that Canada maintained a “fair share” of jobs, policy makers at the federal and provincial levels engaged in creative policy strategies in the post-1965 period. It is clear from this volume that even with the Auto Pact getting a “fair share” of jobs required significant intervention by the different levels of government. In the late 1970s, the federal and Ontario governments put together a substantial package of subsidies to ensure that Ford built its new engine plant in Windsor. This was a response to the increasing subsidies offered by US states and communities to attract auto jobs. While Washington complained, the Canadian’s responded that unless the US federal government could limit the subsidies offered by states and cities, they would continue to support the industry at the federal and provincial levels. Canadian cities were limited in what they could offer to attract auto jobs. A Canadian offer to end such subsidy competitions came to nothing as Washington had no authority to reign in the offers being made by individual states and cities.

These tensions were increased as foreign makers began investing in North America in the 1980s. Wanting to gain a “fair share” of these jobs, Canadian policy makers resorted to both direct subsidies and duty remission schemes to encourage foreign-based firms to produce in Canada for export to the United States. Anastakis argues that while the Big Three defended the Auto Pact in the 1970s when the tension was over state subsidies that they were...