Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971 (review)

On the eve of the twenty-first century, one in seven Canadians owed their employment to the automotive sector and one in five vehicles assembled in North America was assembled in Canada. Understanding how Canada became a preferred location for North American automotive production is essential for anyone interested in Canada's post–Second World War economic development. The Auto Pact plays a central role in understanding this story. Given the contrasts between the principles of the Auto Pact and more recent free trade agreements, understanding how and why this policy was adopted is both timely and necessary.

Anastakis begins by examining the crisis in the automobile sector in the early 1960s and policy alternatives. One option was to increase protection of Canadian manufacturers, with the likely result of higher prices for cars sold in Canada and reduced choice for consumers. The alternative was free trade, which would almost certainly have led to hardship for Canadian producers. The Auto Pact was an ingenious compromise. Trade would be organized on a continental basis. Automotive production could flow duty free between Canada and the United States, subject to constraints on both sides. Material could be imported into Canada duty free by firms that produced as many vehicles in Canada as they sold. US-based manufacturers could organize production on a continent-wide basis, and Canada would get its 'fair' share of North American production.

The author presents in detail the steps leading to the Auto Pact. The earlier failure of the continental free trade deal in agricultural implements was very much in the minds of the Canadian framers of the Auto Pact. The agreement was also influenced by the growing willingness of Canadian policy makers to question our close economic relationship with the United States. This caution led to attempts (largely unsuccessful) to diversify our trade, away from the United States. More successful was the use of trade policy to resolve imbalances with the United States. For example, duty-remission programs encouraged increased exports of Canadian production to the United States through positive economic incentives. The United States was highly critical of these policies. But rather than fold in the face of criticism, Canadian policy makers demanded a fair share of automobile production. The Auto Pact was the result. Before the deal could be finalized, an exemption was necessary from the General Agreement on Tariffs and Trade, as it violated the principle of bestowing preferential treatment. That such an exemption was granted points to how different the 1960s were, compared to trading relationships today. Given the recent experience with softwood lumber and the more intense competition over global market share in the automotive sector, it is hard to imagine such a deal being sanctioned by the international community today. The Auto Pact reflected an emerging sense of economic nationalism. It was one of the lasting legacies of Walter Gordon and the period when Liberal politicians endorsed nationalistic trade policies.

Other countries, including Mexico and Australia, pursued different polices in the face of US dominance. They moved to protect their producers and their share of vehicle-production employment through protective tariffs and domestic content regulations. Canada embraced a form of continental free trade with guarantees of a fair share of employment. This approach had the advantage of ensuring Canadian jobs and reasonably priced vehicles, but the disadvantage was that it left the Canadian industry largely in the hands of the original 'Big Three.' Until the 1990s, this looked like a good arrangement. Production exceeded the minimum safeguards, employment expanded, and vehicle costs were kept relatively low. Today the heavy reliance on US-based producers is questioned by some, as they themselves find it difficult to compete in the new global economy.

Others have more deeply explored the contribution of labour to this deal. The volume is also relatively silent on the role Canada was asked to play by the United States in supporting its global...