Today marks the end of an era for Canada's auto industry. Effective now, the federal government will begin collecting a 6-per-cent tariff on new cars and trucks imported by General Motors, Ford, and DaimlerChrysler from Europe and Japan. This will put the final nail in the coffin for one of Canada's most successful economic policies ever -- the Canada-U.S. Auto Pact.
Signed by Lester Pearson and Lyndon Johnson at a Texas ranch in January, 1965, the auto pact allowed for tariff-free trade between the United States and Canada in motor vehicles and parts, subject to certain conditions. If companies assembled one vehicle here for every vehicle they sold here, and met minimum targets for domestic value-added, then they enjoyed tariff-free access to Canadian consumers.
The brilliance of the auto pact was that it allowed Canadian-based facilities to produce on a continental scale, capturing the economic efficiency that comes from longer production runs, but it simultaneously ensured that Canada kept a healthy share of the integrated continental industry.
In the years following the auto pact, assembly and parts companies established dozens of new factories in Canada, hiring tens of thousands of auto workers. The benefits trickled down through the entire national economy -- through supply industries (from steel to plastics to textiles), stronger consumer spending, and public programs financed partly from booming auto-related tax revenues.
Today Canada's auto industry is uniquely strong. We assemble more vehicles per capita than any other nation on Earth, and the industry accounts for 30 per cent of total exports (and more than 100 per cent of our trade surplus).
No small country like Canada could have attained this success without an active, interventionist policy like the auto pact.
International trade was a crucial element, of course, but the auto pact attached strings to that trade: Corporations had to give something back to the country where they were selling their product, in order to maintain their tariff-free privileges.
So the auto pact is an enduring example of how smart policies to direct and constrain corporate behaviour can be far more beneficial than policies that grant total economic freedom to private business. Unfortunately, this notion that corporations should have both rights and responsibilities in the global economy has been undermined in the more recent, laissez-faire trade agreements.
Now the auto pact is being relegated to the history books -- thanks to a kangaroo court ruling from the World Trade Organization. How did this effective and cherished economic policy get thrown out by a triad of unelected trade officials meeting in a back room in Geneva?
Indeed, the democratic implications of this decision are as worrisome as the economic ones. The auto pact is just one of many core economic and social policies that are at risk before the WTO's arcane courts: Our cultural policies, our patent laws, our industrial strategies, our marketing boards are all under siege.
When Canada's government signed onto the WTO's new world order in 1995, it never warned us that the auto pact (and other policies) could be overruled. Perhaps our negotiators didn't think through the implications of what they were signing; if so, they were incompetent. More likely, they recognized the long-run consequences, but actually appreciate the WTO's faceless courts as a vehicle for enforcing pro-business policies that the government itself may be politically reluctant to implement.
Far from being a "victim" of the far-reaching dictates of the global trade technocrats, our government has deliberately aided and abetted their power. The auto pact is thus one more reason why Canadians need to object vociferously to the anti-democratic and pro-business bent of the WTO and similar institutions.
As for the economic consequences, what will the death of the auto pact mean for Canada's world-beating auto industry? Not much in the short run. The auto pact companies have been comfortably outperforming their Canadian-content targets since the mid-1980s. Once the auto pact forced them to set up here, they were thrilled with the cost and productivity of their new Canadian facilities (not to mention the fact that government, not corporations, paid for the cost of health insurance) and they boosted output even further.
The competitive advantage of Canada's auto industry is now well known, but that competitive advantage never would have existed without the auto pact -- and there's no guarantee that it will continue to exist in the future without minimum Canadian-content requirements.
So in the longer run, we've lost an important national tool to safeguard the future success of this strategic industry. The current auto downturn, largely driven by a slowdown in new vehicles sales in the United States, reminds us how quickly favourable conditions can evaporate. You can be the darling of the business community one moment, but out on the street the next, if bottom-line economic factors turn against you. And in a global industry like autos, all of the important decisions are made in Detroit, Stuttgart, and Tokyo, not in Canada -- unless we invite ourselves to the table on the strength of policies that give us power to influence and constrain private investment decisions.
For that reason, our union will be working urgently with government and industry officials to develop a new set of active automotive-investment policies to protect and prepare Canada's industry for the future challenges it will face. Because the most important lesson we've learned, as we close the book on the auto pact's immense contribution, is that the self-interest of private corporations alone will never guarantee growth or prosperity for a whole nation. We need to find creative and economically efficient ways to regulate corporate activities in the public interest -- and the auto pact was one of the best. Buzz Hargrove is president of the Canadian Auto Workers union.