ABSTRACT
The interest in Canada centres on the United States-Canada Automotive Trade Agreement of 1965 — the reasons for it and the economic consequences.
In a sense the Canadian motor industry was the creation of the Canadian government. Its policy of tariff protection coupled with the encouragement of foreign investment inevitably resulted in an industry almost entirely owned and controlled by the much larger American firms just over the border. During the postwar years preceding the Agreement it was an inefficient industry by international standards, primarily because of small-scale production, and this largely precluded exports. The limited domestic market, in which new registrations of passenger cars averaged some 450,000 units a year in the decade prior to 1965, was not large enough to enable even one volume producer to be competitive. But there were four producers – American Motors, Chrysler, Ford and General Motors. It was the familiar picture of oligopolistic competition in a sheltered market, with each firm producing a range of models and so further fragmenting that market. Despite a level of wages 30 per cent lower than in the US, factory list prices of certain popular models made in both countries were 18 per cent higher in Canada. They would have been appreciably higher than that had not 40 per cent of the value of the Canadian-built cars (50 per cent for trucks) consisted of components produced in high-volume plants in America and imported duty free, providing the equivalent was not obtainable in Canada.
