Canada-United States Automotive Agreement

The Canada-United States Automotive Agreement, commonly known as the Auto Pact, was an important trade agreement between Canada and the United States. It was signed by Prime Minister Lester B. Pearson and President Lyndon B. Johnson in January of 1965.

It removed tariffs on cars, trucks, buses, tires, and automotive parts between the two countries, greatly benefiting the large American car makers. In exchange the big three car makers (General Motors, Ford, and Chrysler) agreed that automobile production in Canada would not fall below 1964 levels and that for every five new cars sold in Canada three new ones would be made there.

Before the Auto Pact the North American automobile industry was highly segregated. Because of tariffs, only three percent of vehicles sold in Canada were made in the United States, but most of the parts were manufactured in the U.S. and overall Canada was in a large trade deficit with the States in the automobile sector.

The Pact saw vast and immediate changes. Canada began to produce far fewer different models of cars. Instead, much larger branch plants producing only one model for all of North America were constructed. In 1964, only seven percent of vehicles made in Canada were sent south of the border, but by 1968, this was sixty percent. By the same date, forty percent of cars purchased in Canada were now made in the United States. Overall the agreement was of great benefit to Canadian workers and consumers. The more efficient market lowered prices and the increased production created thousands of jobs and wages as the auto industry rose. Automobile and parts production quickly surpassed pulp and paper to become Canada's most important industry. The trade deficit has turned into a trade surplus worth billions of dollars annually to Canada.

At the same time there are important disadvantages to this arrangement. It left the Canadian automobile industry firmly in the hands of American corporations. Unlike, for instance, Sweden with Volvo Cars and Saab Automobile, Canada has no domestic car makers, despite a long history of Canadian car companies. The agreement also led to the creation of almost exclusively blue collar jobs. Administration and research and development remained in the United States. The agreement also prevents Canada from pursuing free trade in automobiles with other nations, such as Japan. The growth has also been very regionally skewed, with southern Ontario overwhelmingly being the main centre of production.

The Auto Pact was abolished in 2001 after a World Trade Organization ruling declared it illegal, though by that time the North American Free Trade Agreement (NAFTA) and other agreements had made it largely irrelevant.