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An Analysis of the Japanese Voluntary Export Restraint upon

Automobiles to the U.S. and Canada: An investig.tion of its

impacts upon International, Bilateral and Domestic Legal

Fr amewor k 5 for safeguard me a sure s .

by

: Keiki Kimura

Institute of Comparative Law McGill University Montreal, Canada

Ath e sis su bm i t te d t 0 the Fa cul t Y 0 f Research in partial fulfillment of the deg ree of Haste r of Laws

December 1985

Graduate Studies requirements for

and the

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AB5TRACT

This study IHms, flrst of aIl, to examine various view$ , and alternatives raised in the Course of conclusion and exten-

sions of voluntary restralnt agreements for the Japanese auto-

mobIle exports to the u.s. and Canada and, secondly, to assees

l ts impacts upon legal framework of safeguard measures at

multllateral, domestlc and bilateral levels.

A frequent and widespread usage of voluntary reBtraint

agreements for a prolonged period would disrupt the safeguard

mechanism under the GATT, due highly to i~s discriminatory

nature. However, if they are instituted as the last resort

subsequant to a thorough investigation of the inJury to domes-

tlC industry and its causation by imports, it will st.abilize

the safeguard mechanism.

The incorporation of the Art. XIX of the GATT into cor-

respond ing domestic laws and the acceptance of voluntary

restraint agreement at the GATT will lessen

application of safeguard measures.

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TABLE OF CONTENTS

INTRODUCTION

A. Statement of Purpose ....................... . 1 B. Statement of problems ...................... . ,--- 2

) 2 1. Emergence of Non-Tariff-Barriers ........ . 2. GATT Negotiation ....................... . 3 3. Non-discr"'iminatory application

of safeguard measures .................. .

C. Framework of Analysis ....................... .

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CHAPTER l Cho ice of volun tary Expor t Res tra i rit

A. United States .............................. . 8 8

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1. rTC Determination ..................... .. 2. Vo 1 u nt a r y E x po r t Re s t rai n t s ........... .. 3. Local Content Bills .................... . 4. Extensions of Voluntary Export

Restraints ............................. . 20

B. Canada...................................... 30 1. Legal Steps Towards VER ...... " . . . . . . 30 2. The Auto Pact of 1965 ................... 33 3. Weather Forecasting System...... . ..... . . 37 4 . Au tomot i ve Tas k Forc~ Repor t;. .... . . . . . . . . 43 5. Extensions of the Weather Forecasting

Sys tem .................................. 52

C. Comparison of No~th American Approach to othe~s .......................... 57

CHAPTER II Impact of Voluntary Import Restrictions

A. Multilateral level (GATT) ................... 62 1. Article XIX of the GATT.......... . ....... 63 2. ProposaIs for revision ....... ~..... ...... 65

B. p Domestic level .............................. 72 1. Canada (SMIA) ........................... 72 2. The united States (Omnibus Act) ......... 76

C. Bilateral level ............................. 78 1. Treatment of Canadian

automob~le products . ....... ....... ...... 78 2. Inclusion of Japanese automobile

manufacturers lo the Auto Pact .... ...... 81 3. Treatment of non-Japanese

imported cars ................ :... ....... 84

Conclusion 86

Endnotes

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LIST OF TABLES

Table l: Expor t Quo tas to the U. s. 4by Company 23

Table 2: The u.s. trade deficit with Japan 24

Table 3: Japanese Auto-plants in North AmerIca....... 28

c Table 4: Export Quotas to Canada . . . . . . . . . . . . . . ..... . 54

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INTRODUCTION

A. Statement of Purpose

During the past four years and extra months, the Japanese

vol un t a r y e x po r t r est rai n t 0 f pas sen g e r car s ta the u. S. and

Canada has not only brought about significant changes in auto-

motive trade and investment acrOSB the Pacifie, but a180 rais-

e d que s ti 0 n 8 as t 0 the le gal s t a tus 0 f vol u n t a r y e x po r t

restraints (hereafter VERs) in the GATT and relevant domestic

laws for import relief. The former change i s seen in the

con sol i d a ti 0 n 0 f VE R 5 and r e fIe c tin 9 th i 8 , i n the lin e - u p 0 f

decisions by the five major Japanese automobile manufacturers

to set up auto-plants in the V.S. and two of them a1so in

Canada, while the latter. questions are rather exacerbated by

the fact tha t VERs have not been shor t-l i ved and that they

have functioned to limit imports from a particular country,

bath of which circurnvent the present international rules and

procedures for safeguard measures.

This study aims, first of aIl, to assess why a volunt-ary

form of import restriction was élO&pted among other alterna-

tives raised, second1y, to investigate the extent of 1e981

examinations made in the course of the conclusion of VERs in

the U.S. and Canada, and third1y, to explore the impact of

VE~s on the 1ega1 frameworks of ~ safegu~rd measures at the

dames t ic, bi la ter al and mul t 1-1a teral leve1s •

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B. BtateAent of Problems

A declining role of tariffs for protecti ng domestic v,

ind ustry haB been, to a 9 rea texte nt, compensa ted by an

increaBing usage of Non-tariff barriers l (NTBs) . This shift

of' protectionist instruments has created difficu1ties in th,e

GATT sys tem to regu 1 a'te them as the y become in t r ica te and

divergent. The GATT negot i a t ions have taken place in a con-

tinuous effort to put them under control, nonetheless, sorne ot-

the issues, moat importantly, the non-discriminatory applica-

tion of safeguard measures was left for further negotiation.

L Emergence of Non-Tariff-Barriers l, ... '

A significant expansion of world trade in the 19605 and

'70s can be attributable partly to the successes of GATT

negotiations over redUêtion of highly-set tar Iffs among indus­

trialized nations.2

The tariff, once the biggest obstacle of

free trade, la not a substantial barrier any more. One of the

most important conditions for free trade, which was promoted

and encouraged under the lowered tariff system was the appli-

ca t ion of compar ati ve advan tage, an economic theory t:ha t the

products of lower costs prevail in the market so that a

3 country can develop industries of such product. This neces-

sitated the industrial re-structuring as the international

comparatl ve advantage shifts from one na tian to another. The

developed countries such as the U.S., Canada, B.C., and Japan

were most urged to adjust to this shi ft since they were the

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,. ones who lowered tariffs most. In spi te of the. economic

necessity, the structural changes in these nations have not

prog r e,.ssed as speed i ly as t he pace of the deve lopmen t of wor Id

trade, but in most cases have retained a certain Ievel of "" ,

defensive adjustment to protect domestic industry against

foreign products.

Non-tariff barriers (NTBs) have increasingly been used as

a means of protecting domestic industry as the tariff has been

lowered and 66 the re-adjustment o~ industrial structure lags.

NTBs set to delay apd complicate the customs permission

process at the enterin9 ports func t ion, in effect, ae

quantitative restrictions of imports from a maj'Or exporting

4 country. NTBs are net built on a non-diseriminatory basis,

nor do they entitle an exporting country to take a retaliatory

action, thus being defensive and contingent measures outside

the scope of the GATT stipulations. Partly due to the adverse

effect of this protectionist movement, the year 198'0 witnessed

a de 1 i ne of the total volume of wor Id t rade f rom the prev ioua

year.

2. GATT Ne90tia~ion

1 t i s under stood that emergency sa feguard aet ion becornes

necessary in situations where imports, although not neeessari-

1y dumped or subsidized, may be causing or threathening

serious injury to dornestie producers of like goods. In spi te

of the fact that Article XIX of the GATT envisages sueh occa-

sions 1 a growing number of countr ies have bypassed this inter-

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national rule by setting up out-of-GATT measures in order to

counter disruptive imports or sometirnes to hold down a poten-

ti a l and fur the r u psu r 9 e 0 f i m po r t 5 . A number of attempts

have been made to elaborate the rules and procedures of safe-

guard measures in such occasions as ln the Multi-national

Trade Negotiations (MTN), the so-called the Tokyo Round. Sorne

NTBs such as government subsidles, dumping, governrnent pro-

curement and customs valuatlons have been regulated by the

MTN. Howeve r, the MTN have fa lled to r each ag reeme n t on (l)

wh eth e r tope r rn i t sa f e 9 ua r d r est rie t ion s a 9 ë! i n st sel e c t 1 ve

countries and ( 2 ) whether to regulate various types of

restrictive actions now effectively outside the disclpline of

GATT, such as voluntary restraint agreements.5

Under this situation, another GATT meetlng was held at

Geneva only three years after the end of the Tokyo Round ln

order to settle conflicts over and reconcile new protectionlsm

of non-tariff barriers. 6 The questions raised ln this meeting

were basicaIIy tWOj (1) how to modify the rules on emergency

action on imports of partieular products, the so- called sa fe-

guard measures (Art.XIX), 50 as to make them enforceable to

the growing use of non-tariff barriers; (2) how to stop and

put under GATT control thé proliferation of so-called vo!un-

tary restraint agreements and orderly marketing arrangement

that exist outside the GATT.7

Since the solutions of bypassing

the GATT rules under:mi ne a existing safeguard system that

,lays down that governments must prove in jury and aet in a nOR-

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dlscriminatory fashion when imposing curbs on trade

(Art. XIII), the two questions were set to be dealt together,

but carefully so as not to crea te conflicts between the two

artIcles.

3. Non-discriminatory application of safeguard measures

Dlfficultles lle ln the compatibllity of Art. XIII and

Art. X l X 0 f the G A TT • There is understandably a strong need

for selectIve applicatlOn of emergency 5afeguard measures

regardlng a particular product to a country which 15 causlng

major dlfflcultles. It lS because a discflminatory applica-

tion lS much more effectIve than non-discrlminatory one to

relleve the dlfficulty of domestic industry and is useful to

mlnlmlze frlctions with third nations by avolding unneceasary

applicatlon of the measure to them. 8 Problems are further

exacerbated in the GATT negotiations by the fact that even in

a sin 9 le cou n t r y, i t 5 po s i t ion as t 0 the pra c tic e 0 f sa f e 9 ua rd

measures lS often contradlctory fr:bm one industry to another.

For Instance, the U.S. demands, on the one hand, the elimina-

tion of subsidies on agricultural products and deregulation in

computer and tele-communications fields but, on the other

han d, the nec e s s i t Y 0 f i m po r t quo tas set for tex t lIe B , and a

vol un t a r y for m 0 f i m po r t r est ri c t ion s for T. V. set s, ste e l a n Cl

automobiles.9

This contradictory position within a country

from one sector of industry to another, together with prefer­

ence to discriminatory application of the measure to a parti-

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, cular country, has made the relevance of GATT rather remote,

when we examine specifie GATT stipulations and thelr actual

application at the domestic and bilateral levels.

The legal questions to be ralsed are 1) whether to seek

non-discriminatory application of safeguard measures, 2 )

whether to enforce concurrent applIcatIon of such measures

across industrIes, and 3) how to ascertain and guarantee

relevancy between domestic, bllateral and multi-lateral legal

c frameworks for safeguard measures. One of the latest cases

which raises such legal questIons are the Japanese voluntary

export restraints of passenger cars to the U.S. and Canada.

Despite arguments at the GATT meetIng that protectionist

policies, by obstructing international trade, are ultimately

destructive of employment and, by undermining efflclency, they

exacerbate . fI' 10 ln atlon, the Japanese voluntary export

restraint was extended into the fifth year.

C. The Framevork of analysis

c This study will focus on the Japanese voluntary export

restraints of automobiles ta the U. S. and Canada as a case

study for a concrete analysis of the problems raised above.

The study will be construed on a comparative basis with

the American approach preceding the Canadian case to the

import restriction of Japanese automobiles during 1980 to

1985. A brief review of European and sorne other nations'

c approaches to the restriction of Japanese automobiles will be

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J made to make an overall evaluation of different approaches in

instituting safeguard measures in each nation.

Chapter l will examine various view5 and alternatives

ralsed ln the course of conclusion and extensions of VERs in 1

the u.s. ànd Canada. Speclal attentlon will be paid to import

quotas and local content bllls presented ln the V.S. Congress

and the Task Force Report in Canada ..... hich called for a safe-

guard mechanism for Canada 5lmilar to the one under the Auto

J Pact of 1965.11 Chapter II ..... ill assess impacts of the

Japanese voluntary export restralnt of passenger cars to the

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bilateral legal frameworks, through the examination of present

rules and procedures under the GATT and corresponding domestic

laws of the V.S. and Canada. Canada's newly enacted Special

Import Measures Act ..... ill be evaluated ln comparison with the

U.S. Trade Agreements Act of 197iJ. 12 Furthermore, the provi-

Slons of the Auto Pact of 1965, which has established certain

J safeguard mechanism for the Canadlan auto industry will be

evaluated from the perspectlve of a third country's entry into

the North American market. The conclusion will be made,

comparlng various approaches to institute emergency safeguard

measures for domestic industry, on the role and effects of VER

in light of 1) non-discriminatory application of safeguard

me-asures, 2) concurrent application of such measures acroas

indus tri es, and 3) re lev an t developmen t 0 f sa feguard mechan-

• i5ms at the domestic, bilateral and multilateral legal levela.

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CRAPTBR J. Choice of Vo1untary Export Restraint

The Vo1untary Export Restraint (VER) has to be a unila-

ter a lin i t i a t ive 0 fan e x po r tin 9 cou n t r yin 0 r der t 0 b e a

13 voluntary action. In practice, however, it is not a unila-

ter a l de c i s ion i n the sen set h a tan e x po r tin 9 cou n t r y ca n

uni1aterally announce a limit as to the quantity of the

article for export and its duration. Tt is rather a bilateral

action between exporting and importing countries ta agree on

the extent of restraint in terms of quantity and 1 ts length.

In fact, the number of passenger cars exported to the u.s. was

set after consultations with Washington. Vol u n t a r y e x po r t

quota to Canada were made in a similar vein based on the

market share under the so-called "Weather Forecastin':1 System."

In the following, variou5 views and alternatives ralsed in the

course of conclusion and extensions of VERs toward5 the U.S.

and Canada will be examined. In 50 doing, legal examinations

made in each country will be compared.

A. THE UNITED STATES )

1. ITC Determination

In the summer of 1980, the United Automobile Workers

Un ion (UAW) and Ford Motor company f iled i ndependen t pe t i t ionl,

for trade relief from the in jury they c1aimed was caused by

what they ca11ed a "surge of Japanese imports". Both invoked

section 201 of the Trade Act of 1974, 19 U.S.C. 52251, com-

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monly called the "escape clause" seeking temporary t~ade

14 restrictIons on imports of automobiles and light trucks.

Section 201 is built upon Article XIX of the GATT and

permlts the President of the U.S., on recommendation of the

U.S. InternatIonal Trade CommIssion (ITC) , temporarily ta

\restrict Imports, or Impose other trade relief if the ITC

~inds: \1) "increased imports" oE an article into the U.S.; 2) ;

a 'dÔ~~tlC industry producing an article "like or directly

corn pet lt ive" w i t h the i m po rte d art icI e i 8 S u f fer i n g " Ber i 0 U s

inJury" or lB threatened with serlOUS injurYi and 3} such

increased imports are a "substantial cause" of the existing or

h d ' 15 t reatene In)Ury.

The relief available under section 201 includes increases

in tarifEs, quantitative restrictions (quotas) or a combina-

tion thereof (tarifE rate quotas) as weIl as limited trade

16 adJustment assistance to unemployment workers.

Section 201 contemplates a two-stage process:

l} upon receipt of a proper petition from an affected member

of the industry or union, an investigation i6 initiated by the

ITC which must be completed within 6 months. The investi-

gatlon includes public hearings and submission of data and

briefs by interested parties. After this investigation, the

Commission issues a report to the President, which includes

the Commission's recommendation of appropriate relief if its

determination is in the affirmative . Only in the affirmative

case, stage two commences;

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2) the President reviews the case and determines whether and

17 what relief shou1d be granted.

A ne 9 a t ive r TC de ter min a t ion, wh i 1 e aIs 0 r e po rte d t 0 the

President, terminates aIl proceedings in a section 201 case.

No judicia1 review i6 provided.

Relief ie available only on a non-dlscriminatory basis.

That is, relief cannot be limited to the particular country or

cou n tri es, suc h a s J a pan, who 5 e e x po r t s t 0 the u. S . h a v e ,

increased the most. Because of this stipulation, how to treat

imports from Canada beca~ one of the critical legal issues.lB

On ,November 10, 1980, at a public meeting, the five rTC

commissioners rendered their decision. Three of the Commis-

s ioner s conc 1 uded tha t i nc reased itllpor ts we re not a cause 0 f

in jury at least as impor tant as any other. As ta causa t ion,

Chairman Alberger aggregated declines in demand and found the

overall decline a greater cause of in jury than the increase in

imports; vice-Chairman Calhoun stressed the shift in consumer

preference: and Commissioner Stern discussed numerous causes,

but specifically found that the decline in demand and shift in

19 consumer preference were more important causes than imports.

The fa il ure 0 f impor ts to eme r ge conclus i ve1y as the

primary source of in jury precluded the recommendation of any

relief under section 201. Thus, the decision of rTC elimi-

nated the chance of applying emergency measures which are

under the safeguard measures (Article XIX) of the GATT.

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2. Vo1untary Export Restraints

l n spi t e 0 f the ne 9 a t ive cl ete r min a t ion 0 f the l TC , the

"case" for relie!.' from auto importa remained alive. The next

forum was at the U.S. Congress where two quota-bills were '-

aIr e a d y pe n d i n 9 wh en the l TC de c i s ion wa s ma de. On February

5, 1981, Senator John C. Dansforth (Missouri Republican)

Introduced S. 396, a Bill to impose quotas on the importation

of automobIles from Japan during 1981, 1982 and 1983. And on

February 6, 1981, in the House of Representative, Representa-

tlve Bob Traxler (Mlchigan Democrat) introduced essentially

the same legislatlon as H.R. 1823. Both bills aimed Bolely

at Japan for the purpose of restricting imports of Japanese

automobiles below to the 1978-79 levels which were 1.4 million

(automobiles) . These two bIlls apparently stood against basic

principles of the GATT Le. on a non-discriminative and MPN

basls when emergency measures are taken where the in jury ia

proven. Both Dansforth and Traxler represented eonstituencies

where the auto industry i5 essential to the economy of their

States.

u.S. car production in 1980 was 31% below 1978 and domes­

tic car sa 1 e 5 i n 1980 we r e on l y 6. 4 m ill i on uni t s - bot h t he

10west level sinee 1961. Moreover, almost 900,000 ~:orkers

were laid off - auto manufactur~g: 200,000; supplier compan-

i e s ( e • 9 . , r u b be r ,

employees: 83,000. 20

steel, glass) : 600,000; and dealer

In 1980, pretax losses of Big Four (GM,

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Ford, Chrys1er and American Motors), exceeded $4 billion. 21

Meanwhi1e, the Japanese industry put its ~mp1oyees on overtime

and continued to expand production capacity. In 1980, the

Japanese share of U.S. car sales was 22.2%, as compared with

15.2% in 1979, 13.8% in 1978 and 12.0% in 1977. 22

There was strong sentiment in Japan against the outright

protectionist movements in the U.S. However, this "soap-opera

nationa1ism" was rejected by the Japanese 23 government. The

Am e r i ca nad min i s t r a ti 0 n h a sai 0 n 9 h i s t 0 r y 0 f pro - f r e e t rad e

po lie i es, i n con t ras t t 0 the pro te c ti 0 n i ste 0 n gr e S 5 , and the

Reagan Administration made it clear that it would not support

congressionally mandated import quotas, and would not negoti-

ate an "Orderly 24

Marketing Agreement" with Japan. In order

to avoid the passage of quota-bills in the Congress which

might trigger other protectionist bills and flre protectionist

sentiment in the U.S., the Japanese Ministry of International

Trade and Industry (MITI) approached the U.S. Trade Repre-

sentatives (USTR) at Washington on 27th and 29th of April,

1981 with certain concessions Japan could make. 25 Around the

sam~ time, through Ogasawara, the Japanese ambassador to

Washington, Brock, then the Trade Representative, was informed

of a ·personal request" of the Prime Minister of Japan for a

viait to Japan. The or iginal Japanese plan was to restr ict

the export of Japanese automobiles to the U.S. for one year.

Bowever, the Amer ican side rejected the plan wi th one-year

26 duration. The final negot i a t ion be tween the USTR and MITI

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...... as held in Tokyo on April 30th and the first of May over a

number of cars to be exported to the U.S. and the duration of

such restrictions. The Japanese side presented the revised

plan with a 2-year duration and one year potential extension.

USTR found this time increased foreseeability of the effects

of the measure since the revised plan could coyer three-year

. d 27 pe rIO • The duration of the measure was one of the most

crucial elements of the negotiatlon.

On May l, 1981, the Japanese Government announced that a

voluntary agreement had b~~n reached with the U.S. to restrain

auto e:--:ports to the U.S. for a three-year period. The agree-

ment restr icted exports to 1. 68 million autos in the one-year

period beginning on April l (Japanese auto exports in 1980 had

totaled 1.82 million cars). In the second year, exports were

limited to 1.68 million cars plus 16.5% of any increase in the

total U.S. passenger car market. In the third year, the

Japanese Government would closely monitor auto exports

apply controls if necessary.28

and

The d ire c t go ver n men ta 1 con t roI 0 n e x po r t 0 f car 8 i

was 1\ 1 \

\. requested to clear the extraterritorial application of the U.$ "\.

anti-trust law. Article 47 of the Foreign Exchange and

Foreign Trade Control Law of 29 Japan stipulatea that Wany

person deslring to export goods which .... / may be required to

obtain the approval of the MITI as provided for by Cabinet

Order".30 The Cabinet Crder covering the provisions of article

47 ls the Export Trade Control Order which reiterates that

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-any person desiring to export goods which fall into (certain

categories) shall obtain the written approval of MITI" and

state-s that MI TI may deny or attach cond i tions to a license

when it deems doing 50 to be necessary "for the maintenance of

the balance of international payments and the sound develop-

31 ment of international trade or the national economy".

From the standpoint of the U.S. administration, this

legal basis of export control on automobiles of MITI was a -

crucial factor to accomplish their task since the Departmént

of Justice warned the administration a strict applicability of

u . S. an i t - t r u B t la w toi' tJs d ire ct de a li n 9 s w i th ~

foreign manu-

facturera, either individually or 32 as a group. Since the

Japanese car dealers in the U.S. were ready to sue the U.S.

administration for the violation of the Antitrust Law, the

measure MI~ took has avoided any serious anti-trust risks.

Amaya, MITI counsellor and a principal negotiator on the auto-

mobile issue, considered that MITIts direct involvement has

increased confidence and trust among USTR officers in MI TI and

led them to a compromise on the number of cars to be ex-

33 ported. Rad the Dansforth Bill passed the Congress, Japan "l

would have lost another one hundred thousand cars exported to

the U.S.

3. Local content bills

A1though the Japanese vo1untary export restraints came in

effect in May, 1981, the Japanese share of the market still

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r ema i ned h igh and 9 row ing because sales of Ame ri can car s had

dropped even more th an restricted sales of Japanese vehicles.

Under these circumstances, the UAW-backed local content bill

was introduced in Dec. 1981 ta the Cangress by Rep. Richard

Ottinger (New York Demac rat) and Senator Wendell Fard

(Kentucky Democrat).

The bill, cited as the "Fair Practices in Automotive Pro-

ducts Act" (H.R. 5133), defined content as American parts and

labor and ca1culated the percentage of domestic content by

dividing the content by the total wholesa1e value of automo-

. b i f h d . h S 34 tlve us ness 0 eac pro ucer ln te U .. The bill requir-

ed sellers of autos ta have American content equal to the

following percentages, according to volume of sales:

Unit Volume American Content Percentages (Ca r 5 & light tracks)

Up to 100,000 0%

Up to 150,000 25\

Up to 200,000 50%

Up to 500,000 75%

Up to 500,000 90\

The bill granted auto manufacturers three years until

1985 to bring theill average local content up to the allowable

level. 35 This could be done by either buying U.S. or

Canadian made components and adding them in the U.S. or

abroad, since labor as weIl as parts were counted as part of

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the wholesa'le pr ice. Since the ultimate purpose of the bill

was to create jobs in the u.s. or to decrease the unemployment

in automobile sector, the bill aimed not only to let the

Japanese automobile manufacturers to set up plants in the u.s.

or purchase Amer ican - made parts, but also to limi t outsourc-

in9 by the domestic makers. It was made clear by the-study of

Martin Anderson, Executive Officer of Future of the Auto -

program at rstIT1, that the bill would unfairly penalize U.S.

companies, in comparison to their international competitors. 36

Even stating that current sourcing by U.S. companies from 1

abroad was helping to hold jobs in the U.S., the study warned

that sorne elements of the bill ware detrimental to its propo-

nents and that local content should be measured not according

to its short-term effects, but according to lts likely effects

ove r decades. 37

The report made by the Congressional Budget Office <CBO)

determined that UAW analysis of ~he effect of the billon "

emp10yment to create 941,000 jobs overstated the number of new

jobs that the bill would create. 38 CBO estimated the figure

tD be 211,000, assuming no retaliation by other countries and

ignorin9 general economic effects stemming from increases in

auto-related employment and production. With retaliation

taken into account, CBOIS estimation was that sorne 70,000 auto

jobs would be created, whi le sorne 220,000 non-auto jobs were

eliminated beeause of the restr lotions imposed on non-auto

exports,--- a ~et 10'8 of 150,000 U.S. jObs.39

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In an attempt to allevlate sorne defects of the QZ 19ina1

,bill, Rep. Richard Ottinger presented the amendment to sub-I

stitute H.R. 5133 in July 1982. 40 The amendment imposed a

less restrictive import quota. Local content, instead of

merely being labor and American parts as in the original bill,

meant added domestic value, thus including depreciation,

taxes, advertising, utilities, interest, etc. The 8chedule

and mandated American content was revised in the fo11owing

manner:

Unit Volume (Cars and light trucks)

Not over 100, 000

Over 100,00 but not

over 900,000

Over 900,000

Minimum domestic content ratio (Each model year after model year 1985)

0%

The number, expressed as a per-

cen tage, de te rmi ned by div id ing

the number of vehicles sold by

10,000

90%

Fur therrnor e , i nstead of apply ing to the Nor th America'f'

ma r ket, Canada was, in the l'ev i sed bi Il, trea ted as any other

country. Malcolm Baldrige, Sectetary of Commerce, stated that

the substitute failed to address the adverse impacts on wor1d

tl' ade, the U. s. economy, and the auto indus try which had led

the Administration to strongly oppose local content 1eg1s1a­

t ion. 41 He recogni zed also tha t subjecting auto trade ,,1 th

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Canada ta the restrictions of the local content formula would

be particularly troublesome since the substitute blll would

repudiate the Auto Pact of 1965, which could force a dismantl-

in9 of American manufacturing facillties ln Canada, causing

severe damage to the Canadian economy and undoubted1y causing

. h . 42 h retaliation ln ot er areas of U.S. trade wlth Canada. Jo n

Black, Secretary of Agriculture warned also that the local

content bill would essentially stop trade ln Imports valued at

over $20 billion, primarily from Japan and Europe, and that if

they were to take retaliatory actlon, at stake for agrlculture

were exports valued in 1981 at $43 blllion

43 from E.C. and Japan alone.

118 billion

In s p 1 te 0 f ad min i st rat ive and 0 the r 0 p po 5 l t l 0 n , the

House Ener-gy and Commerce Committee chalred by Rep. John

Dinge11 (Michigan Democrat) reported favorably the bill (H.R.

5133) as amended bya 25-16 vote in September, 1982.44

It

passed the House by a vote of 215 to 188 ln the final days of

the 97th Congress, in December 1982. However, the republican-

control1ed Senate was known to be strongly opposed to the bill

and it was not even voted in the 97th session.

The Ottinger Amendment was re-introèuced in the next \

session in 1983. This Ume, domestic-content requirement was

re-scheduled te be phased-in over a three-year peried, but

beginning with the 1985 model year. Content requirement would

reach 90% for 1987 model year and beyond for companies wi th

u.s. sales over 900,000 cars. Arguments in the Bouse. pr iQr ta

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the vote drew prlncipally on two issues. One wa s a bo u t i t s

anticipated violation df GATT stipulations and the other on

whether the bill would result in more or fewer Jobs in the

45 u. S .

Rep. James F. McNulty Jr. (Arlzona Democrat) introduced a

" "sunset provislon" to end the content reguirements by Sept.

30, 1992. 46. Then, Rep. Donald J. Pease (Ohio Democrat)

brought in amendment for the sunset provlsion by maklng it say

th à t If a tan y t l me a f ter the s l X t h m od e l ye a r a f ter e na c t men t

the 'Transportatlon Secretary found that the lnJury to the

domestlc lndustry has been prevented or remedled, then the

content requlrements were to be lnvalldated but other provl-

s lons studles and r e po r t sie te. --- remalned ln 47

effect.

Both amendments were lncorporated ln Sectlon 11 of the amended

bIll, thus maklng the local content bdl a temporary and

emergency one and somewhat consonant WI th GATT. In spite of

such consideratIons for GATT, the bill as amended if passed

by the Senate and approved by the President, could have

entitled the affected countrles).o retaliate for the degree of

damage caused and for the period it would become in effect.

As t 0 the po s s l b l e e f f e c t s 0 f the bdl upon employment,

updated studies conducted by CBO and Wharton Econometries

concluded the local-content bill would result in a net job

1055 in the U.S.

rictions of the l r

lE other natlons retaliated with trade rest-

48 own . In addition, different circles

argued that the local-content bill would be akin to the Smoot-

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Hewley Tariff Act of 1930, which economic historians partially

49 blame for the Great DepressIon.

Wlth potential effects to fire protectionlsm further ln

the CongresB, other alternative draft bills were prepared for

introduction ta the House. Rep. John Dingell (MIchigan

Democrat) propo5ed a draft bill to authorlze the Secretary of

Commerce to imposé Import quota 50 that a 15% share could be

calculated for importers bringlng in more than 100,000 unlts.

The draft_ bill would render, for example, based on 1982 sales,

J a pan e sel m po r t 5 t 0 81 9 , l 61 un 1 t s wh l ch l 5 weIl bel 0 w 1 . 68

50 Mi1110n units allowed for Japanese imports under VER.

The re-introduced OttInger blll wlth "sunset provIsIon"

made the second House passage by a vote of 219 to 199 ln early

November 1983. Although the Senate passage and the Presiden-

tial approval seemed unlikely, the second House passage of the

bill as amended and the introduction of other protectlonlst

bills in the Congress had propelled the Japanese government to

ta k e a cau ti 0 n sap pro a cha ver wh eth e r the v 0 1 u n t a r y e x po r t

restraints be extended or terminated in May 1984 after three-

years of exercise.

4. Extension of Voluntary Export Restraints

The UAW urged ~.F. Trade Representative William Srock to

impose a two-year er'xtrnsion of the agreement limiting Japanese 1 ,

car exports to the V~S. before he left for Tokyo at the end of . -"

Oc tober . 51 Wh i le the UAW demanded a two-year ex ten s ion a t the

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1.6 milllon level prevailing Eor three years since March 1981,

the Reagan Admlnlstration wes pressing for a single year of

restra1nt at, t.M 1.8 Mlillon leveI. The big three U.S. auto

manufacturers were d1vlded on the lssue. 52 GM had put forward

a strategy ta Increase its share in small-car market by way of

captlve imports from Isuzu and Suzllld, Its Japanese affili-

a tes. Th us, G M wa s d e man d i n 9 no li mit son 1 t s cap t ive i m po r t s

from Japan S1nce the exports of Isuzu and Suzllki had to be

counted ln the quota, Wh1ch ln the last three years had been

negligible (Isuzu; 17,000 per year and SUZUkl; Nil). Ford and

Chrysler chose to bUlld small-cars of their own, and stood ln

11ne with UAW's demands for the extenslon of VER agreement at

the prevalllng level. In late November, Japan' s Ministry of

Internatlonal Trade and Industry announced the extension of

the per10d of restr1ctions on new-car exports to the U.S. from

the or1ginal three years to four, from 1.68 Million ta 1.85

M1llion units 53 for l 2 mo n t h 5 • The total number lncreased by

10.1%, but the increase per company varied (see Table 1). The

number allotted ta Isuzu was expanded by a1most three tirnes

from 17,000 to 50,000, of which 30,000 were to be Imported by

GM for sale by its dealers under the GM nameplates. Suzuki

made its first inroad 1nto the U.S. market, but a11 of its

exports were taken by GM as captive-imports. other companies

gained modest increase compared ta Isuzu and Suzuki.

Entering into 1985, protectionist sentiment did not wane

in the Congress due to the fact that the trade deficit with

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Japan continued to grow, amounting about $37 billion in 1984,

one-third of which was attributed to automobile trade (see

Table 2). More than 400 protectionist bills were reportedly

prepared for presentation to the Congress, one of which called

for a 2 0 , S II [" t a x 0 n a 11 i m po r t s f rom J a pan . Nontheless, the

U.S automobile manufactures (Big three) reported a record

profit, relSching $10 billion in after tax-p~ofit for 1984, so

thlSt it was argued that the extension of voluntary export

restraint was no more necesBary by consumer groups, llberal

economists and the administration.

On Feb. 19, 1985, President Reagan's top cabinet advisors

formally recommended against asking Japan to renew its "vo1un-

tary" limits on auto exports to the U.S. after they expired

March 31.54 The cabinet group presented the figure, compi1ed

b Y 0 a ta - Re 50 U r ces, a p r i vat e r e se arc h co m pan y , th a t i m po r t s

from Japan would increase by 370,000 to 2,275,000 cars in 1985

without VERs with their market share in the U.S. reaching

21.3%.55 u.s. Trade Representative William Brock estimated

that eliminating current Automobile export restraints could

enable Japan to increase its auto sales in the U.S. by 750,000

a year by early 1986. 56 On March l, 1985, P~esident Reagan \

made clear that he wou1d not demand the extensIon of Japnese

automobile export restraints to the u.s. 57 With this formaI

annOllncement by the Pres ident, the J apanese side was left to

choose either to extend or terminate VERs by herself.

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Table 1 Export Quotas to the U.S. by Company (April to March, in Thousands)

1981-84 1984-85 1985-86 (Capti ve) (Captive) % change

Manufacturer (per year) (Impor ts) (Impor te) from Previous

Year , Toyota 517 552 - ) 617 ( - 11. 8

Nissan 456 487 - ) 545 - ) 11. 8

Honda 349 372 ( - 425 ( - 14.1

Mazda 159 174 - ) 226 - ) 30.3

Mitsubishl 112 122 87) • 208 (169) * 70.0

Fuji (Subaru) 70 76 - ) 106 - ) 40.0

Isuzu 17 50 30) •• 120 90) * * 140.0

SUZUkl 17 17) •• 53 53) * * 211.8

Total 1,680 1 , 850 (134) 2,300 (312) 24. 3

* indlcates captive imports by Chrys1er

** indicates captive imports by GM

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( Table 2 The U.S. trade deficit with Japan

(one hundred million dollors)

Expor t to Imports fram Net Japan Japan

1980 208 330 t.d22

1981 218 399 .J 181

1982 210 399 .'1190

( 1983 219 436 :'1217

1984 236 604 .'1368 .. 1985

Jan. 21 58 td7

Feb. 18 61 632

March 23 55 '132

Apfll 18 58 640

May 18 60 642

June 18 63 1'146

July 19 59 1'140

C Aug. 17 54 td7

Sep. 19 71 1'151

Oct. 19 51 li 32

Source: Department of Commerce

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On March 28, 1985, Murata, the Minister for International

Trade and Industry announced that MITI would exercise another

year of adminIstrative guidance under the Export Control Law

58 to set auto quotas. He explained that quotas were necessary

to avoid a sharp increase in exports to the U.S., w1ich would

again disrupt the U.S. domestic market. 59

Murata announced that the Japanese automobile exports to

the V.S. for the period from April 1, 1985 to March 31, 1986

should not be more than 2.3 million units, an increase by 0.45

millIon Or 24% from the preceding year's figure of 1.85

mIllIon. He estimated the market share would become around 21

to 22%. He attrlbuted the Increase of the VER figure to (1)

the benefit of U.S. consumers, (2) the growing demands of U.S.

auto manufacturers for captIve Imports and (3) low leve1 of

Japanese car Inventor ies in the U.S. 60 A breakdown of quotas

by company, which was made public 1ater by MITI, proved that

0.18 million incr-ease, more than one-third of the total

increase, was granted for captive imports (see table 1).

The Ame r ican response to the extension of VER ! nto the

fi fth year was h . 61 rat er negatlve. The Administration had

opposed ta the extension itself, while protectionist CongresB

has been cr- i tical of any measures that would widen trade

deficits, especially with Japan.

During the period of April ta August in 1985, the total

J a pan e se e x po r t s t 0 the U. S . a mo un t e d tau S $ ; 7 , 810 ( Mil), an

increase of 7.5' compared to the Bame term in 1984. A

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26.

similar figure for the automobile exports to the U.S. was US

$8,740 (Mil), an increaseof 22%. As of Oct. 31, 1985, seven

months into the current program, Japanese companles had shipp-

ed l, 471,000 cars to the U.S. and were expected to reach the

62 full 2.3 million. Thus, MITI's decision to set quota higher

at 2.3 million has driven up a U.S. trade deflcit wlth Japan

that this year (1985) is expected to total about $50 billion.

Adding 100,000 cars to the quota, for example, would add

d $800 il i h d f" 63 aroun m l on to tee lClt.

Under these circumstances, discussions on the extenSIon

of VERs one more year are underway. MITI officiaIs are trying

to guess what Ievel will be sufficlently high to keep Japanese "­

companies in healthy sales but sufficiently low to contro)

sentiments ln Cong ress toward erecting barrlers of l ts 64

own.

Other than to retain a quota, but to raise the numbers again,

options are: 1) the quota might be allowed to e>pire, with

MITI switching to behind-the-scenes "administrative guidance";

2 ) i n 0 r der t 0 a v 0 i d t 0 r r e n t i ale x po r t san d toc r e a t e 0 r der l y

marketing situation, individual compan i es exercise self-

restraint, and so on . . A new factor that may have a slgni f icant impact on the

extension of voluntary restraint of automobiles to the U.S. ls

the i ncreased capac i ty of pas senger car pr oduc tian in the U. s.

by the Japanese automobile manufacturers (see Table 3). Honda

Motor Corp. has a1ready started production at Marysville, Ohio

as of Nov. 1982 with an annual output of 150,000 cars. Honda

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has moved to double its V.S. production by setting-up a second

assembly plant at Marysvi11e from Sep. 1985. By completion of

engine production in 1987 at Marysville, Honda's local-content

fuI f i 11 me n t loi i Il r e a chIO 0 % f rom the cu r ve n t 50%. 65 1

Nissan Motor Co. \,

has started a pic~-up truck operation at \ 1

Smyrna, Missouri from June 1983 witt\, an annual output of

120,000 cars followed by passenger car production at the same

site from March 1985 with an annual output of 120,000. 66 Pick-

up trucks produced at the plant have currently 42% V.S.

content. 67 ~.

Toyota has started passenger-car production under li Joint

venture with GM at Fremont, California trom Dec. 1984 with

annual output of 200,000 cars. New United Motar manufacturing

Inc. , (NUMMI) supplies aIl cars to GM, thus Toyota felt its

name and l ts dealer ne twor k were not best served by this

arrangement. 68 Toyota has arranged ta 50,000 vehicle use a

unused capaci ty at the joi n t venture plant ta produce Corol1a-

type cars ur.der 69

i ts own narne. A further step was announced

on July 2), 1985 by Toyota ta set up i ts own assembly plant at

Georgetown, Kentucky with an annual output of 200,000 unit

starting froin 1988.70

If Toyota is able to buy out GM's share

ln NVMMI when the agreement expires in 1993, total sales of

more than 1 million cars in the V.S. will be achieved by the

71 early 1990s, including imports from Japan.

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( Table 3 Japanese Auto-p14nts in North America

Plant Projected Year of Initial Manufacturer site Annua1 output Production Inveatment Ownership

Starts ( thousanda) (from - ) (USS$ Million)

Toyota Fremont, 200 Dec. 1984 2.5{) 'PO~t8 50% Cal1fornia (for GM) QM 50%

Premont, 50 by 1ate 1986 N.A.

Cal !tornia (for Toyota)

( Jorgetovn 200

Kentucky by 1988 635 Toyota 100%

Cambridge, 50 Ontaio

Nill8an Smyrna, 120 June 1983 500 Nissan 100% Missour i (trucks)

Smyrna 120 March 1985 120 Nissan 100% Mis80ur i (passenger car)

Bonda Marysville, 150 Nov. 1982 250 Bonda 100' Ohio (to he increased)

Mary,ville 300 Sep. 1985 240 Ronda 100%

Ohio

( Alliston,

100 from 1986 100 Bonda 100' Ontario

Masda Fla trock, 240 trom 1987 20G Mazda 100' Michigan

( including lOOth which will he sup-plied to Ford)

Mitaubishi Blue-Mil ton, 180 by 1988 400 Mitsubishi SOl

Ulinois Chrys1er SOl

TOTAL 1,560 2,695

C- (OSA) " (1,410) (App. 2,400) (Canada) ( 150) (App. 200)

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Mazda Motor Corp. inltially announced its intention to

set up an assembly plant in the O.S. in Nov. 1983, and con-

firmed its decision in March, 1984. The operation ls expectd

to start in the fall of 1987 with an annual output of 240,000

72 cars.

Mitsubishi Motor Co. has also announced in April, 1985 to

set up assembly plant in the V.S. under a joint venture with

Chrysler.

1988. 73

Tt expects to output l~O,OOO cars a year from

The ses tep s are a p par e n t 1 Y t 0 9 e t a r 0 und e x po r t r e 8 tri c -

tions and protectionist sentiments in the O.S. by setting up

V.S. factorles. Nonetheless, total Japanese cars produced in

the U.S. would reach 1.41 million units by late 1988. If the

figure is added to the current import quota of 2.3 million,

one has to worry that the O.S. congres8 would not tolerate to

74 see the Japanese market share to reach one-third ip. the U.S •

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B. Canada

1. Legal Steps tovards VER

The Japanease-Canadian negotiations over the restriction

of J apanese au tomobi le expo r ta to Canad a have gone throug h a

different -course of legal actions when compared to the Japan-

u.s. case. Al though the fact remains tha t Japan prov ided

Ca nad a w i th a sim i l a r pro t e c ti 0 n 0 f v 01 un t a r y e x po r t r e-

straints, it came out with less consideration for legitimacy

.of VERs in canada than in the case of the U. s.

In the case of the V.S., there were three steps taken in

the process up to the conclusion of the voluntary export

agreement in 1981 effective for the per iod of Apr i l 1981 to

March 1984:

(1) upon the application of UAW and Ford Motors Corp. in

the aummer of 1981 to section 201 of the Trade Act

for the Restr iction of the Japanese car imports, the

rTC investigated the causal link through public

hearing and other measures, and determined the

imports of Japanese automobiles not as a major cause

of in jury ta the declining domestic automobile sales;

(2) upon the ITC's negative determination, the form of

"tbe case" to provide a relief for domestic auto

manufacturers moved to the Congress where the

Dansforth and Traxler's protectionist (Quota) bills

were pend ing,

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(3) Despite the ITC' s decision, facing the increasing

protectionist sentiment in the CongresB p8rtly due to

the successful lobbying, the U.S. administration

(USTR) had to enter into negotiations with the

J apanese coun te rpa r ts (MIT'I). Wi th the help of the

J apane se spon taneous act ions to ma ke use of the

Export Control Law and Ministedal Orders, the US'l'R

has come to conclude a voluntary form of restrictions

with Japan under the guise of govetnmental export

control 50 as to avoid the extraterritorial applica-

tion of the U.S. antitrust law (May lst, 1981).

It took almos t te n mon ths f rom the summe r of 1980 to May

l st, l 9 8 l t 0 r e a ch vol un t a r y e x po r t a g r e e men t e f f e c ti ve for

three years. ,

In , contrast to these steps taken in the U.S., the

Canadian case was as follows:

(1) Neither the automobile manufacturera, nor the parts

industry, nor the Canadian affiliate of the United

Auto Workers applied for a legal relief. Therefore,

no investigation involving public hearings was c.arri-

75 ed out;

(2) No protectionist bill was presented either to the

Senate or to the House of Commona. 76 There fore,

there was no thre8t of protectionist législation

which might have put Japan in a worse situation and

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32.

create a bad precedent challenging the free-traèe

princlp1e:

(3) No serious risk was involved ln the ex.traterrltorlal

application of the CombInes InvestIgatIon Act.

Therefore, the Canadlan governrnent dld not have ta

expect spontaneous actIons on the side of Japan under

the Expor t Con t roI Law and Mlnlsteflal Orders.

Ac cor d l n 9 l y, e x po r t r est r l c t Ion 5 we r e set 0 n a ye a r 1 y

basis, in functlon of the market share, WhlCh even-

tua11y created the situatIon that when the Japanese

market share rose, the Canadian government could take

a tougher stance on the number of cars to be re-

stricted.

Underlying factors of these dlfferences ln the InitIal

stage of the Canadian-Japanese negotiation were: first of a-Il,

the i n v est rn e n tan d e m p 10 ym en t s t rat e 9 y 0 f the Ca nad 1 a n a u t 0

industry has not been independently determined because It 15

an integrated part of "the who1e North Arnerican auto Industry,

due to the fact that the posi t ion of the Canadlan auto

FAdustry and the Canadian industr ial policy for the auto

sec tor was f r amed by the Auto Pact of 1965; secondly, prlor

to the enactment of the Special Import Measures Act in late

1984, there were no established 1ega1 processes that laid down

rules and procedures for setting import restrictions for such

products as au tomobi le sin a manner comparable to the

u.s. Trade Act of 1974.

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These factors have limlted choices available for Canada

to take lndependent pollcies for the development of Canadian

auto industry and furthermore Import-export policy of auto-

moblles wlth thlrd countries. As seen below, the Auto Pact of

1965 15 the basls of Canada' s automoblle productlon and trade

pollCles not only wlth the U.S. but also with ,other nations,

partlcularly wlth Japan.

2. Auto Pact of 1965

The hlstory of Canadlan auto lndustry lS that of trlple

conSlderatlons' efficlency, employment, and balance of pay-

77 ment. Bef or e 196 5 , Ca nad a's ta r i f f po Il C yen cou r age dan

Inward-looklng lndustry that was highly protected and ineffi-

Cl en t . Canadlan consumers had to pay more for the same car,

by about 35% than did their southern neighbours. 78 Dec lin i ng

domestlc automotive productlon and ~he rislng tlde of European

1 m po rte d ve hic 1 es w ide n e d the t 0 ta Ide fic 1 t 1 n the b a III n c e 0 f

trade ln automotive products as llluch as $500 million in 1960.

Th 1 s wa sam a j 0 r con tri but 0 r toC a nad a 's .c u r r e n tac cou n t

deficlt of $1.2 billion 79 in that year. Receiving lower wages

and ln face of Increasing unemployment, the Canadian Labour

Congress supported the view of the UAW that the prob1em could

scarce1y be dealt with by attempts to increase tariff protec-

80 tlon. On the other hand, the Automobile Parts Manufact-

urers' Association contended that the

81 survive without tariff protection.

industry could not

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The Au toP a c t 0 f l 9 6 5 wa 8 the b est po s s i b l e 60 lut ion a t

82 that time to synthesize these problems. The Pact consists

of 7 clauses and two Annexes A and B. The seven clauses

establish a duty-free trade zone for automobile products,

while the Annexes, of WhlCh there are two (A and B), include a

number of conditIons restricting complete free trade. The

Auto pact covers only new vehlcles and orIginal automotive

parts (excluding tires, unless mounted).

Annex A includes safeguard measures which were Introduced

at Canada's Insistence. They Include measures that stlpulate

that: (1) for each class of vehicle (i.e. cars, trucks and

bus es) the rat 1 0 0 f Ca nad i a n ve hic lep r od u c t ion t 0 saI es 1 n

Canada must be at least 75%; (2) The absolu te dollar value of

Canadian content must not fall below the 1964 level.

Annex B contains provisions WhlCh allow the U.S. to pre-

vent third-cùuntry producers from using Canada as a channel

for circumventing V.S. auto tariffs.

that imports from Canada must have

American content. 83

One provision requires

a minimum 50% Nor th

In addition to these conditions within the Agreement, two

additional commitments to guard Canada's interests were incor-

porated in what were called the "letters of undertaking", or

Raide agreements". Under these agreement, in order to improve

Canada's balance of payments and employment figures, the major

auto manufacturers(GM, Ford, Chrysler and AM) were obliged to:

o

... - ._._- .. _-~ ...... _--_._--- ...... _ .. _-~. .... -_._--------_.- --~

35.

(1) Increase value added in Canada (CVA) in each model year

by an amount equal to 60% of the growth in the value of

car sales in Canada, and 50% in the case of commercial

vehicles;

(2) make a supplementary increase ln Canadian value added of

C$260 million by the end of the 1968 model year. 84

With the passage of time, several of these provisions of

the auto-pact have become inconsequential. But of lasting

lmportance IS Annex B (1) and the first side agreement.

Because of 75% production-to-saies ratio and 60% or 50%

eVA/value of car sales ratio provisions, four American manu-

facturers are obliged, as car sales increase, ta augment

pro~_uction and investment in Canada. As eanadian content in

eanadian-made vehicles (to be above 1964 level ... Annex 8(2»)

has diminished as a result of inflation, among other factors,

the American manufacturers have come to concentrate on assemb-

ly operation ta fulfill the above two requirements. The

consequence was that Canada became a net-exporter of finished

cars and ~" <i:ven bigger net-importer of parts. 8S

The Auto Pact of 1965 did not anticipate a substantial

Inflow of automobiles from third countries into North American

!Darket. In fact, the U.S. obtained a waiver from the GATT

Contr~ctin9 Parties in 1965 50 that the U.S. did not extend

Auto Pact treatment ta third countries. 86 Canada, on the

contral"y, did not receive CI waiver, and maintained that the

Auto Pact arrangements were open to third countries if they

-"

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36 •

.. equally fulfill requirements of the pact to establish assembly

87 plants in Canada and meet the sales/production ratio. Canada

aimed at increased domestic employment and efficiency in auto-

production by promoting foreign capital to flow Into its

territory. However, the U.S. clarified that the U.S. did not

expect third parties to base productlon in Canada and export

to the U.S. Furthermore, the U.S could deter such movement by

rejecting the entry of third parties into the list of

companies in the Auto Pact.

From the Canadian perspectIve, a substantlal inflow of

Japanese automobiles into North America has 'challenged the

Auto Pact arrangements in tw-o respects: (1) One of the basIc

arguments of the o.-s. when entering into the Auto Pact lost

its ground that there existed two separate vehicle markets,

i.e. one for vehicles produced in North Amerlca and one for

those 88 P r od u c e deI se wh e r e . ( 2) with increasing unemployment

in au tomobi le sector and populari ty for rned i um to smal1 si zed

cars from abroad, there arouse increased demands for fareign \

manufacturers to start auto-production and sourcing in the

o.S.

At the initial stage in 1981, The Canadian approach to

the surge of Japanese car imports was mostly conce r ned w i th ,

the f i r s t po i n t. This iB seen to ahift as claimed in the Task

Force Report to the second one since 1983.

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3. Weather Forecasting System

When the U.S. and Japan announced the voluntary export

restraints on May l, 1981, Canada was afraid of being isolated

by "overhead" agreements among major car-producing count-

89 r le s. ThlS was because the Canadian government correctly

assumed that the Japanese would attempt to shift their exports

from the resticted U.S. market to the unprotected Canadian

90 market. Since domestic sales lnfluence the number of cars

produced and the level of value-added ln Canada (CVA) the big

four must achleve, the Canadian government links declining

sales in Canada with a serious threat to the development of

the auto Industry. However, the assembly plants already

established ln Canada manufacture car models that are popular

ln North America at the moment (l.e., large cars, and mini-

vans), and, as a result 1 the decline of ,Canadian sales might

not immediately affect production and employment in Canada.

Nonetheless, the Canadian government recognized ovtfrall neces-

sity to find certain measures to reduce imports of cars when

the sales of imported cars increase and at the same time

domestic car sales decline.

Herb Gray, a Canadian M. P. and subsequently Minister of

Trade and Commerce representing the riding of Windsor, immedi-

ately called for similar steps on behalf of Canada to set

import -limi ta "

for Japanese automobiles. Prime Minister

Trudeau took up the matter with the th en Prime Minister of

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38.

Japan, Suzuki who happened to be on a visit to Ottawa that

May. To follow up on the discussions, the Canadian government

quickly sent a four-man task force to Tokyo to negotiate with

the Japanese 91 government. Tanaka, then the MITI Minister,

responded that the government wou Id con tin ue to urge mode r a-

tion in its discussions with the Japanese auto makers and

would also try to convince them not to flood the Canadian

92 market with Automobiles. On June 4, 1981, the Departrnent of

Industry, Trade and Commerce, made the fol10w1ng announcement:

- The J a pan es e are i n s ti tut i n 9 a ma r k e tin 9 p r og r am for passenger vehicle exports to the Canadian market under which they have forecast that exports to Canada for the period .. April, 1981 to March 31, 1982 will not exceed 174,213 units.

- The need for a level of further restraint IS to be reviewed by Japan in consultation with Canada before the end of the Eirst year. 93

This agreement was different from the one between Japan and

the US in two ways:

(1) it uses the term, "weather forecasting" system, which is

obtained by appealing to the individua'!. automobile compa-

nies to exercise prudence in their exports and then

gathering the export plans from themi

( 2 ) it is build on a one-year basis with next year's

restraints to be determined by consultation.

As to the first point, the exercise of restriction by the

Japanese automobile companies to reduce exports to Canada

seemed to fall into ·Offences in Relation to Competition"

o

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39.

stlpulated ln sectIon 32 (1) of the Combined Investigation Act

and "Conspiracy In Restraint of Trade" in section 5(2) of the

Cr iminal Code. However, a legal action can only take place

against corporations operating in Canada for agreements which

they have entered into abroad if they affect competition in

Canada. If the Japanese automobIle companies had opera ted

plants ln Canada and ordered them to reL'uce production, this

would have be~n the case. The only comment made by the

Investigation offIce under the Combines Investigation Act was

on the effects of VER on the 94

consumer welfare. Thus, the

extraterrltorlal application of the Combined Investlgation Act

was not a serlOUS threat in erectlng Import restrictions for

the Canadlan Government. This, ln turn, did not give rise to

any necesslty on the slde of Japan ta base its export

r est r a l n t son the E x po r t Con t roI Law as i n the cas e 0 f U. S .

The we a the r for e cas ti n 9 5 ys te rn , wh i ch rel i es 0 n e x po rte s t i -

mates of an individual company, sufficed.

As to the second point, the agreement was to last for one

year with the previsions for the following year to be agreed

by further consultation.' This was a different arrangement

worked out by the U.S. with Japan.

The fact that the restriction was to last only one year ,

crea ted a s~ ious conf li ct be tween Canada and J àpan ove r the

number of cars to be restricted in the second year. For a

number of reasons Canada demanded a drastic reduction in the

number of Japanese cars entering Canada. First, the Canadian

... !11111!11---_________ ~-----e-------,.....--~--~-..-----=--- ..... -------.-....

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government argued that because of the depressed state of the

Canadian market, increased Japanese imports would lead to a

further drop in domestic production (with serious ramifica-

tions bet:ause of the Auto Pact agreement). Second ly, they

argued that further imports would increase the existing one-

sided deficit in auto trade with Japan. Finally, the Canadian

government objected to the ell.tremely low level of Canadian

content in Japanese vehicles.

From the Japanese point of Vlew, import reductlons, as

opposed to restrictlons, would be difflcult ta accept for the

following reasons:

(1) Japan was assured of the same level of export ta the U.S.

for the second year, if not an Increase in case the total

market sales expanded;

(2) The total trade surplus has been ln favor of Canada over

the years, so that a decrease of automobile sales will

enlarge the trade deficit for Japan in the total bilate-

raI trade. In the case of the U.S., overall trade

deficit was also on the side of U.S. so that Japan had to

take measures in one way or another to reduce i ts huge

trade surpluses. Furthermore, although Canada's auto

trade deficit with Japan nearly doubled in 1981 to a

r e cor d $1. 5 bill i on, u p f rom the pre v i 0 U s r e co r d 0 f S 8 5 6

million in 1980, Canada's auto deficits with the U.S.

($1.7 billion in 1981 and $2.0 billion in 1980) exceeded

those with Japan;

o

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( 3 ) Since Canada did not undertake any investigation equiva-

lent to l'll'C's inquiry into the in jury to the domestic

auto manufacturers, Canada could not justify increasing

Japanese imports, when even the reduced level of imports

by 6% in 1981 were (still) harming domestic sales of

North American cars. Given the negative determination by

rTC and the fact that the reduced sales of North American

car sin Ca nad a do es no t nec es sa r i l Y me a n the pro po r t ion -

ate decline of production in Canada, it was almost

impossible to establish the causal link;

(4) Canada provides the U.S. the duty-free entry for automo-

bile products through the Auto Pact, while Japan preferr-

ed to pay 15% dut Y since the Auto Pact i9 made in prac-

tice exclusively for American manufacturers and safeguard

measures for Canada described in Annex B are far-reaching

for Japanese manufacturers to consider new entry in such

a scale. To increase Canadian content or to set up auto

plants in Canada was not.economically feasible.

AlI these factors combined have reduced the level of

cooperative sentiments between Canada and Japan for the second

year of restrictions. In April 1982, the recession was

worsening and relations with Japan had reached an impasse1

thus the minister of Department of Industry, Trade and

Commerce, Herb Gray, ordered customs officiaIs to delay import

procedures for Japanese cars at

\ ,.

95 the poTt in Vancouver. The

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42.

exam i na t ion of one ou t of ten J apanese car s was in accordance

with the Customs and Tariff Act, but the inspectors ~ho once

only spot-checked ca r s we re r eques ted to process them in a

careful and prolonged way. A backlog of cars aboard ship and

on docks quickly built up. At its height in July, its

estimated size ranged from 15,000 to 25,000 units. Al though

the Vancouver pi1e-up was a typical example of non-tariff

barriers and was extremely detrimenta1 to the Japanese auto

manufacturers, Japan did not react with retaliation in limit-

96 ing its imports from Canada. On Aug. 11th, 1982 Inter-

national Trade Minister Edward Lumley announced that an agree-

ment had been reached with Japan under which Japan would lirnit

automobile exports to Canada to 153,000 units a year effective

f il 1 1982. 97 rom Apr st, That was down sharply from 174,213

units brought in during a trading year that ended March 31,

1982, or down of 23.5% from calendar year 1981 exports.

Presenting the fact that Japans' share of the total passenger

car market in Canada rose to 28.2% in 1981 from Just 8.7% in

two years previously, the Department of Industry, Trade and

Commerce attributed the action of Vancouver pi1e-up to a

sudden rise of the Japanese market share.

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4. Automobile Task Force Report

In r esponae to the t roubled s ta te of the Canad i an au to

industry, the Canadian government established the Federal Task

Force on the Canadian Motor Vehicle and Parts Industries

( De cern ber ' 1 9 8 2) . The Task Force was to analyze current and

future developments in the industry and rnake concrete policy

recommendations for strengthening the CaAa~ian sector.

E d wa r d Lu mIe y, Min i 5 ter 0 fIn ter na t ion aIT rad e, a p po i n te d

Partick Lavelle, President of Automotive Parts Manufacturers

Association of Canada (AMPMAC) and Robert White, Director for

Canada's United Automobile Workers Union (UAM) as co-chairmen,

and six other members arnong which three were from Canadian

aubsidiary of the Big Three, one from UAW, one from parts

industry, and the last one from Motor Vehicle Manufacturers

Association.

The report entitled: An Automotive Strategy for Canada

was submitted to Lumley in May 1983, only six months after the

formation of the Task Force. The report recommended that

Canada set rnandatory value added levels for aIl auto makers

which would be related to vehicle sales in Canada. An alter-

native for overseas auto manufacturera would be to fulfil1

auto

Ford,

pact commitmenta which were currently agreed te by GM,

98 Chrysler and A.M. The report required a 10' CVA to

cost of sales ratio plus an additional 2' CVA to cost of sales

for each l, 000 sales in excess of 3,000 uni ta up te 28,000.

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Thus, if the Japanese auto manufac,turers exported 28,000 units

to Canada, the y would have to fuI f i Il a 60% Canad ian con tent

requ i remen t. Above 28,000 units, the report recommended con-

ditional entry after negotiations with the government to ,

establish commitments comparable to the auto pact commitments . . These would include vehicle production to sales ratios and CVA

99 requirements.

Following the submission of the Task Force report, parli-

ament began consideration of legislation on a domestic content

bill. The government also began negotiations with the

Japanese ta bring about full-scale Japanese investment in

automobile plants in Canada. The report set 1987 as a target ...

year when such requirement be fulfilled by remaining vehicle

manufacturers who sell vehicles in canada. Model year 1987

requirements were as follows:

level of vehicles sold in Canada

0-3,000 units

3,000-28,000

28,000 or more unit

Requirements

Dut y as applicable

Necessary cornmitment is 10% CVA to cost of sales for each 1,000 sales in excess of 3,000 or Auto Pact tommit­ments (Le., a vehicle production to sales ratio and CVA of 60%)

Entry conditional on negotiations Wi~h overnment to establish commit­ménts comparable to the Auto Pact co ments. Thi s would include vehicle production to sales ratios and CVA.

l t ",as in the report that such measures would

force overseas producers to make job comm! tments to Canada

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45.

commen su r a te w i th the i r veh icle sale sin Canada, and ove raIl

employmen t e f fect would be mor e than 80,000 jobs, among wh i ch

43, 000 in the automotive sector, and the remaining in steel,

100 aluminum, plastics and rubber.

The composition of members was regarded as self-fulfi1l-

in9 to make recommendations inclined for the protection of

Canadian production and employment. Most observers saw the

r e sul t s 0 f the r e po r tas pre des tin e d bec a use the l n ter n a t ion a 1

Trade Minister, Ed Lumley, excluded auto-consumer associations

and neutral parties from direct participation in the task

force. Perhaps this was because Ottawa's first attempt in

1977 and 1978 to convene a task force was not much of a

success and the government did not act on the recommendations.

According to Andrei Sulzenko, a former Finance officer and a

member of Relsrnan's Report for the Canadian Automotive

Industry:

Labor movement support ls crucial for the sUccess of any goverment policy. Labor support is particularly important because labor unions experienced great disappoint­ment wi th their participation in the pre­vious government task force. If they (government) don' t take their advice this time, labor is every likely to reject any future task force participation and turn to non-support for the current liberal party.IOI

Y. Yamada, an executive of Nissan Automobile Company

(Canada) Ltd., agrees that understanding the position of labor

ls the key to un<3erstanding the recommendations of 'the Taak

Force:

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Canadian attitudes have changed from demanda for i ncreased sourc ing acti vit ies by the Japanese auto manufacturers to those for increased direct investment in Canada so tha t jobs w i 11 be crea ted . Job­creation is basica1ly the central interest of the Canadian negotiation. Job creation is a1so closely related to political sup­port f'!62 the LiberaIs in southern Ontario.

There are approximately 110,000 rnembers

46.

ln the

United Auto Worker' s Union of Canada (UAW). Among them,

80,000 work in automobile and parts manufacturing; 59,000 work

for the 'big four' auto makers: G.M., Ford, Chrysler and

American Motors and 21,000 in parts manufacturlng (usual1y

smal1er 103

cor po rat ion s) . The UAW represents mostly worke r 5

who are employed by the big four and, large si zed Ame ri can

owned parts manufacturing companies. workers in smaller

Canadian parts companies tend not ta be members of the UAW.

The principal industry interest group for parts

manufacturera ia the Automotive Parts Manufacturers AS6ocia-

tion of Canada (APMAC) , which ia comprised of approximately

350 companies, 80% of them located in Ontario. A further 10%

are located in Quebec, whi1e the remaining 10% (or less) are

located in the rest of Canada. There are, in total about

1,200 'independent' parts companies in Canada, 900 or more in

On tar io, 100 in Quebec, 100 in wes tern Canada and 3 a in the

104 Mar i times. Almost 60% of the independent part companies

are Canadian owned and over 50,000 Canadi ans ar e employed by

tl)em. There are few large sized Canadian parts rnanufactur ing

.1 .•

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47.

companies, but 60% of the parts industry is made up of com-

panies W1 th less than 1,000 employees,"__ Large si zed parts

companies tend to be American owned and their workers often

take part in UAW negotiations with the large auto firms.

Small and medium sized companles tend ta be Canadian owned and

about half of them are affiliated with APMAC. Together, the

UAW and APMAC ~resent a major part of auto workers in

Ontar io and also ln Canada. lOS

Ta deal with the Canadian employment issue is becoming

extremely difficult for the Japanese automobile companies

bec a use l t ha s bec 0 m e h i 9 h l Y po lit i cal and bec a use the i r

prlmary concern was on the automobile negotiation with the

o.s. According ta Yamada:

The Japan automobile Manufacturers Associ­ation (JAMA) has its main office in Washington D.C. and has none in Canada. This makes it difficult for the Japanese auto manufacturers to lobby or ta communi­cate effectively with the Canadian govern­ment. This ia why we are now going ta create a new wing which will run the JAMA office in Canada. We are also cooperating w i th the Canad ian Assac i a t ion of J apanese Dealers (CAJAD) ta coordinate their activ­ities. 106

Two months before the release of the Task Force report,

SIX Canadian subsidiaries of Japanese Auto Manufacturers sub- '18

mi tted br iefs to the Motor Vehicle and Parts Industry Task

Force. Th ey bas i ca lly s tressed the follow i ng poi nts :

1. Import sales have not caused the Canadian automotive

i ndustry' s current difficulties, because Canada

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48.

expor ts the major i ty of i ts product ion of medi um and

large cars to the V.S. and these represent 77.8% of

total Canadian production·,

2. The Canadian automobile industry has lost Hs inter-

3.

national competit iveness in both pr ice and quallty

because of a lack of product development, decl ining

productivity, and poor cooperation between management

and labor;

The Canadian automoblle industry l S Inefflcient

because optimum decisions regarding selection of /

models and production volumes must also mee!t the

constcaints of the V.S.-Canada auto pact. 107

Anothex: major criticism on the imposition of quotas came

• from the canadian Association of Japanese Automobile Dealers

(CAJAD). The CAJAD has made public a number of ~~udies that

provide evidence disputing the utility of import quotas. One

of these ls entitled: "The Economie Effects of Trade Restric-

tians on the Importation of Japanese Cars in 108 Canada ... It

spells out six faators that account for the decline of

eeonomic activity in the Canadian auto industry in the years

from 1979 to 1982. It a1so examined quantitative1y the alleg-

ed benef i ts 'of the trade protect ion scheme proposed by the

tas k for ce repor t. The CAJAD concluded that there eould be

adverse effeets from the imposition of import restrictions on

Japanese cars. 109 The study quotes from the Japan Economie

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• Journal to draw attention to the feeling in Japan over

canada' s negotiating strategy to gain import reductions:

turns

We believe that Canada's action (i.e., delayed customs clearance of Japanese cars) not only runs the serious risk of violating GATT's principles but also critically damages the relations of mutual trust and confidence between Japan and Ca nad a . Wh a t we f e a r mo s t i s no t som u c h the direct adverse effects of Canada's l m po r t r est r i c t ion s but the h i g h l Y l i k eJ. y possibility of similar actions being taken by other countries, thereby fanning the fire of protectionism. Canada's action seems particularly illogical as the country is currently running a comfortable trade surplus with Japan,110

Yuzo Hatano, consul General of Japan in Toronto, also

aside Canadian complaints and criticizes the task

force's membership and report:

1. The membership composition of the task force was one-sided. There i s no way consumers could ~xpress their views nor could neutral people get involved.,

2.

3.

The task force suggests that the local content requirement will create 130,000 jobs, but this is an·~.xaggera­tion. It presupposes that aIl of the six Japanese auto manufacturera will produce 150,000 cars at a time when present Japanese sales in Canada are only 146,000. Furthermore, the intro­duc t i on of robots and other h 19h tech­nology labor saving devices would probably lower the number of jobs that would be created by Japanese produc-tion in Canada. .

Licens ing, joint venture or sourc Ing activities are complex undertakings. The Canad i an par t s industry doea not appear ready to work wi th the Japanese

.\ , ~~.

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auto maker s. When Canada went on a mission to Japan it came only to see if someone would offer a joint ven­ture. They should have come prepared with concrete proposaIs for Japanese investment in Canada. lll

50.

Jun Sasaki, an executive with the Toronto office of the

Japan External Trade Organization (JETRO), is also critical of

Canadian demanda. He argues:

1. the Canadian government and auto ccSr­porations cannat determine by them­selves what i5 going to be the output of Canada 1 s automobile industry. The Canadian auto industry is a branch plant of the Amer ican automobile industrYi

2. only a portion of Canada's parts industry is Canadian owned, and this part ie generally Qot international1y compe t i t ive;

3. Canada's policy tends to be eratic. Canada'a official position differa over time and cur rently the government ia plac1ng the unemploymen tissue ahead of a 1'1 other automotive sector considerations. 112

In antic,ipation of these criticisms, especial1y regarding

Canada's international obligations, especially under the GATT,

the - Task Force report contended that their recommendations

cou Id be in Une wi th GATT pr inc iples. Two points were

s tressed:

1. The taak Force proposaI is a non-discr iminatory trade

poliey framework that requires aIl vehicie companies

selling in Canada to make similar commitments to

Canadian jobs and investment.

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2. Even if the Japanese comp1airr of the discriminatory

nature of the report, Canada cou1d argue:

(1) Japan' s automobile export restraints program to

the [est of the would is ineonsistent, varying

from one country to another and this discrimina-

tion seems to be a violation of the MFN clause

of the GATT.

(2) Japan could not r-etaliate against Canada sinee

Japan has not retaliated against any European,

South American, Southeast Asian, or other pro-

ducing country for the imposition of quotas or

local content requirements 50 that to single out

Canada for retaliation would be a violation of

MFN clause of the GATT.

(3) If exports of Japanese cars to Western Europe

were not restrained, allowing them to achieve

penetration levels similar to those they enjoy

in Canada, there shou1d be substantia11y fewer

J apanese cars flooding the Canadian market.

Th i 5 dive r s ion 0 f ve hic 1 e s cou 1 d De 9 r 0 und s for

113 a Canadian eomplaint under the GATT.

This argument entai1s two issues inherent in basic prin-

ciples of the GATT: (1) how to enforce non-discr iminatory

application of trade polieies, especially eoncerning safeguard

measures; (2) how to realize concurrent application of such ,

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8 a f e 9 ua r d me as ure B i n e a ch na t ion. One/cannot justify ones /

own policy as in accord with the GA'J"'Pt..-rules by claiming others

are adopting more stringent policies and the targeted country

has accepted such policies.

S. Extens ions of the wea ther forecast i n9 eys tem

A strong demand for legislative implementatlon of the

Task Force recommendations came from a number of quarters.

'Jntario PremIer WillIam Davis called upon the Federal govern-

ment to enact regulations requiring foreign manufècturers to

meet Canadian content quotas in the vehicles they sell in

Canada. He asserted that the continued viability of the

Canadian automotive industry could only be ensured in the

longer term by requiring aIl vehicle manufacturers sharing .the

canadian market to operate under the same requirement as those

mandated under the 1965 Canada -United States Automotive

,produets Trade 114 Agreement. In Par l iament, New Democratie

Party leader Edward Broadbent sàid the government should bring

in leg i 5 la t ion be fore the end of June 1983 tha t recogn i zed the

pr ineiples of the Task Force recommenda tions, particular ly the ,

idea that eompanies that sell vehicles in Canada should have

to invest in assembly plants and buy parts here in return for

duty-free access. 1lS

Gerald Regan, Minister of State for International Trade

told the report's proposaIs will be studied carefully. He

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mentioned that he favored incentives to encourage foreign

investment in the auto industry, but denounced content

requirements on aIl types of products, which "would go to the

absolute

116 system."

hea r t of destroylng the mut i lateral trading

Although the local content lssue was not settled in

Parllament, there existed strong sentiments that as long as

exports to th~ U.S. were being restralned, Canadian industlry

should not be left unprotected. In June, 1983, a new quota

was announced through compromise between two nations, which

restrlcted Japanese cars Imported ta Canada ta 153,000 in

1983-84 (see Table 4) .

There were voices agalnst local-content requlrements or

na J apan -Canad a Auto Pac t" sch eme . They came mainly from

e con om i s t s . For examp1es, Ross Perry, a Tor on to based

economist, did a study to determine whether the Canadian auto-

mob i le industry could r ema i n competitive in the long rune The

cone lusion he reached in his book, The future of Canada's Auto -'

Industr;t , was that it cou1d note 117 Wendy Dobson, of the C.D.

Howe Institute, analyzed the kind of adjustment which would be

nece ssar y to phase ou t uneompe t i t ive capac i ty, and pr omote

recovery by encouraging efficiency in the automobile indus-

t 118

ry. Patrick Caragata of the Canadian Chamber of Commerce

haB described the automobile industry as a sunset industry,

sugges ti ng th i sis how the J apanese gove rnmen t has t rea ted the

c:

Quotas

Market share (t)

Announcemen t Date

1981-82 (1)

174

22

June 1981

, \.

54.

Table 4 Export Quotas to Canada

(Apr il to Mar.ch in Thousands)

1982-83(2) 1983-84 (3) 1984-85(4) 1985-86 (5)

171 153 166 180-198 (up to 170)

21. 4 19.5 18 18%

August 1982 June 1983 June 1984 Ju1y 1985

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auto industry for the past 15 years. By setting aside short-

sighted political factors, he has tried ta understand the

current automoblle trade dispute as' a single point in the

historical development of free-trade among western industrial-

lzed countries.

In splte of such reasoned analyses by economists, the

federal government maintained the need to revitalize the auto

lndustry by encouraging the Japanese automobile and parts ,

manufacures to lnvest ln Canada. Partly due to the still high

unemployment rate ln Canada and delayed deci sions to set up

part plants in Canada by Japanese parts manufactures, the

fourth year of automobile export restraint was announced in

June 1984.

Canad i an

119 March.

This restricted Japanese auto makers to 18% of the

passenger-ca r market through to the fol1owing

Honda' 5 announcement in Apr i 1 1984 of i ts inten tion

to build a car-plant in Alliston, Ontario, which was expected

top r od u cel 0 0 , 0 0 0 car san nua II y f rom 1 9 8 6, d i d no t a lt e r the

course of negotiation over extension of Japanese export

restraints to Canada. The fa ct that Japan has extended auto-

mobile export restraints ta the U.S. has made the similar

arrangement to Canada imperative for the tourth year of re-

straints.

Entering into 1985, partly influenced by the Reagan Admi-

nistration' s move not to ask Japan to extend export restraint

of automobiles ta the U.S., the Canadian aide has also aimed

at holding down protectionist posture over export restraint

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issue wi th J apan. The new Conservative government led by

Pr ime Minister Mulroney stated that Japanese car quotas have

lap~ed officially. But, he suggested that hie government

reached an understanding without formaI agreement with the

Japanese side that the Japanese automobile manufacturers would

not flood the C'lnadian market. 120 Sinclair Stevens, Federal

Minister of Regional Industrial Expansion, announced that

Japanese exports would be almost 18% of the anticipated total

Canadian car market for 1985, and that with overall Canadian

sales in 1985 predicted to be between a million or 1.1 million

cars, the Japanese could Shlp between 180,000 and 198,000 cars

to Canada without violating the ftunderstanding.ft121 De facto

e x po r t r est rai n t s are s t i Il a 1 ive wh i ch k e e p the J a pa n e se

market share at the 18% 1eve1, at least until March 1986. It

i s l i k e1 y th a t if J a pan i s t 0 ex te n d VE R t 0 the U. S. for oa e

more year, Canada would unof fic i ally reach an ag reemen t wi th

Japan for a similar arrangement as this year.

Another factor that may effect the prospect of Japan 1 s

VER to Canapa WOU1G be the start of Japanese autc.mobile pro-

duc tion in Canada. Toyota Mo~r Corp. announced in .July 1985

122 its intention to set up a car plant in Canada. Later in

Dec. 1985 Toyota made public that the plant site would be in

Cambridge, Ontario, which will have an annual output of 50,000

oars from 1988. 123 Together with Rondals Alliston plant, the

Japanese car prodùction in Canada would reach 150,000 cars a

• year trom around 1988. Given the fact that this will almost

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double the supply of Japanese-made cars in Canadian market,

there may arise sorne sentiment that calls for the continuation

o f the vol u n ta r y e x po r t ces t rai n t toC a nad a . More important-

ly 1 a major thrust of these movements by J apane se auto-

manufatures to set up auto plants in Canada together with

those in the U.S. may occur on t,he l5-year old Auto Pact

framework in North America. The inClusion of Japanese auto-

manufacturers ta the Auto Pact ma;- not be realized soon, as

wlll be discussed ln the next Chapter.

C. COMPARISON OF NORTH AKERlCAN APPROACH TO OTBÈRS

Although bath the U.S. and Canada, having an integrated

North American auto industry, have maintained a voluntary form

of impoct restrictions for five years since 1981, the legal

process differed in several 124 respects. In the U.S., in

spite of the ITC's investigation, the Congress ... as ready to

pcess the protectionist legislation. Under this situation,

both the U.S. and Japanese governments worked out together to

avoid the passage of the bills and extraterritorial applica-

tion of the U.S. antitrust, law. In contrast to this, in .~

Canada no formaI i nvest ig a t ion was ever under ta ken, nor was

protectionist legislation pending in Parliap1ent due to the

lack of law for ITC-style investigation and to the fact that

pr ivate bills are not introduced lmder the Canadian Parliamen-

tary system.

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Baving the se two cases in the U. s. and Canada, the evalu-

!tion of the voluntary form of import restrictions depends

partlyon other countries, especially, European responses to

the same question. There are two categories of nations in the

E.C., one which restrict Japanese cars and the other which

does not. The former includes ftaly, France and Britain.

The strictest case is found in Italy which keeps the

quota for Japanese cars at 2,200 a year, fixed since 1956.

Italy retained this quota on Japanese cars under Article 35 of

the GATT as a result of the agreement with Japan concluded

u po n J a pan e 5 e a c c e 5 5 ion t 0 the GA TT i n 1 9 5 5 • l 2 5 Ne x t toI ta l y

is France which is utfwilling to see the Japanese share in its

market go beyond 3%. France has maintained its limit on

Japanese automob i le E' -w:por t to Fr ance th rough informa 1 admin i-

strative measures. 126 At a le5ser level, in Britain, agree-

men t w-as reached in 1975 be tween Br i t i sh and J apanese auto

manufactuere5 to limi t Japanése car imports to about 10% of

127 the British market. The 1ates t agreement was announced in

Apr i 1 1985. between the two nations to keep the Japanese market

share to 11%.128

These quantitative restrictions are incompatible with

Articles 113 and

common comme r c i al

115 of the EEC directives

129 policy. In countries

providing for a

which did not

impose quantitative restrictions, Japanese automobile exports

expanded rapidly. For example, J apan' s share in Germany rose •

to about la' in 1980 from 5.6' in 1979. In a similar manner,

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in Belgium it jumped to 28% from about 18% and in the Nether­

lands to 30% from 14.5%.130

Altbough the Couneil of Ministers of the Community agreed

on the need for a wide-ranging dialogue with Japan, based on a

common strategy, Japan 1 s response was to enter into restraint

arrangement with those member states that observed free t rade

pr ineiples and did not have restt ietions on Japanese 131 car s.

The s tr ugg le by the Commi s 5 ion ta crea te a common pol icy

toward Japan and to speak for the Community was interrupted by J

an individual negotiation of member states with Japan. For

example, on his visit to Japan on June 8 to 101981, the

German Economics Minister, Count Lambsdorff, announced that

J apan of f e red to lim i t growth of ca r e xpor ts to Germany ta the

132 1980 level plus 10% growth. At a meeting of the OECD in

Paris, June 1981, Trade Minister Tanaka told Bel"gian Trade

Minister Willy Claes that shipments to Belgium and Luxembourg

in 1981 would be limited to 104,--000 cars, a drop of 7% from

1980. On a visit to Hague, he informed the Nether1and govern-

f l , 0 hO th 133 H d i B 1 men t 0 lml ts on S 1 pment ere. e announee n russe s

that sales of Japanese cars in Europe would be moderated

through a9reements with the Benelux countries and Germany and

the restr ietions imposed by the other Member States .134

Despite the Commission's' efforts to deal with Japan on

behs1f of the COlT\IJlunity, it was either through unilateral or

bi1atera1 negotiations that the automobile issue between the

Ed and J apan has been dealt with. 135 ,,J

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In comparison to the U. S. and Canada 1 the Eucopean coun-

•• tries have succeeded in keeping the Japanese market share

lower than that of North America, except for the Benelux .

countries. In terms of ways to set restrictIons, Italy and

J France practice unilatt.:'ral actions which have no equivalents

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in North America, · ... ij~l2 West Germany and Great Britain have

reached bilateral ~greement wlth Japan over the number of cars

to be exported to ~ach country.

For ut:her nations other than the E.C., sorne nations

retain import quotas for Japnese cars under ArtIcle 35 of the

GATT, just as Italy does, or require hl4jh local content. The

latter examples are Australla and Mexico where Japanese manu-

factures directly produce automobiles to meet local content

requirements. In Australia, vehicle producers must maintain

85\ company average local content in arder to obtain relIef

from prohibitive duties on imported 136 components. To mee t

this local content requrement, Toyota and Nissan have estab-

lished car plants. Furthermore, Mitsubishi Motor Corporation

purchased a Chrysler plant and 'Toyo Kogyo (Mazda) participated

in a joint 'Venture with Ford, thus taking over American market

share in Austral!a. In Mexico, the 1977 Automotive Decree

established two sets of local content requirements: 1) minimum

local content of 50% for cars and 65% for commercial vehicles

ta be met for each individual model of vehic1e based on compo-

nents incorporated1 and 2) recommended local content levels of

75\ for autos and 85% for commercial vehicles. The di fference

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bet.ween the recommended and minimum content must be generated

137 by e xpor ts. To meet this local content requirement, Nissan

Motor Co. has already established auto plant in Mexico.

These local content requirements seem to induce foreigr.

auto-manufaturers to set up auto plants instead of exports,

however, efficiency and competitiveness of these operations

are hlghly crltisized in the global market.

Aftcr aIl, it can be said that the global automobile

trade 15 mostly under restrlctions of one type or another. To

single out Canada as protectlonist may not be fair as the Task

Force repor t claims. Nonetheless, the se unilateral or

bllateral restrIctions of the Japanese automobile exports are

ln no way in line with the present GATT stipulations concern-

lng safeguard measures. The w ide spr ead usage of ou t-of -GATT

restr ictive measures has come to support the view that lees

stringent safeguard measures are necessary, which would enable

each nation to pursue its own industrial policy by limiting

foreign products. The question, then, is whether Ruch limita-

tions can be instituted on a non-discrirninatory basis and

across major sectors of the industry.

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CHAPTER II Impact of Voluntary Impoct Restrictions

In t h i s Cha pte r, the i m p a c t 0 f J a pan 1 s vol u n ta r y e x po r t

restraints of automobiles ta the U.S. and Canada upon legal

frameworks for safeguard measures at a) multilateral (GATT),

b) domestic and c) bilateral levels will be examined.

A. Multilateral level (GATT)

The GATT est i ma t e d i n l 9 8 2 t h a t $ 2 2 - bill i on ( U . S .) W 0 r th

of world trade was covered by restraint agreements, while only

S2-billion falls under legitimate safeguards 138 arrangements.

In the 1atest estimate by the GATT, about half of world trade

i5 under restriction or control dûe highly to the growing

usage of orde r l y make ti ng ar r angemen tB and vol un t a ry e xpor t

restraints .139 If the GATT is to remain relevant, safeguard

act ions, which now occur outside the agreement on a dlscr imi-

natory basis, need to be regularized and brought within the

140 system. The proliferation of so-called voluntary restraint

agreements and orderly marketing arrangements that exist

outside the GATT could undermine a safeguards system that lays

down that governments must prove injury and act in a non-

discriminatory fashion when they impose curbs on 141 trade. In

this section, we will assess problems in the present GATT

rules and;Procedures on safeguard measures and examine several

proposaIs for the revision of the stipulation.

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1. Ar t icle XIX of the GATT

The Artlcle XIX permits governments to take emergency

measures in situations where a product 15 being imported in

such large quantities and at prices which cause or threaten

sedous in jury to domest1c production of like goods. Unde r

the present basIc princlples of the GATT such as the Most-

F a v 0 r e d - Nat ion (MF N ) cl a use ( Art. l ) and the non - dis cri m i -

natory treatment of the contracting parties (Art. XIII), the

contracting parties have to prove the existence of serious

ln]Ury and then apply protectlve measures on a non-discrimi-

natory basis to aIl nations involved. Fur thermore, unI i ke the

imposition of antl-dumping or countervailing dutles, emergency

safeguard action by a government often leads to demanda for

compen sa t ion by th e gove r nmen ts of the e xpo r t i ng coun t ri f? S

l.e., payment by way of compensatory dut y reductions on other

products of interest to those countries. If such demand B ,

where justlfIed, are not met, those countrieff are permitted to " ..

take retaliatory action by increasing rates of dut y on pro-

ducts from the country taking the safeguard action or by other ,

measures which affect its trade.

These requirements built into the existing rules and

procedures pose a serious inhibi tion upon the imposing govern-

ment. In face of domestic pressures for an Immediate relief

from imported goods and materials, the impoBing government has

to go through several steps Borne of which, as seen below, are

not yet precisely defined under the GATT stipulations:

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(1) Injury test

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Injlhy incurred on the domestic industry has to be

tested 1) as a "serious" in jury, 2) "caused" by imports.

Nonetheles8, the specifie standards for the former test

are not stipulated in precise amounts of import penetra-

t i on , f a lli n 9 pro fit s , p e r ce n ta 9 e 0 fun e m plo ym en t etc.,

nor for the latter standard, which requires the compa-

ri80n and weighting of the import factor with others such

as the dec1ine of productivity, change of consumer taste

and 50 142 on;

(2) Choice of measures and their duration

There is no specifie description of measures ta be

ta ken , but safeguard measures can be a surtax, import

quotas or government adjustment assistance to the indus-

try depending on the urgency and effectiveness of the

measure in eaeh occasion. Non t heles s, for the purpose of

providing a breathing period for the domestic industry ta

become able to compete \olith imports without protection,

sa fegua rd measures have to be tempor a r y, though ther e i s

no limitation agreed on the maximùm lengthi143

(3) Non-discriminatory application of safeguard measures

If safeguard action i8 takeQ, it ha~ to be directed to

aIl exporting countries concerned, eVen though the

results would be almost the same if taken against selec­

tive countries,144

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(4) The right of retaliation by exporting countries

Exporting countries are entitled to retaliate against the

safeguard measures in the manner to offset the damage

145 they suffer i

Among the four points mentioned above, the tirst two are

technical matter5 and require further elaboration to bring

about a thorough Investigation in order to be able to conclude

that the application of adequate safeguard measures will help

the domestlc Industry to take a beathing Ume for adjustment.

The latter two requirements sometimes collide with political

consideratIons due to their unnecessary effects on trade rela-

tions with third countries whose exports of a product under

dispute are insignificant or rather tolerable. After aIl, the

GATT Contracting Countries tend not to invoke Art. XIX for

import relief partly due to the burden of proof and partly due

to the unnecessa r y appl i ca t ion of the me a sure to th i x;.d coun-

tries and the automatic entitlement to exporting countries of

the right to retaliate.

2. ProposaIs for revision

At the GATT meetings after the Tokyo Round, a debate

con tin u e S 0 ver the r e vis ion 0 f the Art icI e X l X 0 f the GA TT.

The difficulty lies in differing interests and dependence of

GATT contracting parties upon trade. There !re basically

three groups con tend i ng for i ts own scherne of rev i s ions for

safeguard mechanism:

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(1) The developing countries insist that the existing

MFN clause in GATT remain. It stipulates that coun-

tries must treat each other equally and not discrim-

inate against an individual exporter;

(1) V.S., Canada and Japan J)ropose consensual selectivi-

.!: lin a pp l yin 9 r est r i c t ion s t 0 0 the r e x po r tin 9 na -

tions. This would mean that an exporter would agree

to cut back the volume of his goods going lnto a

country because they were harming the receivlng

country's domestic productions;

(3) Sorne Eurpoeal"1 countries, especially France, would

like to continue to be able to take unilateral

action to protect domestic producers when neces-

146 sary. j

The firet choice i5 apparently the most liberal and

ideal, and the third choice i5 most protectionate and destruc-

tive of the free trade system. The second one i s the choice

of lesser evil and lies in the middle. The conflicts among

the three groups are repor ted to be seve r e . Agreement on

unified provisions to combat domestic protectionist measures

in order to substantiate principles of Article XIX of the

GATT, so called safeguard measures, was not reached in the

Tokyo Round, but once again fai1ed at the GATT ministerial

147 meeting in Geneva .

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Smith, deputy-representative of USTR, made clear in

June, 1985 that the U.S. woulà propose the amendment ta the

present GATT stipulation on safeguard measures sa as ta make

room for acceptance among GATT signatories of: 1) bilateral

agreements on voluntary export restraint, 2) voluntary export

r est rai n t s b y the i n dus t r yan d 3 ) e x po r t r est rai n t s t h r 0 u 9 h a

148 "weather forecasting" system. He reasoned that the present

r u les are s 0 ha r s h t h a t suc h v 01 un t a r y e x po r t r est rai n t s , li S

ln the case of the Japanese automobile êxports ta the U.S. it

becomes indispensable and that inclusion of such measures in

the GATT would ensure that in the future all restrictive trade

1 " b t d 't ti l 't' 149 po lCles e pu un er ln erna ana negotla lon.

The difficulty lles in the direction which the U.S. has

tried to move other countdes toward adopting a number of U.S.

provisions. ISO The thrust of many U.S. proposaIs is two-fold:

(1) adoption of consensual selectivity, namely a voluntary

form of restrictions and (2) application of provisions similar

to the 1974 Traàe Act, particu1arly those calling for public

hearings and other provisions. The question ar ises how these

twa proposals can be reconciled for each of them ta function

effective.ly. Voluntary export restraint alone shou1d not

replace Art. XIX of the GATT. It is rather expected that

Art. XIX keep first place as safeguarà measure with voluntary

export restraint to complement its role. 1 n th i s r e s pe ct, i t

i s cr uc i al to know how the U. S. has substan Ua te~ Ar t. XIX of

the GATT at its domestic legal framework and how, within that

framework, voluntary expert restraint can be accommodate~.

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Gray pointed out se ven features of the U.S. trade law and

its practice, other than the adjustment assitance to workers,

firms and cornrnunities, and extensive provisions setting out

procedures, including public hearings at which interested

parties may appearj 151

(1) while the 1974 Trade Act speaks of imports "in such

increased quantities," Article XIX of the GATT

(paragraph l (a» speaks of "in such increased and

under such conditions" and specifies that these two

elements must be "as a result of unforeseen develop-

mente and of the effect of the obligations incurred

by a contracting party under the GATT". Whether the

U.S. law meets aIl criteria of tt"\e GATT has to be

examined;

(2) As to the question of causality, w~at is at issue in

Art. XIX is whether there is an in jury caused by

imports and whether that in jury ia a serious in jury.

The 1974 Trade Act defines the term "substantial

cause" as ft a cause whi ch i 5 impor tan t and not less

152 than any other ,cause".

clarify the causation

adopted in Art. XIX;

This definition seems to

criterion and should be

(3) The role of procedures has So be emphas i zed. The

Trade Act makes provisions for public heatings and a

report to be issued, including a statement of the

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ratioflale for any finding and of any dissenting or

additional views. Although the Japanese automobile

case showed that these procedural safeguards were

overridden by the subsequent administrative decision

to seek export restrictions, these procedures have (l

to 'be available in domestic law, which Art. XIX

should encourage;

o (4) As to the route to higher rates, or other relief

against imports, It should go through the escape

clause of the domestic legislation, and thus through

Art. XIX. using Art. XXVIII for a nominally perma-

nent incredse in the level of a bound tar i ff should

be avoided;

(5) Section 201(a) (1) reads "a petition of eligibility

for import relief for the purpose of facilitating

orderly adjustment to import competition may be

filed " Its aim i8 to deal with "unfair"

o methods of competition and to provide 8ubsidy pro-

grams. But if this turns out for the U.S to sub-

sidize i ts weak industries in order to offset

competition from imports, it poses a perverse result

of a safeguard measures;

( 6 ) As t 0 the e x te n t 0 f 'i n dus t r y 1 0 r 1 p r od u c e ra' the

protection ia provided, Art. XIX speaka of producera

o and the 1974 Trade Act refera alightly more to

producera in a regionsl market,

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, t7) The 1974 Trade Act includes authority for the

President ta not act on a recommendation of the rTC

that import relief be granted. The President is

directed ta take into account a number of considera-

tions (sec. 202). Section 203 (c) grants the

Congress the right to reserve the President's deci-

sion to accept the rTC proposaI. Thus, the Congress

can 8ssert its primacy, in regard to commercial

relations, and its determination to have the last

word as to the use of the power delegated to the

President. In addition, if we take into account the

role of rTC as a screen protecting the administra-

tion from political pressures, it becomes apparent

that the division of power underlies the functional

'~f-J>asis of the u.s. safeguard measures.

In consideration of these fea tures of the r'\ u.s. le9al

framework for safeguard measures, one can recognize its

strength derives from procedural pluralism check and

balance between l .T.C., Congress and President (administra-

t ion) . Although one cannot be so sure of which power prevails

in each case, the U.S. case provides one viable approach which

can spell out the interests of aIl parties involved. The

inclusion of voluntary export restraint as the last method of

import relief would add more stability ta the safeguard mecha-

nism under the Trade Act of 1974. In fact, one cou1d argue

that the Japanese voluntary expert restraint of automobiles to

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71.

o the U.S. has avoided protectionist legislation in the Con-

gress, thus giving more mutual benefit than would be the case

without voluntary export restraint. However, the application

of the U.S. model to other nations becomes another question

owing to different legal and administx;ative practices in a

variety of jurisdictions. In particu1ar, if voluntary export

restraints, are Implemented prior to the start of proceedings

similar to the ones under the Trade Act of 1974, it will

o e1iminate the chance to spell out the interests of aIl parties

Involved and glve unfair advantages to a particular party

invo1ved. The J a pan es Q vol un ta r y e x po r t r est rai n t 0 f au t 0-

mobiles to canaaa fell in this category.

with the advent of the industrial-structural changes in

the world today owing to the technological changes and geogra-

phic shifts of would industrial centers, the development of

free trade inevitably is accompanied by reorganization process

of the domestic industries in each nation. 1ft h i s p r oc e s s

o takes place in the absence of mu tua l con sen t among na t ions as

to the cost-bearance of its process and efficient wayof

distributing scarce resources, rules of free trade will be

step by step replaced by those of controlled trade. 153 It May

minimize the cost of industrial re-organization within a

nation involved, but wi.ll increase trade frictions with other

countries. In a transitory period of this process, trade

o rules are urged to become flexible or, ta sorne extent, accom-

modative so as to enable eac'h contracting party to keep

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certain room for its own industrial re-structuring poli-

154 cies. This should not automatically mean to permi t the

unila teral dec i s ion of impor t r es tr ic t ions by an impor t ing

country, nor to open up bilateral negotiations from the begin­

ninf} to reach an agreed limit as to quantity of an article for

expor t and dur a t ion of such limi ta tions. The la t ter cho ice

shou1d come on1y after proceedings which could spell out

interests of aIl parties involved. In thi 5 respect, a

re"ised safeguard mechanism which brings about U.S. Trade Act-

type proceedings initially and recognizes the voluntary export

restraint as the last resor t should be incorporated in the

GATT stipulations. Non-discriminatory application of safe-

guard measures will become practicable and effective when the

standardization of such proceedings i8 attained and voluntary

export restraint is effected as the 1ast reso.rt by mutual

consent of the two nations involved.

B. Doliestic Leve1

L Canada

One of the defects found in the course of Japan' s adop­

tion of voluntary export restraints towards Canada was the

lack of lega1 proceed i ngs to inves t iga te cause s of i nj ur y to

domestic automobiles industry in Canada comparable to the ones , under the U.S. Trade Act of 1974. Prior to the enactment of

the Special Import Measure Act in Dec. 1984, Canada's do~estic

1egislation that correspond to the article XIX of the GATT was

limited in scope in facilitating ITC type investigation.

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?rior to the enactment of SIMA, the Anti-Dumping Act, the

Customs' Tariff Act, and the Export and Import Permits Act had

regulated, in a limited score 1 safeguard measures against

abr upt surges of impor ted produc ts. There were three ways to

take emergency import safeguards: First, Under Section 8 (2 )

of the Cus toms Tar i f f Act, the Governor in Counci l on a r epor t

of the Minister of Finance could impose a surtax on imports

for a max imum of 15 days wh i ch cou ld be ex tended w 1 th the

con sen t 0 f bo t h Hou 5 es a f Par lia men t ( s ~ e . 8 ( 4) ) 1 Sec 0 n dl Y 1

Sec tian 5 of the Expor t and l mpor t Permi t Act perm i ta the

Governor in Counc il on a repor t of t he Mi n i s ter of Trade and

Commerce ta impose quotas on imports when an injury finding

has been made by e i ther the Text ile and Clothing Board or the ~

Anti-dumping Board under Sec. 16 (a) of the Anti-dumping Act;

and lastly, Section 5 of the Export and Import Permits Act

also allows the government to place goods on the Impart

Control List in order ta imp1ement an intergovernmental

arrangement such

Canada. 155

as a commi tment ta 1 Imi t expor ta to

In recen t year s Canada has impoaed quotas on tex t i les,

156 clothing and footwear. SectiOn 16 (a) of the Anti-dumping

Act stipulated that the Trit'unal make inquiry, upon a notice

of a preliminary determination of dumping which 18 carried out ,

by order of the Deputy Miniater of National Revenue for

Cuatoms and Excise on hia own initiative or or receipt of a

complaint in writing by or on behalf of producers ln Canada of

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Iike goods (sec. 13 (1». Therefore, the decislon ta make an

investigation depended either on dlscretion of the Deputy

Minister or on a complaint in writlng by the producers. In

case of the Japanese car imports, nelther of them Instltuteà

investigation.

Gr ay po i n ted ou t six major problems ln the Canaà l an

impor t policy in the proposaIs for SMIA: (1) the absence or

provision for an adequate preliminary inquHy into the ques-

tian of injurYi (2) the proposeà "Basic Prlce System"; (3) the

absence of adjustment assistance provisions in the legislative

reg a r d l n 9 i m po r t 5 th a t cau 5 e 0 r th r e a te n 5 e rio u sin j ury t 0

Canadian producers; (4) the question of "causation"; (5) the

stPecial problem of dumped or subsiàized imports of capital \

equipment; and (6) , the proposed institutionsl and administra-. \

tiv~ arrangements. 157 Il

In the 4th point, r- -

Gray cri tIC i zeà legal concepts of

in jury and causali ty in the U. s. as being devoid of economic

158 meani~9. For example, he thinks the UAW and Ford's applica-

tion to ITC might have been justified under the GATT rules

especially by Art. VI, since imports caused an adverse impact'

which can be described as material in jury , which he thinks

suffices ta establish the case. In this sense, he agreed with

the causality language as contemplated in the draft which

collaborates with "material in jury to an established industry"

of Art. VI of the GATT.

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In the last point, he specifically proposed to amalgama te

the Import Tribunal, the Textile and Clothing Board, the

Ta ri f f Boa r d and the investigation function of National

Revenue, very much along the lines of International Trade

Commission (ITC) of the U.S. He stresses that t it ..... ould give

the investigation officiaIs the status and resources in face

of the switch of the emphasis in the Canadian commercial

policy system from the tariff mect)anism to dealing with unfair

competition from imports.

The Special Impo~ Measures Act was initially ~roposed by

the Ministry of Finance in 1980 in an attempt to implement

GATT stipulations on safeguard !.Ileasures in the form similar to

the Trade Act of 1974 of the V.S. The Special Import Measures

Act l 'S9 came into force on December l, 1984. Under the Act, a

Canadian Import Tribunal institutes investigations on its

initiative or on receipt of a complaint supported by evi-

160 dence. The Ministry of Finance plays a single central role

as an

tion

administrative body to process the results of investiga­

to the Governor in Council.161

As a result, a dis-

cretionary role given to the Minister of Finance allows

162 governrnent to decide whether to act or not.

In terms of the investigation process, SMIA has upgraded

canada 1 S domestic investigation process to be carried out in a

fair manner, and paved the way for the global acceptance and /

the es tabl i shmen t of s imi lar safeg ua rd measures along s ide the

Amer ican model . However, as to the concept of in jury and

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causality, the Canadian approach would bias or discourage fair

competition and to increase administered trade practices.

Imports without dumping or subsidy have to be treated differ-

ent1y from ones with those. The former does not create unfair

competition, whi1e the latter does.

Furthermore, the neutra1ity and independence of an inves­\

tigation organ i5 not clear ly demarcated f)rom the Ministry of . Finance as the International Trade Commlssion i5 from the

Administration in case of the U.S.

<S. j. United States (Omnibus Act)

The recent development of government regulation on busi-

neSB in the u.s. waa materialized in the Trade and Tariff Act

of 1984, so-cal1ed the Omnibus Act, which became in effect in

30 1984.163

Oct. 1 The Omn ibus Act compr Ise s of ni ne par ta,

arnong wh i ch two have sorne r elevancy to the issue 0 f safeguard

measures: One on the escape clause and the other on the

. i 164 rec 1 proc ty.

The Trade and Tariff Act of 1984 revised the escape

clause of the Trade Act of 1974 in three respects: First, in

investigating the in jury, the International Trade Commission

wi Il take in to aceoun t the i ncrease in i nventor ies of domes t ie

producers, import dealers and wholesalers of the same pro-

duets. Invéntor ies of impor t dealers are added to the Iist of

investigation; seeondly, ITC will not be required to decide on

the in jury only by the investigation of factors listed in the

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Act. ITC could take into account other factors reaching the

conclusion of the existence of injurYi and lastly, in investi-

ga.tlng injury to the domestic industry, id le production facil­

• ities are included in the Hst of factors for considerlitlon.,.

In the revised Act, in determing the idlene9s of production

facilities, rTC has to take intq account in addition to the

closure of the facility, inadequate utilization of production

facilities. 165

These revisions may not alter the basic investigation

process of ITe, nonetheless it is anticipated that affirmative

determination of the injury i9 more likely if ITC takes into

account other factors not lïsted in the Act, or in cases where

"inadequate" utilization of production facilities ls widely

in terpre ted by TTC.

Regarding the second point on reciprocity, the revised

Trade and Tariff Act stipulates the klnds of retaliatory

action the O.S. Trade Representatives could take when recipro-

city 15 not observed, i.e. if other countries discriminate

against U.S products, services or investments. The stipula-

tion limits the retaliatory action within the area of ser­

vices, high-technology related industries and investments. 166

This revision may propel other nations to scrap out regula-}

t ions tha t have res t r icted U. S. produc ts, services or i nvest-

ments. Nonetheless, the Act does not specify the extent the

retaliatory action could take for discriminatory actiÔn. It

may be the case that the USTR may claim the right to

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r e t a l i èS t 0 r y a ct ion in 0 nef i e Id wh e r eU. S . P r od u ct s su f fer

discrimination and exercise such rights in other fields like

in the automobile sector.

The revised Act may not be charactêr i zed as protectioni st

legislation, but ia certain to empower ITC and USTR with more

discretion in determining the action.

C. Bilateral Level

In the course of conclusion and extensions of Japan 1 s VER

ta the U.S. and Canada, three issues are raised that may have

a significant impact on the bilateral arrangements, mainly

relating the Canada-U.5. Auto Pact. The first issue raised

was the trea tmen t of Canad i an expor t s of automob i le produc t s

ta the U.S. in the ITC Investigation and the local content

bills. That is, whether the irnport restrictions of auto-

mobiles, if effected, would be applied to the Canadian pro-

ducts, and whether it would violate the Canada-U.S. Auto Pact.

The second issue was whether the Japanese automobi le manufac-

tures could become a party ta the Au ~ Pa~ after the i r

announcemen t of es tabli shmen t of au tc-plan ts in the U. S. and

Canada. Th,e third issue was on the treatment of non-Japanese

imported cars to the U.S. and Canada.

1. Treatllent of Canadian automobile products

At the ITC investigation, the issue arose whether or nQt

vehicle imports from Canada under the provisions of the Auto-

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motIve products Agreement were to be considered imports for .7

the purposes of the escape clause action. Because the Commi-

SSlon made a negative recommendation, this issue was net

pursued. However, from the point of the economic impact on

Canada of U.S. escape clause actions, and a1so by the tact

that the same issue was again raised ln the local content .. bills, Canadian exports are still subject ta actions relating

167 primarily to imports from other sources.

At the ITC invest igation, three commissioners (Alberger,

Calhoun and Stern) who rendered negative determinations,

expr essed the v tew t ha t the Au tomoti ve Prod uc ts Ag reemen t

related to tariffs, that both Canada and United States, in the

text of that agreement, had retained their GATT article XIX

rights, and that the language of the Trade Act did not a110w

168 thè ITC ta treat imports from Canada as not being imports.

UAW demanded that Canadian imports should be exc1uded

p.rbnn any remedy recommendation either in exp1icA.t terms or by

" virtue of the nature of the goods subject to relief, beeause

such' imports are nen-injurious and because '-of the Automobile

Products Trade Act of 1965 (APTA) ,169 the V.S.-Canada agree-

ment, and the specifie GATT waiver pertaining ta sueh agree-

170 ment. Ford Motor Co., on the other hand, maintained that

"In determining the degree to whieh imports have inereased and

the extent ta whieh imports are a clause of the U.S. i~-du8-

try's serious in jury, vehie1es produced in .canada and shipped

! 171 te the U.S. sheuld net be eensidered 'import'.

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Since nothing in the APTA or the Auto Pact itse1f speci-

fically exempts Canadian products from the scope of section

. d 172 201, these arguments were reJect~ . However, as Chairman

Alberger of the rTC s uggea ted, i t migh t be poss i bl e to r ecom-

mend tariff-rate quotas or quantitative restrictions a1located

on a country-by-country basis and based upon imports during ,

i . d 173 1 h h h 1 the most recent representat ve perlo. A t oug e ater

mentioned that he does not believe they have authority to

propose a remedy which expressly discr iminates, Section 203

(K) (1) empowers the President to take discriminatory actions

which do not comply with the Most Favoured Nation requirements

of the Trade Act, but Alberger warns that he is first required

to consider the effect of such action on our foreign re1a-

tions, both economic and political.

Another blow to Canadian products was made in the

language of local content bills. The Ottinger Bill, excludes

Canad i an produc t ion f rom Ame rican conten t requ i remen ta so tha t

Japan cannot source in Canada to fulfill American require-

174 ments. , Therefore, even if the Japanese companies fulfill

Canadian content requirernents, it does not mean fu1fi11ing

U.S. content requirement, thus no automatic free entry to the

U.S. market. Furthermore, the O.S. is in no position to

encourage the J apanese to invest in Canada. It would not he1p

the Amer lcan employment ai tuation, and would mean dangerous

competition and increased domestic political pressures for

action, even against Canada.

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2. Inclusion o~ Japanese automobile manu fa turer 8 to the Auto

Pact

When the U.S. and Japan entered into the VER agreement in

May 1981, there were only two plans of investments for car-

production in the U.S.; Ronda's Marysville plant for passen-

ger-car production and Nissan's Smyrna plant for pick-up truck

production. It is only during the last two years that other

Japanese manufacturera have decided to build car-plants in the

U.s. Table 3 shows a li ne-up of announced, sorne a lready

operating, car-production in the U.S. and Canada. By the end

of 1988, total Japanese car-production will reach annual

output of 1.41 Million cars in the U.S. and 0.15 Million cars

in Canada. Even excluding trucks and passenger-car production

for U.S. companies, the number will remain at 0.99 Million in

the U.S. .,

per annUm, which reaches about half of annual export

figures to the U.S. in average of th~ past five years. In

case of Canada, additional 150 thousands car-production will

almost double the supply of Japanese passenger cars to Canada.

Honda and Toyota signify their decisions to set up car-plants

in Canada as their strategy is ta treat the U.S. and Canada as

a unified market. Although both of them are not a party to

the Auto Pact of 1965, their success will become highly

dependent on the free or unrestricted flow of their products

th rough the U. 5. -Canada border. S ince the appl i ca t ion of the

U.5., Canada Auto Pact iEt limited to companies which are list~ --

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in the pact, their treatment in the Auto Pact framework will

become d focal point in competing with the Big Three.

Fur thermore, the f act t ha t the Canada-J apan volun ta r y

restraint agreement does not cover cars coming from Japanese-

owned factories in the U.S., gave another problem ta the

present Auto Pact framework and the voluntary expert restraint

schemes. Bonda has already announced to bring into Canada

approximately 3,000 Accord models out of its 150,000 car

annual output at ~arYSVille, Ohio, compared with last year' s

i m po r t s of 7 8 0 uni ~ 5 • Th i san n a u n cern en t wa s cri ti c i z e d sin c e

it undermined impoft restriction of Japanese automobiles.175

Bonda explained that this move was made in anticipation of a

continuation of the voluntary export restraint program by

J apan to Canada. Although Bonda has already decided to build

plants in Ontario and its imports from the U.S. are subject to

the same 10.6 % dut y as applied ta car s tha t en te r f rom J apan ,

it will continue to supply cars from its U.S. plants until

canadian plants will be completed and as far as exports from

d d i . 176 Japan to Cana a are un er restr ctlon. Nissan and Mazda

are expeeted

duction in

to take a similar measure soon after their pro-

177 the U.S. start and produee sufficient cars.

These movements would eertainly circumvent the impoJlt restric-

tions of Japanese automobiles ,to Canada gradually year by

year. Bowever, sinee J~panese cars from the U.S. are

"America.n" cars in terms of content as weIl as ori9in, the

restriction of sucb U.S. made cars would be difficult and also

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wou1d be contrary to American demands for reducing Canada's

huge automobile trade surplus with the U.8. 178 By 1987 .. hen

Hond a s ta r ts produc t ion in Canada and by 198B when Toyota

does, the question of inclusion of Japanese auto-manufactrers

into the Auto Pact will become high1y heated issue since Honda

and Toyota produce cars in a manner to regard North American

market as unified one. Treatment of Honda and Toyota both of

which plan ta operate plants in the U.S. and Canada be differ-

eneiated from those for Nissan, Mazda and Mitsubishi which

plan ta operate p1al'\ts only in the U.S. The application of a

179 du ty r emi 55 ion prog r am such as in place for Vo1kswagen (VW)

may be extended for Nissan, Mazda and Mitsubishi. This dut y

remission program was arranged when VW decided in 1981 to

'. build a C$IOO mlilion parts plant near Berrie, Ontario, which

would export ~arts to a sister plant in pennsilvania. The way

was cleared by an informaI understanding on tariff treatment

between the Canadian and Ameriean 180 governmen ts. Thus,

Nissan Mazda and Mitsubishi, if ar ranged' by Canada, may source

parts in Canada. However, this formula may not be supported

by the U.S. government since the U.S. does not expect the

Japanese automobile manufacturers to expand their production

and sourcing in Canada. l twill a1so enlarge U. S. automobile

trade deficits with ,Canada. The dut y remission program will

not be attractive, either, to Bonda and Toyota sinee the' dut Y

in the U.S. ia only 2.8' and is due to go down to 2.5' in

1987. Both of them need certain assurance from the Canadian

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gove rnmen t tha t the i r expor ta f rom Canada to the U. S. would

not be Bubjected to any restrictions by the U.S. as for the

Japanese cars from Japan. o the r w i a e , the i r p r od u c ti 0 n i n

Canada will remain local and will not be able to expand,

aiming at the whole North American market.

3. Treatment of non-Japnese iaported cars

Increased shipmenta in recent years of automobiles to the

U.S. and Canada by non-Japanese automobile manufacturera have

created a situation where' the Japanese automobiles have to

compete unfairly with those cars in the U.S. and Canadian

market. For example, there are no voluntary quotas governing

Hyundai shipments to Canada and, in may 1985, Hyundai Auto

Canada, Inc. sold 6,835 cars, giving the company the top sales

181 spot among a11 importers for the second straight month. The

Japanese automobile manufactures attribute this to the unfair

app1 i ca t ion of impor t quota te them. Canada has to chose

either to set quotas for Korean cars since its market Share is

now higher than any Japanese auto-manufacturers under the

restriction, or to scrap the quota for Japanese cars to give

the Japanese automobile manufaturers an equal footing for

i i i ,~182 compe t t on n Cana~a. The former choice may weIl be

criticized as further mevements by Canada for' protectionism,

while the latter chai ce may still be premature since it

e~acerbate the risk to shake the stability of Jthe Auto Pact

framework in Canada .

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o In this respect, it has to be noticed that if the initi~l

criteria to set voluntary restraint agreements with one nation

become applicable to imports from other nations, similar re'st-

rictions have to be arranged with them. Alternatively, the

initial application of the import testrictions has to be

repealed.

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CONCLUSION

We have examined in the first Chapter the choice of

voluntary export restraint of the Japanese automobiles to the

ct.S. and Canada, and then in the second Chapter investigated

t the impact of a voluntary form of import restrictions on legal

frameworks for safeguard measures at domestic, bilateral and

multilateral levels.

The Chapter l clar if led similar i ties and di fferences of

reasons of and tpproaches to il voluntary farm of restr ictions

between the U. 5. and Canada. In the case of the U.5. 1 we have

seen extensi ve par ticipation of aIl levels or spheres of

interested parties in investigation, legislation, Iobbying and --T'

eventual negotiations wi th Japan pr ior to the conclusion of

voluntary expart restraint. The Canadian case presented a

rather confined or closed process of administrative actions

and negotiat ions wi th J apan over import restr lct ions of the

Japanese car s to Canada.

The Chapter II cons idered problems in the presen t legal

framework of the GATT and coresponding domestic legislations " ,

in the u. S. and Canada for safeguard measures. The

Art. XIX""'Ô'!' the GATT sets forth non-discrlminatory application

of the safeguard measures wi th str lct requi remen ts for in jury

test and its causation with imports. Although i ts basic

pr ineiple of 'non-d i ser iminatory appl ication of the safeguard

messure has to be still guaranteed by Ar t. XIX of the GATT,

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Hs incorportion into the system of export restraint agree-

ments as a last resort will stabilze the whole safeguard

mechani sm and eventually the free-trade system. The

O.S. Trade Act of 19.14 provides probab1y the most reflned

leg i sla tion of sa feguard measu res, wh ile the Canad ian 1eg i s1a-

tian was l imi ted in scope pr ior to the enactmen t of the

Special Import Measures Act which has adopted similar mech,a-

nism following ba5ica11y what the u.s. Trade Act of 1974 haB

aimed at. But, the difference i5 found in the injury anà

causality deftnition and in the organization of investigation

organ.

In compar ing the American and Canad i àil approache s to the

vo1untary export restraint of Japanese automobiles, it was

" made c lear tha t legal exami na t ions such as the one under the

section 201 of the Trade Act should have been made in Canada

prior ta entering into voluntary restraint agreement with

J apan •

At the bilaterai level, the nature of the Auto Pact of

1965 became crucial in terms of i ts non-immuni ty from safe-

guard measures in the U. S. and Canada 1 s i nsistence to t.reat i t

on MFN basis. The h istor ical and general inclina tion of

Canada to prefer a MFN basis is recognized on the one hand,

but the exclusive application of the Auto Pact to the U .s.

manufacturers and its subsequent negative impact on other

foreign manufacturers are noticed on the other hand. The

incIU~!rn of the Japanese automobile manufacturera in the Auto ~ .

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Pact seerns rernote due ta the fact that the U.S. ia in no posi-

t ion ta encour age J apanese product ion and saure ing in Canada,

and a1so by the fact tha t the U. S. has taken wai ve r f rom the

GATT contracting countries for the exclusive application of

the Auto Pact framework to Canada. If Japan i6 to join the

Auto Pact of 1965, the U.S. has to apply for another waiver at

the GATT mee t i ng. InformaI governmental arrangements such as

the dut Y remmission program for VW might be set for the

Japanese automobile manufacturers that operate plants in the

U.S. and Canada. However, even informaI arragements may not

be at the U.S. advantages, thus likely to be deterred by the

~.S. government.

Although the U.S., Canada and Japan are advocates of a

voluntary form of import restr ictions as one of use fuI emer-

gency safeguard measures, they found themselves unable to

convince the rest of countries at the Geneva Meeting and the

fol10wing GATT meetings. The prolonged per iod of voluntary

export restriction will be risky not only to itself if it were

to become leg i timate emergency safeguard measures, but also to

the general guidanoe of the free trade. Recognizing that the

underlying issue is in the cost-sharing that cornes out of the

Inevitable re-organization of industrial structure in each

nation, the us~ of voluntary restraint agreements shoull! be

made as the last resort after import relief becomes unavail-

able under the Art. XIX of the GATT. If no prior investiga- ~

tion ta made as to the causatian of in jury ta domestic

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industry with imports, voluntary restraint agreement will

become the easiest way to opt out for a controlled trade to

protect domestic industries.

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ElfDNO'l'ES

Fred Lazor. The new Protectionlsm: NC-aarr leu and The i r Ef fects on Canada, at Page. XIV (The Canad ian Institute for Economie policy, 1981)

Tbe.- Jaïan' Economie Journal, Nov. 22, 1982. The Kennedy Round rom April 1964 to July 1967 and Tokyo Round from

\ Sept. 1973 to April 1979 served as a negotiation table ) for the GATT contracting parties to reduce tarriffs. The

average tariffs of industria1ized countriea have become as low aa 4% now.

l t shou1d be noted tha t the 1970s w i tnesaed les s a pro­gress in world trade main1y because of increased poli­tical intervention and price-setting with an eventua1 high leve1 of raw-material priee. So-called "Nixon shock" or "the Oil Crises" are the ones that triggered this movement.

3. As ear1y as in 1817, David Richard stated in his thesis of the Comparativé Production Costa that apecialization of each nation in industries whlch have lower 1evel of production costs and its participation in wor1d trade through the exchange of those goods thus produced will best serve the interests of aIl nations involved

However, this theory does not solve a var iety of problems subsequent1y arised:

(1) the discriminate incarne gains between prirnary and secondary industries;

(2) economic di stur bance of all-a t-sudden i nflow of goods which new1y gained comparative advantage,

(3) enlargemer. t of balance of paymenta between nations.

4. For instance, the French Government imposed 1) strict requirements on the use of French on import documents, 2) new rules on identifying countries of or igin for aIl goods coming into the country and 3) a ru1ing that imports of video tape recordera should be from ~ow on be c1eared through a single cuatoms office in the town of

5.

Poitiers. Globe and Mail, Nov. 20, 1982. Poitiers ie located inland away from enter ing ports. Japan entered into making wr i tten repreaentations to France under Art: XXIII of the GATT. Japan Economie Journal, Nov. 22, 1982.

John J. Ba r ce 101 III, Countervailing duties

"The Two-Traak Subsidies and Trade Retaliation·, in

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6.

91.

• Tar i ff Barr lers After the TOklo Round ed. by John Quinn' and PhIlIp slayton, at page 14 .

The meeting 1asted from Nov. 24 to 29., 1982 GATT i tself estimates that $22-bi1lion (U.S.) worth of world trade is now covered by restraint agreement, while only $2 billion falls under safeguards. Globe and Mail, Nov. 20, 1982.

7. Under the GATT, anti-dumping and counterveiling duties are legi timi zed in case of dumping and subsidy that cause or threaten mater ial i njury to an established industry (Art. VI).

The question lies in measures the contracting parties can take where no dumping nor subsidy is found. Under the present two pr inciples of GATT, one being the Most­Favored-nation (MFN) clause (Art. 1) and the other non­discriminatory treatment of the contracting parties (Art. XIII) ,the contracting parties have to prove the existence of serious in jury and then app1y protective measures on a non-discriminatory basls to aIl nations invo1ved. This requirement poses a ser ious burden on the side of impos­ing government in face of domestic pressure for an Immediate relief from importing goods and materials.

8. The Japan Economie Journal, Nov. 23, 1982.

9. Supra. Note 1. pp. 1-8.

10. From a speech made by Allan MacEachen at Geneva Confer­ence. Globe and Mail, Nov. 25, 1982.

11. Report of the Federal Task Force on the Canadian Motor Vehicle and Automobile Parts Industries, An Automotive Strategy for Canada (May, 1983).

12. u.s. Trade Agreements Act of 1979, Pub. L. No. 96-39.

13. International Herald Tribune, Dec. 19, 1985.

14. Ehrenhaft, P.D. and Ward, K.I. note" prepared for In terna t iona1 20, No. 1 (Jan.) 1981~

p. 186, "In troductory Legal Materials, Vol.

15. Ibid. Section 201 (b) (4) defines "substantial cause" to Mean "a cause which is important and not less than any other" • An" importan t" cause need not be the "major cause",' but it must be "significant1y" more than a "de

_minimis" cause. The legis1ative history of Section 201 indicates that where increased imports are just one cause of many causes of equal weight, i t would be uni i kely that they would consti tute an .. important" cause, but where

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imports are one of two factors of equa1 weight, they wou1d constitute an "important" cause.

The "not 1ess th an any other" criteria is met if imports are a more important cause of in jury than any

other cause. This is satisfied if importa are one of severa1 equa1 causes of in jury and no one cause ia more important than imports. But the test is not satisfied if there is a cause of injury more important than importa. See Rodney "de C.Gray, United States Trade Polie Le 1a1a­tion: A Canadian View T e Inst tute for Research on PublIc policy, 1982} at pp. 20-21.

Supra. Note 14 at Unlike other

section 201 does trade practice, impor ts, alone, "important" and mentioned above.

Page 187. types of trade actions, relief under not depend upon unfair or prohibited

such as "dumping". The increase in forms the basis for r:elief if it is "not 1ess than any other causes" as

17_ Supra. note 15 Gray at page 21. Extensive provisions for adjustment assistance to

workers, firms and communities and for procedures inc1ud­ing public hearings, these two characteristics alone, distinguish the U.S. escape clause system in the Trade Act from the legal framework for safeguard action in other jurisdictions.

18. See Chapter II, C for further discussions.

19. Supra. note 14 at pp. 188-189.

20. George Schwartz, "Auto Import Quotas: A Case Study in Protectionism", Business and Society Review (Fa11, 1981) at pag~ 65.

21. Ibid.

22. Luttre1l, C.B. "The voluntary Automobile Import Agreement wi th Japan - more protectionism, "Fed. Reserve Bank of St. Louis, vol. 63, No. 9, Nov. 81., at page 26. see table below.

1 ttl

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Imported Cars as a Percent of Total U.S. Passenger Car Retail Sales (Thousands)

Total Percent Perdent

Sales imported impQrted from Japan*

1980 8,979 26.7' 22.2% 1979 10,671 "21.9 15.2 1978 Il,312 17.7 13.8 1977 Il.185 18.6 12.0 1976 10,110 14.8 11. 2 1975 8,640 18.4 8.1 1974 8,867 15.9 8.9 1973 Il,439 15.4 5.5 1972 10.950 14.8 6.4 1971

" 10,250 15.3 6.9

1970 8,405 15.4 4.5 1969 9,583 Il.7 3.7 1968 9,656 10.7 1.8 1967 8,337 7.2 0.8

* Data are imports of assemb1ed cars and are not precise1y consistent with sales data inc1uded in first co1umn.

Source: MVMA Motor Vehic1e Facts and figures, 1981, pp. 13 and 71.

23. This view is c1ear1y stated in Amaya, N. "Rejecting Soapopera Nationa1ism" Bungeishunju Ju1y, 1981. (The article is trans1ated into English in Economie Eye, Sept. 1982) .

24. Supra. note 20, at pp. 68-69 However, administration offIcIaIs, emphasized that it wou1d be very difficu1t for President Regan to veto such 1egis1ation. Schwartz show­ed that the strategy of lobbying to the Congress for the coalition of companies supp1ying mater ia1s used in U. S. automobiles (AMICUS) was deve10ped by the Washington 1e9a1 firm of Collier, Shannon, Ri11 and Scott, and he conc1uded that_jt succeeded .

25. Ibid. at page 321.

26. Supra. note 23, at page 319.

27. Supra. note 23, at pp. 319-321 •

28. Supra. note 20, at page 69.

o

o

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94.

29. Foreign Exchange and Foreign Trade Control Law, Law NO. 228 of 1949, as amended (1968). t

30. Matsushita, Mitsuo, "Export Control and Export Cartels in Japan". Harv. intll L.J. vol. 20, No.' 1, W 179. at page 104.

31. Ibid. at page 105. Matsushita discusses conflicting jurlsdictions between competition law and law restricting transactions. '

He presents two cases conce r ned wi th the legal i ty of export restr ictions issued under trhe Control Law and the Export Trade Control Order. For both cases, the cour ts upheld against MITI. He concludes that wi th the relaxa­sation of foreign exchange con troIs in Ja,pan in recent years, such controls have play,ed a decreasing role in

, 1 regulating exports. '

32. Supra., Note 15 Gray at pp. 30,:-31. From the Attorney

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

General (W.F. Smith) to USTR (W.E. Brock), the letter of February 1981 mentions, U.S. 'negotiators should emphasize the need for the foreign .gov"ernment to provide protection to i ts companies from act ions under U. S. ant i trus t laws by ordering, directing, or compelling any agreement rest­ricting exports to the U.S. in terms as specifie as possible.

Supra. Note 23.

Fair Practices In Automotive Products Act with dissenting views (printed in Sep. 1982) at page 3.

Ibid.

Martin Anderson, "Local Content Regulation in the U.S. Auto Industry: Risks and Realities", MIT.

Ibid.

Automotive News, Aug. 16, 1982 at pp. 2 and 49. content law would not he1p U. S. Auto Industry, says."

Ibid.

SUEra. note 34, at page 46.

SUEra. note 34, at page 32.

Ibid.

\

" local study

,

t ,. '0., ,

c

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95.

43. Supra. note 34, at page 33 . ..

- 44. Automotive News, Sep. 20, 1982, "UAW local-content bill takes 6Ig step forward."

45. Automotive News, Nov. 14, 1983, "Hurdles for imports in content 6Ill w•

46. Ibid. at page 8.

47. Ibld.

48. Automotive News, Nov. 7, 1983 at page 50 meaaure la passed by Bouse."

49. Ibid.

"local-content

50. Automotive News, Sep. 26, 1983 "Bill would put tough restrIctIons on major Japanese import lines".

51. Automotive News, Oct. 31, 1983 at page 2. year Japanese curb".

52. Ibid.

"UAW urges 2-

53. Automotive News, Jan. 23, 1984, "New Japanese quotas are llsted: Increases vary by maker."

54. Wall Street Journal, Feb. 20, 1985 "Japan's Auto Export t

Llmlt should end, Cabinet Group Formally Recommends".

55.

56.

57.

Ibid.

Wall Street Journal, Feb. 21, 1985 "Japan could 750,00 more cars ln U.S., Brock says".

Economie Journal, March 2, 1985.

58. Economie Journal, March 29, 1985.

59. d.

60. Supra. Note 58.

61. Supra. Note 58.

sell

62. International Hera1d Tribune,' Dec. 19, Glngerly Graapa the Auto-Export Nettle".

1985 "Japan

63. Ibid.

f

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96 .. t

64. Supra. Note 62.

65. Automotive News, April 30, 1984 "Honda to begin engine productIon ln U.S. in 1987."

66. Japan Economic Journal, Sep. 21, 1985.

67. Automoti ve News, May 21, 1984 "N i ssan detai ls plans for Smyrna".

68. International Herald Tribune, July 24, 1985 "Toyota to set up auto plant ln U.S.; production scheduled ta start in '88".

69. Ibid.

70. Supra. Note 68.

71. Financi~l Times, July 24, 1985 "Toyota to build cars in North America. ft

72. Japan·Economic Journal, March 15, 1984.

73. International Klrald Tribune,.April t6, 1985. "Mitsubishi plans u.s. Car plant w1th Chrysler".

74. Maryann N. Keller, Economist, Dec. 16, 1985 at pp. 16-23.

75. A 1ega1 relief did not real1y exist.

76. Private bills are never adopted. Unlike the U.S., in Canada the government introduces ~egislation.

77. Carl Beigle, "The Canada-U.S. Auto Pact" at page 1. .

78. Simon Reisman, The Canadian Industr, (Oct.

79.

80.

81.

1978) at pp. 1-2. It was ue to t e ow vo ume of pro­duction for each model since Canada produced exactly the same models of cars as in the U.S.

Ibid., p. 15. The British autqmobile industry was per­mltted to export to Canadian market duty-free as a result of the concession granted by the Canadian Government in its agreement of 1932.

Supra. note 78 at page 17.

Ibid. 1

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82. Canada had two other options, Inward looking -restr ic-

83.

,84.

85.

tive option and Unilateral tariff reductions -competitive option. The former choice inc1uded (1) Australian methods by which import position be improved and domestic employment increases, but higher cost~, lower waged and reduced profits are the negative impacts: and (2) Swedish methods which will promote a single Canadian producer but e1iminates constmler' s choice. The latter choice would open up markets to greater foreign competi­tion, and in so doing be able to pursue economic mer i ts of efficiency such as 10wer costa and priees of vehic1es • But" it WaS afraid that it would lower the level of domestic production, reduce protection in jobs and aggra­vates balance of payment problem.

Annex B (3)-(a), it was 60\ until January l, 1968.

Dept.'\ of Industry, Trade and Commerce, "Canada-U.S. Automotive Agreement". Sept. 1982. at page 2.

Department of Industry, Trade and Commerce, "Canada-U.S. Automotive Agreement," Trade balance in automotive pro­ducts were (in billions of C$): 1965, -.6J 1971, +.2J 1974, -1.9; 1976, -1; 1977, -l.lJ 1981, -1.7. See also, ITC, "Bilateral Trade in Automobile Products," in Canada's Trade Relations witb the U.S. Volume II, p. 95. It ls reported that automotlve trade figures for the first quarter of 1983 show a surplus of C$525 million and for the first half a surplus of C$1.l billion owing to the popu1ar i ty in the U. S. of car types manufactured in Canada.

86. GATT, Basic Instruments of Se1ected Documents, l4TH Supplement 181-190, Geneva Ju1y 1966.

87.

88.

89.

90.

Chayes" Ehrlich and Lowenfe1d, International Legal Procegs p. 335-343, 371-376,

Supra. Note 86.

Prank Langdon, "Japan versus the European Community: The Automobile Crisis," Journal of European Integration, 5:1 (Fall 1981), p. 90.

Hyman Solomon, "u.S.-Japan Auto dea1 may overlook Canada, "Pinancia1 Times, (March 14, 1981).

91. Department of Industry, Trade and Commerce, News Re1ease, (June 4, 1981).

,., ...--;--:.,' "' ... ,;"')" :'",,..1. ,., .. ~,. __ -"~ ~\"

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98.

92. Frank Langdon, "Japan versus the European Communityz The Automobile Crisis." Supra., note 89.

93. This represents a rollback of 6\ from the level of ship­ments (185,022 uni ts) of the 12 months Apr il 1980 to March 1981.

-94. Lawson Hunter, the Director of Investigation and Research for the Combines Investigation Branch of the consumer and Corporate Attairs Dept. stated in the annual report for 1983-84:

The "Volunta1Y restraint" negotiated with the Japanese Gov~hnment in 1981 resulted in higher priees for both domestic and imported cars. The quotas a1so have 1ed to long waiting 1ists and have 'created a sbortage of economy cars as Japanese manufacturers focused on more profi­table exports of luxury and heavily-optioned vehicles.

He recommended that the Prospessive Conservative adminis­tration consider dropping the quotas. Ottawa Letter, Jan. 28, 1985. ,

95. ITC reasoned that the action of holding up cars on the Vancouve.r dock was necessary because the Japanese mar ket share rose from 28.2% in 1981 from 8.7% in 1979. Canada news Facts, (March 26, 1982).

96. Automotive News, Aug. 16, 1982 "Canada Customs slowdown works, Japan OKa car 1imits".

97. Department of External Affaira, Communique. (August Il, 1982). The first year agreement ran from April l, 1981 to March 31, 1982. The second year agreement shifted from this fiscal year to the calendar year, allowing 63,000 units to be imported in the period July l, 1982 to December 31, 1982. 90,000 units were imported from January 1, 1982 to June 30, 1982. Thus, the total was 153,000 uni ts in the calendar year. On a half year basis, it meant a drastic reduction of 30% in auto imports (from 90,000 to 63,000).

98. Report of the federal Task force on tbe Canadian Motor Vebicle and Automobile parts industries, An Automotive Stra tegy for Canada. (May 1983). p. 109.

99. Ibid.

100. Supra. Note 98.

101. Interview with Andrei Su1zenko (Ottawa: June 17, 1983).

---

F (,

--

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. ,"

/

99.

\

102. Interview (by phone) with Y. Yamada (Jun~ 17,1983).

103. Figures provided by Sam Gindin (Toronto: June 10, 1983).

(UAWA) in an -i-nt"erview ~ •

,

104. Figures provided by Dennis Desrosiers (APMAC) in an inter­view (Toronto: June 8, 1983).

105. Supra. notes 103, 104

106. Supra. note 102. \ \ .

107. Bonda Mazda, Nissan, Subaru, Suzuki and Toyota Canada, "Br ief t()l:;.1:- the Motor Vehic1e and Parts Industry Task force," (March 1983). The six factors in the dec1ine of­eeonomie activity in the Canadian auto industry (1979-1982) are: i. a--~ation of unfavorab1e events in the North American economYI ii. the I~nadian househo1d' s_ affordabi1ity problem iF\ purchasin~t nè~_Jarge earSJ iii. higher manufacturing cos~ NOrth--'Amerlca relative to Japan have reduc~arge deman~~{ IVe Caneda-u.S. energy po1icies have s~imu1ated sma-11 car sales' thus boosting Japanese market shareJ and the perceive,d higher qua1ity of Japanese cars.

108. Report prepared for CAJAD by Singer Associates (At,1gust . 1982) • --

G~9. 110.

Ibid.

Supra. Note 108 p. 28 1

.. . .. --..~ ... ~.",h.. .. ,~.-:r ... ,

11l.

112.

113.

114. -

115.

116.

117.

Interview with Yuzo Batano (Toronto: May 20, 1983).

Interview with Jun Sasaki (Toronto: May 19, 1983).

Supra. note 98.

Globe and Mail, April 25, 1983,

Globe and Mail, May 26, 1983.

Ibid.

Rosa perry, The Future of Canada' sAuto Industry: The Big· Thre. ,and the Japnese Challenge. (Canadlan Instltute for Economle pollcy, 1982).

118. Intervfew (by phone) 'with Wendy Oobson.

. -, ~ .

" -

o

o

o·

100 • .

119. Automotive News, June 18, 1984 "Canada and ~apan Agree on new quota".

120. Ottawa_Letter, April 8, 1985 "Japanese Car quotas end, but no major influx foreseen."

121. Ibid. ~ 122.- Flnancla1 Times, Ju1y 24, 1985. Toyota has a1ready com-

p1eted wheel manufacturing plant in Delta, B.C. in April 1985. Toyota invested Can$20 million and ~xpect8 tn produce 20,000 whee1s a year, using about tOo tons of Canadian aluminum, Globe and Mail, April 2, 1985.

123. Japan Economie Journal, Dec. 12, 1985.

124. , '*

There are ta1ks between the two simi1ar resu1ts against Jâpan. notion of the ft integrated" North must be joint1y protected:

nations to br In9 about This cornes from the

American industry which

"U.S. trade representatlve William Brock said the U. S. and Canada expected Japan to continue to restrain auto exports to North America to give the auto industry a break.

Brock, who me_t wi th Trade Minister Ed Lum1ey in Ottawa, said Canada and the U.S. had a community of interest, describing thè auto industries in each country as 1itera11y one market and the two men had discussed what steps shou1d be taken on Jàpnese imports." Canadian news Facts, Jan. 25, 1982.

125. Supra. note 98 at page 183.

126. Supra. note 98 at page 182.

127. Supra. note 89 at page. ~1.

î28. International Hera1d Tr ibune Apr i 1 25 '.1 1985, "Japan to retaIn Restra~nts on a~ïo exports to Britain."

129. l

Supra. note 89 at page go.

130. Supra. note 89 at pp. 83-89.

131. Supra. note, 89 at page 94.

132. Supra. note 89 at page 96.

133. Ibid.

134. Ibid.

J

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135.

136.

137 .•

138.

- 139.

140.

141-

142:

143.

144.

145.

146.

.~K~ -; " - -~~,,"---.--,...-

J 101 .

Ibid.

SUEra. note 98 at page 187.

SOEf a • note 98 at page 186. "

Globe and Mail, Nov. 20, 1982. /

JaEan Economiè Journal, Dec. 25, 1985.

Globe and Maii, NOV. 25, 1982. $i

G1ôbe and Mail, Nov. 20, 1982.

.SuEra. note 5 at-page 124.

SUEra. note 5 page 127.

SUEra. note i

5 page 123-4.

SUEra. note 5 page 123-4.

Globe and Mail, Nov. 25, 1982.

147.' Le Monde. sé1éction Hebdomadaire. No. 1778. 1982. Li opération camouflage a abouti. Les quatre-vingt-hui t participants â la session minist~rie1le du GATT, en parvenant finalement, dans la nuit du dimanche 28 au lundi 29 Novembre, à arrêter une déclaration commune, ont

\ rAussi a masquer leur di vérgences, voire à donner l' impres~ion d'un accord. fIs sauvent ainsi la face aux Amêricains, qui furent les promotions de la r~union."

148.

149.

150.

151-

152.

\ 153.

~an Economic Journal, June 25, 1985.

Ibid.

SUEra. note 15 Gray at page 19.

Supra. note 15 Gray pp. 21'-25. -

International Legal Materials, p. 193. Vol. 20, No. 20, 1 (Jan.) , 1981.

Journal, November 23, 1982, from the ~~--~~~~~~.~K~a~n-em~itsu •

154. Japan Economie Journal, Dec. 25, 1985.

155. rt Polie : an Import

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102.

156. Globe and Mail, Nov. 26, 1982. Trudeau admited "sorne protectlonlst barr lers erected by Canada ln the case of sorne very soft industries like textiles, llke the leather Industry, 1ike c10thlng". ' He sald, adding that the U.S. has erected "much more massive" bar r 1er s than Canada to protect its textile industry. He a1so said that Canada is trying to "phase out" its protectionist pollcies, but "we can't overnight withdraw all proteciton to these particu1ar industries and still inidcate our concern for the Canadian economy." Globe and Mail. November 26, 1982.

1'57 .

158.

159.

160.

161-

162.

163.

164.

165.

166.

167.

168.

169.

Supra. Note 15 ~ray, pp. 101-114.

Supra. Note 15 Gray, pp. 95

Special Irnport Measures Act (S.C. 1983-84, C. 25)

Supra. Note 155 at page 17.

Special Irnport Measures Act, Art. 7.1 (1) and (2).

Supra. Note 15, Gray, at page 25. (,.),.,

Trade and Tariff Act of 1984 (Pub. t. 98-573)

Mitsuo, Matsushita "U.S. Trade and Customs Act of 1984 (Omnibus Act)", Kokusaishoji-homu (Journal of Int' 1. Bus. Law) Vol. 13, No. 2 (1985) pp. 128-131.

Ibid.

Ibid.

Supra. Note 15, Gray page 30.

Ibid.

Automoti ve Products 283, 79 Stat. 1016 1965-1967)

Trade Act of 1965, Pub. L. No. 89-(1965) 19 use S2001-2033 (Supp. II,

170. International 1ega1 Materia1s. at page 191.

171. Ibid.

172. Article III of Auto Act stipulates1 "The commitments made by the two Governments in this Agreement shal1 not preclude action by either Govern­ment consistent with its obligations under Part II of the GATT."

, . ,

c

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-

o

; ;

103.

173. Supra. Note 170 at page 191.

174. AutQmotive News. Sep. 13, 1982. Under the original bill, local content was applied to North American market, but the bill as amended treat­ed Canada as any other country.

-175.

176.

177.

178.

179.

Globe and Mail, June 6, 1985.

Globe and Mail, Feb. 23, 1985.

Ibid.

Canada's automotive trade surplus with the U.S.: Can$3 billion in 1982 and 1983 respectively, Can$6 billion in 1984 and an estimated Can$5 billion in 1985.

The Automotive Components Remission Program Explanatory Notes, AutomotIve Parts DivisIon, TransportatIon Indus­tries Branch, Dept. of Industry Trade and Commerce, Revised April 1981. ,

180. Globe and Mail, April 9, 1985.

181. Globe and Mail, June 6, 1985. "

182. Hyundai announced the building of a major auto plant in the Montreal area, Que. in Aug. 1985 to begin operat ion in 1988. Financial Times Aug. 29, 1985.

, . ~ ........ ~ ~ A.., -: ~ ,,,,'J.!.. ~.... :: ....

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'ifl~"x!e.9",,,,,,!i(J-~--_------'----"",j,,,, ----,:--------..-- ----.. -- .. -~.:! - ~ 'of' " ,

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',,, 1--- .~ ... ~ ,~l~:~ii

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. , ,,: .. ,.~ '" .,\ .... .' ....... • LE. .......... ..

,< t~~

., " i

r ''''_CT r'- ;;;..l'''''''-'''~Yu''' .. 1· ... 'l'~'i'!1Il".;"""'.··-1<,'7J\·""""V ,1-~' .. "i"" .- i ~I,.} 't? '~'. t' ~..." ...

",' l,'

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107. -

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, ' ,

~ , , '.

, ,

;

"

t.

b.; " ,

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Ir· ~'

(

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"Should the U.S. limit imports of foreign cars", American Legal Magazine. l09:10·N'80.

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