The Advent of an International Trade Agreement

Abstract

ALTHOUGH IT BECAME APPARENT in the autumn of 1964 that Canadian and American negotiators had averted a potentially damaging trade war with the creation of the Automotive Products Trade Agreement (auto pact), the agreement faced a number of major obstacles before it could be fully realized. Prominent among them was the reception the agreement would face at the General Agreement on Tariffs and Trade (GATT). In seeking a continental solution to the difficulties of the Canadian auto industry, the auto pact was clearly in violation of the multilateral General Agreement, and Canada and the United States were sorely trying the patience of the other contracting parties in pressing for an exemption to the most-favoured-nation (MFN) rule. An exemption was no sure thing, and in the months between the creation of the auto pact and its eventual passage by GATT in December 1965, the trials and tribulations of the agreement at the international trade body tell us much about the nature of the agreement and the state of trade in Canada, the United States, and the international community at this sensitive moment in trade history.The passage of the automotive agreement at GATT illustrates three important themes. First, it underscores the long-standing tensions between bilateralism and multilateralism that faced Canadian policymakers. Under the auto pact, Canada would reap the benefits of the close bilateral relationship with the United States, but in so doing its standing with other members of the multilateral GATT might be threatened. The Canadians diffused this tension by cannily avoiding the need for a waiver at the GATT by claiming that they could institute the agreement on an MFN basis. Because of the nature of the agreement, the United States, on the other hand, would have to request a waiver. In the long run, this strategy would have implications for the fate of the agreement. Second, the issue illustrates the willingness of the United States to go to great lengths to solve the Canadian auto problem, even at the risk of exposing itself to further difficulties at GATT. The United States waiver request complicated matters greatly for the American delegates; they pursued it nevertheless because the auto agreement did not seem overly onerous to the American multinationals that would be most affected by it and because the plan fit nicely into the larger long-term United States goals for both Canada and general trade policy.(1) Finally, the passage of the agreement at GATT laid bare many of the core tensions within that organization, namely, the constant strain between regionalism and multilateralism and the ongoing battle between protectionism and freer trade. The auto pact gave adversaries of both trading blocs and preferential treatment an opportunity to flex their muscles on these sensitive issues. While these pressures almost scuttled the United States waiver request, in the end it was granted because the United States employed its considerable influence at GATT and because the competing interests found the waiver useful for their own purposes.Building on Michael Hart's impressive work, this article complements more general histories of Canada's activities at the GATT by providing a case study that illustrates an aspect of the Canadian trade reality in the period.(2) Although a number of economics, political science, and historical works have addressed the auto pact, few of them explore the historic role of the agreement in the international trade forum.(3) Those works that have considered the auto pact's passage at GATT have downplayed the difficulties the agreement faced.(4) Most of the studies have instead examined the economic impact of the agreement and whether North American rationalization boosted productivity or have focused on the impact of the agreement on Canada-United States trade and political relations.(5) In light of the February 2000 World Trade Organization (WTO) ruling, which nullified the remaining aspects of the auto agreement,(6) it is important to consider more carefully the context of Canada's international trade commitments, both past and present. …