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MANAGING THE CHALLENGES OF WTO PARTICIPATION: CASE STUDY 9

Canada and the WTO: Multilevel Governance, Public Policy-Making and the WTO Auto Pact Case

Jacqueline D. Krikorian*

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 Disclaimer:
Opinions expressed in the case studies and any errors or omissions therein are the responsibility of their authors and not of the editors of this volume or of the institutions with which they are affiliated. The authors of the case studies wish to disassociate the institutions with which they are associated from opinions expressed in the case studies and from any errors or omission therein.

Case Studies main page
Introduction

   

ON THIS PAGE: 
I. The Auto Pact Case
II. The policy-making process in Canada in response to the WTO challenge
> III. Some tentative observations


In 1994 the Canadian Parliament adopted legislation to implement the Uruguay Round with virtually no opposition. The measure was easily passed by the House of Commons with a vote of 185-7.(1) There was general acceptance that the World Trade Organization (WTO) was a necessity for Canada both to participate and to compete in the new international order. Not only did legislators believe that the WTO Agreement would enhance and facilitate Canadian exports, but there also was an expectation among parliamentarians that the new rules-based dispute settlement mechanism would act as a counter-force to US unilateralism in the international arena. Roy MacLaren, the Minister for International Trade, explained that the arrangements would particularly benefit ‘small and medium-size trade players like Canada, which are inherently vulnerable to the threat of unilateralism by the economic giants’.(2)

The debates in the House of Commons on the Uruguay Round focused, however, on more than just the merits and advantages of the trade regime. Concerns were expressed about its impact on a number of key Canadian industries. One such debate pertained to auto manufacturing. Thousands of Canadians in central Canada depended on this sector for employment, and questions were raised about the WTO Agreement’s effect on the industry.

The Minister of Trade assured parliamentarians, however, that the new trade regime would not have any negative impact on Canadian automobile sales and production:

Nothing in the Uruguay Round adversely affects, or indeed affects, the Canadian automobile industry, other than the reduction in tariffs on manufactured goods. It provides greater opportunity for the export of Canadian-made vehicles to third countries beyond the United States. There’s certainly nothing adverse in the agreement for the Canadian automobile industry.(3)

In fact, MacLaren advised members of the House of Commons Standing Committee on Foreign Affairs that he actually expected the Japanese to expand their Canadian auto production in the immediate future as both the North American Free Trade Agreement and the Uruguay Round arrangements enhanced ‘the opportunity for investment by other automobile companies from overseas’.(4)

Contrary to MacLaren’s assurances, however, both Japan and the European Communities filed complaints against Canada(5) targeting the country’s auto industry only three years after the adoption of the new trade agreement. Officials from Tokyo and Brussels contended that a bilateral treaty signed by Canada and the United States in 1965 — the Agreement Concerning Automotive Products(6) (Auto Pact) — was both in substance and in implementation inconsistent with the WTO Agreement.

The Auto Pact effectively constituted a sectoral free trade agreement for cars and car parts. As Buddy Drury, Minister of Industry, explained to the House of Commons in 1966, Canada entered into the arrangement with the United States to overcome the problems associated with developing a strong auto-manufacturing base in a small domestic market. Limited production volumes and duties on imported parts effectively prohibited Canadian auto manufacturers from competing in the sector. ‘No matter how carefully the Canadian vehicle and parts producers managed their businesses, no matter how diligently they took advantage of the latest technologies, they faced higher costs’ than their non-Canadian competitors who operated in larger markets.(7) The Auto Pact remedied this problem by effectively mandating US car companies to increase their production in Canada in order to sell their vehicles duty-free in its domestic market.

From the Canadian perspective, the Auto Pact had proved to be an enormous success over the years. Auto- and auto parts manufacturing in Canada developed and thrived under the policy and the Auto Pact ‘evolved into a powerful symbol of prosperity and patriotic pride’.(8) In 1984 alone, for example, Canada produced approximately 1.5 million automobiles that accounted ‘for almost a third of the country’s $719 million trade surplus’.(9) For a nation of only 25 million, this was no small feat.

Consequently the WTO challenge resulted in significant media attention across the country. Canadians were angry about the matter, as not only had the government in Ottawa assured the public that the country’s automobile industry was compatible with the WTO Agreement, but the Auto Pact held a kind of sacred status among Canadians since it had guaranteed employment for thousands of workers over the years. The challenge was viewed as an attack upon the country’s policy-making autonomy, and many believed that there would be dire economic consequences if the arrangements were abandoned. Such concerns were further fuelled by North American auto manufacturers who would be adversely affected by any changes to the Auto Pact. Ford Canada President, Bobbie Gaunt, for example, explained that ‘scrapping the auto pact would result, within five years, in the loss of 116,000 jobs and a reduction in real GDP of some $10 billion’.(10) Similarly, former trade negotiator Gordon Ritchie, retained by the ‘Big Three’ North American auto manufacturers (General Motors (GM), DaimlerChrysler and Ford) as a consultant,(11) contended that any alteration to the status quo ‘would unquestionably permit the Japanese and the European producers to capture a bigger share of the market over time with production from overseas’.(12)

The United States was not subject to the WTO challenge because it had obtained a waiver on the major issue of the dispute under the General Agreement on Tariffs and Trade (GATT). This waiver enabled it to participate in the Auto Pact without adhering to the trade agreement’s most-favoured-nation (MFN) clause. This provision requires contracting parties to treat like products from other member states similarly despite their country of origin. Canada never sought a waiver because it originally implemented the Auto Pact in such a way that allowed any car manufacturer to participate in the programme, thereby avoiding a conflict with MFN requirements. It was only in 1989 with the passage of the Canada-US Free Trade Agreement that Canada became susceptible to a challenge, as it terminated the right of any new auto manufacturers to participate in the programme. The key issue in this dispute, therefore, pertained to the manner in which Canada had implemented the Auto Pact since the 1980s.

The WTO challenge posed a significant problem for the government of Canada in two respects. On the one hand, the Auto Pact had become a national symbol for Canadians. The WTO complaint created a public relations problem for officials in Ottawa, who had emphasized the value of the WTO for the country without expressly acknowledging any of its potential implications. Second, the government was subject to intense pressure by domestic stakeholders who benefited from the agreement. The way in which the Auto Pact was put into effect provided a competitive edge to some of the country’s most important employers. The Big Three had a real economic stake in the maintenance of the status quo because it provided them with a significant advantage over their Japanese and European competitors. The Canadian Auto Workers union (CAW) actively supported the North American auto manufacturers who employed its workers.

 
 

I. The Auto Pact Case    back to top

In 1965 the Auto Pact and the measures Canada adopted to implement it — the Motor Vehicles Tariff Order (MVTO) and the Special Remission Orders (SROs) — allowed a company that made automobiles in Canada to import cars and car parts duty-free if two main conditions were met. First, it had to maintain a minimum production-to-sales ratio based on its 1964 model year. Effectively, this meant that for every car sold in Canada, one car had to be made in Canada. Second, a car manufacturer had to achieve a minimum level of Canadian value added (CVA) in its local production that was at least equivalent to that which existed in its 1968 model year. In addition to the CVA requirements set out in the Canadian implementation measures, those car makers participating in the Auto Pact in 1965 — Ford, General Motors, DaimlerChrysler (then Chrysler) and American Motors — provided officials in Ottawa with letters that not only explained how they intended to implement the Auto Pact, but also additional CVA undertakings.

Under the terms of the Auto Pact, only cars and car parts imported from the United States that met the production-to-sales ratio and CVA requirements were entitled to the duty-free programme. In its implementation of the treaty however, Canada extended the same duty-free treatment to all GATT members. Consequently, auto manufacturers from other countries, such as Volvo from Sweden, were entitled to the same duty-free terms on meeting the CVA and production-to-sales ratio requirements. Moreover, the way in which Canada implemented the agreement also made it possible for auto manufacturers such as Ford to bring, for example, Brazilian-made engines into Canada free of duty — giving the Brazilians and others a stake in the operation of the system as well.

The extended eligibility for non-US auto manufacturers for the duty-free treatment ended, however, in 1989 with the Canada-US Free Trade Agreement. At the insistence of the US trade negotiators, this treaty closed the right of other companies to participate in the Auto Pact.(13) No longer would car manufacturers from other countries be entitled to duty-free imports even if they met the CVA and production-to-sales ratio requirements. This was particularly problematic for a number of Japanese companies that had been in the process of ramping up their Canadian production to meet Auto Pact conditions. In other words, and rather ironically, the Canadian policy designed to encourage foreign investment was amended in such a way as to remove any incentive for non-Auto Pact members either to implement or to expand auto production in Canada, and, in the process, effectively entrench the competitive edge of existing Auto Pact participants over their foreign rivals.

In 1996, despite opposition from Ford, GM, DaimlerChrysler and the CAW, the federal government formally amended the Auto Pact benefits. It removed the approximately 9% duty on the importation of all auto parts. Any car manufacturer, whether or not it met the terms of the Auto Pact, could bring auto parts into Canada duty-free after 1996. Although this was always the practice because of duty remission and drawback programmes, the government effectively entrenched the duty-free parts programme into law and ensured that auto manufacturers were treated equally in this respect.(14) The federal government maintained, however, the 6.7% import duty, later dropped to 6.1%, on new cars. In other words, Auto Pact members who continued to meet the CVA and production-to-sales ratio requirements retained the right to import new cars without paying duties, unlike their non-Auto Pact competitors. And it was this issue that underpinned the WTO challenge.

The catalyst for the dispute, however, came in June 1998, with the release of the federal government’s report on the auto industry.(15) Contrary to expectations among a number of foreign auto manufacturers such as Toyota, the report did not repeal the 6.1% duty on new cars. Consequently, within two months, officials from Japan and the European Communities brought a challenge against Canada at the WTO.

At the heart of the European and Japanese WTO complaints, therefore, was the belief that there needed to be a ‘level playing field’ in the Canadian market.(16) Tsuneyoshi Tatsuoka, counsellor for economic affairs at the Japanese embassy in Ottawa, explained that ‘some Japanese companies are being discriminated against’ and ‘we find the outcome [of the report] very disappointing’.(17) The patchwork set of duties on new car imports appeared to be without purpose or meaning:

General Motors can bring in Saabs from Sweden duty-free, Ford Canada can do the same with Jaguars from Britain and DaimlerChrysler with Mercedes-Benz vehicles from Germany. Cami, a joint venture between Suzuki and GM, and Volvo Canada, now owned by Ford, also have duty-free import privileges. Yet other foreign-owned auto manufacturers with Canadian subsidiaries must pay the 6.1% duty on vehicles they import from overseas because they aren’t in the club. These include Toyota, Honda, Nissan, Mazda, BMW, Volkswagen and Hyundai.(18)

David Worts, executive director of the Japanese Automobile Manufacturers Association of Canada, explained, ‘Differential treatment under the current two-tiered auto policy clearly favours one group of automakers over another.’(19) And Toyota Canada president Yoshio Nakatani was even more blunt, noting that ‘it is not only unfair’ but also ‘discriminatory’.(20)

The specific complaints brought by the European Communities and Japan before the Panel and the Appellate Body were complex, as they alleged that the Canadian measures were inconsistent with a number of provisions in several WTO agreements including the GATT 1994, the Agreement on Subsidies and Countervailing Measures (SCM), the Agreement on Trade-Related Investment Measures (TRIMS),(21) and the General Agreement on Trade in Services (GATS).(22)

The most significant issue raised by the challenge pertained to the MFN clause. The tribunal members at both the Panel and the Appellate Body recognized that although on the face of it the Canadian measures were not discriminating against products based on their country of origin, that was their effect:(23)

The measure maintained by Canada accords the import duty exemption to certain motor vehicles entering Canada from certain countries. These privileged motor vehicles are imported by a limited number of designated manufacturers who are required to meet certain performance conditions [in Canada]…. The advantage of the import duty exemption is accorded to some motor vehicles originating in certain countries without being accorded to like motor vehicles from all other members.(24)

Consequently, it was held that Canada’s measures were inconsistent with the MFN provisions set out in Article I:1 of the GATT 1994.

The Panel also found that the CVA requirements were inconsistent with the national treatment clause in GATT 1994. The national treatment principle requires that imported goods be given the same treatment as like domestic goods in respect of all laws and requirements affecting their sale, purchase, transportation, distribution or use. The Panel held that the CVA requirements in the MVTOs and SROs ‘confer an advantage upon the use of domestic products but not upon the use of imported products’ because ‘they adversely affect the equality of competitive opportunities of imported products in relation to like domestic products’.(25) Canada did not challenge this finding before the Appellate Body.

Japan and the European Communities also contended that the Canadian measures implementing the Auto Pact were inconsistent with provisions of the subsidies agreement. This agreement does not prohibit subsidies per se, but does prohibit subsidies contingent on export performance. The analysis of the subsidies complaint was extensive, but at the same time only one specific finding was made against Canada. The Appellate Body, confirming the Panel’s decision, held that the production-to-sales ratio was not only a subsidy, but also was contingent on export performance contrary to Article 3.1(a) of the SCM Agreement. It recognized that the effect of production-to-sales ratio requirements, which in some cases was 100:100, necessitated a manufacturer to export motor vehicles.(26)

The last set of challenges brought by officials from Japan and the European Communities pertained to the services agreement. The Panel held that the Canadian measures implementing the duty import exemption were inconsistent with both the MFN and the national treatment provisions(27) of the GATS. Canada appealed against the finding pertaining to the MFN clause, but did not appeal against the conclusions reached regarding national treatment. Although it would not have affected the outcome of the dispute, this perhaps was a mistake, as the Appellate Body reversed the Panel’s MFN findings and was sharply critical of the Panel’s interpretative approach to the GATS. This appeal tribunal noted that the Panel not only failed to substantiate its analysis and findings pertaining to the MFN clause, but also did not even properly determine whether the measure at issue was within the scope of the services agreement.(28)

In the light of these findings, both the Panel and the Appellate Body held that the Canadian measures pertaining to the import duty exemption were inconsistent with a number of provisions in the WTO Agreement, and therefore requested Canada to bring its measures into conformity. An arbitrator awarded Canada eight months in which to make the necessary changes.(29)

 
 

II. The policy-making process in Canada in response to the WTO challenge    back to top

Canada defended the Auto Pact despite a recognition there was little chance of success. The government always knew that it had a problem with the Auto Pact and the MFN provisions of the GATT and later the WTO Agreement. As Michael Hart, a former Canadian trade negotiator, explained, there was little doubt that the Auto Pact was in clear violation of Canada’s WTO commitments. He noted that it was ‘an “open-and-shut case” of discriminatory trade practices’.(30) In fact, officials were so certain that Canada had little prospect of winning the case that there was a discussion whether or not even to appeal the matter after the loss at the Panel level. As one official in the Department of Foreign Affairs and International Trade (DFAIT) publicly explained, ‘We don’t want to raise expectations,’ because ‘The Auto Pact can’t be saved.’(31)

Yet despite facing almost certain defeat, Canada vigorously defended and then appealed on the matter at the WTO. This can be attributed to three main factors. First, there was considerable public pressure on federal officials to take a strong stand not only in favour of the cherished Auto Pact but also against ‘interference’ by an international body on a matter of domestic public policy. Once the WTO claim was made public, the significant media attention and the corresponding ‘court of public opinion’ limited the government’s ability to enter into a negotiated settlement. At that point, the government had virtually no choice but to defend the Auto Pact vigorously even in the face of certain defeat. It did not want to be seen to be allowing an international body to ‘dictate’ its auto policy.

Second, government and labour leaders alike hoped that if Canada defended the 6.1% duty on new car imports, the car manufacturers would make an effort to stave off any future plant closures.(32) There was a widespread belief that auto manufacturers would take the government’s defence of the Auto Pact as a sign of good faith and maintain facilities such the one in Sainte-Thérèse, Quebec, that were facing likely closure. In fact, in the aftermath of the case, Industry Minister John Manley publicly reminded auto manufacturers of the government’s expectations in this regard, stating that ‘Having taken the action we did on [maintaining the new car] tariff, that ought to be taken into account when the future of [the car plant in] Sainte-Thérèse comes up.’(33)

Third, and arguably most importantly, Canada defended this challenge at the WTO because of extensive lobbying by Ford, GM and DaimlerChrysler. Domestic stakeholders influenced both the government’s decision to defend the case at the WTO and the nature and manner in which the case proceeded. In other words, the auto manufacturers were key players in Canada’s response to the WTO challenge and were not simply advised in the aftermath of its decisions. The federal government consulted with the representatives of the Big Three car manufacturers, the CAW and, to a lesser extent, the provincial governments, at every stage of the WTO process. The auto industry itself was, in fact, so influential in shaping Canada’s response to the WTO challenge that André LeMay, DFAIT spokesman, actually stated that the stakeholders and not the government would determine whether there would be an appeal after the loss at the Panel level: ‘You have to realize it’s not our decision…. Basically we’re dealing with the unions and with the industry to see whether or not they want to appeal this.’(34)

The government of Canada in conjunction with its stakeholders, and not the WTO, determined how the trade regime’s decision would be implemented. After considerable consultation, officials in Ottawa made a number of changes to its regulatory framework that were advocated by the Big Three. First, in September 2000, it removed all references to the production-to-sales requirements in relevant provisions that were found to be inconsistent with the subsidies agreement.(35) Second, in February 2001 the government amended the schedule to the Customs Tariff, and repealed the Motor Vehicles Tariff Order, 1998, and three other remission orders made pursuant to the Financial Administration Act.(36)

In addition, officials in Ottawa raised the 6.1% tariff for all imported vehicles from sources other than the United States. In other words, instead of eliminating the tariff altogether, officials imposed it on all companies operating under the Auto Pact including the North American companies when they imported from countries outside the United States. Though perhaps not undertaken in the spirit of free trade, it technically ensured that Canada adhered to the WTO decision while at the same time minimizing any potential effect on the competitive position of the North American auto manufacturers vis-á-vis their foreign rivals.

Ironically, considerable pressure was exerted by the representatives of Ford, GM and DaimlerChrysler in both the public and private arenas for the tariff on new cars to be applied to all auto manufacturers. Maureen Kempston Darkes, president of GM, for example, publicly demanded that the federal government impose the tariff on all auto manufacturers in order to fulfil the WTO requirements. She explained that ‘Under no circumstances, should they remove the tariff…. We want no unilateral reduction of tariffs, so that means it would go on everybody.’(37)

As an editorial in the Globe and Mail explained, the North American auto manufacturers received significant benefits with such an approach:

The 6.1-per-cent tariff gives the [Big Three] a leg up on competition in the luxury car segment and allows for higher pricing of their own luxury vehicles, where the Big Three harvest all the tariff-made fruit as profit. The tariff also increases the cost differential between luxury cars and medium-priced cars. This provides room for higher pricing in the mid-market segment, because there is less risk of purchasers bleeding over into lower-end luxury car models.(38)

Moreover, the effect of maintaining the tariff had a disproportionately greater impact on Toyota and Honda. For example, between January and August 1999, DaimlerChrysler, Ford, GM and Suzuki imported approximately one new vehicle for every twelve new vehicles imported by non-Auto Pact members — largely from Japan — who paid the 6.1% duty.(39)

The immediate economic impact of the changes was twofold. First, the prices of some imported cars increased. As Dennis DesRosiers of DesRosiers Automotive Consultants explained, an additional 30,000 vehicles, approximately 2% of annual auto sales in Canada, were subjected to the 6.1% tariff. Most of these vehicles were luxury cars such as Mercedes and Jaguar imports. Second, government revenues increased from the extension of the tariff. DesRosiers estimated that the increase in import duties would amount to $250 million per year.(40)

At first blush, it might appear that the medium- to long-term impact of the WTO decision in the Auto Pact Case will be significant, as there has been a staggering drop in Canadian automotive production:(41)

In 1999, Canada assembled 3.1 million new vehicles, ranking us fourth in the world in automotive output. By 2001, our output shrank by 20%, dropping us to seventh place, and we will fall to ninth by 2005 (passed by booming Mexico and China). With the announced or anticipated closure of three or more assembly plants, and a likely downturn in North America vehicle demand (once zero-per-cent sales incentives are lifted), things can only get worse.(42)

However, a closer examination of the Canadian automotive sector indicates that these changes to the auto sector are a reflection of a cyclical downturn in the economy. Explained Jim Stanford, an economist for the CAW, ‘The demise of the Auto Pact did not cause the current decline in the Canadian auto industry, almost all of which would have occurred even if the Auto Pact had remained in force.’(43)

The reality is that, despite the public outcry, the loss of the Auto Pact will have little effect on Canada. The thresholds set out in the production-to-sales ratios and the CVA requirements were based on production levels in the mid-1960s and had been exceeded for over a decade. John Manley, Minister of Industry, recognized that the production-to-sales ratios were outdated, noting that ‘The Auto Pact was based on the fundamental premise that we should produce one vehicle for every one that’s sold in Canada, and we’re now producing two for every one that’s sold.’(44) Nor did the CVA requirements retain any significant meaning. As one observer noted, ‘they were so low, they were met by the labour costs alone’.

More importantly, as automotive experts unanimously agree, the 1965 treaty did not play a role in investment or production decisions during the previous ten years.(45) Auto manufacturers did not base their decisions to build auto plants, invest in existing auto plants, or close auto plants, on their desire to retain the right to bring in new automobiles duty-free — and that was the only remaining benefit of the Auto Pact. As Othmar Stein, vice-president of public and government affairs for DaimlerChrysler Canada, noted, ‘Auto manufacturers have invested heavily in Canada because it makes good business sense,’ observing that the ‘Canadian industry is extremely competitive’.(46) A low dollar, cheaper labour costs, government-sponsored healthcare and an educated workforce were the factors that shaped investment decisions regarding auto manufacturing in Canada. Automotive expert DesRosiers effectively agreed, explaining that the end of the Auto Pact was considered to be ‘employment neutral’,(47) and equated the event to ‘the couple that has been separated for twelve years without having their divorce finalized’. He noted that ‘The auto sector, for all intents and purposes, was separated from the Auto Pact by the FTA and then NAFTA. It was already 98% redundant’.(48)

Perhaps, therefore, the biggest effect of the WTO decision in the Auto Pact Case is not in terms of the economy, but in the political arena. It created a serious public relations problem for the Canadian government. Officials lost a legal dispute they knew they were going to lose and, in the process, generated considerable negative media attention. As evidenced by the plant closure in Sainte-Thérèse, auto manufacturers did not change their plans because of the government’s support in the WTO process. As one observer explained, ‘Canada defended this case because the 1965 treaty was important symbolically. And in hindsight, maybe it was unfortunate that the government pursued the case the way it did. The GM plant in Sainte-Thérèse closed because it was in trouble for a long time, and Ottawa took a lot of heat for it because of the WTO decision. Looking back, maybe it was unfortunate the government did prosecute the case. The Auto Pact was dead anyway, the fundamentals of the industry were good, and Canada had commitments from the Japanese. In hindsight, maybe Canada shouldn’t have brought the case forward as the loss of the Auto Pact was very symbolic and hurt the government significantly.’

 
 

III. Some tentative observations    back to top

In the aftermath of the WTO decision in the Auto Pact Case, Canada had two options for bringing itself into consistency with its obligations. It could, for example, have chosen a trade liberalizing route and eliminated the tariff on imported vehicles from non-US sources on all auto imports, or it could eliminate the discrimination by levying the tariff on everyone — which it did. Being consistent with one set of trade obligations, therefore, does not always mean that you need to liberalize trade. In this case, Canada actually increased trade barriers in order to protect its domestic stakeholders’ competitive position over their Japanese and European rivals.

In other words, this review of the Auto Pact Case demonstrates that decisions emanating from the WTO are implemented from within state borders. Competing domestic interests, not the international trade regime, set the parameters of public policy. In the process, governments are able, at best, to limit or, at worst, to circumvent, any potential impact of a WTO decision by implementing the decision in a manner that best suits its country’s interests. In this respect, the state retains control over policy-making at the national level.

The government of Canada defended this challenge at the WTO for two reasons. First, there was considerable public pressure on Canadian officials to protect the Auto Pact as it had become a potent symbol of economic prosperity. Extensive media coverage surrounding the matter ensured that the government was under pressure to take a strong public stance against the WTO challenge, even if privately officials knew that there was little hope that the country could win its case.

Second, there were intensive lobbying efforts by the Big Three to keep the provisions of the Auto Pact for as long as possible in order to maintain their competitive advantage over foreign car manufacturers. Government officials took these concerns seriously and adhered to the wishes of auto manufacturers both in defending the action at the WTO and in implementing the decision.

The problem, however, with the Canadian government’s strategy was that it resolved only its immediate problem and did not deal with any long-term implications. If the public outcry was significant when the case was filed, it was even worse on Canada’s defeat at the WTO. Defending the case did not simply delay the inevitable but fuelled the controversy and intensified public anger at the outcome. Had the government simply conceded that changes were necessary at the early stages of the conflict, possibly even prior to the complaint being filed, it could have controlled the outcome rather than simply appear to be reacting to a legal decision being made elsewhere. This was, in other words, a case that arguably should never have gone to the WTO. Canada should have dealt with the problem in 1998 in a manner that best protected the national interest rather than focusing solely on the interests of its stakeholders. Would it really have been an error to provide Japanese car manufacturers such as Toyota and Honda with an incentive to increase their auto production in Canada just like that received by the North American auto manufacturers? After all, wasn’t that the very purpose of the Auto Pact — to encourage investment in Canada?

 
 

NOTES:
1.- World Trade Organization Agreement Implementation Act (Bill C-57), c. 47, S.C. 1994. For a more detailed review of the parliamentary measure see Debra P. Steger, ‘Canadian Implementation of the Agreement Establishing the World Trade Organization’, in John H. Jackson and Alan Sykes, eds., Implementing the Uruguay Round (Oxford: Clarendon Press, 1997), 242-83 back to text
2.- Roy MacLaren, Minister for International Trade, House of Commons Debates (27 Oct. 1994), 7319. back to text
3.- Roy MacLaren, Minister for Trade, appearing before the House of Commons Standing Committee on Foreign Affairs and International Trade, Minutes of Proceedings and Evidence of the Standing Committee on Foreign Affairs and International Trade, no. 9 (3 Nov. 1994), 22. back to text
4.- Ibid. back to text
5.- Canada — Certain Measures Affecting the Automotive Industry — Complaints by Japan (139) and the European Communities (142), report of the Panel, WT/DS139/R and WT/DS142/R, 11 Feb. 2000, report of the Appellate Body, WT/DS139/AB/R and WT/DS142/AB/R, AB-2000-2, 31 May 2000, and Arbitration under Art. 21.3(c) of the Dispute Settlement Understanding (DSU), WT/DS139/12 and WT/DS142/12, 4 Oct. 2000, hereinafter referred to as the Auto Pact Case. As the European Communities and the Japanese complaints were similar in nature, they were consolidated and heard by a single panel pursuant to Art. 9.1 of the DSU. back to text
6.- Agreement Concerning Automotive Products, Canada and the United States, 16 Jan. 1965, Can. T.S. 1966 No. 14., 17 U.S.T. 1372 (entered into force 16 Jan. 1966) [Auto Pact]. back to text
7.- C. M. Drury, Minister of Industry, House of Commons Debates (5 May 1966), 4746. back to text
8.- Mary Janigan, ‘An Industry on the Line’, Maclean’s (9 Aug. 1999), 40. back to text
9.- Douglas Martin, ‘Canada’s Lucky Car Industry’, New York Times (17 Oct. 1984), D1. back to text
10.- Bobbie Gaunt, president, Ford Canada, in a speech to the Saskatoon Chamber of Commerce, quoted in Peter Morton, ‘Big Three Want No Changes to Auto Pact’, Financial Post (13 Sept. 1997), 5. See also similar comments made by Buzz Hargrove, president, Canadian Auto Workers (CAW), ‘It’s the End of the Line, Canada is Terminating a Model Trade Agreement’, Globe and Mail (19 Feb. 2001), A11. back to text
11.- Greg Keenan, ‘Big Three Hire Lobbyist Gordon Ritchie to Advise Companies as Ottawa Reviews Auto Policy’, Globe and Mail (10 Dec. 1996), B16. back to text
12.- Gordon Ritchie, quoted in Janigan, ‘An Industry on the Line’. back to text
13.- As one source explained, the United States was so anxious to prevent companies like Toyota from becoming a member of the Auto Pact that a footnote was included in c. 10 of the FTA to prohibit them from gaining access by buying a small company to get in. back to text
14.- For a review of the debate surrounding this measure, see the Senate of Canada, Proceedings of the Standing Committee on Banking, Trade and Commerce, issue no. 6 (2 Dec. 1997). back to text
15.- Industry Canada, The Automotive Competitiveness Review, A Report on the Canadian Automotive Industry (June 1998). back to text
16.- Delegation of the European Commission in Canada, Press Release, ‘WTO Appellate Body Confirms that Canada Auto Pact is Contrary to WTO rules’, 31 May 2000, obtained on 19 Jan. 2002, at www.eudelcan.org/english/5B2-24.cfm. back to text
17.- Tsuneyoshi Tatsuoka, counsellor for economic affairs, embassy of Japan, quoted in Heather Scoffield, ‘Japan Considers Challenging Canada’s Auto Tariff’, Globe and Mail (12 June 1998), B6. See also Simon Avery, ‘Japanese Car Makers May Take Case to WTO’, Financial Post (11 June 1998), 1, and Heather Scoffield, ‘Japan To Take Canada to WTO over 6.7% Imported Car Tariff’, Globe and Mail (1 July 1998), B1. back to text
18.- Neville Nankivell, ‘Let Consumers Drive Auto Policy, Not the Big Three’, National Post (7 June 2000), C19. back to text
19.- Japanese Automobile Manufacturers Association, ‘JAMA Canada Disappointed by the “Status Quo” Results of the Federal Auto Review on Tariffs and Trade Policy’, Canada NewsWire (10 June 1998). back to text
20.- Yoshio Nakatani, president, Toyota Canada, quoted in Tony van Alphen, ‘Toyota Attacks Trade Policy, Demands Same Duty-Free Status Big Three Enjoy’, Toronto Star (13 Feb. 1997), E8. See also Greg Keenan and Heather Scoffield, ‘Toyota Assails Tariff Decision’, Globe and Mail (11 June 1998), B1. back to text
21.- Agreement on Trade-Related Investment Measures (TRIMS) in the Multilateral Agreements on Trade in Goods, Annex 1A of the WTO Agreement. back to text
22.- General Agreement on Trade in Services (GATS), Annex 1B of the WTO Agreement. back to text
23.- Auto Pact Case, report of the Panel, paras. 10.38-10.50, and report of the Appellate Body, paras. 78-86. back to text
24.- Ibid., report of the Appellate Body, para. 85 (emphasis in original). back to text
25.- Ibid., report of the Panel, para. 10.85. back to text
26.- Ibid., report of the Appellate Body, para. 104. back to text
27.- GATS, Articles II:1 and XVII. back to text
28.- Auto Pact Case, report of the Appellate Body, paras. 167, 174, 181, 182. back to text
29.- Ibid., report of Arbitration under Art. 21.3(c), DSU, para. 56. back to text
30.- Michael Hart, quoted in James Baxter, ‘Officials See Silver Lining in Cloud of Lost Trade Disputes’, Ottawa Citizen (13 July 1999), C1, C2. back to text
31.- Source in the Department of Foreign Affairs and International Trade (DFAIT), quoted in Ian Jack, ‘Ottawa To Appeal WTO on Auto Pact’, National Post (17 Dec. 1999), C1. back to text
32.- Buzz Hargrove, president, CAW, quoted in Simon Avery, ‘Japanese Car Makers May Take Case to WTO’, Financial Post (11 June 1998), 1. back to text
33.- John Manley, Minister of Industry, quoted in Ian Jack, ‘GM Told To Weigh Tariff in Ste-Thérèse decision’, Financial Post (7 Oct. 1998), 17. back to text
34.- André LeMay, quoted in ‘Tweaking the WTO’, Globe and Mail (16 Feb. 2000), A16. back to text
35.- Order Amending the Motor Vehicles Tariff Order, 1998, SOR/2000-342. back to text
36.- Order Repealing the Motor Vehicle Tariff Order, 1998 and Amending the Schedule to the Customs Tariff, SOR/01-81, Order Repealing Certain Remission Orders Made under the Financial Administration Act (2000-1), SOR/01-82, Order Repealing Certain Remission Orders Made under the Financial Administration Act (2000-2), SI/01-30, and an Order Repealing Certain Remission Orders Made under the Financial Administration Act (2000-3), SI/01-31. back to text
37.- Tony Van Alphen, ‘Tax Us Too, Big Three Auto Firms Say’, Toronto Star (19 Feb. 2000). For similar comments see Mark Nantais, president of the Motor Vehicle Manufacturers Association, quoted in Keenan, ‘Big Three Hire Lobbyist’; Michael Sheridan, Director of Government Relations, Ford, quoted in Heather Scoffield, ‘Luxury Vehicles May Be Hit by Tough WTO Auto Pact Ruling’, Globe and Mail (31 May 2000), B1; and Michael Walker, director of government relations, DaimlerChrysler, quoted in Greg Keenan, ‘Auto Tariff Kills Big Three’s Edge, Ottawa To Slap 6.1% Duty on Vehicles Imported from outside North America’, Globe and Mail (25 Jan. 2001), B1. back to text
38.- Editorial, ‘Reject the Auto Manufacturers’ Appeal for Higher Taxes’, Globe and Mail (1 June 2000), A16. back to text
39.- Information derived from vehicle import statistics provided by DesRosiers Automotive Consultants and company reports, reproduced in Greg Keenan and Heather Scoffield, ‘Higher Tariffs Loom Following WTO Auto Ruling’, Globe and Mail (14 Oct. 1999), B1. back to text
40.- Dennis DesRosiers, DesRosiers Automotive Consultants, quoted in Tony Van Alphen, ‘Auto Tariff Extension Seen of Little Impact’, Toronto Star (26 Jan. 2001). back to text
41.- For an alternative perspective see Stephen S. Poloz, vice-president and chief economist, EDC, www.globeandmail.com (22 May 2002), who contends that ‘Canada’s auto sector is performing well relative to the rest of the economy. Vehicle assembly is maintaining its share, and vehicle parts are a leading growth sector. These characteristics are symptomatic of an industrial sector in transformation, not long-term decline.’ back to text
42.- Buzz Hargrove, president, CAW, ‘Our Future’s on the Line’, Globe and Mail (21 May 2002), A17. back to text
43.- Jim Stanford, economist, CAW, ‘An “Auto Pact” That’s Perfectly Legal, A System of Taxes and Grants to Promote Auto Investment and Production in Canada’, unpublished ms. presented to the Meetings of the Canadian Economics Association in Calgary, Alberta (May 2002), 1, quoted with permission. back to text
44.- John Manley, Minister of Industry, quoted in Mark MacKinnon and Greg Keenan, ‘Historic Auto Pact To Die in Feb., US Big Three Tariff Exemption Will End’, Globe and Mail (5 Oct. 2000), B1. back to text
45.- Dennis DesRosiers, quoted in ‘Auto Pact’s End Creates Uncertainty’, Toronto Star (14 July 1999), ‘Auto Pact Has No Effect on Investment, Ottawa Says’, Financial Post (2 June 1999), C2, Michael Robinet, Detroit-based automotive analyst, quoted in Ian Jack, ‘Canada Loses Face in Row with Europe over Beef’, National Post (13 July 1999), C3, and Melvyn Fuss, Department of Economics, University of Toronto, quoted in Philip Demont and Natalie Armstrong, ‘WTO ruling Will Have Little Impact, Experts Say’, Ottawa Citizen (14 Oct. 1999), C3. back to text
46.- Tony Van Alphen, ‘WTO Aftermath Ruling Not Seen as a Job Threat’, Toronto Star (15 Oct. 1999). back to text
47.- Dennis DesRosiers, DesRosiers Automotive Consultants, quoted, ibid. back to text
48.- DesRosiers quoted in James Baxter, ‘WTO Sets Date for End of Auto Pact’, Ottawa Citizen (5 Oct. 2000), D5. back to text
 

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* Postdoctoral Fellow, York University, Ontario. The author gratefully acknowledges the many individuals who met her to discuss the case and its implications. She also would like to thank David R. Cameron, Dennis DesRosiers, Ran Hirschl, John H. Jackson, Maura Jeffords, Bruno Julien, C. Christopher Parlin, David Schneiderman, Debra Steger, Michael Trebilcock, Robert C. Vipond, and the Fellows at the Institute of International Economic Law at Georgetown University Law Centre, 2001-3, who provided input and assistance with this project in varying capacities.