Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971

Published by EH.NET (March 2006)

Dimitry Anastakis, Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971. Toronto: University of Toronto Press, 2005. xii + 285 pp. $30 (paper), ISBN: 0-8020-3821-2.

Reviewed for EH.NET by Thomas W. Zeiler, Department of History, University of Colorado at Boulder.

It was a curious occurrence of international affairs that the relationship between the United States and Canada was riven in the mid-twentieth century by trade in automobile parts. Curious because the two countries enjoyed such friendly relations, in general, since the Second World War. In particular, their economic ties were strong, intimate, and mutually profitable. Furthermore, in the realm of the auto trade regime, the Canadians had long before become arms of the U.S. “Big Three” automakers, subsidiaries of the parent companies who one would assume had to follow the party line. So, why a conflict that required patient negotiations at the highest levels of government before reaching a landmark agreement? As Dimitry Anastakis makes clear, deeply held perspectives on the course of trade, the future of the Canadian economy, and American free-enterprise ideology were the basic reasons for the struggle. Arguably the most important economic item produced by both countries, auto products compelled visionary thinking on both sides of the border. The result was the Canada-U.S. Automotive Products Trade Agreement of 1965 that not only reshaped the industry in both nations but, despite being subsumed under later agreements and then made illegal by the WTO, laid the foundation for an integrated North American economy by the 1990s. Thus, a trade accord between friends had enormous ramifications on bilateral relations, domestic economies, and the world as a whole.

The author’s intention is to show how this “borderless” industry evolved under substantial pressures. Leaving no source unread, Anastakis, an assistant professor of history at Trent University, has combed both American and Canadian government archives and interviewed the prime (living) movers behind the pact, most notably the skilled Canadian negotiator, Simon Reisman, who was dedicated to developing the industry. Like others before him, Anastakis has also looked at collections of labor union papers but most notably, he studied the corporate reports and archival holdings of the auto-makers themselves, including their consultants. In short, he has presented a thorough look at the negotiations, doing so in a balanced, unchauvinistic way. The result is a refreshing and nuanced study of the Canadian-American economic relationship. It begins with a survey of the Canadian auto industry and the inability of the Canadian government to forge a deal to give the nation more leverage in trade. Following appears the key chapter which explores the mediation of the American Big Three automakers, who found a third way between free trade and protectionism through promises to enlarge investments in Canada as well as Canadian content. The next three chapters examine the period 1965-71 as the pact was implemented and came under attack.

Anastakis presents the dilemma facing the auto industry in a clear way. The United States sought free trade in auto products because it dominated the sector and, in general, had championed free trade since the war. The Canadians, suffering from a huge trade deficit with the Americans (much of it due to imports of U.S. auto parts), wanted their fair share of the industry through some form of protectionism. The resulting auto pact gave both sides their wishes: the Americans got a continental-wide free trade zone in auto parts while the Canadians won production guarantees and content requirements under the agreement that specified that all auto product imports south of their border would come from Canada.

Anastakis’ major contribution is his convincing examination of the non-state actors, namely the Big Three negotiators. The book’s images belie that focus, as most of the photos are of government officials or labor union members; only Henry Ford II makes an appearance. Still, while Reisman was pivotal in effecting the pact, and the specter of protectionist intervention by Canada made the Americans anxious to conclude an agreement before Mexican-style nationalization resulted, an agreement would never have arisen without the interaction of the multinational auto companies with their governments. At numerous points, the Big Three, rather than a national official or government agency, were the targets of consultation. The government forged the deal, in other words, but the multinationals accepted it. Specifically, the American corporations agreed to issue “letters of undertaking” within the framework of the pact that provided the Canadians with content agreements and investment promises. Thus, the companies facilitated solutions to seemingly impossible dilemmas and they later protected the pact from destruction by U.S. politicians eager to correct the American payments deficit by returning to the pre-1965 period of American auto product export domination. The Big Three’s role represents the essence of globalization: a borderless, unified world market created by transnationals rather than the state.

The pact elevated industrial policy to the international level; it is, perhaps, a model for solving current difficulties due to globalization in other industrial sectors. The author is to be applauded, however, for his judicious handling of this issue. The auto pact was successful — too successful. In the long-run, it so tipped the trade balance scale in favor of the Canadians that it provoked American politicians to suspend the accord. The comprehensive U.S.-Canada free trade agreement of 1987 (like the 1965 auto accord also consummated by Reisman) supplanted the pact and the WTO invalidated it as inimical to free trade. The winners were American multinationals and Canadian consumers, who preferred cheaper U.S. cars. Fair trade was achieved, but the world, as well as the North American trading system, had changed in the direction of integration and globalization. In addition, the particular circumstances of the North American auto industry, including the geographical proximity of both nations’ industries, indicates that this pact was a unique event in history. Model or not, an auto pact once heralded as the savior of the Canadian industry stands as an emblem of wise reasoning by officials and corporate leaders alike.

Thomas W. Zeiler is a professor of history at the University of Colorado at Boulder. He has written on trade and diplomacy, and recently published (with Alfred E. Eckes, Jr.) Globalization and the American Century (Cambridge University Press).