WORLD TRADE G/L/103
4September 1996
ORGANIZATION(96-3481)
Original: English COUNCIL FOR TRADE INGOODS
19September 1996
UNITED STATES -IMPORTS OFAUTOMOTIVE PRODUCTS
Request forRenewal ofWaiver
Thefollowing communication hasbeenreceived from thePermanent Mission oftheUnited
States.
_______________
BytheDecision oftheCONTRACTING PARTIES totheGATT 1947of20December 1965
(BISD 14S/37), theUnited States wasgranted awaiver ofitsobligations under paragraph 1ofArticle
1oftheGATT 1947, fortheprovision ofduty-free treatment forimports ofeligible automotive products
originating inCanada. Thiswaiver, which covered duties applied toautomotive products traded between
thetwocountries, wasgranted foranindefinite period oftime. Asprovided forinparagraph 2of
theUnderstanding inRespect ofWaivers ofObligations under theGeneral Agreement onTariffs and
Trade 1994, thiswaiver willexpire on31December 1996, twoyears afterentry intoforce oftheWTO
Agreement, unless itisextended.
TheUnited States requests thatMembers extend thewaiver fortheperiod ending on1January
1998toenabletheUnitedStatestocontinuetoprovideduty-freeaccessforimportsofeligibleautomotive
products from Canada, consistent withitsinternational obligations, untilremaining duties onthese
products areeliminated aspartoftheU.S. -Canada FreeTrade Agreement (CFTA), therelevant
provisions ofwhich weremaintained inforce inAppendix 300-A.1 oftheNorth American FreeTrade
Agreement. Theproduct coverage ofthiswaiver request isnarrower thanthecoverage ofthe1965
waiver asduties onmotor vehicles andcertain partshavealready beeneliminated aspartoftheCFTA.
Renewal ofthewaiver ofparagraph 1ofArticle IoftheGATT 1994 isnecessary sothatthe
UnitedStatescancontinuetoprovidesuchduty-freetreatmentconsistentwithitsinternationalobligations.
Thisrequest ismade inaccordance withtheGuiding Principles tobefollowed inconsidering applications
forwaivers adopted on1November 1956; theUnderstanding inRespect ofWaivers ofObligations
under theGeneral Agreement onTariffs andTrade 1994; andparagraphs 3and4ofArticle IXof
theMarrakesh Agreement Establishing theWorld Trade Organization. Thepolicy objectives ofthe
Auto Agreement andtheexceptional circumstances justifying awaiver aredescribed below.
Discussion
TheUnited States-Canada Automotive Products Trade Agreement (“Agreement ”),signed in
1965, wasdesigned toaddress aproblem unique totheautomotive industry ofCanada andtheUnited
States. Motor vehicle manufacturing facilities onbothsides oftheborder produced identical items,
usingfullyinterchangeablecomponents.TheCanadianautoindustry,consistingprimarilyofsubsidiaries
ofU.S. motor vehicle manufacturers andcharacterized bythepresence offewindependent partsG/L/103
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producers, wasorganized toserve averysmall domestic market. Thelocation oftheindustry inthe
twocountries, was,moreover, characterized bygeographic proximity. Yet,thetwoindustries were
arbitrarily anduneconomically divided bytariffs andotherbarriers totrade, asituation which threatened
thestability oftheindustry onbothsidesoftheborder. Theadvantages ofproducing witheconomies
ofscale were unavailable toCanadian producers andconsumers.
TheAgreement wastheresult ofconsultations overincreasing tradefrictions between thetwo
governments andincorporates principles ofintegration anddevelopment fortheautomotive industries
inbothcountries.
Today, theU.S. andCanadian automotive industries arehighly integrated asmost U.S.
subsidiaries ofmajor U.S.andforeign-owned motor vehicle andpartsfirms haveintegrated theirU.S.
andCanadian operations. Bothconsumers andmanufacturers inthetwocountries haveseenandwill
continue toseesubstantial benefits fromtheAgreement. Inthisexceptional situation, itwould cause
unnecessarycostsandadministrativeburdenstoarbitrarilydiscontinueduty-freeimportationandreimpose
barriers attheborder.
Purpose
Atthetimeoftheoriginal waiver request, thetwogovernments believed that,ifbarriers could
beremoved inawaywhich wasmutually satisfactory, andatthesame timenotharmful tothetrade
interests ofthirdcountries, theindustry could integrate itsproduction operations onthemostefficient
basis, avoiding thenecessity formaintaining uneconomic duplicative motor vehicle assembly facilities.
Byremoving tariff barriers onimports offinished vehicles andoriginal equipment (OE) parts, the
Agreement sought topermit suchintegration.
TheAgreement,providingforduty-freebilateraltradeincertainspecifiedmotorvehicles(buses,
passenger vehicles, andtrucks) andoriginal equipment parts, wasdesigned toallow boththeUnited
States andCanada todevelop amore rationalized andintegrated North American automotive industry.
Since implementation oftheAgreement andoverthelifeoftheoriginal waiver, theseobjectives clearly
were achieved.
Inorder toimport eligible Canadian automotive products freeofdutyintotheUnited States,
U.S.manufacturers mustbecertified tohavethecapacity toproduce tenormore motor vehicles per
forty hourweek andtohaveproduced nofewer thanfifteen motor vehicles inthepreceding year.
Products must alsomeettheNAFTA ruleoforigin.
Allmotor vehicle manufacturers withassembly operations intheUnited States thatmeetthe
certification requirements oftheAgreement andrequest certification havebeengranted certification.
Manufacturers ofOEpartsmayimport duty-free intotheUnited States onbehalf ofacertified motor
vehicle manufacturer iftheypossess acontract orletter ofintent from acertified motor vehicle
manufacturer.
AspartoftheCFTA (carried overintotheNAFTA), duties onallautomotive products are
tobeeliminated overvarious staging periods. U.S.duties onpassenger vehicles wereeliminated as
ofJanuary 1,1989, andoncertain aftermarket parts asofJanuary 1,1993. Duties onallother
automotive parthavebeensteadily reduced since 1989 andwillbeeliminated asofJanuary 1,1998.G/L/103
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Effect onother members
Thetariffpreferences provided under theAgreement havenotandwillnotcreate newbarriers
orotherwise impede thetradeofmembers. In1965, theUnited States wasthelargest single importer
ofvehicles intheworld, andcontinues tobethelargest single importer. During thelifeofthe
Agreement, automotive trade hasincreased exponentially, andU.S. imports from allsources have
increased accordingly. Foreign-owned automotive firms invested intheUnited States andCanada have
benefitted substantially fromtheability theAgreement gives themtointegrate theirU.S.andCanadian
operations.
ThetradefiguresprovidedinAnnex1demonstratethatthepreferencegiventoCanadianimports
havenotresulted indisplacement oflikeproducts from thirdparty sources.
Effect onMFN andGSP
TheAgreement isacompletely autonomous program which hasnever involved thebinding
ofmargins ofpreference. TheAgreement hasnotimpeded U.S.tariff negotiations: in1965 theU.S.
MFN dutyonpassenger vehicles was6.5%, today itis2.5%; in1965, theU.S.dutyonautoparts
was8.5%, in1994 itwas3.1% andin1999 itwillbe2.5%.
TheAgreement hasnoeffect onGSP.
Conclusion
TheUnited States therefore requests Members togiveexpeditious consideration tothisrequest
andtodecide toextend thewaiver oftheprovisions ofparagraph 1ofArticle IoftheGeneral Agreement
fortheperiod ending on1January 1998, totheextent necessary topermit theUnited States togrant
duty-free treatment forimports ofeligible automotive products originating inCanada. TheUnited
States isprepared toenterintoconsultations andtocooperate fullyinproviding additional information
about theAgreement anddiscussing thespecific terms ofthewaiver.Annex 1G/L/103
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(Values inmillions ofdollars)
U.S.Imports
Volume Share Volume Share Volume Share Volume Share Volume Share
Source 1964 1992 1993 1994 1995
U.S.Imports ofMotor
Vehicles575 100.00% 57,088 100.00% 62,992 100.00% 72,596 100.00% 76,685 100.00%
Canada 22,543 39.50% 26,769 42.50% 30,959 42.60% 33,371 43.50%
U.S. Imports ofAuto Parts 95 100.00% 33,525 100.00% 38,306 100.00% 44,854 100.00% 46,355 100.00%
Canada 44 46.30% 8,996 26.80% 10,301 26.90% 11,279 25.10% 11,139 24.00%