The Auto Pact

The sixties. Toronto had been growing faster than Montréal for a while now. And then, suddently, Ontario’s economy is thriving even more, Toronto and its surrounding area are growing like never before. What happened? So many will blame the rise of Québec nationalism. But many seem to forget that the economy of Canada experienced a major shift in the sixties. Within a few years, the automotive industry supplanted the pulp and paper industry to become the number one industry in Canada. So, what happened? Canada and the United States signed The Auto Pact.

Before the adoption of the Auto Pact in 1965, the Canadian auto market was protected by tariffs. Only 3% of cars sold in Canada were produced in the United States and only 7% of cars manufactured in Canada were exported to the United States. However, despite the tariff protection, most of the parts used in the manufacture of cars in Canada were American-made.In 1965, Canada and the United States signed the Auto Pact. Canada eliminated its tariffs and opened its market to the US. In exchange, US manufacturers agreed to maintaining a production quota in Canada: 60% of cars sold in Canada would be manufactured in Canada. Canada also agreed not to sign such a treaty with another country.This trade agreement had a major impact on the Canadian economy. In 1968, only three years after signing the treaty, 60% of cars manufactured in Canada were exported to the United States and 40% of cars sold in Canada were produced in the United States.

Most of the jobs that resulted from this pact in Canada were created in southern Ontario. The automotive industry supplanted the pulp and paper industry to become the number one industry in Canada.

Why in southern Ontario? Because the capital of the US automobile was Detroit and so the Americans decided to settle in Windsor, which is just across the river from Detroit.

Détroit et Windsor
So, in exchange for opening its auto market to the US, Canada got a quota of production for Canada. However, the Canadian market consists of cars purchased in Ontario, Quebec, in the West and in the Maritime provinces. But Canada did not request production quotas for each of these regional markets. The Canadian industry became concentrated in Ontario, next to Detroit, capital of the US automobile industry.
What would have happened if we had said that since the Quebec market accounts for a quarter of the Canadian market, a quarter of production quotas should be allocated to Quebec? Would we not have also developed our own auto industry? Why not? We build many trains, subway cars and airplanes.The access to the Quebec market was used to develop an industry in Ontario. And since our domestic market no longer had the protection of tariffs, how could a Quebec auto industry grow? Not to mention that the Auto Pact prohibited Canada from signing such a treaty with other countries, thus blocking other potential international opportunities.This was an agreement that changed the face of the Canadian economy, it was a political decision where we swapped access to the Quebec market for a deal that benefited only southern Ontario.

In addition, before the Auto Pact, Canada had a large trade deficit with the United States in the automotive sector DESPITE the tariff protection. Can we therefore conclude that it was cheaper to produce cars in the United States? Can we logically conclude that it costs more to produce cars in Canada? Can we then conclude then that the higher cost of production slightly increased the selling price of cars? Can we therefore assume that manufacturers have made us pay a little more for cars that we buy in order to finance their investments in southern Ontario? Are we to understand that for political, geographical and geopolitical reasons, part of the capital, the fruit of our work, has been channeled to enrich Ontario?And since the end of the Auto Pact in 2001, with the rise of the Canadian dollar, the financial crisis of 2008 and competition from Asian manufacturers, the Ontario auto industry has seen some difficult times. Fear not, the federal government is always there to bail out Ontario’s auto industry. The federal government invested $10.6 billion in order to rescue General Motors Canada in 2009, and 20% of this money came from Quebec taxpayers.

So after using the access to our market to develop an industry in Ontario and after ensuring that we pay a little more for our cars in order to benefit Ontario, the federal government still bleeds us a little more in order to bail out Ontario.

This is not a vast conspiracy, it is simply the geopolitical and economic forces which, on the scale of a continent, are draining our strengths and resources beyond our borders. This is the fate of a nation deprived of its sovereignty.

These events ocurred before the 1976 election of the Parti Québécois.
(Merci à l’auteur du blogue Why Québec Needs Independence pour la traduction de ce billet.)

Une réflexion au sujet de « The Auto Pact »

  1. Ben

    Very interesting article. I was aware of the Auto Pact and it’s impact on the development of Canada’s (entirely branch plant) auto industry. Interestingly enough, many critics look at the Auto Pact from the pan-Canadian perspective and decry its effects just as you have done for Quebec specifically. I had no idea how dominant domestic production was prior to the Auto Pact though.

    I see your point that had the Auto Pact specifically favoured production in Quebec things might have been different. On the other hand, the proximity of the US industry likely increased Canada’s competitiveness and ability to fit tightly into the American supply chains. Perhaps the one compensation is that in other industries, like aerospace, Canada has historically supported the development of the industry in Quebec. Certainly that’s the case in agriculture, in which you could actually make the exact opposite argument. Agricultural industries that are very strong in Quebec, such as dairy, are protected. This raises prices throughout the country for the benefit of Quebec producers. The crops that Saskatchewan produces, on the other hand, receive comparatively less production. That reality doesn’t make me upset though; I’m looking at this from a national angle, recognizing that in fact all Canadian industries are part of a global marketplace and we’re just too small of a population to not work together. Quebec cheese is some of the best in the world; let’s do what we can do develop that sector and create an internationally competitive sector out of it.


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