THE CANADIAN auto strike is being fought over an intricate question of international equity. In this country, General Motors has just signed a contract with the United Auto Workers. The company is now offering the same contract to its Canadian workers, represented by the Canadian branch of the same union. But the Canadians have refused it. The contract may be the same, they say, but in their country it doesn't mean the same thing.
This strike is relevant to the enthusiastic talk here in Washington about free-trade areas. The trade bill that Congress just passed authorizes the president to negotiate free-trade agreements with other countries, and talks with Israel are already under way. A lot of people in Congress have Canada in mind as well. But the United States is already a partner in an enormously important free- trade agreement covering the North American automobile industry. New cars and parts move back and forth across the border with no tariffs and no quotas. It's good for consumers in both countries.
But the rise in the U.S. dollar's exchange rate is affecting this trade. An hour's labor in this country costs GM, on the average, about $24 including all the fringes. The company pays the same wage rates in both countries, and guarantees the same fringes. But it pays the Americans in American dollars, and the Canadians in Canadian dollars. The Canadian dollar is currently worth about 76 cents in U.S. currency. The automobile companies, responding to that reality, have been pushing production into their Canadian factories -- particularly production of the big cars that are currently selling well and provide the largest profits.
As the Canadian UAW reckons it, an hour's labor costs GM $7.90 less in Ontario than in Michigan. About $5 of that is the cheaper dollar, bu the rest is the difference in social legislation and tradition. Because Canada has a national health plan heavily subsidized by the taxpayers, the employee health benefits that GM provides are much less expensive there than in the United States. Given all those differences, what's a fair wage in a Canadian auto plant? Before you try to write an equitable formula, remember that the exchange rates are constantly moving.
Free-trade areas are a thoroughly good idea in principle, and this kind of wage disparity is not a fatal defect. But it creates serious trouble. That's why the world's largest and most successful free- trade area, the European Common Market, has locked itself into an exchange system that strongly discourages wide swings of currencies against each other. A broader North American free-trade agreement is very much worth discussing. But, as the current auto strike suggests, it would eventually require linking the two currencies together in ways that neither Americans nor Canadians have even begun to think about.