WHATEVER ELSE their disagreements, free traders and protectionists in this country agree on one thing: the Auto Pact has been good for Canada.

A curious still in the free trade battle surrounds the 1965 Canada-U.S. Automotive Products Agreement. The unchallenged consensus, inside and outside the industry, holds that the arrangement is vital to our prosperity and must be kept aside from any comprehensive free trade deal.

Indeed, the government has hinted - most recently in Prime Minister Mulroney's televised address to the nation - that free trade might itself resemble a generalized form of the Auto Pact.

Free traders like it because it allows duty-free trade in automobiles and original parts across the Canada-U.S. border. They believe the pact has made our industry competitive with American plants, and point to our ''healthy'' trade surpluses with the U.S. in auto products in recent years (see chart).

Protectionists like it because of the Canadian value-added and production-to- sales quotas the auto industry must meet to be exempted from tariffs. They believe the quotas have kept jobs and production in Canada that would otherwise have gone to the U.S.

Both are wrong, according to a new study by University of Toronto economics professors Mel Fuss and Len Waverman. Their work suggests neither the free trade nor the protectionist aspects of the agreement have had any significant impact, for good or ill - at least in terms of the results with which each is popularly associated. The production ''safeguards,'' in particular, appear to have been entirely irrelevant. The Auto Pact cow, in light of this new evidence, begins to look a lot less sacred.

The pact was intended to close a large gap in efficiency between Canadian and U.S. production. In the years immediately before the agreement was signed, the professors calculate, the Canadian industry (taking assembly and parts together) was 27% less efficient than its U.S. counterpart, mostly because of scale disadvantages in production for the small Canadian market, protected at the time by a 17.5% tariff.

In the years following the accord, cross-border trade in auto products boomed. But by 1972, the efficiency gap had closed only to 19%. And just three points of that 8% gain could be attributed to the Auto Pact, Fuss and Waverman's figures show. There the advance halted - indeed, by 1979, 15 years after the Auto Pact began, the gap had widened again, to 20%.

What gains there were in Canadian efficiency owed much to scale economies, as production expanded more rapidly here than in the U.S. The contribution of other technical factors, such as management, work-force characteristics, geography, or product line specialization - a catch-all category Fuss and Waverman call the ''country-specific efficiency effect'' - actually deteriorated relative to the U.S. throughout this period, canceling most of the scale gains.

This may seem to conflict with data showing an improvement in our cost competitiveness. But that was chieflya result of relative declines in factor prices - including wages - latterly aided by the falling C$. Rather than approach U.S. efficiency, the Canadian industry kept competitive only by dint of lower living standards for its workers.

Had the Auto Pact succeeded in bringing Canadian efficiency up to par, the professors say that should have given us an ''overwhelming'' cost advantage by 1979 - in the range of 20%-35%. In the event, wholesale prices were only 4% lower here, and Canada recorded a $2.7 billion deficit in trade under the Auto Pact that year - neither suggestive of such an edge.

But surely the increased production and economies of scale resulted from the open access to the U.S. market the Auto Pact afforded? Not so, say the professors. Most of the output expansion would have happened anyway, to meet rapidly growing domestic demand from a wealthier and more numerous population.

The Auto Pact, they conclude, ''did not substantially improve the efficiency of Canadian automobile production relative to U.S. production.''

The reflex of an economist would be to blame the protectionist provisions of the pact for this disappointing performance. Yet the industry's own figures show the automakers have exceeded the content quotas and production-to-sales ratios in every year but one since the Auto Pact came into force - usually by wide margins.

In 1982, for example, the value of production in Canada was more than twice the amount required by the Auto Pact, with a Canadian value-added content 50% higher than the quota. The ''safeguards for Canada,'' in other words, might as well not have existed: as the professors point out, constraints that do not bind cannot affect investment decisions.

In other words, the Auto Pact did not force U.S. automakers to produce here; it allowed them to. It was the removal of tariffs, enabling the industry to allocate production on either side of the border to best advantage, not the safeguards, that induced Detroit to produce in Canada - which would remain true in a comprehensive free trade treaty.

To get at the real reason for the failure of the Canadian auto industry to rationalize under the Auto Pact, consider why we should expect any improvement in the first place. Joining two economies together via free trade should make for bigger markets and more producers, lowering unit costs and increasing competition.

The Auto Pact created a larger North American market for automotive products. But it did not increase the number of competitors. The same three firms - GM, Ford, and Chrysler - continued to dominate in both countries (the Canadian industry is 90% American-owned, and the Big Three still control about 65%-70% of the Canadian new car market).

The operative part of the Auto Pact, Fuss and Waverman's work suggests, was the continued protection for the Detroit-based multinationals against overseas competitors, implicit in the maintenance of each country's barriers against the rest of the world, and explicit in the requirement for 50% North American content entering the U.S. Indeed, any cost reductions arising from the integration of the North American market behind an unchanged nominal tariff wall actually increase the real level of protection.

''The opportunity to rationalize was created by the Auto Pact,'' they argue, but ''the selective nature of the trade liberalization appears to have protected the oligopolistic automobile industry.''

''What seems to be needed is the competitive pressure unleashed by unrestricted trade liberalization,'' they conclude.

Rather than protecting little Canada against the big U.S. automakers, as is the popular belief, the Auto Pact appears instead to have protected the big U.S. automakers against their more nimble foreign competitors. When, therefore, the chief executives of the three major ''Canadian'' automakers pronounce their satisfaction with the Auto Pact, they speak not for Windsor but Detroit.