Canada

LOSING TO THE YANKS

Fish, cars, trade, dams...why can’t Canada win?

Robert Lewis October 13 1980
Canada

LOSING TO THE YANKS

Fish, cars, trade, dams...why can’t Canada win?

Robert Lewis October 13 1980

LOSING TO THE YANKS

Canada

Fish, cars, trade, dams...why can’t Canada win?

Robert Lewis

A distinguished diplomat, Hume Wrong, once described the credentials for the perfect fellowCanadian envoy: “a name, even a photograph; a distinguished record, even an actual secretary—but he would have no corporal existence and no one would ever notice that he was not there.” The official voices at External Affairs still are disembodied—on request— but they are there and, these days, they well with real anger. Surprisingly, the target of their hostility is Canada’s supposed closest friend in the whole world, the United States of America. And though they disagree about the reasons, people on both sides informally acknowledge that, after a sustained period of co-operation, relations have plummeted to a fiveyear low. Canadian Ambassador Peter Towe went public with the matter last week when he warned the Women’s National Democratic Club in Washington: “The pendulum has, perhaps imperceptibly, begun to swing in the wrong direction.”

Nothing to do with Hume, mind you. American negotiators actually complain that their Canadian counterparts are too chippy by half in the single-minded pursuit of bilateral victories (see box p.

28). For their part, key Canadians seethe about setbacks on a scorecard of old issues (see chart). For 65 million visitors crossing the peaceful border each year, for the industrialists who generate $90 billion in two-way trade and manage investments of $50 billion, it is business as usual between best customers. But from the vantage point of Prime Minister Pierre Trudeau and his government, Uncle Sam is walking tall and tough. Concession has become a one-way avenue of agonies.

Canada moves to expedite exports of Alberta gas to U.S. markets, yet an 18month-old fishing treaty painstakingly negotiated between the two countries,

beneficial to the Atlantic provinces, languishes in the American Senate; Canada ventures $4 billion for troubled U.S. fighter jets, yet protectionist sentiments roar from Congress to threaten imports from Canada. Another irritant emerged last week, two days after Ambassador Towe pointedly noted that he had looked in vain for “a special men-

tion of Canada” in the Democratic platform*: President Jimmy Carter announced a revitalization program to boost embattled American steelmakers—understandable enough given 15per-cent unemployment in the U.S. industry, but still a policy that hit directly at Canadian steel. If there is any doubt that Carter weighed the impact on Canada lightly, his remarks at the official opening of a New Jersey steel plant last month are instructive. The president boasted that the mill would “compete

*Europe and Japan get separate treatment; Canada, the biggest U.S. trade partner, is lumped with Mexico in a paragraph about population shifts. head to head with imported steel,” all but overlooking the firm’s Canadian ownership and financial backing by Ottawa. Noting “unprecedented cross-border feuding,” a New York Times editorial last month seemed to see what Carter didn’t when it cautioned: “Whoever aspires to lead in Washington ought to reckon with the Canadian cold front before it turns into a Mexican-style twister.”

One bloodied Ottawa veteran observes: “Negotiating with the Americans is not an unadulterated pleasure. They are very tough and heavy— and they make you swallow it.” The face reddens as he continues: “I would love to squeeze them so hard they would scream ‘Uncle.’ But I can’t find any volunteers in government.” The reason is to be found in Ottawa’s conclusion-disputed by economic nationalists—that Canada has no bargaining power. External Affairs Minister Mark MacGuigan suggested last June in a Times interview that “there are likely to be linkages”—retaliation on other fronts—because of the U.S. Senate’s failure to ratify the fish treaty. External debated the prospects of cutting off the I flow of Quebec hydro exports > to northeast states, but abang doned the thought when it real alized that the Parti Québécois government would never co-operate. Similarly, the notion of holding up western gas exports was abandoned because of Alberta Premier Peter Lougheed’s anticipated balk. Such chronic federal-provincial battles on the Canadian side often spill over the negotiating table with Americans. After one typical federalprovincial argument in the midst of a Canada-U.S. session on the northern pipeline treaty in 1977, a U.S. participant observed: “You guys sure make it difficult for us to give you anything.” The larger problem is lack of leverage. “Linking issues,” observes a MacGuigan adviser, “presumes that we have a C to follow B, and an E to follow D. But once you get to F, we have nothing

left”—except to get clobbered. As U.S. Ambassador Kenneth Curtis put it gingerly in an interview with Maclean's: “Linking of major issues would cause us more problems than it could solve. It would be disastrous, and not in the interests of either country, to get into some kind of contest squeezing one another.”

Hence, Trudeau is left with his famous but inconclusive zoological analogy; that dealing with the Americans is akin to “sleeping with an elenhant . . . one is affected by every twitcn and grunt.” The stark reality is that bland assurances of “movement” and “improvement” barely conceal an important new development in Canada-U.S. affairs: the White House in the postWatergate, post-Vietnam era no longer delivers Congress, especially not a president with such inept Hill relations as Carter has. Congress, accordingly, steps into the vacuum and, increasingly, Canada-U.S. matters are decided around

the parish pump, not the conference table. And for U.S. legislators, especially come election season, there are no votes in Canada.

A classic example is what happened after the two nations signed the Atlantic Coast Fisheries and Boundary Agreements on Feb. 14, 1979. The deal, two years in the making, commits both sides to “third-party resolutions” of boundary lines in the Gulf of Maine, between Cape Cod and Nova Scotia, which conflict because of the 200-mile limits set by both countries in 1977. It also sets out quotas in the disputed Georges Bank fishing area that would be reviewed every 10 years by a joint board. Senate debate of the SALTII arms treaty, passage of the Panama Canal pact and other pressing matters, relegated fish to a one-day hearing last May. Meanwhile, U.S. scallop men formed a strong Washington lobby, which bent the ears of Rhode Island Senator Claiborne Bell and moved Mas-

sachusetts’ Ted Kennedy off the fence into opposition. By tradition, senators from areas not affected deferred to those with direct associations in return for future consideration. Kennedy moved to limit the treaty to three years and reduce Canada’s role in joint management of fish quotas. Secretary of State Edmund Muskie failed in an eleventh-hour attempt before adjournment last week to soften Kennedy’s stance. Now the treaty is dead, if not for good, at least until after the presidential inauguration in January.

Americans submit that Canada was naïve in underestimating the Senateconstitutional right to withhold advice and consent on treaties. “It’s two different systems,” Curtis observes. “The Canadian government knew that this is one of the weaknesses of our system when it comes to entering into an agreement with another country.” For Canadians, as Towe points out, “It is particularly galling to have to negotiate such treaties twice—once with the appointed representatives and again in Congress.” But what really galls, as a government official scoffs, is that “Americans are brought up with the total conviction that the Constitution comes right after the Ten Commandments. They pledged their good name, now they’ve come back and said, ‘That was last week, pal. Don’t you know the president’s signature means nothing?’ ”

Divergent approaches to fish illustrate a gulf that is wider than any at sea. External’s MacGuigan labels the treaty “the most serious bilateral issue we have with any country.” Rhode Island’s Pell dismisses it as “a regional

fishing problem.” In fact, the dispute is only part of the larger, unresolved matter of boundary disputes off the West Coast and in the Beaufort Sea. For many Americans, it’s as if the border doesn’t exist at all.

A firm line is drawn, however, when it comes to trade among friends. Although 80 per cent of Canada’s exports to the U.S. are duty free under the latest GATT agreement, hidden non-tariff barriers on both sides maintain national preferences. Since 1933, the U.S. Buy American act has allowed the government’s domestic suppliers to come in above bids from foreign firms. At least 34 states offer similar preferences. The Surface Transportation Assistance Act of 1978 is particularly damaging to Canadian construction and transport firms. It provides a 10-per-cent preference on some $50 billion worth of highway and transit programs, if the content is 50-per-cent American and the assembly is done in the U.S. As a result, Bombardier Ltd. of Montreal is now considering sites in four northeast states for a plant to build rail cars for

New Jersey Transit—a move that not only enables the firm to qualify for preference, but also to create 200 jobs in the States instead of Canada.

Canadian provinces have erected unofficial barriers to foreign contracts with an unstated 10-per-cent preference, to say nothing about the inhibitions to movement of goods within the country. But there is no federal Buy Canadian law. And in Canadian eyes, the 317-page U.S. trade act (1979) is another contentious tool. Section 301 mandates the president to act if foreign laws are

judged “unjustifiable, unreasonable or discriminatory” in terms of American industry. Congress forced the 301 provision onto the books because it felt the White House wasn’t tough enough during the Tokyo Round trade negotiations in 1975-79. The provision is aimed primarily at Japanese and European product imports and dumping. But as Rodney Grey, Canada’s fearless GATT negotiator, observes: “These United States reactions often bear on Canada more vigorously than they do on others.” In less genteel parlance, a Canadian diplomat answers: “We’re the ones that get screwed every time.”

Not since December, 1975, have such harsh words been used. Then it was the Americans who were miffed, and departing U.S. Ambassador William Porter warned a selected group of Ottawa reporters that Americans were beginning to think of Canada as “no longer a friendly ally, or even a friendly country that could be trusted.”

Cyclical ups and downs have been a feature of Canada-U.S. relations since the last war. Mackenzie King’s close ties with the Rockefellers and C.D. Howe’s embrace of U.S. investors launched Canada on the road to economic prosperity—and branch plants. In later years, John Kennedy fell out with John Diefenbaker over Cuba and nuclear arms, but the U.S. president took a different view of Lester Pearson. After the first meeting, Kennedy told a Pearson aide: “He’ll do.” Pearson and Lyndon Johnson hit it off at the LBJ

ranch, as the president sought Pearson’s advice on secret foreign policy papers awaiting decisions. But Pearson went on to criticize U.S. involvement in Vietnam—and the chill extended to the Nixon years. The Watergate tapes revealed the president dismissing Trudeau as an “asshole,” and the sentiment was reciprocated when Washington introduced punitive trade restrictions. After Jerry Ford arrived in the Oval Office, there was a positive turn—especially after Washington leaned on the industrial nations to include Trudeau as the seventh man at economic summits. Trudeau and Carter have continued good personal dealings through thick and thin.

Often, of course, Canadian negotiators have no one to blame but themselves—or their predecessors. In the last election, Trudeau denounced the lack of commitment to research and development spending in Canada by U.S. automakers as “a disgrace” ($5 million here, vs. $375 million there). He also said Canada would move to reverse the $3.1-billion Canadian deficit in 1979 under the 1965 autopact, caused mainly by imported parts. But what did previous Liberal governments, including Trudeau’s, do before? In the salad days of U.S. deficits, they trumpeted the pact

as a model of industrial rationalization. For having countenanced the wholesale take-over of the then-struggling Canadian car industry 15 years ago, Ottawa now is helpless as the fate of Canadian workers is decided in Washington and Detroit. It resorts to empty grumbles about an old deal.

Industry, Trade and Commerce Minister Herb Gray has been attempting to change Victorian attitudes with sweeping proposals for a Canadian industrial strategy and laws to beef up

the foreign investment regime in Canada. Trudeau advanced the package last February in a Toronto election speech, and reiterated the government’s intent in the throne speech last April. While Gray says the proposals are still in the works, all signs point to yet another Liberal retreat from election pledges on control of the economy. The cabinet, for example, has rejected Gray’s bid for $2.75 billion over four years to place key Canadian industries, including aerospace and electronics, on a more competitive footing. Gray has gone back to the drawing boards, determined to have at least a “framework document” by year’s end. Plans to allow the Foreign Investment Review Agency (FIRA) to review the performances of multinational corporations in Canada and to encourage Canadian take-overs of companies before they are acquired by foreigners have now been put off until next year, with priority going to the constitution, the budget and energy. One key opponent, Maclean's has learned, is Treasury Board President Donald Johnston, who circulated a letter among ministers assailing the foreign-ownership proposals. A big fear, not unexpectedly, is adverse reaction from the U.S. While patriation provisions aimed at the oil and gas industry are expected in this month’s budget, other largely foreign-dominated sectors will not be touched for now, if at all. Gray pointedly notes in an interview that the industrial-strategy and foreign-invest-

ment speeches by Trudeau “seemed to have a major impact during the very crucial last days of the [1980] campaign. There is a commitment, or an expectation, on the part of the public. Time passes very quickly,” he adds. “The public is often found to have longer memories than some around here are willing to recognize.”

Meanwhile, there is a continuation of foreign control of the Canadian economy—74 per cent of petroleum in 1977, 54 per cent of manufacturing and 51 per

cent of mining. U.S. direct investment alone last year was $41 billion vs. $16 billion in 1966. Multinationals, most of them U.S. based, account for 40 per cent of Canadian exports. In an economy with some 4,000 branch plants, Canadian subsidiaries mostly are limited to the small domestic market—which restricts sales, drives up unit costs and inhibits research on new products for sale in the world.

Willis Armstrong, a former U.S. diplomat in Ottawa, once noted that Canadians “can have almost any kind of relationship they want, from hostility to friendship,” with Americans “because, basically, they have no hard feelings about Canada.” While no one argues that Canada should seek out punishment, there is a sense that Ottawa should be more demanding. MacGuigan, for example, recently suggested that the U.S. owes a debt for the Ken Taylor embassy caper, which freed Americans from Iran. Some other proposals:

• A new “third option”—The original Trudeau policy of seeking closer ties with Europe, the Far East and Latin America to offset U.S. domination was torpedoed, largely by objections from the finance department in Ottawa and ridicule from Washington. Harald Malmgren, a respected Washington economic consultant and former U.S. trade negotiator, is among those who suggests that Canada return to that course.

• An industrial strategy—Canada is a heavy importer of goods that, arguably, could be best produced at home. Among the top 20 imports from the U.S. last

year, apart from cars and parts, were computers, aircraft, telecommunications equipment and mining machinery. Many experts say Canada should be helping “winners” to build what Canada does best. But multinationals based here tend, of course, to disagree. Another proposition is that Ottawa insist on maximum Canadian spin-offs from the $200 billion expected to be invested in energy projects over the next decade.

• Firmness—York University economist Fred Lazar says the time has come for Canada to have its own legislated trade club—something that mirrors section 301 of the U.S. trade act. Says Lazar, who helped the Liberals draft their campaign pledges on economic control: “We could say, okay, they are restricting our steel exports; let’s threaten to undertake retaliatory measures.”

Any of these courses would first require recovery from the condition Lester Pearson once called “a kind of national schizophrenia”—a desire for guaranteed material benefits and political/cultural independence. Robert Thompson, the former Socred leader in Ottawa, suffered no such agonies back in the ’60s. “The Americans,” he proclaimed, “are our best friends, whether we like it or not.” Today, many Canadians wonder about friends like that.

With files from Carol Bruman in Toronto. Kathryn Maloney in Ottawa and Michael Posner in Washington.