COVER

DRIVING FOR THE DEADLINE

MARY JANIGAN April 6 1987
COVER

DRIVING FOR THE DEADLINE

MARY JANIGAN April 6 1987

DRIVING FOR THE DEADLINE

The security is impressive—even in secrecy-prone Ottawa. Behind a formidable array of locks and hulking safes, the Trade Negotiations Office (TNO) sprawls over the 17th floor of a modern downtown office tower two blocks from Parliament Hill. The doors to most corridors leading from the elevators are sealed by combination locks. The sole open corridor leads to a lounge guarded by two receptionists. One small room, Boardroom C, is sound-proofed and protected against listening devices. The larger Boardroom A holds the 23foot table at which American and Canadian envoys are negotiating a historic free trade agreement between the two countries. The room contains one flicker of humor: a black-and-white photograph showing a rear view of a small boy and an elephant, each perched on tiny stools. The photo, a present from the TNO staff to deputy chief negotiator Gordon Ritchie, shows the boy struggling to hug the beast.

Embrace: To the apparent relief of the federal government, that tentative embrace is fast becoming a political reality—after more than 10 months of tense and turbulent negotiations. When Prime Minister Brian Mulroney and U.S. President Ronald Reagan meet next week for their third summit, both men will stress their strong support for a free trade accord. And both men will try to resolve festering trade irritants, including a 35-per-cent U.S. duty on Canadian shakes and shingles and U.S. complaints that Canada is exporting cheap offshore steel. Senior Canadian officials say that Mulroney and Reagan will endorse the proposed pact in general, not specific, terms. But that endorsement, one official said last week, can give both negotiators “clear marching orders in terms of getting on with the job.”

The negotiators are already getting on with the job. Members of both teams told Maclean’s last week that a preliminary accord should be ready by June. Reagan must present a final agreement to the U.S. Congress for approval by early October. Although talks are proceeding on a wide range of topics, only a handful of key issues now preoccupy Canadian Trade Ambassador Simon Reisman and U.S. Chief Negotiator Peter Murphy. Canada’s top priority is protection from countervailing duties and similar punitive U.S. trade measures. The United States, in turn, has demanded exemption from Investment Canada’s scrutiny of foreign investment. As a senior member of the Canadian team declared: “We are now driving for the deadline. It is a marathon—not a sprint. And in the Boston Marathon analogy, we are heading up Heartbreak Hill.”

Debate: That progress, in turn, has intensified an already wrenching debate —on both sides of the border. Two weeks ago former Alberta premier Peter Lougheed and former federal finance minister Donald Macdonald launched the Canadian Alliance for Trade and Job Opportunities to promote free trade. Last week, in a grim fullpage ad in the Toronto Globe and Mail, the nationalist Council of Canadians warned that a full-scale trade agreement will “at best, seriously compromise Canadian sovereignty.” The council, along with the Canadian Labour Congress and some 30 organizations, plans to demonstrate its opposition to free trade by staging what it calls the Maple Leaf Summit—one day before Reagan and Mulroney begin their talks. Trade is an equally contentious issue in the United

States—which recorded an overall trade deficit of about $170 billion last year. Its deficit with Canada was an estimated $16 billion—on almost $200 billion of bilateral trade. Last week the powerful ways and means committee of the House of Representatives approved a tough protectionist trade bill that includes restrictions on foreign purchases by key U.S. industries. In contrast, an informal group of large U.S. companies, including American Express Co., is considering a Capitol Hill campaign to promote the benefits of free trade with Canada.

Officials close to the negotiations attribute the increased interest to the fact that both governments have finally thrown their full weight behind the talks. Said one senior U.S. trade official: “In terms of trade, it is the No. 1 game.” Added a senior Ottawa Conservative: “The government finally has made a full political commitment. It has decided that the issue is glued to itself anyway and that it could not afford any longer to have its ultimate position open to question—as it was throughout most of 1986.” Canada believes that both governments need a successful deal to improve their popularity. Senior Canadian officials said that U.S. Treasury Secretary James Baker is fighting the protectionist instincts of the U.S. Congress with an upbeat campaign stressing the competitiveness of American industry. Said a senior official in the Prime Minister’s Office (PMO): “The trade initiative is right there in the centre of the American trade strategy. If they cannot deliver, they will pay the consequences.”

But many American observers warn that the status accorded to the free trade talks could quickly erode as Reagan’s political fortunes improve. Paul Fekete, an analyst with the Washington-based Government Research Corp., said that he even doubts that the talks are really a priority of the White House. “For something that is a trade priority, they’re playing it awfully cool,” Fekete said.

Meanwhile, the Mulroney govern-

ment is clearly under pressure to reach an agreement—because its own credibility is at risk. As a senior PMO official acknowledged last week, Mulroney’s policy of close friendship with the Americans has not yet produced tangible benefits. “Canadians have not seen the goods,” the official said. “The challenge is to convince the people that he has something to show for it.”

Consult: To help Mulroney in that quest, the Canadian team regularly consults an array of advisers. Deputy negotiator Ritchie meets with key federal deputy ministers every second week. Reisman and Ritchie gather every second Tuesday for gruelling sessions with the cabinet subcommittee on trade, chaired by International Trade Minister Pat Carney. There are also regular discussions with 15 teams of business and labor representatives specializing in sectors such as furs and food. And there is an international trade advisory committee of 40 chief executive officers of major corporations headed by Walter Light, former chairman of Northern Telecom Ltd. To inform the provinces, there are monthly meetings of the federal-provincial continuing committee on trade negotiations. Finally, Mulroney holds quarterly meetings with the 10 premiers. “You’ve got about a four-ring circus here,” sighed a weary senior negotiator. “You would not be overstating it at all if you talked in terms of 1,000 people. Easily.”

Complain: Guided by his advisers— all of whom have sworn oaths not to reveal information about the talks— Reisman has increasingly focused Canada’s position on a single looming priority: exemption from punitive U.S. trade

penalties. At present, if an American industry or union believes that a foreign nation is unfairly subsidizing exports, it can complain to the U.S. International Trade Commission (ITC). If the ITC decides that the complaint is justified, the U.S. commerce department may eventually institute a countervailing duty on the foreign product to offset the subsidy and protect American producers.

The Mulroney government views that process as capricious and partisan—and politically damaging. Last December Ottawa imposed a controversial 15-per-cent tax on softwood lumber exports to forestall U.S. threats to impose a countervailing duty. And just last week the ITC made a preliminary ruling in favor of American potash producers, who are seeking a duty of 43 per cent on imports of Canadian potash, valued at $350 million in 1986. Reisman is pressing for creation of an impartial tribunal, with representatives from both nations and binding powers to settle such disputes. As one senior Conservative declared: “It is absolutely critical that this deal be seen clearly to make us less open to the whim of those laws.”

But Canada already knows that it almost certainly will not get what it wants: Congress will not approve a treaty that abrogates its power to deal with unfair trading practices. As a result, the trade negotiators have begun looking for a compromise. Among the possibilities now being discussed: compiling a list of acceptable subsidies, including regional development programs, and acceptable levels for those subsidies; or establishing the tribunal, but without giving it binding powers. Alternatively, the tribunal could be empowered only to look for evidence of subsidies—but not to assess damages. Said a senior Conservative: “If you can move some way to say that all the unreasonableness of U.S. complaints will be taken out at the commission level, that obviously is a major step.”

Doubt: Some American observers say they doubt that Canada will extract even that much from Congress. The Government Research Corp.’s Fekete cautioned that the Reagan administration may be willing to grant the concession in a trade deal, but Congress would never approve such a treaty. Canadians, he said, “are setting themselves up for a fall later on.” Meanwhile, the United States has its own priorities. A senior Conservative said that Washington is “quite hawkish.” It wants full exemption from Investment Canada’s provisions to review foreign takeovers in Canada. The Mulroney government, which has already watered down the policing of foreign takeovers, may exempt American firms from reviews of indirect takeovers, which occur when a U.S. company acquires another American firm with a Canadian subsidiary.

The United States also wants to dismantle key provisions designed to protect Canadian culture. The two prime targets: Bill C-58, which denies tax advantages to Canadian companies that advertise in American magazines or on American border broadcasting stations; and the Mulroney government’s book publishing policy, which requires foreigners acquiring Canadian publishing firms to sell those assets to Canadians within two years.

Perhaps most important, the United States wants any trade agreement to include some service industries—especially financial services. Indeed, opening up trade in the service sector is also the main American priority for discussions on the General Agreement on Tariffs and Trade (GATT), and the Reagan adminstration contends that an agreement with Canada would help its case in the larger trade talks. Said Michael Aho, senior economist at the New York-based Institute for International Relations: “If the two of us can strike a deal, the U.S. can hold up a model agreement to the rest of the world and say, ‘Come and join us.’ ”

The U.S. priorities cannot be ignored. Senior Conservatives suggest that to placate the Americans, Canada may soon amend C-58’s tax provisions

to allow Canadian companies to deduct the cost of advertising on U.S. border television stations. “There is a feeling that Canada cannot get out of a deal with C-58 intact,” conceded a senior Tory. It is also likely that Ottawa will abandon its controversial book publishing policy because it has done conspicuously little to enforce it.

Secret: Concessions on the cultural front will likely stir a storm of protest among Canadian nationalists. Critics insist that Ottawa is already playing down the dangers of free trade and has kept secret studies into the effects of an accord on more than 100 industries. And nationalist publisher Mel Hurtig says that American cultural industries will drag Canada’s cultural programs before the proposed dispute settlement commission—and destroy them. Said Hurtig: “If we agree to a dispute commission, the implications are profound: there will not be any Canadian culture down the road.”

Meanwhile, free trade proponents are also flexing their muscles. Pollster Ian McKinnon of Decima Research Ltd. said last week that “a slim majority” of Canadians now favor free trade. “But people do not feel they understand how it would affect them,” McKinnon added. “So they look to people whom they trust: ‘If that guy says it is good for me, then that is the way that I should go.’ ” In that climate, the MacdonaldLougheed coalition, representing about 100 major business and consumer groups, is a lifesaver for the Conservatives. University of Toronto political economist John Crispo, a strong propo-

nent of free trade, was ecstatic about the coalition’s birth. “I am fed up,” he said. “The left and the crazies and the culture clique think they have got a monopoly on being good Canadians.” Crispo’s irritation is only a taste of the arguments that will rage as Reagan and Mulroney meet and as Reisman and Murphy bargain. The stakes are high. Senior Canadian trade negotiators say that they often remind themselves that the sheer volume of Canada-U.S. trade ensures that the free trade pact will be the largest of its kind in the history of the world. For Canadians, that means that everyone will share in the rewards—and in the potential risks.

MARY JANIGAN

in Toronto with

MADELAINE DROHAN

and

HILARY MACKENZIE

in

Ottawa and

IAN AUSTEN

in Washington