BUSINESS/ECONOMY

The ownership issue

D'ARCY JENISH June 1 1987
BUSINESS/ECONOMY

The ownership issue

D'ARCY JENISH June 1 1987

The ownership issue

Time is running out in the Canada-U.S. free trade negotiations. The provincial premiers have been expecting Prime Minister Brian Mulroney to present a draft agreement to them in less than a month. But Canada’s chief negotiator, Simon Reisman, and his U.S. counterpart, Peter Murphy, are still discussing general principles on a wide range of subjects and have yet to produce any detailed trade recommendations, according to provincial officials. And during a threeday bargaining session in Ottawa last week, a major new impediment arose when the United States outlined its demands that Canada remove all barriers to investment by American companies. To keep the talks moving, the two top negotiators turned over the contentious question of investment to a working group of subordinate officials. Reisman told reporters, “The United States’ side has made it very clear on every level that they’re anxious to talk about investment in the broadest sense.”

Still, federal Trade Minister Patricia Carney said that neither the cabinet nor provincial trade ministers had received a written proposal on investment from the U.S. negotiators. In reply to opposition charges that the government had bowed to U.S. demands for unlimited access by American investors, Carney told the House of Commons: “There is no demand for unfettered investment on the table. If there were, it would be rejected.”

For their part, provincial trade representatives, who were briefed on the negotiations by federal officials as recently as May 12, said that Reisman had been seeking specific U.S. proposals on investment for months. But while waiting for a response, the Trade Negotiations Office (TNO) worked closely with Investment Canada (IC) to monitor and express their concerns with U.S. practices that restrict the free flow of investment into the United States. A TNO official, who asked not to be identified, told Maclean’s that negotiations on investment policy will focus equally on removing current restrictions and preventing barriers from being

erected in the future. A Reisman associate also said that the provinces are far from unified on the issue. A few, Ontario being one example, are leery about increased foreign ownership. But the majority are “hungry for investment,” he added.

At the start of last week’s bargaining sessions, Reisman told reporters that

his mandate does not allow him to negotiate changes in Canadian restrictions on all foreign investment. As a result, he said, he will send the U.S. position on wide-ranging negotiations to the cabinet for a political decision. Said one concerned provincial trade official: “What the Americans would like us to do is completely eliminate foreign investment review provisions. The government of Canada will find it tempting to use that as a bargaining chip for an agreement they want very badly.”

The investment issue has been in the

background of the free trade talks for months. During a visit to Ottawa last January, U.S. Vice-President George Bush raised the subject of Canadian restrictions on investment with External Affairs Minister Joe Clark. As well, U.S. Treasury Secretary James Baker pressed Carney two weeks ago to include investment in the talks. But according to one provincial trade representative, Reisman referred the matter to cabinet after Mulroney refused to give him authority to discuss Canadian investment policy. Other trade representatives agree that Reisman tried unsuccessfully for the past several months to pry detailed demands from the Americans. “We have heard this from Simon Reisman several times,” said Robert Adams, Manitoba’s trade representative. “The U.S. has advanced no specific proposals.”

Late last week the opposition parties pressured the Conservative government to give some clear answers on the issue of investment. In response to a New Democratic Party motion opposing unfettered U.S. investment in Canada, Carney said the Americans presented only oral proposals last week. She added that Reisman’s mandate allows him to discuss traderelated investment, as opposed to simple foreign takeovers of Canadian companies. “As for other issues, our negotiators have been given a mandate by cabinet to listen to the United States to find out exactly what it proposes,” Carney told the House. But her explanation did not satisfy the opposition. Said Liberal trade critic Lloyd Axworthy: “We have had five different versions of what’s going on in the last three or 9 four days.”

According to Reisman’s officials and Mulroney aides, a preliminary accord was to be presented to the premiers at their next quarterly meeting with the Prime Minister on June 22. But last week Reisman told reporters that the provincial premiers would probably not see a draft of the agreement because there were still outstanding obstacles. Beyond that, the Reagan administration is bound by the so-called fast-track mechanism, which requires that a completed agreement be presented to the U.S. Congress by early October. But provincial trade representatives also said that they now believe that the negotiating teams will be unable to meet the June deadline. Said one: “We are still not down to a single area where Simon Reisman and Peter Murphy are discussing detailed wording.” The two top negotiators are still dealing with broad principles while a dozen working groups are trying to convert general concepts into precise trade rules, the official added.

But contrary to the gloomy view of some Canadian trade representatives, a U.S. state department official told Maclean's that the negotiations are progressing well. He added that U.S. negotiators have turned over to Reisman completed position papers on all key issues but two. Even in the two areas where the U.S. has not finalized its demands, rough-draft texts have been presented. “They certainly have enough to show and talk to the premiers about right now,” said the state department official. “Simon always has to have something to accuse us of.”

Indeed, a provincial trade representative acknowledged that the negotia-

tors have made considerable progress in key areas. For one thing, he said that the Canadian team has tabled a package of proposals aimed at resolving trade disputes between the two countries. It contains draft restrictions on industrial subsidies, and proposes a bilateral organization to administer the package, including a tribunal to hear trade disputes. As well, the provincial representative said, the U.S. side has put forward proposals for liberalized trade in management consulting, accounting, insurance, transportation, advertising and financial services. The establishment of standards for trade in services has been a major objective of the United States in the trade talks.

But with plenty of ground still to cover, the addition of investment policies is certain to make the negotiations even more complex. And Reisman must try to forge a consensus among the provinces, where reaction to the free trade talks has been mixed. Said Stuart Culbertson, British Columbia’s director

of trade policy: “We are quite prepared to support liberalization of Canadian investment restrictions, especially if we get what we want on trade law.” But for his part, Ontario’s minister of industry, trade and technology, Hugh O’Neil, said that he has strong reservations about negotiating away safeguards on banking and cultural industries.

Federal negotiators appeared to be well prepared for negotiations on investment policy. Indeed, an Investment Canada official who has been working closely with Reisman’s office for the past eight months, pointed out that 22 U.S. states have passed laws that can be used to discriminate against foreign investors. As well, the official said, Washington can use national security legislation to prevent foreign takeovers of any U.S. companies that have defence contracts. “Clearly, a trend exists that is not typical in Canada,” said the Investment Canada official, who asked not to be identified. “It will undermine U.S. demands for changes in Canadian investment policy.” As the free trade talks near the June deadline, there may be more to the negotiations on investment policy than American demands and Canadian concessions.

D'ARCY JENISH

IAN AUSTEN

Washington

SHERRI AIKENHEAD

Toronto

MADELAINE DROHAN

Ottawa