BUSINESS

Stop signs for the competition

D’ARCY JENISH September 21 1987
BUSINESS

Stop signs for the competition

D’ARCY JENISH September 21 1987

Stop signs for the competition

BUSINESS

ECONOMY

For the past three years Canadian steel producers have regularly sent representatives to Washington for meetings with senators and congressmen. Their mission: to argue against restrictions on Canadian steel exports to the United States. So far, the lobbying has worked. Canada is the only major steel exporter not covered by a voluntary-restraint agreement that limits foreign producers to a specific share of the U.S. market. But a highly protectionist trade bill that has passed the Senate contains a number of clauses that could slash shipments of Canadian steel to the United States by 25 per cent and cost producers up to $400 million per year. Said Canadian Steel Producers Association managing director Daniel Romanko: “We have never traded unfairly, but Canada is mentioned specifically [in the trade bill] and in debate.”

The attack on Canadian steel is indicative of the angry mood prevailing in Congress. During the past year both the Senate and the House of Representatives have passed trade bills containing dozens of restrictive measures aimed at Canada and other countries, and later this month a conference of senators and congressmen is expected to begin hammering the two bills into one piece of legislation. At the same time, the Reagan administration will have to submit a proposed free trade agreement with Canada to Congress by Oct. 5. And with the administration and Congress on a collision course, state governments are complicating the debate over free trade and protectionism. In August the governors of seven leading automobile-producing states released a statement advocating that Washington renegotiate the CanadaU.S. Auto Pact. Although administration officials want most Canadian barriers to foreign invesment dismantled under a free trade agreement, 21 state governments have enacted antitakeover laws that could be used to block foreign investment.

It is the congressional bills that pose

the greatest threat to Canada’s exportdriven economy. Last year exports to the United States exceeded $93 billion and accounted for 18.4 per cent of the country’s gross domestic product. In their current form, both bills would make it easier for U.S. industries to win trade disputes against foreign competitors by curtailing the President’s power to overrule commerce department investigations. The bills also attempt to expand the definition of unfair export subsidies. As well, they contain numerous clauses, like the Senate quotas on Canadian steel imports, which can be used against specific industries. The most extreme measure was introduced by Missouri congressman and Democratic presidential hopeful Richard Gephardt, who wants automatic retaliation against countries that have excessive trade surpluses with the United States.

Canada’s ambassador in Washington, Allan Gotlieb, has been lobbying against the bills for months. Last June Gotlieb wrote to Senate majority leader

Robert Byrd to warn that the Senate bill, if unamended, would undermine efforts to reform the system of international trade. University of Maryland political economist I. M. (Mac) Destler, the author of a 1986 book on U.S. trade

politics, said that the proposed trade legislation will not correct the large U.S. trade deficit, which reached a record $201 billion in 1986. But he added that the Democrats can still use such legislation to their advantage in the presidential election next year.

The governors of the seven leading auto-producing states —Michigan, Ohio, Illinois, Indiana, Wisconsin, Kentucky and Missouri—handed protectionist-minded congressmen another trade issue when, in August, they

launched their campaign for a new auto pact with Canada. Marc Santucci, an adviser to Michigan Gov. James Blanchard, said that the governors have been vigorously lobbying their

The North American automotive industry has changed dramatically since the Auto Pact was introduced in 1965, and the governors supported the agreement until, in March, 1985, Japa-

congressmen to reject any Canada-U.S. free trade deal that does not include changes to the Auto Pact. Added Santucci: “We see it as freeing the market rather than passing additional restrictions.”

nese automakers began to make use of a long-standing Canadian duty-remissions program, said Santucci. Under that program, automakers who buy or produce parts in Canada earn reductions on the duty paid on vehicles that they import. Santucci said that duty remissions give the Canadian provinces an unfair advantage over American states when both countries are competing for investment from Japanese automakers. He added that Japanese who wanted to buy parts from a U.S. company would be encouraged to buy from a Canadian subsidiary instead.

The duty-remissions program has created an intense debate on both sides of the border. Victor Lonmo, president of the Automotive Parts Manufacturers’ Association of Canada, said that the governors are ignoring the fact that American manufacturers have amassed an enormous $60-billion trade surplus in parts and vehicles since the Auto Pact was negotiated. On the other hand, University of Maryland economist Paul Wonnacott, author of a book and several studies on CanadaU.S. free trade, said that duty remissions represent an unfair subsidy under the rules of the General Agreement on Tariffs and Trade. Said Wonnacott: “There is a feeling in the United States that you have to watch Canada like a hawk.”

An even larger dispute exists over antitakeover laws enacted at the state level. Since 1984, 21 states have passed laws that give management or independent shareholders of companies based in their states the power to block hostile takeovers. Indianapolis lawyer James Strain, who helped draft

Indiana’s antitakeover law, said that the statutes protect shareholders from corporate raiders who buy companies and load them up with debt from the acquisition or break them up. In some cases, the laws give existing shareholders the right to decide whether corporate raider can vote his newly acquired shares during a takeover bid.

On two well-publicized occasions, states have passed laws when takeovers by foreigners were already in progress. In the spring of 1986 Kentucky stopped the Belzberg family of Vancouver from purchasing controlling interest in Ashland Oil Inc. The state took the action after the Belzbergs had bought 9.2 per cent of the Kentucky-based company and had made an offer for the rest of the shares. And late last year the Ohio legislature passed a law that blocked European financier Sir James Goldsmith from buying Goodyear Tire & Rubber Co.

Kenneth Cox, director of the Ohio department of commerce, said that foreign ownership was not an issue for state legislators. He added that the key issue was weighing the interests of the community and employees against the interests of shareholders. Said Cox: “It all has to be a balancing act.”

But officials in Canada’s Trade Negotiation Office say that the laws are barriers to investment, and they have commissioned a detailed study of them for use in bargaining with the United States. One federal official, who asked not to be named, said that, although the state laws do not explicitly discriminate against foreign buyers, they do allow federal and state regulators to impede takeovers by non-American investors.

Still, as Congress prepares to reconcile the two trade bills into a final version, and the Canada-U.S. free trade talks approach a conclusion, some American observers contend that protectionism is a fading force. As evidence, they point to U.S. exports, which rose to $156 billion in the first six months of 1987 from $148 billion in the same period last year. Michael Aho, an economist with the New Yorkbased Council on Foreign Relations, said that with exports rising multinationals and other export-oriented companies will act as a countervailing force to offset the complaints of domestic companies hurt by imports. If the mood in the United States has indeed begun to change, it will be a welcome relief for Canadian steelmakers, auto-parts manufacturers and other industries under heavy attack in their biggest export market.

D’ARCY JENISH

IAN AUSTEN