BUSINESS

TALKING TRADE

NEGOTIATIONS IN NORTH AMERICA AND EUROPE MUST STILL RESOLVE A NUMBER OF THORNYISSUES

NANCY WOOD April 6 1992
BUSINESS

TALKING TRADE

NEGOTIATIONS IN NORTH AMERICA AND EUROPE MUST STILL RESOLVE A NUMBER OF THORNYISSUES

NANCY WOOD April 6 1992

TALKING TRADE

BUSINESS

NEGOTIATIONS IN NORTH AMERICA AND EUROPE MUST STILL RESOLVE A NUMBER OF THORNYISSUES

One after another, during a stormy session of Parliament last week, opposition members angrily waved an inch-thick document and denounced its contents as a betrayal of Canada’s industry. The pages were copies of the negotiating positions presented by Canadian, American and Mexican trade negotiators at a meeting held in Dallas in February. “This document,” declared deputy Liberal leader Sheila Copps, “will wipe out farmers in Quebec and across Canada.” Snapped International Trade Minister Michael

Wilson: “I have not seen that document. Mr. Speaker, that may be the Liberals’ policy on pharmaceuticals in 1969, for all I know.” In fact, government officials insisted that the purported draft of the proposed North American free trade agreement (NAFTA) represented only preliminary discussions.

Indeed, negotiators for the three countries involved continued last week to refine the latest draft of the proposed agreement during meetings in Washington. At the same time, in Europe, representatives from 108 countries made progress towards lowering trade barriers through a revised General Agreement on Tariffs and Trade (GATT). In Ottawa, meanwhile, international trade experts said that both sets of negotiations could be completed as early as April 15. In light of the thorny issues involved in the NAFTA and GATT talks, however, and with the United States preoccupied with the presidential election campaign, that timetable plainly remained in doubt.

Two factors may determine whether the NAFTA talks reach an early resolution. One is the issue of the depth of eagerness on the part of Mexican President Carlos Salinas de Gortari, whose political platform is focused largely

on integrating Mexico into the modem trading world. Said William Merkin, the former deputy chief U.S. negotiator in the Canada-U.S. free trade talks: “If the Mexicans want it bad enough and they are prepared to do what the Americans need to close the deal, I think it can be done very quickly.”

But even a draft agreement that satisfies negotiators for all three countries is not assured of approval by Congress this year. Under American law, that country’s administration must give Congress 90 calendar days’ notice of its intent to enter into any trade agreement. That would push the presentation of an agreement to Congress at least to late July. Congress then has another 60 working days to examine the legislation before voting on it. The distinction is critical: with a summer break and a fall campaign, Congress may not complete its examination of the trade deal before the November election.

Nor is it clear that Ottawa will consent to terms that are agreed on by Washington and Mexico City. For his part, Wilson declared last month that “there will be no deal unless it is a good one for Canada.” According to Merkin, “Canada will be faced with either going as far

as Mexico seems prepared to go, or walking away from the table. I am not convinced Canada is going to be there at the end of the day.” For their part, Mexican negotiators insist that they are not willing to make major sacrifices just to reach a deal. Mexico’s deputy chief negotiator in Ottawa, Antonio Karg, told Maclean’s: “We will not make concessions. If the American timing means it is next year, that only means our economic integration is postponed.”

If an accord is reached, its immediate effect could be muted. Canada’s two-way trade with Mexico was only $2.3 billion in 1990, compared with its $193.4-billion trade with the United States. Still, NAFTA could profoundly affect some key Canadian industries. Among those most likely to be affected:

Automotive : The Americans want car and truck manufac-

turers in Canada and Mexico to increase the North American content of their vehicles to 60 per cent from 50. Canadian parts manufacturers support that position. Opposed are Japanese auto companies, including Honda, that have plants in Canada but still rely on some Japanese components. Also opposed are North American automakers that have joint ventures with Asian car companies. In 1990, exports of Canadian cars, trucks and parts to the United States reached $32.5 billion. The industry employs about 130,000 people.

Telecommunications: In Mexico, it can now take up to a year to have a telephone installed—

a situation that holds out clear opportunities for such Canadian giants as Northern Telecom. But NAFTA might also expose Bell Canada and its regional counterparts to stiff domestic competition for residential and business long-distance service from American companies that include Sprint, MCI and AT&T. A new GATT agreement could make it easier for Canadian telecommunications companies to provide services and equipment to government-owned telephone companies around the world. About 121,000 Canadians work in the industry.

Banking: In addition to access to Mexico’s highly protected financial markets, NAFTA could

give Canadian bankers the opening into the U.S. market that they failed to get under free trade. Along with the Mexicans, they are seeking the removal of various restrictions on the industry in the United States, including laws that separate retail and investment banking. But Canadian bankers say that Ottawa may have conceded too much in reaching the 1989 Free Trade Agreement (FTA) with the United States to be able to wring new concessions from the Americans now. Said Shawn Cooper, a vice-president of the Canadian Bankers’ As-

sociation: “We have very little to trade with. We have given away most of what we could possibly use as levers.” Banking employs about

180.000 people in Canada.

Textiles and fashion: Already frayed by the FTA, the industry could face further losses in a

deal with Mexico. American negotiators are insisting that all clothing, in order to qualify for free trade under NAFTA, will have to contain material and fibres manufactured solely in North America. That would be a severe blow to the Canadian industry, which has carved out a lucrative niche for itself by selling fashions made of imported fibres to American buyers. Estimates of job losses are as high as half of the

100.000 people employed in making clothing. Said Stephen Beatty, executive director of the Canadian Apparel Manufacturers Institute: “Competing with the Americans on the basis of American fabrics and Mexican labor is not a competition we can win.”

Agriculture: Both NAFTA and an eventual GATT accord may lead to sweeping changes for

Canadian farmers. Terms being discussed in Europe by multinational trade negotiators could force Canada to abandon its existing system of managing domestic supply of dairy products, poultry and eggs in favor of protective tariffs, which would gradually be reduced. Poultry and dairy producers view the possible change as a threat because of fears that consumers will balk at tariffs as high as 300 per cent, which they say may be necessary to protect the domestic producers. At the same time, Canada’s grain and oilseed farmers might profit if a GATT agreement eliminates subsidies paid to U.S. and European competitors. Most of Canada’s 39,000 poultry and dairy farms are in Quebec and Ontario; the bulk of 110,000 grain farms are in Manitoba, Saskatchewan and Alberta.

One sector is likely to be immune to the effects of either agreement. Canadian officials say that the country’s cultural industries are no longer under discussion at the NAFTA talks. The current GATT negotiations do not include cultural industries.

Indeed, former American free trade negotiator Peter Murphy acknowledged to a Montreal audience last week that the United States realized early in the FTA negotiations that Canada would never accede to demands for more U.S. access to its broadcasting, recording, film-making and publishing industries. Still, Murphy said, American negotiators continued to demand access as a bargaining chip for other concessions, while privately considering the issue to be “a joke.” But with tens of thousands of jobs hanging in the balance, negotiators in the latest trade rounds are unlikely to treat any of the issues as a laughing matter.

NANCY WOOD

E. KAYE FULTON

Ottawa