CANADA

Tears in the cellophane border

Ronald Reagan doesn’t like back talk and last week no exception was made

Val Ross September 28 1981
CANADA

Tears in the cellophane border

Ronald Reagan doesn’t like back talk and last week no exception was made

Val Ross September 28 1981

Tears in the cellophane border

CANADA

Ronald Reagan doesn’t like back talk and last week no exception was made

Val Ross

Even the site of the set-to between Pierre Trudeau and Ronald Reagan last week seemed to be stacked in favor of the Americans—it was so unmistakably Reagan’s milieu. Recently renovated by the evangelical soap sales giant, the Amway Corp., the gilt and crystal Amway Grand Plaza Hotel in Grand Rapids,

Mich., is a showcase of nostalgia and private-sector cash. Last week it was booked solid with show biz and political celebrities, who came —as Trudeau ostensibly did — to celebrate the opening of the Gerald R. Ford Museum and library.

Thronging the lobby were 20 corporate jetloads of business community leaders and prominent Republicans, paying $1,000 a plate for dinner with the president, Bob Hope, Moral Majority leader Jerry Falwell and former secretary of state Henry Kissinger, among other glitterati. Twin portraits of Amway’s shiningfaced founders gazed serenely down, their hands painted at rest on copies of the Bible and a book titled How to Save Free Enterprise.

The latter could as aptly have titled Reagan’s agenda when he met Trudeau late Thursday afternoon. Throughout their 45-minute discussion, Reagan brusquely swept aside Trudeau’s concerns over acid rain and high interest rates. But then the president adopted tougher tactics to press for a more co-operative climate for American investment in Canada. He could not, he said, rein in Congress from the retaliatory measures currently proposed to counter Canadian economic nationalism, especially in the oil and gas sectors. Trudeau replied bluntly that he had won his last election on the promise to

Canadianize the energy sector. With that, the two leaders departed for the evening’s celebrations, blandly agreeing not to let their differences lead to anything rash. Senior U.S. officials voiced private displeasure over the continuing “communications problem” be-

tween the two countries. There was much soft soap, but no sale.

The existence of a “communications gap” means that the normal dialogue between the two countries has come to a dead end. And while the Grand Rapids meeting provided the most dramatic evidence of a deadlock, there were other signs of an impasse last week as well. In Ottawa, External Affairs Minister Mark MacGuigan told reporters that Canadians must not “lose nerve” in the

face of American sabre-rattling. But he seemed to lose his own when he was pressed for details of how Canada might counter any retaliatory measures adopted by Washington. Meanwhile, in Washington, Congressman John Dingell unveiled legislation to discriminate

specifically against Canadians who are planning corporate takeovers in the United States. At the same time, Finance Minister Allan MacEachen was meeting Treasury Secretary Donald Regan in the hope of containing growing congressional antagonism. But when MacEachen emerged from the hourlong meeting at the Treasury he was reduced to commenting tersely, “I listened to his words and he listened to mine.” The apparent fruitlessness of further talks is all the more alarming because it is happening at a time when the Reagan administration is preoccupied with rebuilding its domestic image. Since Reagan last met with Trudeau at the July Ottawa summit, a sickening drop in the stock and bond markets has signalled the private sector’s sudden disillusionment with Reaganomics (see story page 40). And to regain the confidence of the business community, Reagan must step up his cham-

pionship of business causes—by easing pollution emission standards, for example, or getting tough with the Canadians. Robert Hormats, assistant secretary of state for economic and business affairs, has even put forward a domino theory to justify U.S. action against Canada: “Such policies, if unchallenged, are likely to encourage other countries to adopt similar measures.” As a senior adviser to the Senate foreign relations committee put it, “If it becomes popular to kick Canadians, there will be plenty of feet in the air.”

The major causes of trans-border friction remain Ottawa’s energy policies—the Petroleum and Gas Revenue Tax (PGRT), which cuts the profits of investors on both sides of the border— and its commitment to Canadianize at least 50 per cent of Canada’s energy sector by 1990. Typical of the U.S. voters pressing their elected representatives to take counteraction is Grand Rapids businessman Peter Cook, a trustee of the Gerald R. Ford Museum. For 25 years Cook has been investing in an American firm drilling for oil and gas in Alberta. “Thanks to Trudeau’s tax revisions,” he fumed to a cluster of sympathetic fellow Grand Rapidians at a Grand Plaza gala cocktail party, “I’ve lost $50,000 in the last year. Why should we be patsies? You’ve got to ask, how can I get even?”

The PGRT has created another sore spot, by driving Canadian exploration companies south of the border, to compete with Americans. For example, since the tax effectively slashed its Canadian revenues by 20 per cent, Calgary-based Canadian Hunter Exploration Ltd. now spends 90 per cent of its discretionary exploration dollars in the U.S. Meanwhile, the Canadian government, through Petro-Canada and the private sector, accelerates acquisitions of foreign energy firms in Canadaseven more have been snapped up since April, 1981. But, storms Willis C. Arm-

strong, a former assistant secretary of state who headed a recent study critical of Canada-U.S. relations, “An American firm that sells property when only Canadians can buy is making a forced sale.” Bob Brawn, president of the Independent Petroleum Association of Canada, is also critical of Ottawa’s energy policy positions: “I think the whole government is rigid, far too rigid. If I were the other guy and I had a bitch I would make it where the other guy is most vulnerable.”

Just how vulnerable Canada might be has become an increasingly pertinent question as Washington has slowly unveiled the strength of its arsenal. Interior Secretary James Watt worked on a scheme to exclude Canadian oil firms from exploring for new deposits on federally owned land—and the plan may win congressional approval within a year. At the same time, Congress lined up its own daunting array of legislative firepower. Congressman Dingell introduced a bill in the House committee on energy and commerce that would effectively create an American board, similar to Canada’s FIRA, to filter foreign take-overs of U.S. firms. Canadians

could be specifically singled out at the discretion of the board. Although the bill undoubtedly will undergo modifications, it’s anticipated that it will be passed early in 1982. In the same committee, a bill requiring foreign companies to meet the 50 per cent financing margin requirements demanded of American firms was accorded unanimous passage.

Though the anti-Canadian proposals were originally intended as warning manoeuvres, Reagan protested to Trudeau that he could not call off the dogs of Congress. The question apparently was not even on the bargaining table. According to senior U.S. administration officials, the president warned that he could make no guarantees, for, as a powerful member of Reagan’s cabinet put it, when Congress is upset, the president is upset.

But the list of Canada’s other vulnerabilities to U.S. retaliation is as long as the undefended border. As the U.S.’s chief trading partner, Canada enjoys a privileged exemption from many American trade regulations. Late last week, however, Republican Senator William Cohen of the border state of Maine made an opening move that could change all that. Cohen instructed the secretary of agriculture to investigate the possibility that Canadian farmers are using insecticides banned for use in the U.S. In fact, some Canadians have

already been nicked by the thickening volley of trans-border crossfire. About a dozen people have been laid off at the P. J. Wallbank Manufacturing Co., a Plattsville, Ont., auto parts manufacturer, which was recently blocked by the U.S. Trade Commission from selling to General Motors and Ford.The Canadian government has sent a stiff diplomatic note to Washington. But company Vice-President Mel Wallbank is realistic about the effectiveness of a Canadian protest. Convinced that his firm’s plight is just part of America’s general retaliation plans, he’s considering moving his business to the United States. “We have to eat,” he declares, “we have to make a living.” The truth is, Canadians have no real protective leverage. U.S. investment in Canada totals $44.6 billion (U.S.)—almost 18 per cent of the country’s total annual output. Where that puts Canadian counter-

retaliation plans was succinctly described last week when Senator Cohen told Maclean's that he remembered the tit-for-tat that followed Ottawa’s 1974 elimination of tax deductions for Canadian firms advertising in Americanowned publications: “We in Congress responded by limiting the U.S. tax deductions for Americans holding conventions in Canada. The Canadian action cost American business about $15 million annually. The U.S. action lost your tourist industry about $100 million.” However, as the Canadian diplomatic corps hustled former Canadian ambassador to Iran and hostage rescue hero Ken Taylor from dining room to dining room—flaunting the only, albeit wellworn, piece of currency by which Canada believes it can still claim an American debt of gratitude—Trudeau remained amazingly jaunty. One reason may have been the presence of Mexican

President José López Portillo, the only other foreign leader to be invited to Grand Rapids for the Ford celebrations and an informal tête-à-tête with Reagan. Currently Canada’s relations with Mexico are at a zenith. Although Mexico is unlikely to provide Canada with a third option—a trade relationship that would reduce dependence on the U.S.— Canada’s exports to Mexico have risen 108 per cent in the past 14 months and Mexico’s exports 76 per cent. Moreover, Mexico’s nationalized oil industry is something of a touchstone for Trudeau’s energy ambitions. Finally, the two leaders continue to co-operate closely in pressing for key items on the agenda at the upcoming North-South conference in Cancún.

The three leaders, Trudeau, Portillo

and Reagan, got together for their only trilateral meeting over breakfast last Friday. Not surprisingly, Portillo and Trudeau worked in stereo to convince Reagan that the public sector had a role to play in foreign aid (the U.S. president would rather see the private sector take initiatives for most economic and industrial development). As the meeting ended and the eggs and sausage were removed there was, once again, an agreement to disagree. A top Trudeau aide present at the meeting said, “Each party was throwing out particular ideas” —a description reminiscent of MacEachen’s earlier meeting with Treasury Secretary Donald Regan.

Ultimately, the Grand Rapids conclave may have been more interesting for its chemistry than content. Clearly primed for a successful summit at Cancun in October, Trudeau appears to be deepening his alliance with Portillo.

Though his relations with Reagan were at best businesslike, Trudeau had expected no more. Reagan had, however. Canada’s surprising determination to stand firm on the National Energy Program and the lack of progress on any of the other disagreements currently at issue brought a grim note to the American entourage. With unusual reticence, Reagan and his aides later refused any comment on the Trudeau talks with the Washington press corps aboard Air Force One. As leader of the world’s most powerful nation, the president was unaccustomed to back talk from the leader of any other nation—and despite Canada’s special friendship with the U.S. he would not make an exception for Pierre Elliott Trudeau. Regardless, Trudeau seems determined on this occasion to keep a promise to the electorate. He has gone too far to back out.

John Hay

Gordon Legge

Robert Lewis

William Lowther