Free trade in the balance

MARK NICHOLS February 10 1986

Free trade in the balance

MARK NICHOLS February 10 1986

Free trade in the balance


Four months have passed since Prime Minister Brian Mulroney formally proposed to President Ronald Reagan that Canada and the United States begin discussions aimed at broadening trade between the two nations. Since then, a heated debate has erupted in Canada over how the talks should be conducted—and the advisability of launching them at all. While the provinces are arguing with Ottawa over their role in the negotiations, officials in Washington are increasingly irritated by the number of economic areas that Ottawa wants left off the bargaining table. Indeed, by last week the growing weight of opposition and disagreement had cast a cloud over the entire endeavor, threatening to prevent the talks from getting under way this spring.

In an effort to resolve one of the most difficult issues, Canada’s chief negotiator for the proposed talks, Simon Reisman, arranged an Ottawa meeting this week with senior provincial officials. His objective: to satisfy their demands for “full provincial participation” without limiting his room for manoeuvre in negotiations. Ontario Liberal Premier David Peterson, for one, insists that an agreement on the scale of the talks “must come from all the provinces, as well as Ottawa.” Peterson also claims that freer trade could cost his province 280,000 manufacturing jobs. But Mulroney, asked last week whether each province would have a seat at the bargaining table, said flatly, “I don’t think so.”

At the same time, some U.S. officials expressed concern at mounting demands that key aspects of Canada’s economy be excluded from the trade talks. American officials have been monitoring the Canadian position for trade representative Clayton Yeutter, the hard-driving onetime cattle rancher who will eventually oversee negotiations with Reisman’s Canadian team. So far Ottawa has identified three economic sectors that it wants to exclude. Among them:

• Cultural industries such as publishing and advertising, where a controversy has raged in recent months over the proposed takeover of Toronto’s Prentice-Hall Canada Ltd. by New York’s Gulf-I-Western Industries Inc.

• The 1965 Canada-U.S. auto trade pact, under which Canada had a 1985 surplus of about $4 billion.

• The provincially backed marketing boards that help determine the price of agricultural products.

Peter 0. Murphy, the 37-year-old trade official expected to be named chief U.S. negotiator under Yeutter, told Maclean’s that when Ottawa says “certain items are not negotiable, it obviously

decreases our interest” in reaching an agreement. Another American official described Ottawa’s position and its feuds with the provinces as both “frustrating and disturbing.”

In the meantime, with the U.S. economy facing growing competition from abroad, the House of Representatives and the Senate are considering hundreds of protectionist bills aimed at erecting trade barriers against goods ranging from Japanese cars and trucks to Canadian softwood lumber. Speaking in Montreal last week, deputy assistant U.S. trade representative William Merkin noted that Congress has begun to realize that about $22 billion of the $148-billion U.S. merchandise trade deficit in 1985 resulted from imports of goods from Canada, which sells 75 per cent of its exports in the United States. Declared Merkin: “There’s a nice little chunk of the U.S. deficit coming from Canada.” Despite that, says Peter Morici, vice-president of the Washington-based National Planning Association, “there’s a feeling that negotiations will provide an opportunity to solve specific problems.”

At the same time, some experts contend that rather than creating greater prosperity, a widened trade pact with the United States would cost Canada jobs. The reason: intense competition from huge American firms and the closing of U.S. branch plants that would no longer need to locate in Canada after tariff barriers were removed. Among the premiers, Peterson and fellow Liberal Robert Bourassa of Quebec have emerged as the two provincial leaders with the strongest reservations. After meeting with Peterson in Toronto last week, Bourassa said that the declining Canadian dollar underscored the risks involved. As part of a free trade pact, said Bourassa, Washington might seek to control Canadian interest rates. If Washington put pressure on Canada to raise its dollar value to 80 cents U.S., he said, “and we lost control of our independent monetary policy, we could be in very serious

trouble.” The dollar closed last week at 70.20 cents U.S., an all-time low.

When trade talks between Ottawa and Washington finally start, they will indirectly pit two singularly toughminded and dedicated men—Reisman and Yeutter —against each other. While Murphy, currently serving in

Geneva as U.S. representative to the General Agreement on Tariffs and Trade (GATT), is expected to lead the U.S. delegation in day-to-day sessions, Yeutter will set overall U.S. policy and handle critical phases of the talks. If Reisman and Yeutter meet over the bargaining table, it could provide a fascinating spectacle. Both men are known for their bargaining skills, their intelligence and for a sometimes abrasive and outspoken style.

A senior civil servant who left the federal bureaucracy in 1975 to become a highly paid consultant, Reisman, 66, is known around Ottawa as a brash, cigar-chomping, backslapping extrovert who salts conversations with fourletter words and silences opponents with menacing glances. At times he reminds colleagues of Hollywood actor Edward G. Robinson in one of his cele-

brated gangster roles. “He can be extremely tough, extremely firm and he can be abrasive,” said James Grandy, a former federal civil servant and now Reisman’s business partner. “But he can alternate that with a great deal of charm and persuasiveness. He has a short temper, which he sometimes uses

for tactical purposes. It’s very disarming.” Named by Mulroney as chief negotiator in November, Reisman has already provoked controversy and criticism over his $l,000-a-day salary— considerably less than he earned as a consultant—and over his reported suggestion, later denied by Reisman, that sales of Canadian water to the United States would be a major factor in future Canada-U.S. relations.

But during his long career in Ottawa Reisman has learned to deal with political storms. The son of workingclass Jewish parents who emigrated to Canada from Eastern Europe and settled in Montreal, Sol Simon Reisman worked as a soda jerk to help pay for his studies in economics and political science at McGill University, then did postgraduate work at the London School of Economics. During the Sec-

ond World War Reisman served overseas from 1942-46 as an officer with the Royal Canadian Artillery. Retired mandarin Robert Bryce remembers interviewing Reisman for a job in the federal finance ministry shortly after the end of the war. “He was still in his uniform,” said Bryce, “and I was much impressed with his ability and his drive to get ahead.”

Reisman also possesses great selfconfidence. Gordon Robertson, a former clerk of the Privy Council, recalls that during French-language classes in the 1960s Reisman questioned the need for learning the subjunctive tense, which was giving him trouble. The in-

structor explained that the subjunctive helped to express fear, worry or doubt. Said Reisman: “Then I don’t need it. I’m not afraid. I don’t have worries. And I’m never in doubt.”

As a young civil servant, Reisman joined the Canadian negotiating team that went to Geneva in 1946 for the establishment of GATT and then began a rapid rise through Ottawa’s ministries. During the 1960s Reisman played a pivotal role in formulating Canadian fiscal and trade policies and he acted as Canada’s chief negotiator in discussions that led to the Auto Pact. Then, as now, he made a lasting impression. During delicate currency negotiations in Washington in 1971, Bryce recalls that at one point Canadian Finance Minister Edgar Benson was recalled to Ottawa, leaving Reisman in charge. When Benson returned, then-U.S. treasury secretary John Connally expressed relief that “you kicked that son of a bitch Reisman off my back.” Even some of his closest colleagues were wary of Reisman. Thomas Shoyama, his former deputy, recalled that in dealing with Reisman, “I had to stand up to him. If you dem-

onstrated that you were in any way afraid of him or timid, it was hard to proceed.” Other civil servants who have dealt with Reisman were more critical. One, who asked for anonymity, said that Reisman has “more bluster than brains.” But Robertson declared: “Reisman can be aggressive. But he’s not necessarily aggressive. He’s a shrewd, competent negotiator, highly capable of defending Canadians’ interests.”

Away from work, Reisman is a skier and an avid salmon and trout fisherman. In Ottawa he lives quietly in a four-bedroom house in suburban Alta Vista with his wife, Constance, who owns an interior design business. The couple has three grown children.

A dedicated believer in free enterprise—“basically he’s concerned that Canada should be a market-oriented economy,” noted Bryce—Reisman is already concerned about pressure to exclude certain sectors from trade talks. His worry, explained Grandy, is that while U.S. envoys also have issues they want to keep off the bargaining table, “they’re not talking about it, and it weakens our position to do so before we’ve had a chance to flush out the Americans.” In an interview with Maclean's last November, Reisman himself dismissed the argument that free trade would place Canada in danger of being absorbed by the Americans. People who think like that, he said, “think of the North American market as a finite pie. The essence of trade is to add to the size of the pie.”

At the negotiating stage, Reisman’s counterpart will be a man who, like him, started life in modest circumstances and won an influential place in public life through sheer intelligence and determination. The 55-year-old Yeutter has a reputation for using

very plain language. “He has a penchant for insulting people,” declared a former colleague. Added another: “Clayton tells the truth, and sometimes the truth is unpleasant to hear.”

Raised on a farm in southern Nebraska during the dust bowl days of the 1930s, Yeutter (rhymes with “fighter”) studied agriculture at college, served as an airman in the U.S. Air Force during the 1949-51 Korean War and then earned a degree in law and a doctorate in agricultural economics from the University of Nebraska. In 1970 he joined the federal agricultural department during President Richard Nixon’s administration, rising to assistant secretary for international affairs. Later, in a surprising career switch, Yeutter moved to Chicago for a seven-year term as president of the Chicago Mercantile Exchange before being asked by Reagan to take on his present job. A tough-minded defender of U.S. interests, Yeutter as trade representative helped persuade the Reagan administration to launch a growing number of actions against nations suspected of unfair trade practices against the United States.

In presiding over the negotiations, Yeutter will almost certainly encounter Canadians equally dedicated to protecting their nation’s interests. But before the two sides meet, they will have to resolve a critical difference of opinion. While Ottawa is intent on excluding sensitive sectors, Yeutter has made it clear that such exemptions are unacceptable to Washington. “We’re going to come out with a level playing field,” Yeutter has said, “or we are not going to have an agreement when we’re through.”