MARCI MCDONALD March 24 1986


MARCI MCDONALD March 24 1986




On Washington’s Pennsylvania Avenue, the spacious boulevard that links the White House with the alabaster-domed Capitol, the vista of U.S. government buildings is interrupted by a barren $5-million lot that has lain undeveloped for eight years. Six flagpoles flying the Canadian maple leaf identify the grassed-over trapezoid as the site of Ottawa’s new $38-million embassy in the United States—the only foreign enclave to be allowed by law on that symbolically American thoroughfare. Months ago Canadian officials began making plans for Prime Minister Brian Mulroney to break the ground for the new edifice during his official visit to Washington this week. But a series of budget freezes and space-saving redesigns have put off the long-delayed sod-turning again. And as Mulroney prepared for his Washington visit, one year after the euphoria of the Shamrock Summit in Quebec City, some observers saw in the stalled progress of the embassy—a symbol of the state of the unique alliance—an indicator of current American-Canadian relations.

Bruised: In the 12 months since the two leaders raised their glasses to increased good-neighborliness at the socalled Shamrock Summit on St. Patrick’s Day, 1985, both men have suffered bruised feelings. Major irritants: the voyage of the U.S. Coast Guard icebreaker Polar Sea through the Northwest Passage last August and Ottawa’s challenge to the U.S. conglomerate Gulf + Western over its acquisition of the Canadian publishing division of Prentice-Hall, resolved only last week (page 50). Said one official involved in the planning of both summits: “The honeymoon is over. Both sides have woken up to find out that they have more quarrels than they thought. It doesn’t mean we aren’t still as close, but the details of living together are proving more difficult to work out than anybody anticipated.” Added a former Reagan administration official: “The bloom is off the shamrock.”

This week’s second edition of the two leaders’ annual meeting reflected that marked change of mood. A year after Reagan demonstrated his camaraderie by joining Mulroney in a duet of When Irish Eyes Are Smiling, American officials characterized this week’s sessions as “workmanlike and low-key.” In contrast to last year’s celebration and the mobilization of cabinet members on both sides, this year’s no-frills agenda for Mulroney and his wife, Mila, was without the accompaniment of any ministers. Moreover, while Ottawa’s top mandarins have worked on summit preparations for

months, the White House has focused on another matter entirely: rallying support for the House of Representatives’ key vote this week on Reagan’s request for $100 million in aid to the rebel Contras fighting the Nicaraguan government.

Strong: Canadian officials pressed for more symbols of Mulroney’s continued strong personal relationship with Reagan. But the White House had to withdraw an invitation to the presidential retreat at Camp David, Md., because of what one aide described as “scheduling difficulties.” Mulroney gained only a rare extra meeting with the President—an intimate lunch in the White House family quarters—which stretched his formal visit into a second day.

Canadian officials said that the Prime Minister turned down an invitation to address a joint session of Congress because the opportunity—traditionally granted only once to a foreign leader —would better serve his and Canada’s interests later.

That time may arrive when free trade negotiations with Washington reach a more critical stage. Instead, Mulroney chose to campaign directly with individual members of Congress, where representatives of lumber-producing states are demanding a solution to the transborder timber dispute before the full talks begin. Mulroney’s prepared message over coffee with both houses’ foreign affairs committees: Ottawa wants a “clean launch” for trade negotiations— that is, no attempts to resolve particular disputes before the bargaining starts. Said a senior Canadian official:

“The negotiations should not be held ransom to any irritants of the day.”

But like last year, both Ottawa and its critics said the gauge of Mulroney’s success at the summit would be his ability to convince Rea-

gan of the need for action on acid rain. Administration spokesmen had told Canadian officials in advance not to expect Reagan to endorse the recommendations of his own acid rain envoy, Drew Lewis, released in a joint report with former Ontario premier William Davis in January (page 16). But Canadian officials have continued to press the White House for endorsement of the report, because its acknowledgment of acid rain as a problem that partly originates in the United States—and its commitment to financial action—represent a marked departure from the previous U.S. position. To increase pressure on the administration, Canadian officials tried to raise public expectations of a presidential declaration. Said Ambassador Allan Got-

lieb: “The United States is very sensitive to Canadian concerns. This summit will be a very important indication of how sensitive they are.” Still, organizers on both sides declared that—unlike the first Shamrock Summit, where Reagan and Mulroney concluded three bilateral accords—this year’s meeting risked not producing any signed agreements. Said Charles Doran, director of Canadian studies at Johns Hopkins’ School for Advanced International Studies in Washington: “Both governments are feeling the tension of the high visibility and increased expectations that last year’s summit created.” Eruptions: Shamrock II also suffered from tension of another sort. In the past year a series of resentments and misunderstandings has erupted. In presummit briefings, both Canadian and American organizers underlined that Reagan’s personal rapport with Mulroney has resulted in at least monthly phone calls between the White House and 24 Sussex Drive. ° But a growing number of observers are questioning the results of what George Carver of Washington’s Center for Strategic and International Studies termed “direct-dial diplomacy.” In recent weeks several American officials have privately but pointedly expressed frustration that Mulroney had not turned out to be the kind of partner Washington expected when he was elected 18 months ago. At the Pentagon, spokesmen emphasized their “disappointment” that last month’s budget slowed the rate of growth of Canadian military spending over the next three years, contrary to Mulroney’s 1984 campaign pledges. They used the same word to sum up their reaction to Ottawa’s September decision not to participate as a government in Reagan’s top-priority Strategic Defense Initiative, popularly known as Star Wars. Another administration official voiced the White House’s “disillusionment” with Mulroney’s shifting statements on free trade. “He says he wants free trade and then he tries to take culture, agriculture and the Auto

Pact off the table and give the provinces a veto,” said the official. “Frankly, we’re beginning to wonder if Mr. Mulroney is sincere.”

The administration’s sense of betrayal surfaced most during the Prentice-Hall case. When the government challenged the 1984 sale of the company’s Canadian publishing division by its American parent to Gulf + Western because it might pose a threat to cultural sovereignty, the U.S. government at first left G+W lobbyist Robert Strauss to register its displeasure. Strauss was in a unique position to convey the message. In 1984 and 1985 his Washington law firm received at least $111,885 (U.S.) in fees from the Canadian Embassy to represent its interests.

‘Scorched’: In an Aug. 6 confidential letter to Minister of Regional Industrial Expansion Sinclair Stevensrevealed by Maclean’s last November—ambassador Gotlieb urged Ottawa to approve the sale. To that end, he conveyed Strauss’s statement that Gulf + Western would otherwise adopt a “scorched-earth” policy in Canada. But at a meeting with External Affairs Minister Joe Clark in Calgary last October, U.S. Secretary of State George Shultz stepped directly into the dispute. Shultz showed Clark a list of Canadian publishing interests in the United States that could be affected by retaliatory legislation. Last week, only days before Mulroney’s arrival, Stevens announced the government’s approval of the transfer.

The decision removed the most immediate threat to a friction-free summit. But it did not remove White House concern over the issue of cultural sovereignty. Gotlieb’s letter had said that Washington regarded Ottawa’s publishing policy as “more radical than that pursued by the Trudeau government.” Declared one administration official: “We would like the Canadian government to do away with this law. We just haven’t decided what form our opposition will take.”

In fact, Maclean ’s has learned that an administration official last month allowed Gotlieb to glimpse a memorandum authorizing Treasury Secretary James Baker to draft “mirror” legislation—the strongest U.S. proposal so far. That would be used to retaliate against any country that discriminates against American goods or investment for cultural reasons until the offending measures were rescinded. Presumably, the American legislation would be the same as that introduced by the other nation involved. Acknowledged one U.S. official: “The draft does not mention Canada, but one can be fairly sure we’re not talking about Yugoslavia here.” Added

another: “You can’t have it both ways. Canada cannot have certain rights of access in the United States where we do not have the same access in Canada. There are pressures in our government to reciprocate.”

Nor does the debate centre only on publishing. As Walt Disney studios prepares to set up its own Canadian

distribution branch, it may breach Masse’s film policy. That case could put even greater strain on Mulroney’s relationship with Reagan. The President, a 1940s movie star and former head of the Screen Actors Guild, has devoted several cabinet meetings to the issue of Canadian cultural sovereignty measures, delivering lengthy dissertations to senior staff on the economics of film distribution.

Dialogue: The cultural sovereignty debate is an illustration of the nature of the Canadian-American dialogue on trade: it frequently resembles a conversation among parties who are speaking different languages. Said Doran: “The Americans do not understand this business of cultural sovereignty at all. For the United States,

cultural industries are not any different than any other industries. It’s purely a matter of economics.”

Cornerstone: The Mulroney government is following a policy of appearing to safeguard Canadian cultural industries while smoothing the way for free trade negotiations. But to the Reagan team, for which unfettered access to

global markets is an ideological cornerstone, the two issues cannot be separated. Said one administration official: “When we are trying to get Japan to open its markets, we can’t be agreeing to things with Canada that contradict what the United States is trying to do globally.”

Administration officials acknowledge that trade talks with Canada could have other benefits. In fact, they say that their main interest in free trade negotiations with Canada is their potential use as a lever to increase pressures on other trading partners for a new multilateral deal under the global General Agreement on Tariffs and Trade (GATT). White House officials also say that by taking the initiative in talks with Ottawa, they may be able to head off the threat of a protectionist trade bill emerging from Congress before next November’s key midterm elections.

Ottawa, on the other hand, is seeking secure access to its largest market. According to government figures, U.S. protectionist measures last year threatened $6 billion worth of Canadian exports and 146,000 jobs. And a recent External Affairs report outlined a “dramatic” impact on Canadian employment if the United States imposed

restrictions to reduce its trade deficit—a record $148.5 billion in 1985. The department’s report predicted that a 10-per-cent reduction in Canadian exports would cost the country 250,000 jobs. Said University of Toronto economist Abraham Rotstein: “The two countries want very different things out of free trade negotiations and they are talking right past each other.”

Contrast: One measure of the different objectives is the contrasting operation of the official trade negotiators. In Ottawa the Trade Negotiations Office of veteran mandarin Simon Reisman and his staff of 90 occupies the entire penthouse floor of the Metropolitan Life tower at a monthly rent of $78,000. Last Friday, three days before Mulroney’s arrival, the White House finally named 37-year-old negotiator Peter Murphy as “special negotiator for U.S.-Canada trade.” With the aid of U.S. Trade Representative Clayton Yeutter and one secretary, he will direct the process out of a modest office in a renovated government building across from the White House. Said Colin Campbell, a Canadian professor at Washington’s Georgetown University: “The contrast in styles says

everything about how the two sides

are approaching these negotiations.” Both sides also have conflicting views on another major Canada-U.S. problem—last August’s voyage of the Polar Sea through the Northwest Passage. The public outcry in Canada stunned American officials who said that they had secured an agreement with Ottawa for the trip. Indeed, Ca-

nadian officials now admit that during a visit by Clark to Washington last May, Shultz not only informed him of the icebreaker’s planned voyage—involving a joint scientific research project—but agreed on the terms. Among them: that the trip would take place without prejudging either country’s legal claims to the waterway. But U.S. officials claimed to be upset because, in the ensuing controversy and extension of Canadian territorial claims, Ottawa failed to point out that understanding. “They were hurt, angry and bewildered,” said Doran.

The mutual resentment created by the Polar Sea incident explains in part why Mulroney and Reagan were not expected to renew the North American Aerospace Defence agreement (NORAD) this week (page 20). Canadian officials said they were concerned that unless the White House accepted a parallel statement reiterating Ottawa’s opposition to participating in antiballistic missile operations, the agreement could become a focus for criticism of the summit. Officials acknowledge that Mulroney has tried to minimize Canada’s increasingly controversial defence relations with the United States. Said William Arkin, a defence analyst with the left-wing Institute for

Policy Studies: “I detect a significant shift in Canadian public opinion about defence co-operation. There is a new squeamishness about getting too close.”

Penalty: That apprehension has extended to free trade talks as well. In a decision on fish imports from Canada released only last Friday, the U.S.

commerce department ruled that 54 Canadian federal and provincial programs—exempting only unemployment benefits for fishermen—amount to subsidies that justified imposing a penalty duty on the imports. This week Mulroney found himself having to prove that his strategy of closer co-operation with Washington has produced tangible benefits. Citing one example, Ottawa officials pointed out that in the past year Canadian industry has received increased business in U.S. defence contracts worth $1.64 billion. And Gotlieb said that the best result of the improved relationship is that in the past year—despite rising protectionist pressures in Congress and a Canadian trade surplus—the White House has spared Canada any sweeping retaliatory trade measures.

But clearly, given the conflicts past, present and likely in the future, Mulroney would need all his political balancing skills to walk the tightrope of relations with the nation’s most important friend and ally—and to preserve his policy of pursuing even closer relations.

-MARCI MCDONALD with IAN AUSTEN in Washington and KEN MACQUEEN in Ottawa