BUSINESS/ECONOMY

The threat to free trade

MICHAEL SALTER April 21 1986
BUSINESS/ECONOMY

The threat to free trade

MICHAEL SALTER April 21 1986

The threat to free trade

BUSINESS/ECONOMY

It was a dramatic opening to a critical congressional hearing. Early last Friday morning the four leading members of the powerful Senate Finance Committee strode into an oak-panelled room in the Dirksen Building on Capitol Hill and mounted a dais. The committee was meeting to consider President Ronald Reagan’s request to begin free trade talks with Canada. Facing an April 21 deadline for granting approval, there had been no indication of any serious attempt to prevent the talks from proceeding. But at exactly 9:30, committee chairman Robert Packwood, a Republican from Oregon, took his seat, and without even welcoming the witnesses or calling the hearing to order he delivered a political broadside. In loud, angry tones Packwood predicted that in a vote this week the committee would deny the administration’s request for clearance to begin the free trade talks. Declared Packwood: “We will disapprove of this agreement because we have had nothing but vague promises and unsatisfactory responses from the Canadian government in a variety of areas.”

He added, “If we were voting today, we would vote to turn that authority down.”

Senior U.S. trade and state department officials said that they were stunned by Packwood’s strident speech. Then as seven of the committee’s 20 members rose in turn to indicate that they would also vote against starting free trade talks, several officials quickly left the room to alert other government members by telephone. But U.S. Trade Representative Clayton Yeutter—the chief witness for the White House at the hearing—said that the greatest shock would be felt by the Canadians. Added Yeutter: “It will lead to an agonizing reappraisal in Ottawa on this issue. We will know in a few days what the fallout is.”

In Ottawa the possibility that by Wednesday a small group of U.S. senators might vote to shatter one of the main planks of the Conservative’s eco-

nomic strategy left officials shaken. The senators’ bold statements also revealed that Conservative and U.S. administrators had completely underestimated the depth of protectionist sentiment among congressmen. Prime Minister Brian Mulroney played down the importance of the development. Mulroney told the Commons that

Packwood is just one senator, and he added that “we’re dealing with the administration as a whole.”

Politicians who oppose free trade immediately attacked the government—and its credibility. Liberal House Leader Herbert Gray declared that “in a desperate, last-ditch attempt to save this foundering free trade initiative, Mulroney will cave in on matters like the export of lumber and fish in ways that are damaging to the Canadian economy.” And Ontario New Democrat MPP Robert MacKenzie said that he would feel relieved if prospects for a free trade

deal were “off the rails completely.” The free trade talks may be effectively destroyed in this week’s vote. Maclean’s contacted all 20 senators on the Finance Committee late last week and asked them how they planned to vote. The tally: 12 against, six undecided and two in favor—Daniel Patrick Moynihan, the Democratic intellectual

from New York, and Bill Bradley, the former basketball star from New Jersey. A simple majority would veto Reagan’s proposal. If the vote goes against the administration, the White House can still proceed with free trade talks on its own, experts said. But the negotiations would probably stall because Congress would then have the power to make time-consuming amendments to any treaty. And those amendments, in turn, would have to be put back on the bargaining table.

Administration officials in Washington and Ottawa had hoped that free trade talks would proceed on what bu-

reaucrats call “the fast track.” Under that arrangement, Congress can only accept or reject a negotiated treaty. The fast-track method was created under a congressional trade bill in October, 1984. Under the new process, the President first notifies Congress that he wants to begin talks. (In the case of Canada, Reagan did that on Dec. 10.) If the Senate Finance Committee or the House Ways and Means Committee do not vote against the President’s request within 60 congressional sitting days, the talks can proceed on the fast track. Said Gary Holmes, a spokesman in Yeutter’s office: “The most important part of the fast track is the take-it-or-leaveit aspect.”

By threatening to vote against free trade talks, the Finance Committee was sending two messages—one to the White House and one to Canada, said committee member Malcolm Wallop, a Republican from Wyoming. “The Reagan administration has been trying to sidestep this committee and now it knows that it can’t get away with it anymore,” he said. “At the same time, Ottawa knows that we are frustrated with the subsidized timber issue. They would do well to do something about it.”

The influential U.S. lumber lobby convinced seven of the 12 senators on the Finance Committee to say that they will vote against fast-track talks, Maclean’s has learned. About 650 U.S. lumber companies and nine lumber trade associations teamed up in 1983 to form the Coalition for Fair Lumber Imports. Through careful organizing and by concentrating on a single issue, the lumber lobby has become one of the most powerful on Capitol Hill.

Spokesmen for the coalition say that Canada has been able to capture about a third of the U.S. lumber market because the provinces subsidize prices by charging companies artificially low fees for wood cut on Crown land. The annual $3-billion flow of softwood lumber exported to the United States has cost the industry at least 50,000

jobs in the Pacific states in the past six years, industry spokesmen say. Said Packwood: “The Canadians should know that free trade talks are over for the rest of this decade unless they are prepared to show good faith in negotiations and get rid of their subsidies—particularly on lumber.” Packwood and Senator Steven Symms, an Idaho Republican, won over five other senators on the Finance Committee by arguing that the

White House had consistently opposed the protectionist forces in Congress. They also said that the administration was trying to rob the Senate of power by negotiating a fast-track free trade deal with Canada. Said Russell Long, a Louisiana Democrat: “Control of trade negotiations is coming back to this committee.” Added Gary Hufbauer, a trade expert and professor of finance at Washington’s Georgetown University: “This was a kick meant to

attract presidential eyes and ears.”

The well-organized opposition of the Finance Committee members caught officials on both sides of the border by suprise. The evening before last Friday’s meeting, an aide in Yeutter’s office told Maclean’s that there would be some problems with the committee, but there were no serious threats. As well, officials from Yeutter’s office had told Canadian bureaucrats that the free trade proposal would clear Congress easily. Said Sam Hughes, former president of the Canadian Chamber of Commerce and now president of Ottawa lobbyists Executive Consultants Ltd.: “Senior American officials told me they had 11 [of the 20 committee members] in their pockets on this one.” Packwood said that the committee did “not try to keep anything quiet.” He added, “I told the administration there was a fight brewing. It didn’t take us seriously enough.” Packwood had given previous warnings that his committee might veto the free trade talks. Last October he sent a letter to Yeutter signed by 10 of the 20 committee members saying that a quick solution to the softwood lumber issue “would facilitate Finance Committee consideration of any administration proposals relating to the negotiation of a free trade agreement with Canada.” Yeutter’s office did not realize the importance of the letter.

And this year committee member Max Baucas, a Democrat from Montana and a leading member of the lumber lobby, repeatedly said that he would oppose the fast-track procedure until the issue of Canadian lumber exports had been resolved. Last week Baucas urged the committee to vote against the trade talks. He added: “Send the signal to the Canadians that a free trade agreement is a good idea in principle—but right now there are too many unanswered questions.”

Mulroney said that he had no intention of “sacrificing Canadian lumber interests” in order to ensure that trade

talks went ahead. In fact, the fourth round of negotiations aimed at settling the lumber dispute ended in Ottawa last week without any significant agreements being reached.

Other federal and provincial politicians said that the real reason the Finance Committee had taken its tough stand is because a third of the 100 senators are facing re-election this year and are cultivating votes. But only three of the 12 senators who said that they would vote against talks are standing for re-election this year, the informal poll by Maclean’s showed. Said David McFadden, a Conservative MPP from Ontario who is a member of a committee studying the impact of a freer trade deal: “We are in more trouble than we thought on protectionism.”

With only days to go before the critical Finance Committee vote, political experts predicted that the strength of Reagan’s attepts to save the talks will reveal exactly how important they were to him. But even if the Finance Committee does vote to approve trade talks this week, according to many Canadian businessmen and bureaucrats, the Conservative government is not yet fully prepared to begin negotiations.

Some U.S. officials say they are worried by the fact that the provinces have the power to veto parts of a treaty that fall within their jurisdiction. Yeutter, for one, has said his government wants assurances that any agreement with Canada will be binding on the provinces. But only weeks before the talks were supposed to have begun, the simple matter of the ways in which the provinces will take part in the negotiations remains unclear.

Last week British Columbia Premier William Bennett and Ontario Premier David Peterson recommended that Prime Minister Mulroney hold a first ministers’ conference on free trade at the opening of Expo 86 next month in Vancouver. The premiers claimed that the phrase “full participation”— agreed to at the first ministers’ conference last November in Halifax—gives them a place at the bargaining table. But Mulroney has maintained that full participation means only that the premiers will be fully consulted.

A summer start to the talks would be a full eight to 10 months behind the schedule first set out by International Trade Minister James Kelleher. In the spring of 1985 he declared that he had “every intention of beginning discussions by late summer or early fall” of that year. But Kelleher had clearly underestimated the amount of time required to get ready for the talks. “I call it the two-weeks-hence approach,” said John Reid, director of government relations for the Canadian Advanced

Technology Association. “Whenever you talk to them, it will be done in two weeks.”

Kelleher, who warned repeatedly last year that a “window of opportunity” would slam shut if negotiations were not well advanced by the fall of 1986, denies that progress has been slower than expected. “We’re right on schedule,” the minister told Maclean’s.

In Ottawa, Canada’s trade team itself has almost completed formulating

its position after nearly five months of preparations. The offices for Canada’s chief trade negotiator, veteran bureaucrat Simon Reisman, and his 90-member staff are now set up on the 17th floor of the Metropolitan Life building, two blocks south of Parliament Hill. But at least one major problem remains: the establishment of 15 key advisory committees, called Sectoral Advisory Groups on International Trade (SAGlTs). Made up of 10 to 15 people each, the committees are to act as consulting specialists, giving Reisman a way to gauge how freer trade would affect specific industries and economic sectors, such as forestry and manufacturing.

The SAGlTs are modelled on advisory committees set up by American trade negotiators in the mid-1970s in preparation for subsequent General Agreement on Tariffs and Trade (GATT) talks. According to Kelleher, the private sector input was a “vital ingredient that was missing from Canada’s negotiating team during past GATT 4 talks.”

But for Canadian government officials, the novelty of that form of consultation has caused numerous delays. Kelleher says that he had planned to announce the SAGIT membership by last November. That deadline has been extended several times and is now set for the middle of May. Said one Ottawa consultant: “There has been incredible pressure from business groups, the provinces, the Tory caucus—from everywhere. And it’s not just over who

they are putting in. It’s who they are leaving out.”

Some critics say that the SAGlTs are likely to be ineffective. Ottawa lobbyists say that the committees will bring together representatives from competing industries who will be expected to talk openly about their strengths, weaknesses and future direction. But, said Kenneth Macharen, the executive director of the Canadian Trucking Association, “if your biggest competitor is representing your interests on that SAGIT, you’re not going to spill your guts to that committee.” Still, Kelleher insists that the SAGITS can and will work. U.S. trade negotiators, he said, cautioned that the committees worked best when they covered a broad range of competitors and related industries. And other business representatives say that the committees will be too broad to properly represent the interests of individual industries. MacLaren, for one, claims that the entire transportation industry has been assigned to a committee called General Services. “That puts us in with the construction industry, dry cleaners and restaurants—it’s ridiculous,” de-

clared MacLaren. And, he added, “if there’s one guy for transportation on the committee—be it a trucker or an airline man—how can he speak for the whole industry?”

Kelleher says that he is willing to listen to complaints about the structure of the committees. And last month he formed a separate committee for the textile industry, which had originally been part of a SAGIT on Textiles, Clothing, Footwear and Leather. But the minister adds that splitting the committees will be the exception rather than the rule. “I’m sure every group would like to have their own committee, but we’re going to try very hard to keep the number down,” Kelleher said. “[Reisman] has only got so many hours in a day.”

The government also had difficulty organizing another key panel, known as the International Trade Advisory Committee (ITAC). Made up of a broad range of prominent business leaders and a sprinkling of academics, labor and consumer representatives, the ITAC is intended to serve as Reisman’s sounding board on the broad themes of trade and marketing. The panel was originally intended to have only 25 members. But the government enlarged it to 40 members in order to more easily balance regional, cultural and industrial interests. According to the Ottawa representative for one major Canadian corporation, the Prime Minister’s Office was concerned that even 40 seats were insufficient to cover all political bases. The list of nominees remained in the PMO until the first week of January, when, the lobbyist said, “Simon Reisman got on the phone to someone at the PMO—and the list was approved within an hour.”

Kelleher says that he is determined to make ITAC and the SAGITS the major private sector pipeline to Canadian negotiators for all trade talks, including the next round of multilateral GATT talks in September. Canadian trade negotiators, Kelleher says, will not revert to the traditional system of irregular consultation—the occasional telephone call to business colleagues for advice or comment. Said the minister: “It’s far, far too important for that. It has to be set up in some sort of rational manner, and we feel that this is the best way to do it.”

Still, with free trade talks—and the government’s credibility—depending on this week’s critical vote in Washington, the Conservatives may have to start rethinking their political future.

-MICHAEL SALTER

MARC CLARK

WILLIAM LOWTHER

IAN AUSTEN

THERESA TEDESCO

SHERRI AIKENHEAD