The free trade countdown

MADELAINE DROHAN September 28 1987

The free trade countdown

MADELAINE DROHAN September 28 1987

The free trade countdown

Their faces told the story. After seven hours of reviewing the uncertain prospects for a free trade agreement with the United States, Prime Minister Brian Mulroney and the 10 premiers looked drawn and gloomy as they left the Langevin Block across the street from the Parliament Buildings last week. Many premiers were dismayed at the long list of items still to be resolved before the Oct. 5 deadline for the completion of the trade talks. And even the strongest free traders among them were hard-pressed to sound optimistic. Mulroney himself felt obliged to say twice that while a deal might still be reached, “there are no guarantees.” The meeting ended with two heated exchanges: the first between Canada’s chief trade negotiator, Simon Reisman, and Saskatchewan Premier Grant Devine over agriculture; the second between Reisman and Ontario Premier David Peterson over the Canada-U.S. Auto Pact. After hearing Reisman’s report on the progress of the talks on agriculture, Devine put the question that seemed to be on all the politicians’

minds: “How the hell do you expect me to sell this stuff?”

Indeed, there was a growing sense of pessimism in Canada and the United States last week over whether a trade deal can be reached before the deadline. In separate interviews, Liberal premiers Peterson and Joseph Ghiz of Prince Edward Island said that the comprehensive agreement envisaged 16 months ago was impossible now that the Americans had taken defence procurement, transportation and broad agricultural issues off the bargaining table. Declared Ghiz: “We’re talking about a much smaller package.”

But even a smaller deal may not be possible if Canada’s key demand—for a binding and impartial method of settling trade disputes—is not met. According to Mulroney, that concern has not been “appropriately addressed” by the Americans. Still, one provincial trade representative said that although he was taking the “pack-it-up and fallapart scenarios” much more seriously now, “it’s premature to write this off.”

Some critics said that they thought

Mulroney’s pessimism was contrived. One provincial trade official described the Prime Minister’s statements as an “orchestrated attempt” to lower public expectations so he would be seen as a “miracle worker” if the negotiations succeed. But another official said that such a strategy “would require a degree of machiavellianism that we haven’t seen to date.”

The sense of gloom was also apparent in Washington. Said one Reagan administration official, noting the long list of unresolved problems: “Nothing that counts is decided.” He added that with the looming deadline and the conflicting views on a vast range of issues, the best that could be hoped for is “a watered-down agreement and both sides will call I it a victory.”

1 While there are

2 many thorny issues, =■ Canada’s demand for a

binding mechanism for solving trade disputes is widely recognized as a potential deal breaker. On Mulroney’s instructions, Reisman has asked the Americans for an independent panel with comprehensive powers to which either side could refer complaints. It would act as an impartial referee, its decisions binding on both governments.

The Americans have refused, reportedly recommending instead an independent body without binding powers. As Secretary of State George Shultz said this month, meeting Canada’s demand would be “tricky” because the Reagan administration wants the new mechanism to be consistent with U.S. trade law. The Canadians reply that those laws are subject to changing interpretations. They point especially to the case of softwood lumber, in which American trade authorities dismissed a 1983 demand by U.S. lumber interests for restrictions on Canadian imports— and then reversed their decision three years later. The result: a damaging export tax on Canadian exports.

Still, free trade proponent John Crispo, a political economist at the University of Toronto, said that there is room for compromise on the dispute mechanism issue. Canada’s interests would be served, Crispo contended, if the two sides agreed to set up an independent

fact-finding body that could determine which country was subsidizing a disputed industry the most. However, declared Crispo, by insisting that decisions be binding,

“Mulroney and Reisman have gone so far out on a limb, I don’t think they can move back.”

But there were signs last week that Mulroney might be moving away from that position. Inside the First Ministers’ meeting, according to Manitoba Premier Howard Pawley, Mulroney reiterated his undertaking to refuse to sign a deal if it did not include a binding dispute mechanism. But after the meeting, and on several subsequent occasions, the Prime Minister did not use the word “binding” in referring to such a mechanism, a subtle change that might signal a softening in Canada’s position.

During the Monday meeting several premiers voiced concerns of their own. Ontario’s Peterson, for one, who pledged during this month’s provincial election campaign to preserve the 1965 Auto Pact, said that he was incensed to discover that the auto trade was put on the bargaining table at the request of the Americans—after repeated assurances from Ottawa that it would not be changed to Canada’s disadvantage.

The hard questions asked by the premiers reflect a growing apprehension among Canadians about what a free trade deal will mean. National pollster Angus Reid said that information about the talks is so complex that “you need a PhD in economics just to understand it.” As a result, instead of judging free trade on its merits, said Reid, Canadians are basing their opinions on how they view Mulroney personally. The result: a drop in support for an agreement. According to the latest poll, conducted Aug. 24 to 28 by Reid’s Winnipeg-based company, 42 per cent of Canadians support it—compared with 57 per cent six months ago.

Reid added that Mulroney is in an extremely difficult situation. If he signs a limited deal, said Reid, he will be accused of “selling out.” But if he turns down an accord and American protectionism increases, the Prime Minister could be blamed for opening “a Pandora’s box” by initiating the negotiations and drawing attention to Canadian

trade advantages in some areas. Indeed, economist Crispo predicted that if negotiations fail, Canada will be left without defences once the U.S. Congress adopts protectionist trade legislation this fall. As a result, Crispo added,

Canadian industry will experience a wave of new attacks by American interests. The potential consequences, he said, “are devastating.” Meanwhile, free trade opponents contend that Mulroney is so desperate for a deal that he will sign almost any arrangement. A high-ranking trade official in Ottawa rejected that charge. “There may be a political price to pay for not getting a deal,” he said. “But there will be a higher price for a bad deal.”

The Americans might also pay a price for failure. Donald Macdonald, a former Liberal finance minister, told a business audience in London, Ont., last week that the United States would give up the leadership of the Western world if it became more protectionist and isolationist. Macdonald, whose 1985 royal commission on the economy recommended that Canadians enter a free trade arrangement with the United States, said that the rest of the world is watching the Americans. “If they can’t succeed with Canada,” he asked, “who are they going to succeed with?”

With less than two weeks left before President Ronald Reagan must notify Congress of his intention to enter an agreement with Canada, the final result remains uncertain. During three crucial days of talks in Washington this week Reisman and Murphy will try to narrow the gaps between them. The talks will likely go right down to the Oct. 5 deadline. If they succeed, Mulroney will present the agreement to the cabinet in Ottawa. He will ask the premiers to review it at one last meeting some time during the final week of negotiations.

By week’s end, Mulroney appeared to have regained his confidence in the outcome of the talks. In the Commons, after Liberal Leader John Turner said the Prime Minister’s progress on free trade compared unfavorably with the achievements of Canada’s victorious Canada Cup hockey team, Mulroney declared, “I think I will shoot, and I will score.”