Getting Together with a Friend

By George Russell

Ronald Reagan radiated more than his customary high wattage of optimism last week in Ottawa as he addressed Canada's 386-member Parliament. His topic: the possibility of a Canada-U.S. agreement that may soon create the world's largest free-trade zone. Amid fierce applause, the President promised to throw the full weight of his office behind that much discussed but never quite accomplished prospect. Said Reagan: "To those who would . . . fight a destructive and self-defeating round of trade battles, Canada and the U.S. will show the positive way."

So they might. As the President attested during his summit meeting with Canadian Prime Minister Brian Mulroney, the U.S. and its largest trading partner appear close to a historic juncture in their immense economic relationship (value of 1986 commerce: $129 billion). After a year of negotiation, officials in Washington and Ottawa seem confident they can produce a draft agreement by autumn that will completely eliminate tariff barriers between the two countries over the next decade or so. Reagan also took a modest -- for most Canadians, far too modest -- step toward alleviating another deep Canadian concern. The President said he would "consider" negotiating an accord to control acid-rain pollution from U.S. and Canadian factories.

With a population of 25 million, Canada sent 78% of all of its exports, chiefly wood products, minerals and automobiles, to the U.S. last year, earning $71 billion. The U.S. sent back some $58 billion worth of heavy machinery, appliances and other goods. The $13 billion merchandise balance in Canada's favor was partly offset by an $8.1 billion U.S. trading surplus in such services as insurance and investment. No less than 80% of the trade across the northern U.S. border is already duty free. Trade experts estimate that totally free trade would boost the roughly $416 billion Canadian economy by about 3% to 8% within five to ten years. The $4 trillion U.S. economy would gain proportionately less.

A free-trade agreement would provide a welcome counterpoint to the protectionist feeling that is piling up rapidly in Washington over the doleful American trade deficit, even though much of that ire is focused on the No. 2 U.S. trading partner, Japan. Without a pact, Ottawa fears, the U.S. Congress will indiscriminately freeze more Canadian goods out of U.S. markets. In the past year, Canada has been bruised in fights over exports to the U.S. of softwood lumber used in housing and other timber products; it is now under pressure to avoid enlarging its nearly 3% share of the $32 billion American steel market. For its part, the Administration sees a deal with Canada as leverage that could be used at the new round of worldwide free-trade talks currently under way in Geneva.

The White House has a deadline of Oct. 4 for presenting a draft agreement to Congress. After that, Reagan and Mulroney will have the perhaps tougher job of convincing a contentious flock of U.S. and Canadian regional interests that the deal is a good one for all. Only then will it be clear that two close friends have truly created what Reagan last week hailed as a "pioneering agreement worthy of a pioneering people."

With reporting by David Beckwith/Washington and Peter Stoler/Ottawa