Building A Bridge for Free Trade

By Janice Castro

Not since the development of the St. Lawrence Seaway opened the Great Lakes to international commerce in 1959 has a cooperative venture held more promise for North America. The Free Trade Agreement signed by President Reagan and Canadian Prime Minister Brian Mulroney last January is designed to create, by 1999, a vast open market, stretching over 7 million sq. mi. and covering more than 230 million consumers. All tariffs and most other restrictions on the flow of goods and services between the U.S. and Canada, its largest economic partner (1987 trade: $160 billion), are to begin disappearing next January. To create the free-trade zone, though, lawmakers on both sides of the 4,000-mile border between the two countries must now approve bills that cut down a thicket of commercial barriers favoring their own industries by restricting competition from imports.

So far, the process is going more smoothly in Washington than in Ottawa. Congress and the Administration have been working with unusual speed to prepare the legislation that will spell out the thousands of items covered by the agreement. The bill is expected to be sent to Reagan by mid-October. But fireworks erupted in the Canadian Parliament last week as soon as Mulroney's Progressive Conservative government introduced its 153-clause piece of legislation to carry out the pact. Members of the opposition Liberal and New Democratic parties pledged to fight the bill and said they were counting on swaying public opinion, now about evenly divided on the subject of free trade with the U.S., to their side. The opposition, which calls the trade agreement the "Sale of Canada Act," fears that the country is ceding too much control over its natural resources and economic development to free-market forces.

While Mulroney expects to win quick approval of the agreement in the Conservative-dominated House of Commons, he may face a tussle in the Senate, which is controlled by the Liberals. The Prime Minister insists that the legislation be passed before the January 1989 deadline, by which time Congress and Parliament must ratify the pact. If the bill is not ready then, the trade agreement will expire.

Both countries stand to gain from free trade. Consumers will benefit from lower prices, as U.S. tariffs, averaging 5% on Canadian goods, and Canadian levies, amounting to nearly 10% on American products, are phased out. Canada's Finance Ministry projects that the agreement will help create 120,000 new jobs by 1993 and will increase output by about 11% in manufacturing and 1% in services. Washington estimates that the pact will push U.S. exports to Canada to $61.9 billion next year, up 4.4% from 1987.

To reap full benefits, industries on both sides of the border will have to give up valuable and long-standing commercial advantages. When the 19% U.S. tariff on zinc-alloy imports is lifted, for example, U.S. producers will face tougher competition from the Canadian metal-processing industry. Similarly, Canada's plywood producers, which turn out less than one-seventh as much product as their American competitors, fear the loss of a 12% protective tariff.

For Mulroney, the task of getting the legislation approved is complicated by a constitutional system under which Canada's ten provinces hold jurisdictional powers over agriculture and natural resources such as oil, gas, water and hydroelectric power. To make certain that Mulroney would be able to enforce the Free Trade Agreement, U.S. negotiators insisted on the inclusion of provisions explicitly stating that the pact would take precedence over any provincial legislation governing commerce. At present, eight of the provinces support the Free Trade Agreement. Quebec hopes to sell more hydroelectric power to New York and New England, while in Alberta, Saskatchewan and other western provinces, uranium, oil and gas producers anticipate greater opportunities in the U.S. market. Ontario, however, opposes the accord. One reason: fears that American auto companies, which have several Ontario plants, will reduce their Canadian production and export more cars from the U.S. to Canada. Also opposed is Prince Edward Island (pop. 130,000), whose fishermen and potato farmers are concerned that their sales to the U.S. will shrink.

American labor and business have not mobilized to block the pact, but there is scattered opposition. Uranium producers, whose work force has shrunk from 20,000 employees in 1980 to fewer than 2,000 today in the face of tough foreign competition, are pressing, so far in vain, for increased restrictions on imports from Canada. In New England fishermen worry that American fish processors will move to Canada once import-export restrictions are relaxed.

The Canadian government sent formal letters of protest to the Reagan Administration two weeks ago, when the Senate Finance Committee tacked provisions onto the Free Trade Agreement that would restrict lobster imports and extend tariffs on Canadian plywood. Most other pleas by U.S. businesses for protection have been derailed by U.S. Trade Representative Clayton Yeutter, who has spoken in support of the free-trade pact at dozens of congressional hearings since January. Yeutter has repeatedly assured Congress that his office will protect U.S. commercial interests from trade abuses once the pact goes into effect. Says he: "This agreement will help both Americans and Canadians enter the 21st century, more competitive and better prepared for the future."

With reporting by Jerome Cramer/Washington and Peter Stoler/Ottawa