U.S., Canada Compromise, OK Free-Trade Agreement

The United States and Canada reached agreement late Saturday night on a historic free-trade pact to eliminate most remaining trade obstacles between the two nations.

Completing their deal just minutes before a midnight deadline, high-level negotiators agreed on a compromise that would exempt Canada from U.S. unfair trade laws. At the same time, the United States won concessions from its northern neighbor lowering tariffs, easing restrictions on foreign investment, granting more access to the Canadian market for American financial institutions and greater protection for U.S. patents, trademarks and copyrights.

However, officials did not provide details of the agreement, including whether Canada would reduce government subsidies for industry and agriculture.

A Canadian government source said the final obstacle to the agreement was the specific method for satisfying disputes over unfair trade practices.

U.S. officials had offered to create a special tribunal with binding powers to review unfair trade complaints, but its authority would kick in only after existing trade complaint procedures in both countries have run their normal course. At that point, the losing side could appeal the finding to the tribunal.

The agreement also resolves a dispute over Canada’s program of rebating import duties to Japanese and other overseas car manufacturers that allows them to escape all tariffs by setting up shop in Canada.

Failure of the talks would have been a major setback in U.S.-Canadian relations, worsening the increasingly fractious trade disputes between the two nations and poisoning the atmosphere for broader multilateral negotiations aimed at expanding global commerce and preventing the outbreak of a worldwide trade war.

The talks, which first broke down more than a week ago when Canadian negotiators walked out, had stalled again until Treasury Secretary James A. Baker III proposed a compromise in a telephone call Thursday night to Canadian Prime Minister Brian Mulroney designed to satisfy Canada’s key demand.

While Canada’s insistence on a binding method to settle trade disputes that would shield it from rising protectionist complaints in the United States was the major stumbling block in the 16-month effort to forge a free trade pact, as many as four other make-or-break issues also continued to plague negotiators as they raced to complete the agreement, officials said.

The deadline was imposed by Congress last year when it grudgingly granted the Reagan Administration authority to negotiate with Canada, agreeing that any deal presented to it before today would be considered on a straight up-or-down vote with no amendments permitted.

While the trade negotiations have received little attention in the United States, they have been front-page news nearly every day in Canada, which--with just 25 million people--has barely more than one-tenth the population of this country.

Mulroney, a conservative, staked his political future on a successful outcome of the negotiations. But opposition leaders ignited public sentiment against the plan by opposing concessions that appear to threaten Canadians’ separate cultural identity and are likely to cause major upheavals in a handful of Canada’s heavily subsidized industries.

The strong Canadian domestic opposition added to the difficulty in forging a compromise with U.S. officials, who also faced difficulty from key lawmakers worried that the Reagan Administration was going too far to satisfy the Canadian demands.

It remains uncertain whether Congress will approve the free-trade agreement, which will be voted on next year.

There is no question that Canada has the most to gain in economic terms from the free trade pact. Canada sells more than 75% of its exports to the United States, while about 22% of American goods go north. And the U.S. trade deficit with Canada has soared to more than $13 billion last year out of the nearly $125 billion in two-way trade. Counterbalancing the U.S. trade deficit is an American advantage in the estimated $25 billion in services--financial, air transportation and other intangible forms of commerce--that also flow across the border.

For U.S. officials, the most difficult problem in the negotiations was persuading Canada to untangle some of its extensive web of government non-tariff barriers in return for unfettered access to the U.S. market.

Despite the seemingly one-sided trade between the two countries, the United States stands to gain many long-term advantages as well from a free-trade agreement, including greater access to low-cost natural resources in Canada like water, oil and gas, and hydroelectric power. The Reagan Administration has also made the agreement a keystone of its effort to ward off protectionist legislation and prevent growing trade frictions between the United States and Canada from escalating into a full-fledged trade war.

The goal of unfettered trade between Canada and the United States is more than a century old, but efforts to bring it about have broken down each previous time because of domestic political problems in both countries.

President Reagan has long been an advocate of a North American economic federation embracing the United States, Canada and Mexico, but the latest talks began only after Mulroney campaigned in 1984 on the issue of seeking a better trade relationship with Washington.