U.S.-Canada Talks on Free-Trade Pact Face Midnight Deadline

Struggling to beat a midnight deadline, high-level U.S. and Canadian officials met into the evening Saturday in a last-ditch effort to hammer out a historic agreement to eliminate most trade obstacles between the two nations.

“I think we can see the shape of a deal there,” Canadian International Trade Minister Patricia Carney said at the start of the session, an optimistic assessment that was echoed by U.S. officials.

The attempt to establish a massive free-trade zone between the world’s two largest trading partners turns on Canada’s insistence that it should receive special treatment under U.S. unfair trade laws, while the United States wants its northern neighbor to cut trade barriers, reduce government subsidies for industry and agriculture and allow changes in the U.S.-Canada auto pact.

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

Canada’s insistence on a binding method to settle trade disputes that would shield it from rising protectionist sentiments in the United States had been the major stumbling block in the 16-month effort to forge a free-trade pact, but dozens of other important issues continued to plague negotiators as they raced to the wire.

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.

Beyond the specific terms of a bilateral deal, U.S. officials are worried that failure to reach a free-trade agreement with its closest trading partner would end all hopes of making substantial progress in the broader multinational trade negotiations just getting started in Geneva.

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

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 in 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.

For U.S. officials, the most difficult problem in the negotiations has been persuading Canada to untangle its extensive web of government subsidies in return for unfettered access to the U.S. market. Another sore point is Canada’s reluctance to change a 20-year-old auto agreement to prevent Japanese firms from escaping tariffs on auto parts by setting up shop in Canada.

Despite the seemingly one-sided trade between the two countries, the United States stands to gain many long-term advantages from a free-trade agreement, including greater access to low-cost natural resources in Canada.

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 previously because of domestic political problems in both countries.

Until Thursday night, it appeared that these negotiations would also end in failure. The key breakthrough came when U.S. officials moved close to the Canadian position by proposing an arbitration panel of judicial experts to settle all trade disputes between the two nations.

Carney, Finance Minister Michael Wilson and Mulroney’s chief of staff, Derek Burney, flew in from Ottawa on Friday and met for 13 hours with Baker and U.S. Trade Representative Clayton K. Yeutter.