Canada, U.S. Boast of Benefit in Free Trade Pact

Canadian and American leaders boasted Sunday that the historic free trade agreement reached moments before a negotiating deadline ran out Saturday midnight will be beneficial to both nations, even though its terms fall far short of the pact that was envisioned when talks started 16 months ago.

President Reagan said in a statement that “this agreement will provide enormous benefits for the United States” and “create thousands of jobs” by removing all Canadian tariffs on U.S. exports and allowing increased opportunity for American investments in Canadian manufacturing, agricultural, financial and technological sectors, as well as greater access to energy sources north of the border.

On the Canadian side, Trade Minister Pat Carney said in a television interview that Canada won its key demand--an impartial, binding arbitration system to deal with trade disputes, particularly charges that either nation is using unfair competitive tactics.

This gives Canada “certainty of access” to the huge American market, she said, “knowing we wouldn’t be hammered” by protectionist U. S. trade laws.

Prime Minister Brian Mulroney, who has staked his badly faltering government on a free trade agreement, told reporters in Ottawa that the new pact will benefit both nations by “tearing down trade barriers, lessening tariffs and limiting restrictions to international commerce.”

Reagan, who telephoned congratulations to Mulroney on Sunday, praised the Canadian leader “for his courage and foresight in seeking this free trade area.”

The two nations already engage in the world’s largest trading relationship, figured at $135 billion last year and expected to reach $150 billion in 1987.

The agreement, which must go through a lengthy ratification process before taking effect in January, 1989, does not fulfill the initial hopes of either country.

The centerpiece of the Canadian demands was a binding dispute-resolving mechanism that would remove Canada from the effects of American trade legislation, including the complicated and often politically influenced system of penalizing countries accused of unfair practices.

Instead, according to Carney, the new procedure will continue with the system under which American officials decide if Canadian exporters are using unfair tactics, such as selling under cost or getting price subsidies, and then invoke penalties. At that point, if Canada feels it is being unjustly penalized, it can appeal to a panel named jointly by the two countries. Whatever that panel decides will be final.

Canada ‘More Protected’

Carney acknowledged this does not remove Canada from the effect of American trade legislation, particularly the protectionist omnibus trade bill now working its way through Congress.

At best, she said, Canada “will be more protected. . . It is a bit of a safety net,” but not total exemption.

Neither does the agreement permit Canada to compete equally with U. S. firms for American government contracts, something Canadian negotiators had sought. Simon Reisman, the chief Canadian negotiator, told reporters in Washington that the U. S. side had put this in the untouchable area of “a sacred trust.”

Officials added that the Canadians also had to give in to American demands for some alteration of the so-called Auto Pact, a 22-year-old agreement guaranteeing that American manufacturers produce at least one vehicle in Canada for every vehicle sold there.

The new agreement removes Canadian tariffs on cars brought into Canada from the United States and at least partially closes a loophole that allowed Asian and European manufacturers to sell cars south of the border by way of Canada without duties.

Other parts of the agreement provide for a 10-year phase-out of all tariffs on goods and services.

Currently, Canada imposes duties averaging 10% to 15% on about 15% of American exports, while the United States levies an average of 5% to 10% on about 5% of Canadian exports.

The agreement would also:

Permit, under certain circumstances, temporary protection of threatened industries from other terms of the pact. The United States and Canada would undertake to exclude one another from such protection unless one country’s products were found to “contribute importantly” to injury of the protected industry.

Lift almost all restrictions imposed by both nations on imports and exports of energy products. Canada would be given access to oil from the Alaskan North Slope and Canada would end discriminatory practices against energy exports to the United States.

Increased Opportunity

Treasury Secretary James Baker said Sunday that he sought a compromise on the dispute settlement issue even if it moved toward the Canadian position because of the prospect of increased investment opportunities for Americans in Canada.

The agreement will “create a new North American economic relationship. . . . This agreement recognizes that trade is no longer confined to merchandise” but now incudes services, he said.

With all the claims of victory and joint benefits, the outlook for the agreement remains uncertain, at least in terms of acceptance by Congress.

Since Mulroney does not have to win parliamentary approval for the pact and seems to have general support from the premiers of Canada’s 10 provinces, Canadian acceptance is assured.

But key members of Congress have said from the outset of the talks that they would not accept any dispute-resolving system that eliminates congressional restrictions on foreign trade practices.

In the meantime, officials said, both governments have agreed to abide by the new agreement, although private businesses can continue to seek redress against alleged unfair practices by either nation under existing law.

Kenneth Freed reported from Toronto and John M. Broder from Washington.