U.S.-Canada Trade Pact Nearly Derailed at Last Minute, Yeutter Reveals

A last-minute Canadian demand for a guarantee that U.S. trade laws would be “frozen” so that they would not conflict with the new U.S.-Canada free-trade agreement almost derailed the intense negotiations a few hours before the Saturday midnight deadline, U.S. Trade Representative Clayton K. Yeutter said Monday.

The final cliffhanger in a trade negotiation that verged on collapse at least three times in its last three weeks was resolved by what Yeutter and others involved in the talks called a “creative” compromise and what Canada’s ambassador conceded has moved international trade relations into “uncharted territory.” The pact between the two countries, which conduct the world’s largest bilateral trading relationship, must still go through a lengthy ratification process before taking effect Jan. 1, 1989.

Canadian Trade Minister Pat Carney also spoke of the near-collapse of the talks. She said that at 8 p.m. EDT Saturday, she had phoned Prime Minister Brian Mulroney and said that the negotiators had reached 90% of “a very nice agreement” but had reached another impasse over the mechanism for resolving disputes, an impasse that she blamed on the Americans.

Mulroney told her to end the talks, she said.

“We were sitting in (U.S. Treasury Secretary) James Baker’s office, eating fried chicken and saying how sorry we were . . . but the dispute mechanism just didn’t do it.

“Baker looked at his piece of paper, walked out of his office and told his lawyers to be creative.” That broke the deadlock, Carney claimed.

The last-minute dispute was an offshoot of the Canadian demand that the agreement--designed to phase out over 10 years all tariffs between the two trading partners and ease countless other restrictions on services trade, cross-border investment and trade in energy products--contain dispute-settlement procedures that would in effect overrule American trade laws now in force.

The American side had argued that Congress would never approve any agreement that specifically overrode U.S. laws against “dumping” of foreign goods at artificially low prices and against unfair government subsidy of goods to be exported.

As the agreement evolved, according to documents released Monday in Washington and Ottawa, existing American and Canadian laws regulating dumping and subsidies and prescribing countervailing duties as retaliation would remain in force for up to seven years after the agreement is implemented at the beginning of 1989, while both sides seek to work out a mutually acceptable set of rules for dealing with those issues.

In the meantime, each country’s laws would be enforced, with the proviso that either side could appeal a penalty to a binational panel of five “impartial” experts chosen by the two governments. That panel would take the place of a U.S. or Canadian appeals court and could rule on whether the anti-dumping or anti-subsidy penalty had been correctly applied.

If the panel decided that U.S. anti-dumping penalties were properly assessed against a Canadian company, that would be the end of the matter and there would be no further appeal. But if the binational panel concluded that U.S. law was applied improperly, the penalty would have to be lifted.

If the U.S. government refused to honor that ruling, the Canadians could claim violation of the whole trade agreement and, if they chose, abrogate it.

It is this ultimate sanction that led the Canadians to stress that the dispute-settlement section of the agreement is “binding”--a term studiously avoided by Yeutter and other U.S. officials but one that does appear in the initialed document that will form the basis of a final draft of the agreement.

In Ottawa on Monday, Carney, both in a news conference and while answering opposition questions in Parliament, stressed the Canadian position that the agreement’s dispute-settlement mechanism is binding.

“I prefer to read the agreement,” she told the House of Commons, pointing to the document, which reads “the decision of a (binational dispute-settlement) panel shall be binding on the parties.”

This clearly means, she said, that “any decision in the area of countervail, in the area of dumping or subsidies, can be taken to a binding panel.”

Canadian officials, speaking in private, said the dispute over the word binding was more apparent than real. “Both sides know what the arrangement is, accept it and will follow it. The issue of the word binding is political and aimed at domestic audiences,” one official said.

Carney and Finance Minister Michael Wilson told reporters in the Canadian capital that the key factor in the dispute-settlement arrangement is the period of up to seven years that it provides to work out new laws and procedures to solve disputes.

Pointing out that a major cause of friction during the negotiations was the inability to “come up with new concepts” for this “unique approach” to trade disputes, Carney said the two sides agreed to “a temporary and transitory agreement” using each nation’s existing laws in the meantime.

Stanley Hart, a member of Canada’s negotiating team, said that by the end of the seven-year period, it is assumed that both countries will realize the benefits of the agreement as a whole and the dispute-settlement process in particular and will find a shared approach.

As Yeutter and Canadian Ambassador Alan Gotlieb explained the agreement in separate press briefings Monday in Washington, both Canada’s Parliament and the U.S. Congress would continue in their sovereign authority to pass any laws they chose. One could not, Gotlieb noted, “put Parliament in jail” if it passed trade legislation contrary to the fine print of the agreement.

But the agreement does provide for an extranational mechanism for reviewing such laws and measuring them against the letter and spirit of the trade agreement.

Oswald Johnston reported from Washington and Kenneth Freed from Ottawa.