Trade Agreement With Canada Wins Approval in House : Pact Faces Major Battle by Opposition Party in Ottawa

The House overwhelmingly approved a far-reaching trade pact with Canada on Tuesday that will phase out all tariffs between the two nations and create what its supporters call the world’s largest free-trade zone.

House leaders and U.S. trade negotiators predicted that the pact, if put into effect as scheduled over 10 years, will increase the U.S. gross national product by about 1%, lead to the creation of more than 500,000 new jobs in this country and cut costs to American consumers for everything from fish and furs to electricity and natural gas.

The legislation approved Tuesday on a 366-40 vote would implement the trade agreement signed in January by President Reagan and Canadian Prime Minister Brian Mulroney.

The Senate Finance Committee also approved the agreement on a voice vote Tuesday, with final passage expected next month.

However, the trade pact faces a far bigger hurdle in the Canadian Parliament. There, the opposition Liberal Party says it has the votes to block the agreement in the upper house, and Mulroney is expected to call elections in the fall to settle the dispute.

While Mulroney, a Progressive Conservative, has pushed for better relations and freer trade with the United States, Liberal Party leader John N. Turner complains that the pact will permit giant American firms to dominate Canadian business.

In Congress, however, Democratic and Republican leaders have joined in giving the treaty glowing endorsements.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) said the agreement “represents a historic achievement” that will benefit industries and consumers on both sides of the border.

House Republican leader Robert H. Michel of Illinois said the pact “establishes the largest free-trade zone in the world.”

The eventual end of tariffs to be brought about by the agreement is expected to give American producers a chance to recapture Canadian markets in autos and heavy equipment that have been lost to Japanese manufacturers.

Last year, trade in goods and services between the United States and Canada totaled $166 billion, the largest between any two nations.

About 25% of U.S. exports go to Canada, while 75% of Canadian exports go the United States.

Despite the tradition of heavy trade and open borders, the two nations have continued to charge tariffs on about one-fourth of the goods exchanged.

Canada’s tariffs on U.S. goods average 9.9%, while the U.S. assesses an average 3.3% tariff on Canadian products.

Similar to EC

The trade pact calls for an immediate end to tariffs on products such as telephone equipment, motorcycles, whiskey and furs. In many other “import-sensitive” industries such as wood, footwear, textiles and steel, tariffs would be phased out over 10 years.

The agreement would also end discriminatory treatment of U.S. banks and investment firms that have been prevented by law from expanding their control of financial enterprises in Canada.

The trade pact is similar to the European Community in its scheduled elimination of tariffs between the two countries but differs in that it has no impact on tariffs charged to third countries. EC nations also agree on the tariffs they will charge on imports from non-member nations.

The main complaint voiced about the U.S.-Canada treaty Tuesday was that it does not prevent Canada from subsidizing producers who compete with Americans.

For example, Rep. Olympia J. Snowe (R-Maine) said she opposed the treaty because the Ottawa government’s subsidies allow Canadian lobstermen, fishermen and potato growers to undercut prices charged by her Maine constituents.

Others said simply that the pact is a big step toward free trade, but not fair trade.

Rep. John J. LaFalce (D-N.Y.) also warned that good spirit created by the trade pact could evaporate if the Canadian election campaign revives “latent anti-American sentiments.” If Ottawa rejects the agreement, “I think it is almost inevitable there would be a major trade war between our two countries,” LaFalce said.