Wary Canada Could Pull Out of Trade Talks : Commerce: The nearly completed North American treaty faces strong political opposition.

With the concluding round of negotiations on the proposed North American free trade agreement expected this weekend, Canadian officials have suggested they might pull out of the three-cornered talks altogether, if they can’t get terms they can sell to a hostile citizenry.

And just about any trade deal will be a tough sell in Canada these days. Nationalists here are blaming a wide range of economic woes--lost jobs, closed factories, a flight of businesses to the United States--on an existing, 4-year-old bilateral free trade treaty between Ottawa and Washington.

Many Canadians see the current pact as an unpleasant foretaste of potential effects of the North American free trade agreement.

Though the new pact is supposed to set rules for trade among Canada, Mexico and the United States, thereby reducing the likelihood of costly and unproductive trade disputes, Canadians suspect that it will really help push Canadian environmental standards, wage scales and social benefits down toward Mexican levels.

A recent poll showed that 61% of Canadians wanted the existing bilateral accord modified, and that 27% thought it should be abrogated outright.

In Washington, the Bush Administration has driven the ongoing talks into the fast lane in an effort to reach an agreement before November’s presidential election. Bush campaign strategists believe that the agreement’s completion would boost the President’s popularity in the key border states of Texas and California.

Meanwhile, Canadian Prime Minister Brian Mulroney must call an election in 1993. He is already earning the lowest approval ratings in the history of Canadian polling. From his perspective, another trade pact is likely to bring more political trouble than relief.

Thus, while Canadian Trade Minister Michael Wilson has continued to support the negotiations in his public statements, senior government officials here have been planting the seeds of doubt in recent off-the-record interviews with Canadian journalists.

On Monday, Wilson said at a news conference that, “Canadian interests have to be met at the negotiating table on a number of issues. We still have some difficult issues to deal with.”

But one unnamed federal official told the Globe and Mail newspaper in Toronto last week, “This country is fragile. The government, if necessary, will walk away from the table unless the agreement is one that can be sold across the country.”

Gordon Ritchie, one of the chief architects of the existing U.S.-Canadian trade accord and now a private consultant, observed that, “In some American quarters, this may be interpreted as a bluff. On the contrary, most Canadians perceive this (need to walk out) as blatantly self-evident. What appears to be on the table now is completely unsalable.”

To the extent that Canada remains at the table at all, it isn’t because it expects great business gains from a three-way deal. Canadian trade with Mexico now amounts to a paltry 1% of its trade with the United States and there is little reason to expect that ratio to change any time soon, treaty or no.

Rather, Canada has stuck with the negotiations until now because it fears being left out in the cold should the United States strike attractive deals first with Mexico, then with other Latin American countries.

When the tripartite negotiations began, Canada had hoped to gain ground on two key trade matters: It hoped to crack U.S. government procurement--now the private preserve of American companies--and to gain greater flexibility to compete in the U.S. financial-services industry.

But now that a draft document appears close to completion, Canadians close to the talks complain that the United States hasn’t given an inch on either issue.

“The Canadians were stiffed,” Ritchie alleges. “The United States has been totally unresponsive.”

Canadians also know they run the risk of losing ground in other sectors if they go ahead with the three-way deal. Of particular concern are the rules covering automotive and textile trade under the existing bilateral deal.

A recent string of costly trade disputes with the United States has convinced many here that America will gladly undercut Canada in its eagerness to sign a pact with Mexico.

It was these disputes that prompted Bob Rae, premier of Ontario--Canada’s largest and most industrial province--to call for Canada’s withdrawal from the trade talks.

“Over the months, we have been subjected to virtually unending trade harassment from American industry,” Rae told his provincial legislature.

The disputes have involved traditionally touchy markets such as cars, steel, lumber and beer, as well as the province of Quebec’s massive, export-minded hydroelectric dam developments:

* In June, the United States accused steel producers in 21 countries, including Canada, of exporting subsidized goods at prices lower than the Canadian market price.

* Also in June, the U.S. International Trade Commission ruled that Canadian spruce, pine and fir exports had “materially injured” American softwood lumber producers, and that Canadian softwood lumber exports were to be hit with a 6.51% tariff.

* In July, the U.S. Customs Service mounted investigations of two auto assembly plants in Canada, one owned by Ford and the other by Toyota. Customs wants to ensure the plants meet the terms of the existing U.S.-Canada free trade agreement, which say Canadian-made cars can be put on the U.S. market duty-free, as long as no more than 50% of a car’s content comes from outside North America.

Customs said the investigations were a routine practice, but in Canada they were cast as “raids” on the plants, coming as they did on the heels of another investigation, of an Ontario Honda plant, that yielded findings adverse to Canada. Automobile-content rules are one of the most difficult issues on the table in the current negotiations.

* Also in July, American brewers announced plans to retaliate against Canadian beer concerns in Ontario, which they said were receiving special protection by authorities who require American brewers to store their products in provincial warehouses at great administrative cost.

* Finally in July, the Commerce Department ruled against the Norwegian-owned, Quebec-based magnesium producer Norsk Hydro Canada Inc., saying it was dumping its goods in the United States and receiving an unfair subsidy in the form of cheap electricity. Commerce imposed a 53% duty on the magnesium. Even before the adverse ruling, Norsk Hydro had already cut its production by half and laid off more than 100.