US, Canada hustle to salvage trade pact. But key issue remains trade dispute mechanism

Canada's walkout from its talks with the United States on a free trade pact has succeeded in one goal: It got Washington's attention. At this writing, it is unclear whether the talks, suspended Sept. 23, will be resumed. US negotiators made a proposal Saturday night. It was being reviewed in Ottawa Sunday afternoon, with a response expected later in the day. ``We hope it will provide the basis for resumption of the talks,'' said a Canadian official.

In Canada, top negotiator Simon Reisman briefed Prime Minister Brian Mulroney and his Cabinet. In Washington, Trade Representative Clayton Yeutter and chief negotiator Peter Murphy reported to President Reagan. Despite all the activity, the stalemate has not been broken.

According to Canada, the issue is a method for settling trade disputes. Canada wants a system separate from the procedures established by the US Congress. It wants a panel of arbitrators - one Canadian, one American, and another acceptable to both sides - to make findings that would not be easily upset. Canada considers the existing system unfair, with the US acting as both prosecutor and judge.

According to the US, the issue is Canadian subsidies on exports. It maintains Canada only wants exemption from the countervailing duties US trade procedures apply on subsidized imports. Moreover, US negotiators aren't sure Congress would approve a treaty overriding the trade mechanism it created.

In the US, the free trade talks have little if any political impact. Their suspension didn't generally even make front page. In Canada, Mr. Reisman's walk-out was banner headline news. People immediately speculated on its political impact.

Recent public opinion polls show the Progressive Conservative government backed by only 23 to 25 percent of voters, compared to 36 to 38 percent for both the Liberals and the left-of-center New Democratic Party (NDP).

Steven Langdon, the NDP's free trade expert, charges that Reisman's suspension of the talks had more to do with domestic politics than with trade issues. He maintains the government calculated it would gain more politically by suspending the talks than by waiting for the talks to collapse on the Oct. 4 deadline, especially since the idea of free trade with the US has been losing public support. But he says the advantage will be short-term unless the Conservatives can come up with a new economic strategy. The NDP opposes a free trade agreement.

Certainly the walkout was premeditated. Mr. Mulroney's office in Ottawa announced the action to the press in Ottawa before it actually happened in Washington. US trade officials suspect the Canadian move is a negotiating ploy, but they admit they aren't certain.

Bruce Phillips, Mulroney's director of communications, called Mr. Langdon's charge ``revolting.'' Noting that the government had endured a political battering on the free trade issue for 15 months, he said: ``We want the deal - badly. This is for the long-term advantage of Canada, not for the short-term advantage of this government.''

A close observer of Canadian opinion, pollster Martin Goldfarb, argued that the Liberals would gain most from a failure of the talks. Mr. Goldfarb is the chief opinion taker for the Liberal Party. He noted that Mulroney had maintained that his friendship with another Irishman, Reagan, would bring benefits for Canada. ``The reality is his friendship hasn't produced a lot,'' he says.

He sees the talks as a sovereignty issue as much as as a trade issue. The Mulroney government has been making multiple concessions to the US: dropping the nationalistic Foreign Investment Review Agency and National Energy Policy created by the previous Liberal government, instituting a 15 percent export tax on software lumber, improving patent conditions for US drug companies, deregulating the trucking and railroad industries, and opening up the Canadian financial community to US companies - ``all ... in hope of free trade.''

Mulroney needs a dispute settlement mechanism to justify all this, Goldfarb says. The Liberals support free trade if a good deal is obtained.

Should the talks not be salvaged, both governments will likely move to contain further damage to the vitally important economic, political, and military relationship between the two countries.