New Disputes Buffet US-Canada Trade Pact

FREE Trade between Canada and the United States is being hurt by a series of complaints brought by the US, trade experts say. And an expanded deal to include Mexico could be scuttled by angry Canadians.

The examples range from complaints that the province of Quebec subsidizes electricity for magnesium producers to charges that Canadian lumber firms receive a subsidy because they cut wood on land leased cheaply from provincial governments.

One of the Canadians who negotiated the 1988 Free Trade Agreement, Simon Reisman, says that the US Commerce Department and lobbyists for American industries in Washington threaten the agreement. "The Department of Commerce has always been protectionist in my view," Mr. Reisman says.

Recent disputes include:

Steel. American producers complain Canadian steelmakers are dumping - selling at artificially low prices.

Magnesium. Producers in Quebec will pay a tariff of more than 60 percent because the US Department of Commerce ruled that firms such as Norsk Hydro were getting electricity subsidies from the Quebec government.

Lumber. The US will start to collect a 6.5 percent tariff on Canadian lumber.

Cars. Although cars are usually covered by the 1965 Auto Pact, in March of this year the US Customs Service put a 2.5 percent duty on Honda Civics made in Canada and shipped south. The ruling said the cars didn't meet a criterion of 50 percent North American content.

A US-Canada trade panel in June upheld the duty-free status of cars produced by CAMI Automotive Inc.'s plant in Ingersoll, Ontario. CAMI is a joint venture between General Motors and Suzuki. No date has been set for a decision on the Honda case, also before a trade panel.

Though industry groups have won some cases, Canadians from Prime Minister Brian Mulroney to Reisman say the trade pact is being hurt by what they call "harassment." Reisman, an Ottawa consultant, says the US Commerce Department is too willing to act on industry complaints.

Allan Taylor, chairman of the Royal Bank of Canada, the nation's largest bank, agrees. In New York last month, he attacked what he called "punitive" rulings. "Harassment of Canada serves no one well," he said. "It is a threat to the cause of free trade."

The free-trade pact is being phased in over 10 years, and many items are only now becoming part of the agreement.

"We're dealing with more sensitive industries who want protection longer," says Darrel Pearson, of Gottleib Pearson. "With no more customs duties for those industries, it removes a cushion of protection."

The Canadian government says the deal has worked in Canada's favor. "It is meeting its objectives," says Michael Wilson, the international trade minister. He points to record exports to the US and Canada's $15 billion (Canadian; US$12.6 billion) merchandise trade surplus with the US last year. Mr. Wilson has also predicted that an expanded Free Trade Agreement including Mexico will be in place before the American elections in November.

Reisman and Mr. Pearson are not so sure. "If a vote were taken today it would be rejected hands down," Reisman says. Pearson predicts that if the present Canadian government is ever defeated, not only would the deal with Mexico not go through but the present agreement might be scrapped. Polls suggest the government would lose badly, but an election is at least a year away.

"A new government would take a closer look at free trade," Pearson says. "There is an escape clause under which the deal can be canceled in 6 months."

Opposition politicians echo that sentiment, but no one in the present government agrees.