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Soaring interest rates fuel US-Canada 'gathering storm'

By David MilneSpecial to The Christian Science Monitor / February 4, 1982



Ottawa

Under intense fire for his handling of the Canadian economy, Prime Minister Pierre Trudeau has sought once again to deflect the criticism toward a familiar target - the United States.

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The Trudeau government is in particular trouble for allowing interest rates to hit record levels. And on Feb. 2 the prime minister laid the blame squarely on the doorstep of the US Federal Reserve Board.

The effect of US restrictive monetary policies has been ''substantial'' in every country, he said. ''But we next door have felt it more than most - as all those unemployed Canadians and all those struggling to pay their new and dreadful mortgage rates can readily attest.''

High interest rates, as much as any other issue, has galvanized Canadian resentment of this country's economic dependence on its neighbor to the south - and of the Trudeau government's inability to alter that situation.

Canadian interest rates are traditionally kept at competitive levels with American rates to prevent outflows of capital that would push down the Canadian dollar on foreign exchange rates. In the past year, this policy has dictated unheard-of borrowing rates that peaked at 22 percent last fall and have now settled at 16 percent.

The resulting crisis among homeowners and businessmen sparked widespread calls for Canada to unhitch its economic future from the US. American businessmen, congressmen, and free-trade-minded Reagan administration officials have been most upset by two key programs in the Trudeau government's drive to expand control over an economy dominated by US subsidiary companies.

The first is the national energy program, which aims to reduce foreign control of the oil and gas sector to 50 percent by 1990 from the current 70 percent. To do so the program offers tax breaks to Canadian companies unavailable to others. The second is the Foreign Investment Review Agency, which screens foreign funds coming into the country and can exact commitments from US multinationals about buying Canadian-made supplies and on other aspects of their planned operations.

A year-long US effort to force rollbacks in the energy program has come to nothing. The policy has proven to be one of the new bright spots in the past year for the otherwise beleaguered Liberal Party government, and Ottawa has no intention of backing down. ''We should not take to the woods every time somebody coughs in Washington,'' said Energy Minister Marc Lalonde.

Ottawa expected tensions to ease after it announced last fall it would shelve an election campaign promise to expand the powers of the Foreign Investment Review Agency. But the US wanted changes in existing practices of the agency.

This split led to an angry exchange of notes between the White House and the Canadian Embassy in Washington recently, culminating in reports that the US would take the unusual step of presenting its grievances to an international forum, a panel of the General Agreement on Tariffs and Trade.

Several irritants have produced what the new US Ambassador to Ottawa, Paul Robinson, recently spoke of as ''the gathering storm'' in US-Canada relations. These include the US Senate's failure last year to ratify a treaty for joint management of East Coast fisheries; Canada's irritation over what it sees as US foot-dragging on acid rain; and US concern over billion-dollar takeover bids for US firms from Canadian companies.

However for all the harsh words across the border, no one wants to disturb a trading relationship which, with two-way sales now approaching $87 billion annually, the largest and most extensive between any two nations.