Air fares add to US-Canada trade wrangle

In the growing trade war between Canada and the United States, the latest skirmish is taking place in the air. It was not until this past weekend that the first batch of Air Canada passengers holding special discount tickets was allowed to board aircraft headed for the US.

Their worries started a few days earlier, when the US Civil Aeronautics Board announced it was blocking entry to the 56,000 Canadians who had bought cut-rate air fares on flights from Canada to the US. The ruling came just days before the airline passengers were to take off for such destinations as Los Angeles and Chicago. The CAB ruling was apparently in reaction to a Canadian ruling prohibiting Continental Airlines from offering Canadians cheap fares to Australia.

Permission for the Air Canada passengers to board their planes did not come until Canada's Minister of Transport, Jean-Luc Pepin, spent hours on the telephone with officials in Washington. ''We were constantly under the threat of an ultimatum,'' said Mr. Pepin. ''The style of negotiations, the tactics, were rather crude.''

People in the travel business in Canada see the issue somewhat differently from Mr. Pepin, putting more of the blame on their own side of the border. Some of them feel that the Canadian Transport Commission, which regulates airlines in Canada, has been dragging its feet on allowing US-based airlines the same type of discount operations that Canadians get in the US.

For instance, any agreement that allowed Continental Airlines to carry passengers to Australia would hurt Canadian Pacific Airlines, which has a monopoly on the Pacific route out of Canada. That agreement, it is thought, was only one of the concessions that Mr. Pepin had to make over the phone. Canadian transport officials are in Washington this week, working out problems that have troubled the two countries over the past 18 months.

Canada and the US have been haggling at least that long on bilateral air agreements, the rules that say which airlines can fly between the two countries and at what prices. ''These talks have been dragging on for some time, and the Americans are only going to put up with so much,'' said an airline executive who asked not to be named.

The talks broke off last September. So now the Canadian government will be under some pressure to wrap them up, as well as to settle issues such as the Continental air fares to Australia. But there was never really any problem with the Air Canada discount-seat sale, because six American carriers - United, American, Republic, Eastern, Western, and Frontier - were recently granted the rights to match the discount fares offered by Air Canada. The American government was apparently using its threat to stop the Canadians traveling on Air Canada discount tickets as leverage in the dispute over the Continental Airlines discount tickets to Australia.

Air Canada held a so-called seat sale to fill up empty seats during a slack period, and the flights were certainly cheap. The Toronto-to-Los Angeles return fare was $199 ($242 US), compared to the regular one-way fare of $401 Canadian. About 1,200 passengers flew out on Air Canada's cheap fares over the weekend; the rest appear safe, but will have the talks between Washington and Ottawa hanging over their holidays.

It wasn't the Air Canada seat sale that started all this, but an objection by Canadian Pacific Airlines to the Continental Airlines discount fares to Australia. Canadian Pacific has flights to Australia from Toronto and Vancouver.

At the heart of the problem is the different attitudes in the two countries to airline regulation. Canada disallows many cheap-fare proposals from American airlines because it would hurt Canadian airlines, which need profits from lucrative routes to places such as Florida and California, as well as business traffic to New York, Chicago, or Dallas. The reasoning is that since Canada is a sparsely populated country its airlines, especially government-owned Air Canada, must serve remote areas and thus need the profitable routes to make up losses.

The air war isn't the only rough spot in Canadian-American relations these days. The US Justice Department has ruled that three films by Canada's National Film Board are ''political propaganda.'' The films deal with acid rain and nuclear war. One of the films, ''If You Love This Planet,'' about the dangers of nuclear war, is up for an Academy Award this year. John Roberts, Canada's minister of the environment, described the American action as ''something you would expect from the Soviet Union, not the United States.'' Mr. Roberts is in Washington this week to discuss the issue of acid rain with American officials.

Gerald Regan, Canada's minister of international trade, will also be in Washington to talk about charges that Canada is subsidizing its lumber industry and hurting lumber producers in the US.

That all these trade issues and more are outstanding is perhaps not surprising since Canada and the US are each other's best customers. But for the 50,000 or so Canadians and a similar number of Americans holding cut-rate fares between the two countries, the air war is perhaps the most important matter to be cleared up.