Pipeline fallout: outrage in Canada, too
West European governments have reacted with a sense of shock and outrage to Washington's headstrong attempt to make the European subsidiaries and licensees of United States corporations obey American trade embargo legislation. Canadians share the Europeans' sense of outrage, but not their sense of shock.
We share the sense of outrage because, on a much smaller scale, Canadian companies are also feeling the impact of the US embargo on oil and gas equipment. Although no Canadian firms are involved in the Siberian gas pipeline project, the regulations which the Reagan administration issued in June embargo not just that project but all Soviet-bloc oil and gas projects.
As a result, two Canadian-owned companies bidding on a Soviet natural gas project in the Astrakhan region have been affected. As part of their bid, they committed themselves to use US-made equipment which their American suppliers are now prohibited from supplying. Two American subsidiaries in the province of Alberta have withdrawn bids from a Soviet sour gas project, apparently in deference to the US embargo.
Canadians are not amused when they see US subsidiaries, which like to style themselves as ''good corporate citizens'' of Canada, obeying the dictates of a foreign government and ignoring the national interests of Canada as defined by the government of Canada. We are not amused, but neither are we shocked. Why should we be?
After all, we have been subjected to such infringement of our sovereignty for years, whether under the US Trading with the Enemy Act, the US Export Administration Act, or US antitrust legislation. All of these statutes make not only US parent companies but also their foreign subsidiaries (and the American directors of those subsidiaries) liable to criminal prosecution for engaging in trade practices considered harmful to the US national interest.
The extraterritoriality, of course, is intended to block US firms doing through their subsidiaries what they themselves are banned from doing by US domestic law. The effect, however, is to make those subsidiaries a Trojan Horse for the importation of US trade and foreign policies into foreign countries.
Canada, in line with NATO policy, avoids selling strategic minerals or strategic technology such as computers to communist countries. But Canadians have not considered it in their national interest to subscribe to broader anticommunist trade embargoes which Washington has mounted. The government of Prime Minister Pierre Trudeau declines to stop sales of oil and gas equipment to the Soviet bloc, just as previous Canadian governments refused to back the generalized trade boycotts of China, Cuba, and North Vietnam by the US. Yet extraterritoriality implicated Canada regardless of its wishes.
In several instances, US subsidiaries in Canada were ordered by their parent firms not to complete export deals negotiated with these US-banned markets. In 1973, Ottawa had to pressure the American directors of MLW-Worthington Ltd. to resign in order that the Montreal-based subsidiary would proceed with a shipment of locomotives to Cuba.
But winning the occasional test of wills has not solved the larger problem of extraterritoriality, since the cases where push actually comes to shove are probably only the tip of the iceberg. How many times have US subsidiaries backed away from deals under the pressure of US law, while pleading some other reason? How many US subsidiaries, for that matter, have never even cast longing glances at prohibited markets because they know that in that way lies friction with their parent firm and with Washington?
Canadians and their government have no way of knowing, but enough cases have come to light to suggest that the iceberg may be distressingly large. Canada is much more vulnerable than Europe to any constraints placed on subsidiaries because US affiliates account for a much larger share of the Canadian economy than of the European economies.
One of the unintended side effects which President Reagan's trade embargo may have is to revive the spirit of economic nationalism in Canada at a time when it was declining. This would be ironic, since his administration has been pressing the Trudeau government to retreat from nationalistic policies such as the Canadianization of the oil industry and the screening of foreign investment.
Although Ottawa has held firm on its National Energy Program, it did back down on plans to do increased monitoring of foreign investment. Provincial governments, which blame nationalist policies for aggravating the country's economic ills, have even been demanding outright abolition of foreign investment controls.
But it will take only a few well-publicized instances of the US trade embargo constraining the export business of US affiliates in Canada to generate popular support for retaining, and possibly expanding, the regulation of foreign investment. Even Canadians who are normally favorable to American capital turn into economic nationalists when the issue of extraterritoriality raises its head.
Whatever value the US embargo may have in punishing America's enemies, it may be outweighed by the high cost of damaged relations with America's friends, both in Europe and in Canada.