For a free-trade pact between Canada and the US
Canadian Prime Minister Pierre Trudeau's recent meeting in Washington with President Reagan in preparation for the Williamsburg summit later this month maintained the pattern of frequent consultation between the two national leaders which has prevailed since Mr. Reagan took office. But it did not even begin to make a dent in the backlog of grievances which the neighbors have against one another.
The United States remains unhappy about, though apparently resigned to, Mr. Trudeau's policies of screening foreign investment and ''Canadianizing'' ownership of the oil and gas industry in Canada. Canadians, for their part, resent Mr. Reagan's indifference to the cross-border environmental damage of acid rain (as well as distrusting his policies on nuclear arms and Central America).
None of these issues is likely to be resolved short of a change of government on one side of the border or the other, since both Mr. Reagan and Mr. Trudeau have invested too heavily in the policies which irritate the other to back off easily. The likelihood is that the bilateral relationship, if allowed to continue its present drift, will produce still more frictions.
The best hope, ironically, for restoring Canadian-American ties to something approximating the neighborly harmony of the Carter years may lie not in trying to eliminate the individual points of tension which now exist but in moving boldly to reorient the relationship toward an unprecedented level of economic cooperation that would subsume the current irritants.
This, as it happens, is what Mr. Reagan espoused when he began his campaign for the presidency. In November 1979 he called for ''a developing closeness among Canada, Mexico, and the US - a North American accord.'' But he subsequently did little to spell out or pursue the concept. That was unfortunate because it allowed nationalists in both Canada and Mexico to raise the alarm that the real intent behind the proposal was to facilitate a US resource-grab on its northern and southern neighbors. When Canadian and Mexican leaders reacted coldly to the North American accord, Washington let it lapse.
There is, however, an influential and growing constituency in Canada which is eager to embrace a particular variant of a North American accord - a bilateral free-trade pact between Canada and the US. This has been advocated for several years by the Economic Council of Canada (the equivalent of the President's Council of Economic Advisers) and by the Foreign Affairs Committee of the Canadian Senate.
More recently, the Business Council on National Issues (the top executives of Canada's 150 largest corporations) urged a free-trade pact upon Vice-President Bush when he visited Ottawa. Canadian Trade Minister Edward Lumley is known to advocate the idea within the Liberal government and John Crosbie, a strong contender for the vacant leadership of the opposition Conservative Party, has made it the centerpiece of his leadership campaign.
For Canada, the advantage of such a scheme is the invigorating effect it would have on the inefficient manufacturing sector of the economy. Unlike its major trading partners (the US, the European Community, and Japan), Canada lacks a duty-free market of 100 million consumers. It therefore cannot reap economies of scale in its manufacturing production.
If Canadian manufacturers got unhindered access to the large US market, they could convert to longer production runs, which would result in lower unit costs and higher productivity. Canadian industry would be more efficient and export-oriented.
But US industry would also stand to benefit. Since Canada is the No. 1 customer for US-made goods, a more robust Canadian economy would mean an expanded market for US exports. The many American multinationals with subsidiaries in Canada would be able to assign production to their US and Canadian plants on the basis of where it could be done most efficiently. Free trade would eliminate the risk of such rationalization being upset by the sudden introduction of protectionist measures on either side of the border.
Bilateral free trade could also benefit the US by including free trade in services, something Washington has been trying unsuccessfully to achieve on a worldwide basis through the General Agreement on Tariffs and Trade. Canada would be more ready to compete on equal terms with, say, US banks and insurance firms than would more protectionist signatories of GATT.
Although conventional wisdom on both sides of the border holds that the initiative for bilateral free trade has to come from Ottawa (because of Canadian nationalist sensitivities), there are at least two reasons why it might be wiser for Washington to make the first move.
First, timid Canadian politicians are unlikely to take the risk of infuriating Canadian economic nationalists by backing free trade unless they have assurances that the idea would be seriously entertained by the US administration and Congress. Second, the US could lessen Canadian nationalist resistance by a clear statement indicating that the free trade it envisages would embrace manufactured goods and services - but not resources such as Canadian energy and water.
Even then, there would still be significant opposition in Canada from nationalist elements in the media, the universities, and both major political parties who fear that closer economic integration would endanger Canada's political sovereignty. But at a time when Canada, like the US, is disturbed by low productivity in its industries and the apparent dead end in the process of international trade liberalization, both countries might find it timely to cut a bilateral deal and squeeze some additional benefits out of their $90 billion trading relationship.