Canada prepares a list of topics for more open trade with US

Canada wants a broad free-trade deal with the United States. American negotiators have been unwilling to go that far. That's the Canadian viewpoint, put forward here by informed sources at a time when the negotiations are in their final crunch.

If an agreement is reached by the Oct. 5 deadline for presentation to Congress - and that is far from certain - a new free-trade area, whether big or small, would be of considerable importance to many businessmen.

Here's the negotiating situation by sector or problem, as seen by Canadians. The American side, of course, undoubtedly has different positions in some cases.

Tariffs: The trade deal should be for 20 years, with the likelihood of continuing for another 10 years. It would require the elimination of most tariffs within 10 years, some of them immediately on ratification, some after 5 years, some up to 10 years.

Subsidies: The Canadians admit that their federal and provincial governments subsidize regional development in poorer sections of the country. This is necessary to prevent the people of these areas from leaving for booming central Ontario, they contend.

``But the notion it hurts the United States is nonsense,'' a source asserted.

Further, a study by Canada found that the US subsidizes its businesses even more but in a different way - through defense or research-and-development contracts and at the state level.

Canada wants a firm definition of subsidies, spelling out what each country can or cannot do in this regard.

Buy domestic: Canada proposed a policy of open government procurement at all levels of government and for all goods and services. The US, sources here say, balked at this idea because of its bigger defense purchases. Canada then suggested open procurement of civilian goods and services alone. When the US tried to narrow it down to sectors where it thought American manufacturers might do well, Canada said ``no cherry-picking'' and proposed it be left to the current round of the General Agreement on Tariffs and Trade. The Economic Policy Council in Washington has been considering a counterproposal.

Agriculture: It may be possible to reach a modest agreement to increase two-way trade in livestock and red meats, eliminating some quantitative restrictions or trade obstacles arising from standards, sizes, health issues, and so on. There will also be talk about ending the ban on some imports of US-made spirits, wine, and beer by government liquor stores in Canada.

Canada, however, refuses to consider an American proposal to put a quota on exports to the US of sugar substitutes (primarily fructose) and on foods containing less than 10 percent sugar, such as yogurts and ice cream. US-bound exports with more than 10 percent sugar are already limited.

Cultural industries: Canada insists on keeping ``some minimum presence'' in broadcasting, film, video, records, and publishing in Canada. American companies are already dominant in Canada in these areas. But Canada could deal with some American irritants in this area involving border radio or television stations, printing, and an investment review system that may involve the forced divestiture of a Canadian publishing house subsidiary of an American firm (or other foreign company) to a Canadian buyer when the ownership of the foreign parent changes.

Automobiles: Though not stated publicly for political reasons, the 1964 automobile agreement between Canada and the United States is regarded as ``a fossil ... a symbol.'' Many of its provisions, based on letters signed by the manufacturers, are no longer legally valid. Even if they were valid, production of cars in Canada by foreign-owned companies has by now exceeded Canada's safeguard levels by something like $10 billion.

Moreover, the Big Three US companies are eager to keep the deal, because it permits them to import parts from abroad into Canada without paying the 10.5 percent duty they would be charged if they brought the same parts into the United States. This is because Canada, unlike the US, removed its tariffs worldwide on autos and parts - not just to the US - when it put the 1964 deal in place. Contrariwise, the United States eliminated its import duties on imports of autos and parts from Canada, but not from other nations. It instead sought an exception from GATT's ``most favored nation'' provisions for this purpose.

The Big Three bring into Canada from abroad some $2 billion in components and finished vehicles without paying duty. This adds perhaps $200 million to their profits. They have threatened to oppose the entire free-trade agreement if the auto pact is touched. So the US is not raising the issue.

Investment: The original exchange of letters by President Reagan and Prime Minister Brian Mulroney launching the free-trade talks did not mention investment. The topic was added later during preparatory talks. Canada proposed to make ``a very large, very important commitment'' to keep foreign investment in Canada open - with the exception of some restrictions in the cultural industries. The US wants to protect its defense, shipping (Jones Act provisions), and telecommunications industries.

Services: Canada says it offered ``national treatment'' for all foreign activities in the service industries. The US, Canada says, wanted to deal with the subject on a sectoral basis. The US suggested permitting foreign competition in intercity, interurban trucking. Canada said it wanted all transportation modes opened up.

Intellectual property: The Canadian government is already pushing legislation through Parliament to improve patent rights in the area of pharmaceuticals. The US is the world's leader in the creation of intellectual property such as movies, videos, books, inventions, trademarks, and so on. Canada says the talks are about ``99 percent there'' on a code for intellectual property. ``Americans will be delighted with it,'' a source says.

The deal will be substantial, but somewhat smaller if agriculture and government procurement are left out.