Canada waxes warm for free trade with US. Shift into American economic bloc has been surprisingly harmless

Nearly every day Canada's newspapers carry a story or two on Prime Minister Brian Mulroney's September proposal for freer trade with the United States. It's a hot topic here. It would have been unthinkable 15 years ago for any Canadian government to call for free trade with the US. Another prime minister from the Progressive Conservative Party, the late John Diefenbaker, pushed business in the 1960s to shift more trade to Western Europe -- or anywhere but the US. Canadians, fearing for their sovereignty, did not want to cozy up economically with their powerful southern neighbor.

Despite government efforts to steer trade across the oceans, it moved more and more across the 48th parallel. About the time of World War I, Britain took two-thirds of Canadian exports. Today, some 76 percent of Canada's exports go to the United States.

Gradually and inexorably Canada has moved into the American economic bloc. To their pleasure and perhaps surprise, Canadians have found the shift basically harmless to their independence.

``I don't feel Canadians have as many hang-ups on this issue,'' a high official here noted.

That's different from 1911, when the Canadian Manufacturers Association coined and propagated the slogan ``No truck or trade with the Yankees,'' and Canadian Prime Minister Wilfrid Laurier lost an election after pushing free trade with the US.

Today Canadians are more assured of their national identity, less fearful of being swallowed up by US ``manifest destiny.'' They have watched American TV for three decades or so and feel distinct as Canadians.

Speaking of the political, social, and cultural implications of entering a free-trade agreement with the US, the Royal Commission on the Economic Union and Development Prospects for Canada stated in September that it ``has been profoundly impressed by the confidence that Canadians have come to show in themselves as individuals and in their country as a political community.''

Far from undermining Canada's political independence, continued the Macdonald Commission statement (after chairman Donald S. Macdonald), ``it seems probable that a free-trade arrangement would actually strengthen our national assurance by providing clear evidence that Canadians can prosper in a highly competitive market, without the aid of artificial protection.''

Public-opinion polls show that Canadians favor freer trade with the US 2 to 1. Even in Ontario, where the bulk of Canadian manufacturing is situated and where protectionism has traditionally been strongest, a majority of citizens favors freer trade with the US. As a result, Ontario's new Liberal Party premier, David Peterson, has been cautious in his criticism of the free-trade proposal.

More important, Quebec's leading politicians and businessmen now back free trade. This is the other province that could be hurt by lower barriers. ``Our relations as a province with the United States are good, and improving,'' says Pierre Talbot of the Chamber of Commerce and Industry of Metropolitan Quebec. ``We feel very at ease with the United States.''

Taking their traditional stand, Western and Atlantic provinces are enthusiastic. ``The California market is as large as the entire Canadian market,'' notes Norman Spector, deputy minister to British Columbia's premier, William Bennett. He sees a ``tremendous opportunity'' for the expansion of manufacturing in his province.

Earlier this month Prime Minister Mulroney appointed a former deputy finance minister, Simon Reisman, as chief negotiator for trade talks with the US. Because Mr. Reisman has been a strong advocate of liberal trade and has even advocated the export of water to the US (a sensitive matter to Canadian nationalists), the appointment was widely seen here as a signal of the seriousness of Canada's proposal.

Nonetheless, the negotiations are expected to be neither easy, nor spectacular in their results. The Reagan administration plans to tell Congress between Thanksgiving and Christmas of its intention to start talks, with negotiations unlikely to get going before spring. These could last 18 months to two years ``at the minimum,'' an official here says. Any reduction in trade barriers could stretch out over 10 years.

The Macdonald Commission suggested that Canada negotiate a two-track deal allowing it to take 10 years to phase out protection of its industrial concerns, many of which are branch-plant operations, while the US should drop its obstacles to trade in five years.

Moreover, the commission stated: ``Several Canadian industries might, in fact, have special needs or problems that would justify their total or partial exclusion from a general free-trade regime.''

Undoubtedly the US will resist such ideas in the talks. The Reagan administration has not yet even requested Congress for authority to negotiate with Canada. Neither side has yet spelled out what the scope of trade talks will be, whether it will include all industry, services, agriculture, government procurement, and so on.

Already some 75 percent of Canada's exports of more than $60 billion to the US, and some 66 percent of the more than $50 billion the US sells in Canada, are duty free. To comply with the international rules for free-trade areas set by the General Agreement on Tariffs and Trade, ``substantially all'' of Canadian-US trade would have to be free. The Macdonald Commission interpreted that as 80 percent.

Getting there won't be easy. The issues, an official here said, will be ``tough, complex.'' The Macdonald Commission, however, estimates that the long-term benefits of free trade in the form of increased Canadian output and income would exceed short-term adjustment costs by a ratio of anywhere from 25 to 80 to 1. That's a handsome payoff.