Canada's direction

A unique opportunity now exists for Canada and the United States to strengthen the North American economic market as well as to secure American and Canadian cultural ties. Much is made of the long, unguarded US-Canadian border, the free movement of peoples and goods which makes the two nations each other's major trading partners by far. These clich'es of the relationship often tend to obscure the distinctiveness of Canada's cultural identity, whose preservation has prompted Canadians in recent years to attempt to limit American investment in Canada -- at Canada's own cost.

But the new Tory government of Brian Mulroney in Ottawa, and global trade and financial trends, should make Washington take seriously the opportunities at hand for improving economic relations.

The logic of this, in terms of shared interests, is clear: Ontario and Quebec, after all, are part of the North American industrial crescent, from the New England states across the Great Lakes to Illinois and Wisconsin; the farmland of southern Manitoba and Saskatchewan share the great North American prairie that reaches southward to Texas. Strategically, polar and coastal attack routes are shared by both nations. If Europe's ``mature'' market is less promising for both the US and Canada, if the North Americans compete in Pacific Rim markets with some of the same products, and if progress on multilateral trade agreement (which both the US and Canada would prefer) is frustrated by the foot-dragging of countries like France, then bilateral progress for the two North American neighbors now makes sense.

Ottawa is focusing on three areas for agreement:

For political reasons, the current acid-rain talks between Washington and Ottawa are crucial to the Mulroney government. They are the litmus test of Mulroney's effectiveness in his publicized effort to put the era of Canadian-US confrontationalism behind. Canada is uniquely a nation of forests and lakes, of timber industries, fisheries, and tourism; acid rain's environmental impact is an emotional and practical Canadian concern, regularly defined in terms of economic costs.

Second is a potential bilateral trade pact, which could emerge as early as September. It could guarantee access to markets similar to those that exist in auto production. But it is likely to be a comprehensive pact, avoiding the sectoral approach to free-trade agreement, such as has been tried in the past for farm machinery and computer services. The US may be interested in freer access for the petrochemical industry. Alberta favors such a pact; it is already making a profit on US sales despite large tariffs; but Ontario, with aging petro plants often owned by American multinational companies, opposes it.

This leads to a third area of Canadian concern, growing protectionism in the US Congress. Canada itself has not always shown great love for free trade per se. Ontario, with its aging industry like that of the US Midwest, already feels challenged enough. Americans in the Northwest are annoyed at Canada's growing timber sales in the US, partly a function of the strong US dollar. Canada's support of its grain sales abroad, its subsidies and marketing and transportation assistance, have long bothered American farmers and commodities companies. The Canadian dollar, while weak against the American dollar, is nonetheless bolstered by its relationship to the US dollar in competition with other currencies. Hence the dollar relationship binds Canada more closely to the American market in sales to the US, but it disadvantages Canada in trade elsewhere.

Mr. Mulroney recognizes this. He thus sees his party's political and economic prospects linked to the American economy. He is faced with an enormous deficit problem like Washington's. Ironically, despite winning office with the biggest landslide in Canadian history, his first order of business is to strengthen his political base. He fears he cannot take the kind of draconian steps taken by Margaret Thatcher in Britain, because Canadians would not tolerate greater unemployment. So he is taking a cautious, gradualist approach to the deficit: snipping $2 billion a year from this year's $34 billion deficit until it reaches $22 billion in 1990. At this, he is under sharp attack for proposing cuts in pensions for seniors. Mulroney's political strategy counts on growth in trade with the US and a healthy American economy, to avoid the fiscal austerity his own right wing is demanding.

Mr. Mulroney, given the pattern of Canadian politics, is likely to be in office for the next decade. While Washington cannot guarantee the prosperity of the US market on which Canada depends, it can move ahead toward freer trade conditions and other efficiencies which lie in the best interests of both North American neighbors.