Trade ties that bind

A FREE-TRADE pact between Canada and the United States now looks increasingly likely. This would represent a significant diplomatic and foreign policy achievement for the two nations. It would also constitute an important precedent for US bilateral relations with other major trading partners.

Diplomats on both sides of the US-Canadian border now say that a trade agreement is likely sometime later this year, probably by Oct 1. Under terms of the innovative agreement being worked out by negotiators, all tariffs between the two countries might well be eliminated by the end of the century. Moreover, the agreement would not be a ``passive'' accord - merely a treaty consummated between two allies and trading partners and then left forgotten on the statute books.

Rather, under such a pact stepped-up trade would be vigorously promoted at the highest levels of government in both nations.

President Reagan has already made a trade agreement with Canada a major administration objective. He advocated such an accord in his State of the Union address Jan. 27. And the issue is expected to top the President's agenda when he meets with Canadian Prime Minister Brian Mulroney in Ottawa April 5 and 6. What is apparently new in all this, however, and leading to a more vigorous effort by the administration in trying to win an accord, is an increasing White House concern that the Democratic-controlled Congress may enact a new protectionist trade bill. The bill could impose sharp penalties on nations that run up large trade surpluses against the US.

Granted, such a protectionist measure would be largely directed at Japan and not nations like Canada that have a relatively balanced trading account with the US. Still, the administration frets that a protectionist measure could prompt similar protectionist steps abroad - leading to a global trade slowdown.

The administration could point to a US-Canada trade pact as justification for a free and open trading system.

Many hurdles remain before an agreement is concluded. Canada's duties are far higher than those in the United States. And many Canadian political leaders worry about the negative cultural and social impact on their relatively smaller population from stepped-up US financial penetration in Canadian commerce. Indeed, there is considerable political risk for Prime Minister Mulroney in moving too quickly to strike an accord with the US. Many Canadians believe that Canada invariably gives more than it receives from the US in the resolution of trade disputes.

Canadian concerns ought not be ignored. Still, most of the $123 billion volume of trade between the two sides (the largest two-way traffic in the world) is not now subject to duties. Only about 15 percent of Canada's exports to the US enter under tariffs of some type. About 30 percent of US exports to Canada are subject to duties. So ending the remaining duties makes practical sense for both nations.

The two sides have far more to gain than to lose from a free-trade accord.