Trading Places

DESPITE the presence of strong anti-American sentiments in many of our allies, the United States can rest easy in the knowledge that Canada, our closest ally, has not succumbed to fears of domination by its southern neighbor.

In an election that will clear the way for more free trade worldwide, Canadian voters last week decided to return Prime Minister Brian Mulroney and his Progressive Conservative Party to power. The final results showed the Progressive Conservatives getting 43 percent of the popular vote and 170 seats in the House of Commons, followed by the Liberal Party with 31.9 percent and 82 seats and the left-leaning New Democrats with 20.4 percent and 43 seats.

By granting power to the Progressive Conservatives, Canadians rejected the irrational fears of America that the other parties ran on. The election was in large part a referendum on the bilateral free trade agreement that Mulroney reached last year with President Reagan. The other parties charged that Mulroney's pact would sell out Canadian sovereignty.

Although the U.S. Congress had approved the pact, the Canadian parliament had refused to accept it unless Mulroney called an election. The trade agreement quickly became the central issue of the campaign. Mulroney defended it as a strong effort to liberalize trade and spark economic growth, while his opponents--Liberal John Turner and New Democrat Ed Broadbent--argued that it jeopardized Canadian social programs.

Although Turner took an early lead in the polls, Mulroney was able to convince Canadians that the pact was good for them.

THERE is no question that the agreement is good for the United States. At $150 billion a year, Canada and the U.S. are already each other's largest trading partners, and the pact will further expand trade between the two nations.

Roughly 70 percent of Canadian-American trade is already tariff-free, and the agreement will eliminate the remaining barriers over the next 10 years. The agreement also eases crossborder investment, installs new rules to govern trade for the service industry and gives the United States nondiscriminatory access to Canadian oil, gas and uranium.

In turn, Canada will have greater access to a market 10 times the size of its own. According to economists, the Canadian economy will grow at a rate five percent faster than it would without the agreement, because of increased exports.

The liberalization of trade extends beyond Canada and the U.S. Multilateral negotiations among 96 nations of the General Agreement on Tariffs and Trade (GATT) are scheduled to continue in Montreal next week, and the Canadian approval of the bilateral agreement should have a positive impact on those talks. Several items incorporated into the U.S.-Canada accord, including intellectual property rights and the liberalization of agriculture and service industries, will be on the table in Montreal.

By phasing out remaining trade barriers, the U.S. and Canada should boost their industrial productivity, which will allow them to compete more effectively with Asian and European rivals. The members of the European Economic Community have already agreed to remove all of their internal barriers by 1992. Now, Canada and the U.S. have taken an important first step toward creating a competitive and cohesive North American economy.

DESPITE the overwhelming advantages of a cooperative continental economy, Mulroney should keep in mind the warnings of the agreement's opponents. While the current agreement does not disallow social programs, as some of Mulroney's opponents erroneously charged, it does encourage further talks to reduce government subsidies to business, and cutting these subsidies may endanger such programs. "Government subsidies" could come to mean universal health care.

Canada now has a well-developed welfare state which provides admirably for all its citizens and seems to reflect the sense of community that Canadians hold dear. The Liberal and New Democratic fear that Canada would become more like the U.S. will become a painful reality if Mulroney starts to cut away at these programs to attack the country's large budget deficit.

Mulroney must be careful to use the trade agreement to increase Canada's economic vitality without sacrificing his nation's cultural identity. The pact ought to give Americans a chance to examine Canadian social programs. In this regard, the pact could end up making the U.S. more like Canada, instead of making Canada more like the U.S.