Canada Changes Course

(8 of 10)

Mulroney also has proposed measures to stimulate investment, a notion that should make U.S. firms happy. He is committed to revising the country's 1980 National Energy Program, a controversial act that allowed the government to claim a 25% stake retroactively in oil discoveries. The legislation infuriated U.S. oil companies, which have substantial holdings throughout Canada and off the Atlantic and Arctic coasts. Mulroney will also overhaul the Foreign Investment Review Agency, a 1974 Trudeau creation that monitors companies wishing to do business in Canada to ensure that their activities are in the country's interest. FlRA's regulations, however, drove many foreign businessmen away; in the past three years, U.S. investment in Canada declined by $3.7 billion. Mulroney plans to turn FIRA into more of an investment promoter than a nationalistic watchdog. Says Charles Doran, director of Johns Hopkins' Center of Canadian Studies: "The form will be there, but the teeth will be gone."

Relations between Washington and Ottawa have actually been improving since 1982, when Secretary of State George Shultz started holding bilateral talks with Foreign Minister Allan MacEachen every three months. Colleagues at the Massachusetts Institute of Technology in the early 1950s, the two men enjoyed an excellent rapport that quickly trickled down through their respective bureaucracies. "We got energized knowing that our bosses were looking over our shoulders," says a U.S. diplomat. The meetings focused primarily on trade and economic issues; though Mulroney has not yet named MacEachen's successor, both U.S. and Canadian officials expect trade barriers to fall.

Many disagreements remain. The Reagan Administration is especially concerned about Canadian defense expenditures. The country this year will spend $6.8 billion on arms, or 2.1% of its gross national product, well below the U.S. level of 6.8%. In the early 1970s, Trudeau froze the Canadian military budget and cut the armed forces serving with NATO in Western Europe from 10,000 to 5,000. Though the Prime Minister eventually increased defense outlays, the perception lingers in Washington that Ottawa is not paying its fair share. Mulroney has promised a 6% hike in. defense expenditures, but it is unlikely that he will be able to modernize his country's aging military hardware as much as Washington would like.

Mulroney has his own agenda for dealing with the U.S. At the top of the list is acid rain, which is threatening Canada's important fishing and timber industries−and which many Canadians blame on the U.S. The Reagan Administration contends that the link between acid rain and sulfur-dioxide emissions that drift northward from coal-fired power plants in the Midwest has not yet been proved. Mulroney, however, has promised to push the issue with the White House, most likely after the U.S. election in November. The Liberal government committed itself to halving emissions on its side of the border by 1994, but Canadian officials doubt that Washington will do the same. Some U.S. experts think the U.S. might agree to install scrubbers on some aging smokestacks. Says Doran: "Mulroney's going to have to make some progress." "He has to get something beyond just 'further discussion.' "