GLOBAL ECONOMICS
CHAPTER 4
WHAT SHOULD OUR POSITION BE?
Self-deprecation has become a favourite English-Canadian pas- time. We are a small country, the argument goes, lacking in the wherewithal to confront challenges from inside or outside our borders. In negotiations with the United States, we are bound to emerge with the short end of the stick because we lack the strength of the U.S. economy and the determination to defend our interests that those self-confident Americans appear to be born with.
The same applies to the Quebec issue. Canadians outside Quebec often look with envy at Quebec's ability to speak with a single voice and push its viewpoint consistently and uncompro- misingly. With this internal unity, Quebec usually seems to get its own way, at least in struggles with the federal government and in competition with the other provinces. Quebec's politicians, both provincial and federal, push for the CF-18 fighter maintenance contract and snag it for Canadair, even though the Quebec com- pany bids higher than Bristol Aerospace of Winnipeg. Quebec pushes for the Canadian Space Agency headquarters and gets it, even though most of the scientists and space-related businesses involved are based in Ottawa.
Within days of getting elected in the fall of 1994, the separatist government in Quebec demands that Ottawa reimburse the province the $34.5-million cost of the referendum on the Charlottetown accord that it decided to conduct on its own. Within days, the cheque is in the mail. Meanwhile, Ontario, Alberta and British Columbia argue for years to get the federal government to restore full funding of welfare costs in those provinces. Hundreds of millions of dollars are at stake, but Ottawa manages to slough off these demands with impunity.
In English Canada, we just can't seem to unite on issues. The prospect of negotiating with a Quebec armed with a yes vote in a referendum scares us. But a defeatist attitude will be disastrous in negotiating with a single-minded group of Quebec separatists. This time around, it's not a question of losing a federal contract or the headquarters of a federal agency; our economic and politi- cal future is at stake.
We have no reason to feel at a disadvantage in talks with Quebec. The truth is that Quebec's political and emotional soli- darity masks its fundamental weaknesses in entering the negoti- ations on sovereignty. For all the talk by separatists of negotiat- ing with Canada "equal to equal," Quebec is the smaller and weaker partner that comes to the table seeking radical changes to an arrangement the stronger partner has been quite satisfied with.
Just look at some numbers- Quebec's share of the Canadian population used to be a steady 28 to 29 per cent. Starting in the 1970s, as Quebec nationalism rose and growth began to concen- trate in Ontario and the West, Quebec's population share began to fall steadily. By 1994, it had fallen to 24.9 per cent. That means the rest of Canada outguns Quebec on population by 22 million to 7.2 million, or more than 3 to 1.
More crucially, Quebec's economic importance within Canada continues to shrink. In 1961, Quebec accounted for 26 per cent of Canada's gross domestic product--the value of all goods and ser- vices produced by the economy. By 1993, it had dropped to less than 23 per cent. Alberta and British Columbia together have now surpassed Quebec in their share of the national economy. Economically, the rest of Canada has more than a 3-to-l advan- tage over Quebec. Even if Quebec were negotiating with Ontario alone, Quebec starts with a major disadvantage. Ontario's popula- tion is half as big again as Quebec's and its economy is more than 75 per cent larger--a difference of $125 billion a year.
So we enter the negotiations with a lot of muscle and an econ- omy that is wealthier and more diversified and growing faster than Quebec's. And the process of secession is going to weaken Quebec further, at least in the short term, as people and compa- nies decide that they would rather leave than stay in a separate state. Quebec has a consistently higher unemployment rate than the national average and a heavy concentration of declining industry. Its only metropolis, Montreal, has been losing financial and industrial clout for more than a generation.
By the very nature of secession, it is Quebec that will suffer the bulk of the transition costs. It is Quebec that will be starting at square one as a sovereign state when it comes to its trade rela- tions, its diplomatic relations and its defence relations. At the same time, Quebec will have to establish a new relationship with the rest of Canada, attempt to gain international diplomatic recog- nition and manage a fundamental psychological adaptation for its population. A sense of embarking on a great national venture may be of some help, but it won't stop Canadian corporations from abandoning Montreal. It will be Quebec that has to cope with a flight of capital, business and some of its best brains.
As well, Quebec will have to cope with the huge transition costs of merging the federal civil service within its borders with the existing provincial'civil service. It will also face the challenge of convincing large numbers of Quebeckers who remain commit- ted to Canada to trade in their beloved citizenship for a Quebec citizenship they never asked for.
On the Canadian side, the biggest transition costs, aside from the effects of financial market shocks, will be localized in Ottawa and in the Atlantic provinces. Yet even these costs can be man- aged if we handle the negotiations properly and take a measured, well-thought-out view of what Canada's interests are.
LIKE A GIANT TRADE DEAL
Negotiations with Quebec will probably be conducted like nego- tiations over a giant trade deal. According to Gordon Ritchie, the Ottawa trade consultant who was Canada's deputy chief negotia- tor of the Canada-U.S. Free Trade Agreement, "The biggest negotiation we ever had was the FTA and the FTA pales in com- parison with this enterprise." There are dozens of issues, many of them complex, that will require considerable give and take on both sides. But solving one issue will mean nothing unless there is a solution to all the issues. As with the recent world trade deal, there will be one global agreement, reached at the last moment, which won't completely satisfy both sides.
As with trade negotiations, Ritchie expects that the talks on secession will be conducted through a series of sectoral negotiat- ing tables, each covering a key issue, like trade or financial ques- tions. Ritchie expects that each side will name a non-politician as chief negotiator but that the ultimate boss will be the prime min- ister. "You can be sure that on the Quebec side, the de facto chief negotiator will be Parizeau, and at each table, the de facto chief negotiators will be the key ministers."
On the Canadian side, the prime minister must be the de facto chief negotiator, backed by members of the federal cabinet and provincial premiers. As described in the previous chapter, this could be organized through a Canada Negotiator's Office and a broader Canada Negotiating Council. It will be essential to involve the premiers of Ontario, New Brunswick and Newfoundland when the issue of borders is discussed. Likewise, the other provinces, especially Ontario and the Atlantic provinces, will have to be involved when trade is on the table. This involvement of the provinces is essential, but it must be under the umbrella of a single Canadian position. We cannot allow these talks to degenerate into a series of one-on-one discus- sions between the provinces and Quebec. This would allow Quebec to adopt a divide-and-conquer technique of negotiation and would favour the stronger provinces. The Atlantic provinces would surely end up the losers, as would Canada as a whole.
When it comes to the very existence of Quebec as a sovereign state, each side comes to the table with strong arguments. The strength of Quebec's position will come with the fact that it has just received a mandate from its people to secede. Here, the strength of the mandate will grow with every vote the separatists manage to muster. If there were an 85 per cent vote for secession, Quebec would be gone within months and the rest of the country would do nothing to stop the process. On the other hand, if the yes side collects only a few thousand more votes than the no side, the mandate for separation would be so weak that the process could eventually be aborted, or might never start in the first place.
On the Canadian side, it is unlikely that there will be any such clear, broad-based mandate. A national referendum reaffirming the desire of the rest of Canada to stay together as a united country is possible but unlikely before formal talks begin. A federal elec- tion could also result in a mandate for the negotiators, but, as we argued earlier, time may not permit this luxury- Whatever route is taken, we will have to depend on our politicians, both federal and provincial, to express our desire to remain together as a united country.
On the question of recognition, Canada starts out in any nego- tiation with a clear advantage. As pointed out in the previous chapter, there is no legal exit from Canada as it now stands. Although ultimately, this constitutional obstacle to separation can be overcome, it will place Quebec from the outset in a position of either asking Canada and the other nine provinces to approve a constitutional change or threatening to break the law and unliter- ally declare independence.
Canada also has an advantage when it comes to international recognition for Quebec. Canada is a long-established country with extensive diplomatic and trading relations around the globe. It will not be the new kid on the block like Quebec, which will be vying for attention with the likes of Estonia and Slovenia. Canada is a respected member of the international community and its unity crisis will likely attract considerable sympathy from its international partners, many of whom face their own internal secessionist movements. With its unblemished international record as an ally, trading partner and peacekeeper, Canada has a lot of lOUs in the world community.
Quebec, on the other hand, will be regarded as just another secessionist state. Aside from attracting sympathy and support in some quarters in France, Quebec will be on its own, trying to seek understanding from a world that will be more perplexed than anything else by the breakup of Canada.
What this means is that recognition by Canada of a sovereign Quebec will be essential to Quebec's effort to gain recognition in the world community. True, secessionist states can be recognized diplomatically without the approval of the state from which they have split, but this can be a messy, long-drawn-out affair. In the former Yugoslavia, recognition of Slovenia, Croatia and the other breakaway states came relatively quickly, but that is partly because they were breaking away from a federation that had col- lapsed and was on the brink of civil war.
If Canada resists Quebec secession, rare is the country that would want to risk its friendship with Canada to please the sepa- ratists. Diplomatic sources concede that even the French govern- ment would hesitate before double-crossing Canada, its longtime G7 ally and interlocutor on a range of issues, from peacekeeping to the Francophonie, simply for the sake of emotional attachment to the cause of Quebec separation. And France will be extremely sensitive to any collapse of the Canadian federation while it is working hard to develop a united Europe.
What the international community is looking for is a peaceful solution of the Canadian problem by Canadians themselves. The United States and other allies like Britain and Germany will have no objection to recognizing a separate Quebec provided that Canada has first done, so. This recognition remains a key bargaining card that Canada can use with Quebec. There would be no reason for Canada to extend it until all other issues are set- tled satisfactorily.
Canada has other strong bargaining positions as well. On terri- tory, Quebec's claims to territorial integrity will be met with strong resistance from native groups. Using Canadian constitu- tional law and world sympathy for their plight, groups like the Quebec Cree will push to carve up Quebec- "If Canada is divisi- ble, so is Quebec," is their cry. Although carving up Quebec terri- tory won't serve anybody's interests in the long run (an argument we make in Chapter 6), Quebec goes into the negotiations with a less than watertight position both legally and morally.
On trade, Canada again comes to the bargaining table with a strong hand. Quebec is considerably more dependent on trade with the rest of Canada than the rest of Canada is dependent on its trade with Quebec. British Columbia, for example, hardly trades with Quebec at all. Even Ontario does more business with the United States than it does with Quebec. Because Quebec has so much to lose, it is Quebec that comes to trade talks as the supplicant. It is Quebec that wants to negotiate its way into NAFTA and GATT, Until there is a deal that suits Canadian interests, the status quo remains. If Quebec secedes, Canada will have all of its trading relationships intact, except for those with Quebec. Quebec, on the other hand, will have to start from the ground up.
On currency, Quebec once again has less strength in its bar- gaining position than the separatists let on. Although keeping a common currency may be a good idea for both sides, it's defi- nitely of more interest to Quebec than it is to the rest of Canada. And it is Canada that controls monetary policy through the Bank of Canada and has its hands on the payments system, which keeps the flow of cheques and other transactions coursing through the economy. As we will show, Canada could cut off access to Canadian currency if it wished.
On the public service issue, Canada will enter talks with an advantage that it must hold on to resolutely--the PQ's promise to provide jobs to every federal bureaucrat in Quebec. We must obtain concrete assurances that all Quebeckers working for the federal government go onto Quebec's payroll as soon as possible, the full cost of the transition to be borne by Quebec. Otherwise, Canadian taxpayers will be burdened with a civil service that is bloated beyond our real requirements, or we will be faced with a huge severance bill for tens of thousands of surplus employees. Likewise, Quebec will have to be pressed to pick up the assets in the province that properly belong to it. No question of having the federal government continue to hold billions of dollars in mort- gages on Quebec property through the Canada Mortgage and Housing Corporation, for example.
On the biggest money issue of them all, the national debt, Quebec will come to the table in a position of strength. By allowing our national debt to grow out of control in the past fifteen years, we have seriously undermined our position in sovereignty talks. Like it or not, Quebec has no legal obligation to pick up its share of the $550-billion national debt. Although the international legal conven- tion is that seceding states pick up an equitable share of the debt-- Parizeau has promised that Quebec will do this--defining that fair share will be subject to considerable haggling. On this issue above all, we will have to be unmovable.
To maximize our bargaining strength, we must not deal piecemeal with relatively simple questions like defence and set- tle them definitively while leaving the central issue of the debt to the end. Negotiations should go on simultaneously on several issues, but there can be no binding agreement on any single issue until everything is settled. Quebec must understand that it will receive no assurance on Canadian recognition, on the invio- lability of its borders or on permission to use the Canadian dol- lar, until it makes a fair and equitable settlement on division of the debt.
Another central issue must not be subject to negotiation--the definition of Canadian citizenship. It will not be for Quebec to decide whether Quebeckers keep Canadian citizenship. It will be up to the Parliament of Canada to decide whether it wants to allow a situation to develop where 7 million of its citizens are residents of a foreign country who pay no taxes to Canada but still benefit from Canadian citizenship.
Another central element of any Canadian negotiating position must be the safeguarding and strengthening of what remains of the Canadian federation and the Canadian political and eco- nomic entity. We disagree with Preston Manning and Gordon Gibson, author of Plan B: The Future of the Rest of Canada, that Canada must choose to re-confederate at the same time as it negotiates the departure of Quebec. Manning contends that he would go "full bore" on reconstituting the rest of Canada while simultaneously negotiating Quebec's exit from Confederation, that the moment Quebec votes to separate, it "will no longer be at the centre of the Canadian stage. It is a sideshow." He believes that if Ottawa simply becomes the bargaining agent for the rest of the country in dealing with Quebec, it will marginal- ize itself. "If you don't do anything, you're opening yourself to centrifugal forces."
This two-track process is a recipe for disaster. The Quebec sovereignty timetable as laid out by the draft sovereignty bill is tight--a year at the most after the referendum--and the list of issues to be dealt with in any such negotiation will by necessity be extensive. Framing a common Canadian position on ques- tions as fundamental as trade relations, citizenship, the cur- rency, the public service and defence, not to mention the national debt, will take a tremendous amount of effort and preparation. To add to this negotiation a simultaneous redefini- tion of a Canada without Quebec--from redesigning the Senate to deciding on the fate of official bilingualism--would so bur- den the negotiating agenda for Canadian politicians that it would lead to gridlock.
Imagine the scene. At a crucial juncture in talks with Quebec on new trading arrangements, dissension breaks out on the Canadian side. British Columbia is holding out for a guaranteed number of seats in the reconstituted Supreme Court of Canada to which Ontario objects. This debate has nothing to do with the trade deal, but the B.C. government is so irritated over Ontario's position on the Supreme Court that it refuses to accept the trade deal with Quebec, considered essential to Ontario but of marginal interest to B.C.
The negotiation with Quebec will be a complex affair. Botching it could affect Canadians' standard of living for a gen- eration. Despite all the talk of the urgency to reform Canada in a post-Quebec era, we believe that Canadians may well want to proceed cautiously. The trauma that Canadians will suffer over the departure of Quebec will be profound- Rather than seeking radical change in post-secession Canada, Canadians will be look- ing for an indication that their country and its institutions will survive in a recognizable form.