Closeup/The Provinces

The ‘association’ fallacy

Lévesque says Quebec can have it both ways. It can’t

Ian Urquhart June 27 1977
Closeup/The Provinces

The ‘association’ fallacy

Lévesque says Quebec can have it both ways. It can’t

Ian Urquhart June 27 1977

The ‘association’ fallacy

Closeup/The Provinces

Lévesque says Quebec can have it both ways. It can’t

Ian Urquhart

Beyond all the posturing and rhetoric, the charges and countercharges, the brinkmanship and game playing, the debate over the future of Confederation is narrowing down to a single, crucial issue: whether René Lévesque and his followers can convince Quebeckers that separating would be followed by economic association with Canada. For, as public opinion polls clearly show, without the prospect of economic association between a sovereign Quebec and Canada-without-Q.uebec, support for the separatist option is scant in Quebec. But, with that prospect in sight, separatism has many supporters; while they are still a minority in the province, the majority Lévesque is seeking for the stillto-be-called referendum is within reach. In a provincial poll conducted in March, only 12% of the respondents favored separation, while 67% were opposed. But, when independence was combined with economic association, the number in favor shot up to 32%, with 52% opposed.

Therefore, Lévesque must convince Quebeckers that they can have their cake and eat it, too—they can have independence without economic loss. This is, at one and the same time, the trump card and the Achilles heel of his argument for independence.

Sensing this, spokesmen for the federalist cause have attempted to ridicule the notion of economic association between a sovereign Quebec and Canada-withoutQuebec. Prime Minister Pierre Trudeau said in a recent interview: “Quebec is like

an adolescent who hasn’t decided yet what course to choose, who wants to be independent but, my God, who would like to receive father’s money also.” Secretary of State John Roberts uses a different metaphor, understandably avoided by Trudeau: “Generally, wrhen a marriage breaks up, you don’t maintain a joint bank account afterward.”

Ottawa’s argument against the likelihood of economic association between the two erstwhile partners is based on the assumption that Canada-without-Quebec would be emotionally opposed to and economically disinterested in such an arrangement. Quebec Finance Minister Jacques Parizeau responds: “No matter how many politicians tell me, ‘No, we don’t want an economic association,’ I say, ‘What about Massey-Ferguson, what about Stelco, what about General Electric, what about Westinghouse? What about all these companies, which know damn well the Quebec market is important for them?’ ” But the debate is not confined to Quebec alone.

In recent months, both sides have spent much of their time and energy trying to impress the English outside Quebec, the Parti Québécois with the inevitability and desirability of association after independence, the federalists with its unlikelihood. Premier William Davis of Ontario got into the act with a strong statement to the-Empire Club in Toronto. “It would be foolhardy for the government of Quebec to believe that it could have both independence and

economic association with the rest of Canada,” he said. “Moreover, I would not be prepared to commit the government of this province and the people whom we serve to that kind of understanding with any government.”

Davis’ speech was followed soon afterward by a communiqué from the four western premiers rejecting, in terse language, any thought of economic association with a sovereign Quebec. A harried Lévesque brushed aside the double blow from Davis and the western premiers as “par for the course politically” and an attempt to “distort basic common sense.” He referred to an earlier Gallup poll that showed 44.8% of English-speaking Canadians supporting economic links with a sovereign Quebec, while 39% did not.

However, that poll masks the different regional outlooks in English-speaking Canada, which the PQ often mistakenly assumes is a monolithic block. The Atlantic provinces, for example, might well favor economic association. They would otherwise be cut off from the rest of Canada, a sort of Bangladesh in North America. There would be emotional resistance against economic association, but the Atlantic provinces would not have much choice. Newfoundland premier Frank Moores notes: “We are the only region in Canada who haven’t the affluence to do much else but be indignant.”

But of what interest would economic association be to the West? A recent study shows that, on balance, the West loses

more than $300 million a year because of the present tariff structure protecting, primarily, manufacturers in Ontario and Quebec. Why would the West want to continue losing such sums once the emotional attachment to a nation “from sea to sea” was fractured?

Ontario is the market that Quebec is really seeking to preserve, and it is undeniably in the interest of Ontario to try to preserve the Quebec market. Both sell a large proportion of their manufactured goods to each other, although Quebec is far more dependent on the Ontario market than vice versa (see chart). But Ontario would be caught in a bind, looking east to Quebec and west to the Prairie provinces and British Columbia and wanting to preserve both markets. Because the West would probably oppose economic association with Quebec, Ontario would have to decide between the two; it could not have both. If it chose economic association with Quebec, it would be forsaking the West, which would then in all likelihood go it alone. Confronted with this dilemma, Ontario would probably opt for the West on economic and emotional grounds. The West, after all, offers Ontario a secure supply of oil and gas as well as a growing market. Quebec does not have as much to bargain with.

The prospect of Ontario caught in a squeeze between Quebec and the West does not faze the PQ government, which is

moving ahead on the assumption that economic association will occur after separation. With a touch of bravado that has become its trademark, the new Quebec government has already appointed a senior economist to plan the details.

If economic association were to occur, what form would it take? As Parizeau describes it, Quebec would simply leave the political union known as Canada while remaining in an economic union with the other nine provinces. “There is a customs union,” he says. “Let’s keep it. Let’s have two countries in the customs union that exists now. Let’s keep the customs union as it is and simply pay taxes to two different governments.”

However, the reality would be a good deal more complicated. Four scenarios are possible, but none of them is likely:

• Complete economic union: This would involve maintaining virtually all existing economic ties, including a customs union, common currency, and free flow of goods, labor, and capital. Belgium and Luxembourg have a similar arrangement now. It would mean little change in the economic status quo, provided the transition period was smooth. But even Parizeau admits this scenario is improbable. For one thing, it would mean retention of the Bank of Canada and a centralized monetary policy, a significant encroachment on the autonomy of a newly sovereign Quebec. Beyond the practical problem of

whose face to put on the currency (the Queen? Lévesque?), it would make it difficult for Quebec to keep capital from fleeing to Canada-without-Quebec.

• Common market: This arrangement, styled after the European Economic Community, would involve different currencies and monetary policies, a customs union and the free movementof labor. Manufacturing activity would probably suffer little disruption, except in the transition period, but it would be much harder to coordinate agricultural policies, as the Europeans have found. A common market would also mean considerable encroachment on Quebec’s autonomy and would require an army of bureaucrats. (The European common market has a staff of 13,710 with a budget of $7.5 billion.) Quebec would probably soon be faced with a proposal to elect some sort of parliament to watch over the bureaucracy, as the Europeans are now planning. And that would look suspiciously similar to the present arrangement.

• Customs union: This is the primary goal of the Parti Québécois. Under a customs union, goods move freely between the participating countries and a common tariff is imposed on all goods imported from other countries. Quebec would have considerable sovereignty and keep its market. This is the have-your-cake-and-eat-it option. But the West is not likely to agree to continue paying inflated prices for goods manufactured in Quebec, such as textiles, while

keeping the market closed to cheap imports. And Ontario, forced to choose between Quebec and the West, would opt for the West. Ontario loses almost as many manufacturing jobs to competition from Quebec as it gains by selling to Quebec.

• Free trade association: The loosest kind of formal economic association, this one would involve the free movement of goods between Quebec and Canada-without-Quebec, but no common tariff. Thus, Quebec’s textiles could enter Canadawithout-Quebec tariff-free, but they would have to face competition from cheap imports from Asia. Canada-without-Quebec, with a small textile industry, would have scant interest in barring imported clothing. Thus, a free trade association would offer little protection for Quebec goods. It would also be difficult to police. If Quebec retained a high tariff on textiles but Canada-without-Quebec had no tariff, what would stop an enterprising entrepreneur along the Ottawa River from buying up a truckload of cheap. Taiwanese shirts in Ontario, sewing on new labels saying “Made in Canada,” and driving across the bridge to Quebec to sell them at a hefty profit?

There is a fifth scenario for Quebec, just as unlikely as the other four. That is economic association with the United States in place of Canada-without-Quebec. Indeed, Rodrigue Tremblay, Minister of Industry and Commerce in the PQ government, has written a book recommending this, and other PQ ministers are careful not to dismiss it out of hand. Bernard Landry, Minister of Economic Development, told visiting English-speaking journalists last month that economic association with the

United States—“overt domination”— would at least be better than the status quo in Quebec, which he likened to “colonization” by English-speaking Canada.

Tremblay’s book, a 127-page polemic entitled Independence And A Quebec-U.S. Common Market, argues that Quebec would benefit by two billion dollars a year if it left Canada and linked up with the United States. Tremblay says Confederation operates mostly to the benefit of Ontario, and he seems to assume that Bay Street consists of raving economic nationalists intent on blocking free trade with the United States.

In fact, Quebec’s industries, not Ontario’s, are provided the heaviest tariff protection in Canada, and a free-trade agreement with the United States would mean severe adjustment problems for such Quebec industries as textiles, according to the Economic Council of Canada. Tremblay holds out hope that the travels of the Montreal Expos would “facilitate access to the American market” by making Quebec known across the United States.

Tremblay quotes studies showing that Quebec would, indeed, gain economically in the long run from a free-trade arrangement with the United States. But he conveniently overlooks the fact that such studies assume Quebec would still be part of Canada and argue that the whole country would gain from an economic association with the United States. Presumably, Canada as a whole would have more bargaining power with the United States, and could gain better terms.

Quebec could, of course, profit from an economic association with the United States on its own, but only by depreciating

its (new) currency and holding down workers’ wages to compete in U.S. markets. Such policies would cause an outflow of labor, not a happy prospect for Quebec.

There is also no guarantee that the United States would want to enter into a free-trade agreement with a sovereign Quebec unless Canada-without-Quebec were included, too. The Americans would not want to alienate Canada-without-Quebec, with its bigger market and energy resources.

The most likely scenario after separation is none of the above but, instead, the fracturing of Canada into several pieces. A sovereign Quebec would probably retreat into a shell rather than seek formal economic association with any other country. “Small countries that gain independence tend to become highly protectionist,” says Grant Reuber, chairman of the Ontario Economic Council. “I think that would become a strong tendency in an independent Quebec.”

Canada-without-Quebec would be unlikely to stick together, although most Canadians seem to believe it would. (A CTV poll done after the November 15 Quebec election showed 81% of the respondents believed Canada could survive without Quebec.) With Quebec’s exit as a catalyst, the geographical division of the country and competing economic interests in each region would probably lead to the eventual breakup of the rest of the country, and piecemeal absorption by the United States. Canada has always been a fragile coalition, resisting the north-south pull of the continent with difficulty. Take away Quebec, and the pull, in all likelihood, would become irresistible.

Percentage distribution of manufacturing production by each province

Province Destinations of origin Nfld. PEI NS NB Que. Ont. Man. Sask. Alta. BC Foreign Nfld. 22.1 1.0 1.5 9.8 0.9 64.6 PEI 8.1 37.0 19.7 10.4 6.8 8.0 9.7 NS 4.8 3.1 38.1 5.3 9.8 9.1 0.7 0.2 0.4 0.8 27.6 NB 2.7 1.8 7.5 31.8 9.8 9.9 0.3 0.2 0.4 0.4 35.1 Que. 0.9 0.4 1.4 1.5 53.3 20.8 1.5 1.0 2.0 2.4 14.7 Ont. 0.7 0.2 1.2 1.0 12.0 53.7 2.1 1.3 2.9 3.2 21.7 Man. 8.2 0.1 1.1 0.8 5.9 12.9 52.2 6.1 6.7 3.6 10.2 Sask. 0.2 0.1 1.7 0.8 4.6 6.5 7.6 53.7 8.7 4.5 11.6 Alta. 0.1 0.1 0.1 7.4 2.7 6.2 58.4 13.1 7.7 BC 0.1 0.3 0.3 1.8 3.6 1.4 1.3 6.0 43.5 41.3 Source: Statistics Canada, 1974 less than 0.05% x confidential