CANADA

BREAKING BARRIERS

A TRUCE IN A BITTER TRADE WAR MAY SIGNAL A NEW ERA IN CANADA

December 27 1993
CANADA

BREAKING BARRIERS

A TRUCE IN A BITTER TRADE WAR MAY SIGNAL A NEW ERA IN CANADA

December 27 1993

BREAKING BARRIERS

A TRUCE IN A BITTER TRADE WAR MAY SIGNAL A NEW ERA IN CANADA

CANADA

Free trade, it seems, is busting out all over. Canada, the United States and Mexico are set to enjoy the fruits of the North American Free Trade Agreement, and 117 nations have agreed to lower trade barriers around the world. Last week, yet another trade war seemed about to end—but this one was far closer to home. For months, Ontario and Quebec had been locked in a bitter dispute that seemed out of place in a world of falling tariffs. But Quebec suddenly called for a truce: all obstacles to out-of-province companies bidding on government projects would end—opening up a $34-billion public sector market between the

two provinces. Declared Quebec Industry Minister Gérald Tremblay: “There are no more barriers in Quebec.”

The central issue was Quebec’s refusal to let workers from outside the province work on construction projects there. Ontario Premier Bob Rae threatened an all-out trade war if the restrictions were not dismantled, while Quebec construction unions went on a rampage against the tentative half measures proposed by their provincial government in an effort to defuse the conflict. Quebec’s dramatic move came as officials from across Canada were meeting in Ottawa in the latest round of talks aimed at eradicating all inter-

provincial trade barriers by next June—a goal that has eluded national leaders for years.

Breaking down the walls between the provinces will be difficult. According to the Canadian Manufacturers’ Association, there are almost 500 barriers to interprovincial trade across Canada. And ironically, attempts to remove the restrictions are being made even more difficult by NAFTA and the General Agreement on Tariffs and Trade (GATT), as tariffs come down under these agreements, because some provincial politicians believe they need to shield critical sectors of their economies. Maclean’s has learned that British Columbia, for one, intends to lobby hard in future talks to protect its powerful Crown corporations from outside competition. B.C. Premier Michael Harcourt is expected soon to announce tough restrictions on Alberta firms bidding on public works contracts in his province. Said Harcourt: “British Columbians who are putting the tax dollars into these projects should benefit during construction.”

The trade battles between Alberta and British Columbia, and between Ontario and Quebec, underscored just how difficult dismantling barriers between provinces can be. In 1974, following a riot that caused $34 million in damage to the James Bay power project in northern Quebec, the province barred construction workers from

outside the province. As well, Quebec firms bidding on government contracts are given priority even if their bids were higher than outside firms. But with recession ravaging the Ontario economy, Rae wanted the province’s con-

struction workers and companies to be able to work freely in Quebec. Quebec responded by drafting Bill 142, which would allow workers from outside Quebec to work on small construction sites. But that was not enough to satisfy Ontario, and in September Rae ordered all government agencies to stop buying Quebec products.

In the end, Ontario’s hardball tactics worked. Dozens of Quebec companies complained to Tremblay that they were losing valuable business in Ontario, and Quebec offered to drop virtually all its restrictive trade practices. As a result, Tremblay and Ontario Trade Minister Frances Lankin were scheduled to enter formal negotiations this week, and will have to deal with the contentious issue of completely opening Quebec’s labor market to out-of-province workers. In recent weeks, that has fed unrest among Quebec construction workers, who have trashed government offices to protest measures that would allow non-union workers to work on some construction sites. While Lankin reacted cooly to Quebec’s offer, Tremblay was optimistic. “All Ontario has to do is mirror our policies,” he said, “and we have a free trade agreement.”

Quebec’s overture could also help lead to the dismantling of dozens of other trade barriers. New Brunswick Premier Frank McKenna, one of the leading proponents of open trade among the provinces, told Maclean’s that both Ontario and Quebec are guilty of using protectionist measures. “Both have a lot of culpability,” said McKenna. “But if an openness can be shown in that conflict, it will give new impetus to the talks.” But according to officials who attended last week’s meeting of senior provincial trade representatives in Ottawa, a number of tough issues remain to be settled, including the complete mobility of labor across Canada and on access to all government procurement contracts.

The dispute between British Columbia and Alberta will be one of the toughest to solve. Under BC 21, a sweeping program of capital works expenditures worth more than $2.5 billion, Harcourt said he hopes to fulfil a number of critical social policy goals. Under proposed guidelines, firms that win BC 21 contracts will have to offer apprenticeship training, hire women and minorities and, where possible, employ local people even if that means closing the door to out-of-province firms. Last week, the dispute flared again when an Alberta firm landed a $9.6-million government paving contract on Vancouver Island. Said B.C. Employment Minister Glen Clark: “I’m appalled to see a major project going to an Alberta contractor.”

The clash between the western provinces is fuelled by diverging political philosophies. Harcourt said his government is angry because Alberta refuses to participate in a pension program designed to help laid-off coal miners in Kootenay region of southeastern B.C., where many Albertans cross the border to work. He added that Alberta is also forcing welfare recipients out of the province and giving them one-way bus tickets to Vancouver. “I don’t think Alberta is being a particularly good neighbor these days,” said Harcourt. “[They are] shipping people on welfare from Alberta to here.” Those charges outraged Alberta Deputy Premier Kenneth Kowalski. ‘This is astounding,” said Kowalski. “He’s declared war on Alberta.”

In the meantime, businessmen say they are often trapped between the competing interests of provincial governments. Gordon Graham, chairman of the Alberta Construction Association, said Alberta firms would probably face fewer obstacles to doing business in British Columbia if they relocated to Seattle, just over the B.C. border in Washington state. And some politicians agree. “British Columbia and Alberta control one of the larger economies in the world,” said McKenna. “For them to be practising protectionist economics is mind-boggling.” Quebec’s startling decision may at last help to demolish those walls.

TOM FENNELL with ANN McLAUGHLIN in Montreal