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Ottawa, September 26, 1995
1995-073

Economic Union Impossible and Access to NAFTA Arduous: The Minister of Finance Slashes at the Utopia of Separation

Related document:

• Backgrounder - Joining the World Trade Organization and the North American Free Trade Agreement.

Quebecers must fully appreciate the consequences of a yes vote in the upcoming referendum and of the break up with Canada, Finance Minister Paul Martin said in a speech today before the Association des MBA (Masters of Business Administration). "Purely and simply, it means the certain destruction of our economic and political partnership with Canada", the Minister said.

Minister Martin slashes at two key elements at the heart of the separatists' arguments: the economic union between a separate Quebec and Canada, and the assumption that Quebec would automatically acquire membership in the North American Free Trade Agrement (NAFTA).

Contrary to what the separatists claim, a new economic union with a separate Quebec may not necessarily be in Canada's interest. For example, the current Canadian customs union involves common external tariffs, which reflect a balance among all of the interests of Canada -- those of the Atlantic provinces, Quebec, Ontario and the Western provinces. If Quebec separates, what possible incentive would Canada have to satisfy the interests and needs of the foreign country Quebec would become, Minister Martin asked. "Countries are not in the business of doing favours for foreigners. That's not what governments are elected to do. It's not what their citizens expect. And it is not what a separate Quebec should expect."

Having said that, even if Canada were willing, in principle, to negotiate an economic union similar to the current arrangement, it could not do it, because that would jeopardize hard-won, major trade advantages negotiated with other countries. Under the terms of NAFTA, for example, Canada could offer the financial institutions of a separate Quebec the rights and privileges of an economic union only if it offered exactly the same advantages to Mexico and the United States, which is not in Canada's interest.

"But impediments do not stop there. Opening negotiations on a new economic union with Quebec would amount to opening a Pandora's box", the Minister added. "Right from the beginning of Canada-Quebec negotiations, the American giant would be part of the equation." The United States would jump on this opportunity to re-open many of the key protections Canada fought hard to secure. For instance, the U.S. may seek to change the process of binational panel review of anti-dumping and countervail cases (NAFTA, Chapter 19) to make what are now independent panel decisions subject to appeal, thereby reducing the effectiveness of the panel system. In another area, the U.S. may press to have the operations of the Canadian Wheat Board, which facilitate Canadian grain sales to overseas markets, labelled an illegal subsidy. These are only two of the many areas where key protections may be at risk.

"There is no way that a Canadian government would open itself up to such risk. That is why there would never be a new economic union, because Canada would have too much to lose, the Minister said.

Entering NAFTA: the twists and turns of negotiations

Gaining membership in NAFTA would not be automatic. It would not be fast or easy, and it could very well carry a high price for Quebec. Access to NAFTA would require negotiations for a separate Quebec membership in the World Trade Organization (WTO), and years of intensive discussions; particularly, insisted the minister, "since there are already 30 countries standing in line. In the meantime, Quebec would be the only developed country not included in the most fundamental trade agreement in the world."

Each of the 117 member countries of the WTO would have the right - and many would have the interest - to pressure Quebec to give up advantages it now has. Quebec would have to negotiate separate deals with the dozens of WTO member countries and with G-7 countries. "The conditions set by these countries could be substantial. What would happen for example with the tariffs protecting Quebec's butter industry, or with Quebec's and Hydro-Quebec's policies on government procurement?", the Minister asked.

Even if Quebec gained access to the WTO, access to NAFTA would still be far from a done deal. Concessions the United States did not get from Quebec at the WTO table, it would surely seek at the NAFTA table. Could Quebec withstand the American pressure on such issues as their current desire to re-negotiate treaty provisions that protect cultural industries. How ironic it would be if Quebec were to separate, and as a result, lose essential guarantees that we benefit from as part of Canada.

The lost time and energy and, ultimately, the lost jobs, would add up to a considerable cost for Quebec.

"Separation would place us at the mercy of conditions decided by others", Minister Martin concluded. "Separation would not increase the control of Quebecers over their destiny. Ironically, it would make us more dependent".

Supplementary information is attached. The speech is available on request.

___________________
For further information:

Nathalie Gauthier
Press Secretary
(613) 996-7861

Backgrounder

Joining the World Trade Organization and the North American Free Trade Agreement

• "In accordance with the rules of international law, Quebec shall assume the obligations and enjoy the rights set forth in the relevant treaties and international conventions and agreements to which Canada or Quebec is a party on the date on which Quebec becomes a sovereign country, in particular in the North American Free Trade Agreement." (Section 15, An Act Respecting the Future of Quebec)

Accession to international treaties

• The basic principle of customary international law regarding succession to treaties is that a new state created by secession does not automatically succeed to the treaties to which the predecessor state was a party, except for boundary treaties.

• The Vienna Convention on the succession of states to international treaties was adopted in 1978 by a United Nations conference. It is not in force and does not reflect customary international law. Even if it were in effect, Canada, the United States and the European Union have not ratified it and would not be bound by it.

• Therefore, under customary international law, a newly independent state would not automatically become a member of such treaties as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) Agreement.

Accession to the World Trade Organization

• The WTO Agreement came into force on January l, 1995. The WTO is the body that supervises international trade law and judges trade disputes.

• Canada is an original member of the WTO, and was one of the 23 original members of the General Agreement on Tariffs and Trade (GATT), which preceded the WTO.

• A newly sovereign state wanting to join the WTO has to apply for and negotiate its membership. As a prerequisite, it first has to establish a trade regime. A trade regime is the body of laws, regulations and institutions that enable a country to carry out its international trade obligations.

• After a country applies for membership, the WTO Council establishes a working party to examine the application. Working party membership includes any WTO member having an interest in a particular accession.

• Working parties examine the consistency of the applicant state's trade regime with WTO obligations. The applicant submits details on its trade regime and on those features of its domestic policies which affect trade.

• At the same time, there are bilateral negotiations between the applicant state and interested WTO members. The negotiations centre on those tariff and non-tariff measures and trade-related domestic policies which are important to the existing members.

• The process, which normally takes several years, culminates in the drafting of a "protocol of accession". If approved by two thirds of the WTO's members, the country is officially accepted into the organization.

Accession to the North American Free Trade Agreement

• Article 2204 of the NAFTA says: "Any country or group of countries may accede to this agreement subject to such terms and conditions as may be agreed between such country or countries and the (NAFTA Free Trade) Commission and following approval in accordance with the applicable legal procedures of each country."

• Article 2001 of the NAFTA says: "The parties hereby establish the Free Trade Commission, comprising cabinet-level representatives of the parties or their designees."  It also says that "all decisions of the Commission will be taken by consensus."

• A country must apply if it wishes to join the NAFTA and all NAFTA members must agree on that country's accession.

• A new country will have to engage in full accession negotiations. Up till now, no NAFTA accession negotiations have been completed.

• There are many cross-references to the GATT (now the WTO) in the NAFTA. The NAFTA text is drafted on the premise that member countries are already party to the GATT/WTO.

Part V - Investment, Services and Related Matters

Chatper 11 - Investment

Article 1103: Most-Favored-Nation Treatment

1. Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

2. Each Party shall accord to investments of investors of another Party treatment no less favorable than that it accords, in like circumstances, to investments of investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.

Chapter 14 - Financial Services

Article 1406: Most-Favored-Nation Treatment

1. Each Party shall accord to investors of another Party, financial institutions of another Party, investments of investors in financial institutions and cross-border financial service providers of another Party treatment no less favorable than that it accords to the investors, financial institutions, investments of investors in financial institutions and cross-border financial service providers of any other Party or of a non-Party, in like circumstances.

2. A Party may recognize prudential measures of another Party or of a non-Party in the application of measures covered by this Chapter. Such recognition may be:
   • (a ) accorded unilaterally;

     (b) achieved through harmonization or other means; or

     (c) based upon an agreement or arrangement with the other Party or non-Party.

3. A Party according recognition of prudential measures under paragraph 2 shall provide adequate opportunity to another Party to demonstrate that circumstances exist in which there are or would be equivalent regulation, oversight, implementation of regulation, and if appropriate, procedures concerning the sharing of information between the Parties.

4. Where a Party accords recognition of prudential measures under paragraph 2(c) and the circumstances set out in paragraph 3 exist, the Party shall provide adequate opportunity to another Party to negotiate accession to the agreement or arrangement, or to negotiate a comparable agreement or arrangement.

Source: North American Free Trade Agreement, 1992.