Free Trade and Trade-Related Issues in Quebec: The Challenges of Continental Integration

Abstract

This essay addresses the question of trade policy between a sovereign Quebec and the United States, should independence occur. To provide an answer to this question, a number of issues need to be addressed: What is the nature of the trade patterns between the partners involved? What are the trade patterns within Canada, and how are these affected by the North-South trade flows? What are the effects of Canadian-American free trade on the Quebec economy? Once reasonable answers have been provided to these, and other incidental questions, we will be in a better position to tackle the main issue, which is whether, from a Quebec point of view, it would be feasible to pursue a trade policy similar to, or different from, that pursued by the Canadian authorities. Needless to say, our answer to this question should not be swayed by the fact that, either through conviction or strategic posturing, the Parti Quebecois' approach to this subject holds that the future Quebec state should strive to diminish any controversy or potential disruption in its trade patterns and trade obligations. In fact, our own analysis should provide us with the means to establish the likelihood of a smooth transition in a context where social determinants and preoccupations could ride high on the agenda during the transition period. The paper is divided into two sections: the first will deal with the effects of free trade on the Quebec economy, as well as with other variables and, among them, on job creation; the second, with the effects of trade liberalization on economic integration in Canada and in Quebec. We will conclude by proposing an answer to the question at hand concerning the future of trade relations between Quebec and the United States. The Two Sides of Free Trade For the past seven years, the Canada-United States Free Trade Agreement (CUFTA) of 1989, later partially superseded and extended into the North American Free Trade Agreement (NAFTA) of 1994, has provided both Canada and the United States with an overall legal frame-work covering the greater part of trade relations and issues between the two countries. A quick glance at these trade relations will provide an overall picture of the situation prior to consideration of the Quebec position. Over the years, the effects of trade liberalization have been quite significant for both partners, since both countries' levels of exportation of goods and services to GNP have increased from 5.5 percent in the United States and 20 percent in Canada in the sixties, to 8.5 percent and 24.5 percent, respectively, in the seventies and eighties. They have since moved to 10.4 percent between 1990 and 1994 and, subsequently, to 11.1 percent in 1995 in the case of the United States, and up to 28 percent between 1990 and 1994, then to 37.4 percent in 1995, in Canada. (1) Overall, the United States balance of payments shows a persistent deficit in three out of four items: the current account, the exchanges of goods and, more recently, a growing deficit in investment income, while posting a surplus in services which, as is well known, has not averted the trend toward growing overall indebtedness. As far as Canada is concerned, commercial surpluses have been running high but, on the other hand, services and investment income show an important deficit compounded with a negative current account. What both countries seem to share, as far as their balance of international payments can show, when we weight liabilities to GNP, is a deterioration of their international investment balance: foreign United States liabilities have increased from 20.2 percent of GNP in 1981 to 51.6 percent in 1995, and Canadian foreign liabilities, from 58.8 percent in 1983 to 86.6 percent in 1995. At the same time, the percentages of foreign assets to GNP have increased from 32.2 percent to 40.4 percent over the same period in the United States, and from 23.5 percent to 42.9 percent in Canada, a few percentage points higher than in the United States. …