Ontario Government Research
on the impact of a Quebec Secession
1995

Record 1

ONTARIO-QUEBEC AGREEMENTS AND AFFECTED PARTIES

• This note lists a number of agreements that govern relations between Ontario and Quebec. The note is divided in two parts.

The first part provides background on higher-profile agreements involving major client groups:

• Agreement on the Mutual Recognition of Construction Workers’
• Qualifications, Skills and Work Experience;
• taxation agreements related to interprovincial trucking;
• Agreement on Public Procurement
• Akwesasne Policing Agreement; and
• commodities subject to quotas (agriculture). The second part lists other lower-profile agreements:
  
• tax information exchange agreements;
• correctional services agreements;
• insurance and pensions agreements;
• Ontario-Hydro Quebec Agreement on Power Rentals;
• Quebec/Ontario Agreement for Forest Fire / Forest Disease Prevention;
• Agreement Respecting Ottawa River Basin Regulation; and
• Ontario-Quebec Commission for Cooperation.

  HIGHER-PROFILE AGREEMENTS

  Ontario-Quebec Agreement on the Mutual Recognition of Construction Workers’

  Qualifications, Skills and Work Experience

• This agreement provides for the mutual recognition of construction workers’ qualifications, skills, and work experience. The agreement came about because Ontario construction workers were not being accordedthe same rights to work in Quebec as Quebec construction workers had to work in Ontario. Six months written notice is required for abrogation.
• Implications -- There could be pressure from the Ontario construction industry to withdraw from the agreement, given that there are a significant number of Quebec construction workers operating in Ontario. Alternatively, Quebec could withdraw from the agreement and return to the pro-agreement regime.
• Affected parties — Ontario construction workers, Ontario firms that hire Quebec construction workers.
• Contacts — MEDTT may wish to contact: Joseph Duffy. Provincial Building and Construction Trades Council (416-449-4830); Andy Holder, Northeastern Ontario Building and Construction Trades Council (Sudbury); S. Sulpher, Ottawa Construction Association (613-236-0488); Guy Dumoulin, Building and Construction Trades (AFL/CIO) (613-236-0653); Linda Torney, Labour Council of Metropolitan Toronto and York Region (416-441-3663).

Tax Agreements Relating to Interprovincial Trucking (Motor Fuels)

• There are three agreements relating to interprovincial trucking and motor fuels:

Agreement for the Exchange of Information and the Settlement of Tax Claims Relating to Gasoline and Fuel Taxes which covers interprovincial settlement of tax claims arising in either province; all matters of transfers not covered by reciprocal settlement arrangements; exchanging reassessments and audits regarding fuel and gasoline tax. Where one province has collected tax which is owed to another, it shall pay the other province without remuneration by netting the claims of each against the other at certain intervals.

Tax Settlement Agreement on interprovincial settlement of tax claims arising in either province, all matters regarding fuel dyeing in one province for the other, exchanging audits under the Fuel Tax Act, 1981. Where one province has collected tax which is owed to another, it shall pay the other province without remuneration by netting the claims of each against one another once per year.

Reciprocal Dye Agreement to standardize dyes which mark exempt fuel, acknowledge dye points, arrange for cost-recovery by the user province to the dyeing province.

• Implications — Quebec may want to establish its own program for marking fuel or may change exemptions allocated to certain fuels. lnterprovincial tax claims would be more costly to administer.

Under the agreement with Quebec, Ontario is expected to receive about $10 million in net fuel tax claim in respect of 1994-95. Quebec paid Ontario $10.7 million in net fuel tax claims in respect of 1993-94. For net claims in respect of 1992-93, Ontario paid Quebec $16.2 million.

• Affected parties — Tax Division and Ontario motor carriers.

• Contacts — Tax Division may wish to contact: David Bradley, Ontario Trucking Association (416-249-7401)

  Ontario-Québec Agreement on Public Procurement

• An agreement on public procurement which applies to ministry and agency purchases of goods, services and construction. 90 days written notice required for withdrawal.
• Implications — Quebec may withdraw or threaten to withdraw. Ontario firms which do business with Quebec ministries or agencies could put pressure on Ontario not to respond to any move by Quebec. There may also be pressure on the Ontario government from Ontario industries to withdraw from the agreement. This could potentially eliminate access which Ontario companies have to Quebec government contracts in Quebec.
• In 1993-94, Quebec ministries and broader public sector (excluding universities and colleges) spent an estimated $11.3 billion on procurement. Ontario ministries and broader public sector (excluding universities and colleges) spent an estimated $19.9 billion during the same year. Information on Ontario’s share of the Quebec procurement market, or Quebec’s share of Ontario’s market, are not available.
• Affected parties -- Ontario construction and service companies that supply ministries and agencies, municipalities, school boards, universities and hospitals in Quebec, Ontario municipalities, hospitals, school boards, and universities.
• Contacts -- MEDTT may wish to contact: trade associations in the construction sector (see contacts for construction workers agreement), Frank McCrea, association of Professional Computer Consultants (416-491-3556); service sector trade associations, Bill Mickel, Association of Municipalities of Ontario (416-929-7573).

  Akwesasne Policing Agreement

• An agreement between the federal government, Ontario, the Mohawk Council of Akwesasne, and Quebec to: maintain the Akwesasne Mohawk Police Service; establish conditions/ roles and responsibilities among the parties for the policing arrangements at Akwesasne; and provide funding for those policing arrangements. Canada funds 52 per cent, Ontario 24 per cent, and Quebec 24 per cent.
• Implications — Quebec withdrawal from Canada may complicate policing on Akwesasne because the reserve straddles Ontario, Quebec and New York state. If Quebec withdraws funding, Ontario and the federal government may have to negotiate a new cost-sharing agreement to ensure adequate policing is maintained.
• Affected parties — Mohawk Council of Akwesasne: residents of Akwesasne reserve, the OPP and the New York state government
• Contacts — Ministry of the Solicitor General and Correctional Services may wish to contact: the Mohawk Council of Akwesasne (613-575-2250); the U.S. federal government, and the New York State government.

Commodities Subject to Quotas (Agriculture)

• The production of industrial milk products, chicken and fowl, turkeys, and eggs is subject to national supply management policies.

Ontario Share of Canadian Quotas, 1993

(Per Cent)

	Ontario	Quebec	Other Provinces	Total ($Million)
Industrial Milk	30.7	47.4	21.9	2,069.8
Chicken and Fowl	34.1	28.8	37.1	1,006.6
Turkeys	42.4	23.3	34.3	210.0
Eggs	36.2	18.7	45.1	537.6

Source: 1993 Agricultural Statistics for Ontario (Ontario Ministry of Agriculture, Food

and Rural Affairs), Canadian Dairy Commission.

• Implications — Agricultural products produced in a sovereign Quebec will become subject to the federal government’s Import regulations.
• Affected Parties — the Ministry of Agriculture, Food and Rural Affairs may wish to contact: Cecil Bradley, Ontario Federation of Agriculture (416-485-3333); Bob Bishop, Ontario Milk Marketing Board, (905-821-8970); John Bilyea, Ontario Cream Producer’s Marketing Board (905-821-8970); Thomas Kane, Ontario Dairy Council (905-542-3620); William Doyal, Ontario Chicken Producers Marketing Board (905-637-0025); Rob Etches, Ontario Poultry Council (519-837-0284); Brian Ellsworth, Ontario Egg Producer’s Marketing Board (905-858-9790); Joann White, Ontario Turkey Producer’s Marketing Board (519-748-9636).

LOWER-PROFILE AGREEMENTS

Tax Information Exchange Agreements

There are six tax information exchanging agreements

Agreement for the Exchange of Information Relating to the Investigation of Tax Fraud and Tax Offences which covers exchange of information on fraud investigations of joint taxpayers and provide for joint investigations.

Agreement for the Exchange of information Relating to Retail Sales Tax which covers all matters of interest relating to application of respective sales taxes including audits and investigations.

Agreement for the Exchange of Information Relating to Tobacco Tax which covers all matters of interest relating to application of respective tobacco taxes including audits, investigations.

Protocol of an Agreement for the Exchange of Information Relating to the Taxation of Corporations which covers all matters of interest relating to application of respective corporation taxes including audits, investigations, assessments, reassessments, allocation issues, double taxation issues.

Agreement for the Exchange of Information covering all matters of interest relating to application of fiscal laws in both provinces including eleven tax acts of Ontario. It includes audits, investigations, frauds, assessments, reassessments, allocation issues, double taxation issues. (The more specific agreements above prevail where there is a conflict, but this agreement envisions a broader exchange of information.)

Agreement for the Exchange of Information on the Taxation of Corporations which covers the corporations tax and all matters of interest relating to application of fiscal laws In both provinces including eleven tax acts of Ontario. It includes audits, Investigations, frauds, assessments, reassessments, allocation issues, double taxation issues.

Implications -- It can be assumed that a new sovereign government in Quebec would re-examine all current exchange of information agreements with Ontario to re-assess whether it is in their interest to continue sharing the information or not. If Quebec were to withdraw from the agreement, it would be more difficult for Ontario to enforce RST, tobacco taxes and corporations taxes in Ontario. Interprovincial tax claims would be more costly to administer.

Affected Parties — Tax Division

Contacts — Tax Division

Correctional Services

There are two agreements relating to correctional services:

Agreement for the Transfer of Adult Prisoners Under the agreement, the cost of transporting prisoners is borne by transporting province; the costs of incarceration is normally done on a one for one basis with a billing mechanism to provide for excess costs as stipulated in the agreement.

Agreement for the Transfer of Parole Jurisdiction for offenders who move from one jurisdiction to another. Costs incurred under the agreement will be paid by the respective parties according to the stages for which they are responsible in transferring inmates on parole.

Implications — A new agreement may have to be negotiated with a sovereign Quebec. Likely that a sovereign Quebec would re-negotiate a similar or identical agreement with Canada

Affected parties -- Ministry of the Solicitor General and Correctional Services, prisoners, parolees and their families.

Contacts Ministry of the Solicitor General and Correctional Services may wish to contact: Graham Stewart, John Howard Society (416-604-8412).

Reciprocal Automobile Accident Insurance Coverage

This agreement provided for the reciprocal handling of automobile insurance accident claims by the residents of Quebec and Ontario.

Implications — A new agreement may have to be re-negotiated with a sovereign Quebec. At present, accidents occurring in Ontario are settled using Ontario claim rates and accidents occurring in Quebec are settled using Quebec claim rates.

Contacts — Financial Services Policy Branch and the Ontario Insurance Commission may wish to contact: George Anderson, Insurance Bureau of Canada (416-362-2031), Richard Godding, Canadian Automobile Association (613-226-7631).

Memorandum of Reciprocal Agreement (Pensions)

A multilateral agreement between provinces which coordinates the regulation of pension plans that have members in more than one jurisdiction.

Implications — Likely Quebec would wish to re-negotiate agreement.

Affected parties — Pension Commission of Ontario, pension funds, Ontarians with pension plans in Quebec.

Contacts — Pension Commission of Ontario may wish to contact: the Association of Canadian Pension Managers, and the Pension Investment Association of Canada

Ontario-Hydro Quebec Agreement on Power Rentals

Agreement between Ontario Hydro, Quebec, and Hydro-Quebec regarding water power rentals paid by the two utilities on the Ottawa River. The agreement sets out the water rental rate for the period 1993 to 2018.

lmplications — Agreement may have to be re-negotiated with a sovereign Quebec

Contacts—Ministry of Energy may wish to contact Ontario Hydro, private hydro companies, Energy Probe, and Pollution Probe.

Quebec/Ontario Agreement (Forest Fire/ Forest Disease Prevention)

An agreement to coordinate their mutual forest fire prevention and control efforts along the five mile corridor on each side of the interprovincial boundary. Includes a provision for the sharing of resources for ‘fires that occur anywhere within each province. Agreement also includes provisions for control of forest insect infestations and forest disease outbreaks.

Implications — Agreement may have to be re-negotiated with a sovereign Quebec. Quebec may be unwilling to share resources with Ontario for fires that occur outside the five mile interprovincial boundary.

Affected parties -- MNR, communities along the Ottawa River, forestry companies in northeastern Ontario

Contacts — MNR may wish to contact: the Ontario Lumber Manufacturers Association (OLMA), Rick Monzon, Ontario Forestry Association (416-493-4565); and the Professional Foresters Association of Ontario.

Agreement Respecting Ottawa River Basin Regulation

Agreement optimizes the operation of the reservoirs on the Ottawa River system. Undertakes flood control, hydro production and support for fisheries, navigation and recreation. Signatories are Federal government Quebec and Ontario.

Implications — Agreement may have to be re-negotiated with a sovereign Quebec.

Affected parties — MNR, Ministry of Energy communities along the Ottawa River, and private and public hydro companies.

Contacts — MNR and Ministry of Energy may wish to contact: communities along the Ottawa River, Ontario Hydro and private hydro companies.

Ontario-Quebec Commission for Cooperation

The Commission encourages cooperation in various sectors and specific projects. Areas of coordination include: educational and cultural exchange programs, links between educational and research institutions, economic development, environmental cooperation and public servant exchanges.

Implications — existence of commission and forum for educational/cultural exchanges valued at about $2.4 million are at risk.

Affected parties — MIA, educational and cultural organizations, research institutions, universities

Contacts — MIA may wish to contact: Ontario Council on University Affairs, Bonnie Patterson, Council of Ontario Universities (416-979-2165).

Immediate Issues

Investor Relations/Financial Sector

- Financial Markets may question Ontario’s ability to honour and service Provincial debt. Financial institutions in Ontario (insurance companies, trusts, pension funds) may have exposure in Quebec bonds.

Tax Agreements

- Agreements with Quebec include: tax information exchange (i.e. tax fraud, tobacco tax, etc.), tax settlement agreements (gasoline dye), reciprocal auto Insurance coverage.

Relations with Ontario Francophone Communities

- Pressure from Ontario Francophone community to protect or expand Francophone language rights.

Federal Transfers

- Not likely to be affected, but Ontario may wish to confirm the federal government’s intentions concerning major and minor transfers. Federal intentions to reform of social programs, such as child care initiative, and UI should also be confirmed.

Interprovincial Agreements – Labour Mobility

- Ontario and Quebec have an agreement on the mutual recognition of construction workers’ qualifications, skills, and work experience. This agreement came about because Ontario construction workers were not being accorded the same rights to work in Quebec as Quebec construction workers had to work in Ontario.

- There could be pressure from the Ontario construction industry to withdraw from the agreement, given that there are a significant number of Quebec construction workers operating in Ontario. Alternatively, Quebec could withdraw from the agreement and return to the pro-agreement regime. Six months written notice is required for abrogation.

Interprovinclal Agreements — Procurement

- Ontario and Quebec have an agreement on public procurement which applies to ministry and agency purchases of goods, services and construction. Either government can withdraw by giving 90 days written notice. Quebec may withdraw or threaten to withdraw. This could potentially eliminate access which Ontario firms currently have to Quebec government contracts, and vice versa.

- Ontario firms which have contracts with Quebec ministries or agencies could put pressure on Ontario to respond to any move by Quebec. There may also be pressure on the Ontario government from Ontario industries to withdraw from the agreement.

Interprovincial Agreements — Trade Agreements

- All provinces signed an Interprovincial trade agreement, including beer and wine, regiona1 development, and procurement.

Quotas and Other Supply Management Initiatives — affected areas include: milk and dairy products, eggs, poultry.

Native Issues — Policing on Akwesasne and federal transfers in respect of First Nations Constables

- First Nations communities on the Ontario-Quebec border, such as Akwesasne, may declare themselves independent, OPP and/or First Nations constables may not be able to provide police services in these communities.

Interprovincial Movement of Quebec Industry

- Some Quebec companies may approach Ontario to secure tax incentives to locate in the Province.

Intergovernmental Finance Policy Branch

Record 2

BILATERAL AGREEMENTS

Ontario-Quebec Agreement on the Mutual Recognition of Construction Workers’

Qualifications, Skills and Work Experience

Ontario and Quebec have an agreement on the mutual recognition of construction workers’ qualifications, skills, and work experience. This agreement came about because Ontario construction workers were not being accorded the same rights to work in Quebec as Quebec construction workers had to work in Ontario.

Implications: There could be pressure from the Ontario construction industry to withdraw from the agreement, given that there are a significant number of Quebec construction workers operating in Ontario. Alternatively, Quebec could withdraw from the agreement and return to the pre-agreement regime. Six months written notice is required for abrogation.

Ontario-Quebec Agreement on Public Procurement

Ontario and Quebec have an agreement on public procurement which applies to ministry and agency purchases of goods, services and construction.

Implications: Either government can withdraw by giving 90 days written notice. Quebec may withdraw or threaten to withdraw. Pressure from Ontario firms which have contracts with Quebec ministries or agencies could put pressure on Ontario to respond to any move by Quebec. There may also be pressure on the Ontario government from Ontario industries to withdraw from the agreement. This could potentially eliminate access which Ontario companies currently have to Quebec government contracts, and vice versa.

Akwesasne Policing Agreement

This agreement is currently in force between Ontario, the Mohawk Council of Akwesasne, the province of Quebec and the Government of Canada. The purpose of the Agreement is to maintain the Akwesasne Mohawk Police Service, to establish conditions/ roles and responsibilities among the parties for the policing arrangements at Akwesasne; and to provide funding for those policing arrangements. Canada funds 52 %, Ontario 24% and Quebec 24%.

Implications: Quebec withdrawal from Canada may complicate policing on Akwesasne because the reserve straddles Ontario and Quebec.

TAX AGREEMENTS

Reciprocal Dye Agreement

Standardizing dyes which mark exempt fuel, acknowledging dye points, arranging for cost recovery by the user province to the dyeing province.

Implications: Quebec may want to set up its own program for marking fuel or may change exemptions allocated to certain fuels.

Reciprocal automobile accident insurance coverage

Agreement for the reciprocal handling of automobile insurance accident claims by the

residents of Quebec and Ontario.

Implications: A new agreement may have to be re-negotiated with a sovereign Quebec. At present, accidents occurring in Ontario are settled using Ontario claim rates and accidents occurring in Quebec are settled using Quebec claim rates.

Ontario-Quebec Commission for Cooperation

This Commission encourages cooperation between the two provinces in various sectors and specific projects. Areas of coordination include educational and cultural exchange programs, links between educational and research institutions, economic development, environmental cooperation and public servant exchanges.

Implications: Existence of commission at risk. Commission could be adapted to continue its efforts with a sovereign Quebec.

Agreement for the Transfer of Adult Prisoners

This is a reciprocal arrangement for the transfer of adult prisoners between the two provinces. The cost of transporting prisoners is borne by transporting province; the costs of incarceration is normally done on a one for one basis with a billing mechanism to provide for excess costs as stipulated in the agreement.

Implications: A new agreement may have to be re-negotiated with a sovereign Quebec.

Agreement for the Transfer of Parole Jurisdiction

Agreement permits the transfer of parole jurisdiction in respect of offenders who move from one jurisdiction to another. Costs incurred under the agreement will be paid by the respective parties according to the stages for which they are responsible in transferring inmates on parole.

Implications: Likely that a sovereign Quebec would re-negotiate a similar or identical agreement with Canada.

Memorandum of Reciprocal Agreement

This is a multilateral agreement between provinces which coordinates the regulation of pension plans which have members in more than one jurisdiction.

Implications: Likely Quebec would re-negotiate agreement.

Ontario-Hydro Quebec Agreement on Power Rentals

In 1993 we reached an agreement with Quebec, Hydro-Quebec and Ontario regarding water power rentals paid by the two utilities on the Ottawa River. The agreement sets out the water rental rate for the period 1993 to 2018.

Implications: Agreement may have to be re-negotiated with a sovereign Quebec.

Quebec/Ontario Agreement (Forest Fire/Forest Disease Prevention)

Quebec and Ontario have an agreement to coordinate their mutual forest fire prevention and control efforts along the five mile corridor on each side of the interprovincial boundary. Includes a provision for the sharing of resources for fires that occur anywhere within each province. Agreement also includes provisions for control of forest insect infestations and forest disease outbreaks.

Implications: Agreement may have to be re-negotiated with a sovereign Quebec.

Quebec may be unwilling to share resources with Ontario for fires that occur outside the five mile interprovincial boundary.

Record 3

MOST AFFECTED ONTARIO SECTORS

Immediate Impacts

Some sectors would be more affected immediately following a ‘yes’ vote. These include sectors that are most sensitive to interest rates, business and consumer confidence, and are domestically-oriented. The impact would tend to be greater for small businesses generally as they are more susceptible to high interest rates and difficulties in raising capital.

Medium to Long Term Impacts

As Quebec and the rest of Canada attempt to sort cut a new economic relationship, a range of other factors could come into play. Sectors likely to undergo fundamental change within a new structure for Canada include those that are highly regulated by governments or with strategic importance to governments.

Ontario health and post-secondary education services are now accessible to Quebec residents, but withdrawal of federal or provincial subsidies could reduce the level of cross-border use of such services.

Further downsizing of the federal government would be inevitable, as Quebec takes on new federal functions, and as other provinces possibly seek increased decentralization of federal responsibilities. The employment impact on Ottawa would depend on the relative proportions of federal civil servants now residing in Quebec versus Ontario.

Record 4

ONTARIO-QUEBEC LABOUR MARKET ISSUES

Some potential labour market issues that may require Ontario’s attention include:

Construction Permits Legislation:

Quebec has a highly regulated and centralized labour market for construction that generally limits or restricts workers outside Quebec from working in construction in that province. A government agency called the Quebec Construction Commission controls all the conditions of employment and most of the construction done in Quebec. The Commission provides permits based on residency, union membership, and trade qualification.

In November 1993, Ontario introduced parallel legislation, The Constriction Workforce Management Act, to deal with discrimination faced by Ontario workers and companies wanting to do business in Quebec. This legislation was never proclaimed, and in May 1994, then Premiers Rae and Johnson signed an agreement that would ease labour mobility restrictions. The Parizeau Government is reconsidering those arrangements, and the Ontario Ministries of Labour, Intergovernmental Affairs and Economic Development, Trade and Tourism are currently monitoring Quebec’s actions and the possible need in the future for work permits to support labour mobility.

Apprenticeship Red Seal Program:

All provinces and territories currently participate in a voluntary program that allows tradespeople within certain occupations the recognition and freedom to pursue employment In provinces other than where they received their certificate of apprenticeship/qualification. In Ontario, there are over 60 regulated and more than 350 employer-sponsored apprenticeable occupations, but only about 20 regulated trades are designated under the Red Seal program.

Quebec has traditionally limited the number of occupations it recognizes under the Red Seal program, and could decide to withdraw from this program entirely.

Unemployment Insurance:

Ontario has historically been a net supporter of the UI system, while Quebec has been a net beneficiary. In 1994, Ontario paid $3.3 billion more in UI premiums than it received in benefits, while Quebec received $300 million more In 1994 from UI than it paid In premiums. During the period from 1989 to 1994, Ontario’s net contribution to the UI system was $11.3 billion, while Quebec received $7.4 billion more from UI than it paid. While not all of Ontario’s overcontnbution on UI is directly redistributed to Quebec, the total cost of operating the UI system would be reduced if Quebec were to establish its own UI program.

Public Education and Training

Ontario currently provides financial assistance to French schools in many School Boards across the province, and has established two French Language Colleges of Applied Arts and Technology. The migration of some Francophones to Ontario would increase demand for education and training services from these institutions (and other community brokers) and possibly increased demand for English as a Second Language (ESL) training from both Francophones and non-Francophone immigrants from Quebec.

Ontario-Quebec Summer Student Job Exchange Program:

The Ontario and Quebec Governments participate in an exchange program that gives approximately 100 students a year from each province an opportunity of summer employment in their respective government departments and agencies. Students are guaranteed a minimum 13 weeks of work, and are paid $8.25 an hour up to 44 hours a week. This program may be subject to review by both Ontario and Quebec for fiscal as well as administrative reasons.

IMPACT ON JOBS?

By voting yes, we’re going to lose 100,000 jobs. Daniel Johnson, October 18, 1995.

Sovereignty would "threaten" 1 million Quebec Jobs. Paul Martin, October 17, 1995.

300,000 jobs could be lost. Marcel Cote, former adviser to Brian Mulroney and Robert Bourassa, September 27, 1995.

$50 billion trading relationship between Ontario and Quebec is estimated to provide at least a quarter of a million jobs on either side of the Ontario/Quebec border. John Honderich, Toronto Star, September 23, 1995.

More than 55,000 jobs are perceived as being vulnerable should Quebec separate. About 3,450 federal jobs would be lost in Hull. Maurice St. Germain, Economist, University of Ottawa.

470,000 Quebec Jobs depend on trade with the rest of Canada. More than 100,000 jobs would be lost with independence. Patrick Grady and the Canadian Chamber of Commerce, May 18, 1995.

Quebec would lose 25,000 jobs as a result of an exodus of corporate headquarters after independence. Conseil du Patronat. May 18, 1995.

About 5,000 Jobs would be lost as headquarters transferred out of an independent Quebec. Richard le Hir, Minister Responsible for Restructuring, May 1995.

Record 5

KEY POINTS:

ONTARIO-QUEBEC AGREEMENTS AND TRADE

In the short-term, Ontario-Quebec relations may be disrupted in five areas, due to actions by government or residents of the provinces:

• Agreement on the Mutual Recognition of Construction Workers’ Qualifications, Skills and Work Experience
• taxation agreements related to interprovincial trucking
• Agreement on Public Procurement
• Akwesasne Policing Agreement

• commodities subject to quotas (agriculture)

Ontario exports to Quebec in 1990 were only 12 per cent of Provincial exports and 5 per cent of GDP. Ontario international trade has grown rapidly since 1990 while interprovincial trade has fallen.

Ontario’s merchandise deficit with Quebec combined with a service sector surplus generated a overall trade surplus for Ontario of about $2.5 billion in 1990.

Record 6

ONTARIO COMMODITIES SUBJECT TO QUOTAS

Commodities Subject to Quotas — The production of dairy products, chicken and fowl, turkeys, and eggs is subject to national supply management policies. The table below illustrates the comparative provincial contribution to national quotas.

Ontario Share of Canadian Cash Receipts by Commodity, 1993 (Per Cent)

	Ontario	Quebec	Other Provinces	Total ($Million)
Dairy Products	34.3	36.5	29.2	3,130.5
Chicken and Fowl	34.1	28.8	37.1	1,006.6
Turkeys	42.4	23.3	34.3	210.0
Eggs	36.2	18.7	45.1	537.6

Source: 1993 Agricultural Statistics for Ontario. (Ontario) Ministry of Agriculture, Food and Rural Affairs.

Implications -- Farm products in a sovereign Quebec will become subject to the federal government’s import regulations.

Affected Parties -- Ministry of Agrlculture, Food and Rural Affairs staff may wish to contact officials at the following provincial organizations:

Dairy Products:

Ontario Milk Marketing Board, Mississauga 905-821-8970

Ontario Cream Producers’ Marketing Board, Mississauga, 9O5-821-8970

Ontario Dairy Council, Mississauga, 905-542-3620

Chicken and Fowl:

Ontario Chicken Producer’s Marketing Board,Burlington, 905-637-0025

Ontario Poultry Council, Guelph, 519-837-0284

Eggs:

Ontario Egg Producer’s Marketing Board, Mississauga, 905-858-9790

Turkeys:

Ontario Turkey Producers Marketing Board, Kitchener, 519-748-9636

Record 7

OTHER IMMEDIATE ISSUES

Interprovincial Trade Agreements

• All provinces signed an interprovincial trade agreement covering: beer and wine, regional development, and procurement.

Affected parties – Ontario companies, workers and consumers

• Contacts - MEDTT may wish to contact Ted McCollum, Ontario Chamber of Commerce (418.482-5222); Ludenne Bushnell, Consumers’Association of Canada (Ontario) (416-283-O1 77); Mark Nantals, Motor Vehicle Manufacturer’s Association (416-364-9333); Alasdair McKichan, Retail Council of Canada (416-598-4684); Thomas d’Aquino, Business Council on Natinal Issues (613-238-3727); Judith Andrew, Canadian Federation of Independent Business (416-222-8022); Brewer’s Association of Canada (613-232-9601).

Interprovincial Movement of Quebec Industry

• Some Quebec companies may approach Ontario to secure tax incentives to locate in the Province.

Relations with Ontario Francophone Communities

• There may be pressure from the Ontario Francophone community to protect or expand Francophone language rights.

• Contacts — The Ministry of Citizenship, Culture and Recreation may wish to contact: the Franco-Ontarian Foundation (613-565-4720); Assenblee des centres cultureis de l’Ontario (613-744-3711).

Record 8

Survey of predictions regarding economic impact of a Yes victory in the Quebec referendum

Commentator	Synopsis
Carl Weinberg, Chief Economist, High Frequency Economics (Globe and Mail, Oct 24/95).	"We’ve never seen anything like this before ... where a wall-to-do, prosperous country could possibly have one part separate from the rest... So no one has a clue what wilt happen Tuesday morning if the Yes side comes through. (Similar sentiments also from other commentators, including John Clinkard of CISC and Patti Croft of Wood Gundy, predicting extreme volatility.)
Andrew Spence, Citibank Canada (Globe and Mail, Oct. 26/95)	The currency market is significantly underestimating Yes support. The price of the Canadian dollar is still based on the expectation of a small No victory, and therefore a Yes vote would cause a strong negative reaction.
Jeff Rubin and Peter Martin, Woody Gundy Conference Call, Oct. 25/95.	The dollar would drop to 67 to 69 cents or lower. Short-term interest rates could rise to over 12 percent, and long-term Government of Canada bond yields to 10 percent.
Rob Fairhoim, DRI Canada, Oct. 26/95.	The dollar would plunge to a new record low (below 69 cents) and interest rates rise 3 to 5 percent.
Bill Dudley, Goldman Sachs, Oct. 24/95	Canadian dollar would drop below 71 cents, and spread on long-term bonds would rise to 3 percentage points. Belleves that there is still only a 10 percent chance of a separatist victory, in spite of the polls showing majority support.
Jeoffrey Hall, Thomson Technical Data (on Reuters, Oct. 24/95)	Canadian dollar would drop to 60 U.S. cents. Canadian bond yields 3 or more percentage points above U.S. bonds.
Andrew Pyle. PATH International (Globe and Mail, Oct. 24/95k.	If the Yes vote happens, [the Canadian dollar] could easily hit 69 U.S. cents and 65 cents soon after." "The majority of investors still think that there is no way that
WEFA Group, Oct. 20/95. Globe and Mail, 0c125/95. -	Survey of predictions regarding economic impact of a Yes victory In the Quebec referendum Canadian dollar drops to 69 U.S. cents, causing 2 percentage point rise in interest rates and a moderate recession in the second half of 1996. By 1997, Canadian real GDP is 3.6
Money managers quoted in Globe and Mail, 0ct. 25/95.	After a Yes victory, they would only hold Canadian bonds if they get a spread of 2.5 to 3 percent on Canadian bond yields above U.S. bond yields.
Survey of money managers by Fraser Institute, Oct, 4 to 16, 1995.	91 percent thought a downgrade of federal government bonds was likely or very likely after a Yes victory. 53 percent thought the same thing regarding Ontario bonds. 76 percent expected negotiations on a new economic partnership between Canada and Quebec would fail.
John McCallum and Marcel Cote (study done in 1992, but not revealed until 1994).	Quebec would lose up to 10 percent of its GDP and up to 140, 000 people would emigrate. The rest of Canada would suffer its longest recession in 50 years, because of higher interest rates, reduced investment, and reduced exports to Quebec.
Rob Fairhoim, DRI Canada (July 1991)	Quebec, leading to a 1.4 percent short-term reduction in real GDP in the rest of Canada.

Record 11

APPROACHES TO DIVISION OF CANADIAN DEBT

Various Studies have proposed ways to divide the national debt if Quebec were to separate from Canada. These include:

• share of federal debt and assets (Le Hir report and Beianger-Campeau Commission).

• per capita share (Soothe);

• GDP share (Soothe); and

• Historical benefits approach (Boothe).

Ontario Share of Canadian Quotas, 1993

(Per Cent)

	Quebec Share (Per Cent)	Quebec Debt ($ billions)	Debt/GDP (Per Cent)	Per Capita	Federal Debt ($ billions)	Debt/GDP (per cent)	Per Capita
Debt and Asset Shares:
Le Hir (a)	0.0	77	44	10, 558	579	95	26, 009
Le Hir (b)	17.4	178	102	24, 302	478	79	21, 484
Belanger-Campeau (c)	18.5	184	106	25, 170	472	78	21, 198
Other Distributions:
Per Capita Share (d)	24.8	221	127	30, 125	435	72	19, 566
GDP Share	22.3	207	118	28, 205	449	74	20, 198
Net Fiscal Benefit	32.0	263	151	35, 857	393	65	17, 679

 

Quebec makes payments to Canada equal to 17.4 per cent of federal interest costs, but does not assume liability for the debt.

Shares based on 1994 data.

b Quebec assumes 17.4 per cent of federal debt.

c Shares based on 1990 data.

d Boothe (1992). Shares based on 1995 data.

e Boothe (1992). Shares based on 1961-88 data.

Source: Ministry of Finance, P. Boothe, et al (1992). "The Belanger-Campeau Commission (1991), "Elements d’analyse economique pertinents a la revision du statut politique et constitutionel du Quebec" et Le Hir Commission, (1995) "La partage des actifs et des passifs du gouvernement du Canada advenant la souverainete du Quebec"

 

Federal Debt and Assets Shares

The La Hir report (1995) and Belanger-Campeau Commission (1991) take the position that Quebec’s share of the nati~nal debt cannot be calculated independently of its share of federal asset

Le Hir Report

Quebec’s share of gross debt (23 per cent, equal to share of GDP) is reduced to 17.4 per cent when the province’s relatively low share of existing federal assets is taken into account. The share calculated in the Le Hir report could lead to two possible Outcomes:

- Quebec would not assume any of the national debt, but would make payments to Canada equal to 17.4 per cent of federal interest costs. This is the scenario outlined in the Le Hir Report.

- Quebec would assume responsibility for 17.4 per cent of existing federal debt.

• Using the second approach, Quebec would assume 17.4 per cent, or $100.7 billion, of the national debt. If 17.4 per cent of the national debt were added to its liabilities, Quebec debt would increase to 101 per cent of GOP.

• Disadvantages of using this approach include:

- difficulty in valuing non-financial assets, such as federal property located in Quebec; and

- how to divide ownership of financial assets, such as the Bank of Canada.

• The study predicts a Quebec deficit of $7.9 billion in 1996-97 ($3.3 billion Quebec government plus $4.6 billion as Quebec’s share of the federal deficit) or 4.2 per cent of GDP.

Belanger-Campeau Commission

• The Belanger-Carnpeau Commission allocates gross federal debt according to Quebec’s share of federal revenues (22.8 per cent) and then reduces the share to 18.5 per cant because Quebec would hold a disproportionately small share of federal financial assets (i.e. Crown corporations) and non-financial asset (i.e. federal lands within the Province’s boundaries) after separation.

• Using the Belanger-Carnpeau approach, Quebec would assume 18.5 per cent, or $1 07.1 billion, of the national debt in 1995-96.

• Disadvantages of using a formula like that in the Belanger-Campeau report are similar to those of using the Le Hir formula.

Per Capita Share

• Boothe (1992) proposed dividing the Canadian debt on the basis of Quebec’s share of the national population.

• Using a per capita allocation, Quebec would assume 24.8 per cent, or $143.5 billion, of the national debt in 1995-96.

• The rationale for using population shares is that each Quebec resident should assume a share of the debt equal to that assumed by all other Canadian citizens.

• The main disadvantage of the formula is that it does not take Into account possible changes in net shares implied by interprovincial movement of people after the date of division.

GDP Share

• Boothe (1992) proposed that Quebec assume a share of the debt equal to its share of Canadian GDP.

• Using GDP shares, Quebec would assume 22.3 per cent, or $129.1 billion, of the national debt in 1995-96.

• The rational for using GOP shares is that GDP is a proxy for the ability of Quebec and the rest of Canada to service and repay the national debt.

Historical Benefits Approach

• Boothe (1992) proposed that the federal debt could be divided according to Quebec’s share of net fiscal benefits from the Canadian federation over some time period, say 1961 - 1995. The formula balances all federal spending in Quebec as a benefit against alt federal withdrawals from Quebec, such as revenues collected.

• Using this formula, Quebec’s share of the national debt would 32 per cent, or $185.4 billion, in 1995-96 if the historical benefits approach were used.

• The rational for using the historical benefits approach is that Quebec would pay a share of the national debt according to the net fiscal benefits it derived from being in the Canadian federation.

• A disadvantage of using this approach is that it would impossible to construct a non-controversial measure of all the economic costs and benefits that accrued to Quebec because of its membership in the Canadian federation. For example, some expenditures that occur uniquely in the rest of Canada, such as Statistics Canada’s head office functions, also benefited Quebec.