Quebec: What Price Freedom?

Deep in the recesses of a Quebec National Assembly annex sits a windowless room. It's much like any other conference room -- except that on its walls are plans for a quiet revolution. In this "war room," staffers of a special commission on Quebec's sovereignty are making detailed plans on everything from a separate Quebec army to a national dairy farm policy. "We're preparing the real stuff, just in case," says one staffer. The commission expects to have a sovereignty blueprint before Quebec votes on its future in a late-October referendum. It's a vote that could unravel the nation of Canada.

French-speaking Quebec has been restive about its place in English-speaking Canada for decades, but now the tension is reaching a new high. Fed up by years of unmet demands, Quebec has given Ottawa a deadline: Either it presents Quebec with an acceptable plan for keeping the province within Canada, or Quebec will ask its voters to decide for themselves. If they vote oui for sovereignty in October, the province would break from Ottawa a year later.

As relations between English- and French-speaking Canadians deteriorate, it seems inconceivable that Canada will offer Quebec everything it wants. The central government on Feb. 28 made a proposal, but Quebec Premier Robert Bourassa quickly rejected it, calling it "domineering federalism." The proposal was even more bitterly condemned by Quebec's nationalists, who advocate immediate independence.

PLAYING CHICKEN. What makes the brinkmanship dangerous is that many Quebec leaders, executives, and citizens are confident they can go it alone. Quebec accounts for almost one-quarter of Canada's gross national product. Its corporate crown jewels include Hydro-Quebec, which with $34 billion in assets is the world's No. 7 electric utility, and aircraft and transportation equipment builder Bombardier Inc., with nearly $3 billion in sales. And its technocrats are pioneering an aggressive industrial policy -- the most extensive in North America. Despite warnings from some that sovereignty would cripple the province, a poll of Quebec's business leaders last year showed 72% believed it would actually improve the economy over time.

Other Canadians are aghast at the prospect. The threat of Quebec's sovereignty "casts a dark shadow on everything we want to do," especially economic prospects, says Constitutional Affairs Minister Joe Clark. Leaders of the English-speaking business community also warn of a national apocalypse. But rhetoric aside, the rest-of-Canada, as Quebecers now refer to it, is not inclined to meet Quebec's demands for greater powers than other provinces enjoy. English-speakers argue that giving Quebec such leeway would undermine the nation as a whole. Many also warn that Quebec would be crushed economically by a breakup. It all shapes up as a national game of chicken that neither side can win. International nervousness over this showdown has helped drive the Canadian dollar under 84~, from 89~ last fall, forcing the Bank of Canada to raise

interest rates.

Sovereignty for Quebec won't lead to civil war, as Yugoslavia's breakup has. Rather, Quebecers want political independence, a separate foreign policy, and full taxation and lawmaking powers. But they also want to continue using the Canadian dollar, maintain trade relations with the rest of Canada, and carry Canadian passports.

`BUILDING A NATION.' But even such minimal nationalism could have profound impact. For one thing, it would greatly complicate relations with the U.S. just as Washington is trying to create a North American free-trade zone. Today, the U.S. and Canada are partners in $200 billion of two-way trade, and goods and services flow across the border under the rules of a four-year-old free-trade pact. But opposition to the free-trade agreement is mounting in English-speaking Canada, and if Quebec goes, the rest of Canada might try to renegotiate the pact.

Indeed, if Quebec secedes, the rest of Canada could come unglued. The depressed Maritime provinces would be cut off from others, while western provinces would reject Ontario's dominance. Eventually, predicts John Ciaccia, Quebec's Minister of International Affairs, some provinces, such as Alberta, might try to join the U.S.

No matter how the immediate crisis plays out, it is clear that Quebec's quiet revolution is moving ahead. La Belle Province is taking control of its affairs, including its economy, social programs, and culture, step by step. "What they're doing is building a nation," says U.S. Consul General William C. McCahill Jr. in Quebec City. "They have cultural identity and purpose, they have pride in the institutions they've built up, and they want more of it."

Quebec's economic success has been a powerful boost to nationalist feeling. Alienated from English Canada, Quebec has developed its own model of close cooperation among business, labor, government, and banks, often called Quebec Inc. At the heart of this model is Hydro-Quebec, the province's powerhouse. Owned by the state, it's a world-class electric utility. Its cheap electricity has in turn fueled industrial development throughout the province, such as energy-intensive aluminum smelters. And Bombardier, originally a small snowmobile maker, is a transportation-equipment giant that builds subway cars for New York City and constructs planes in the U.S., Britain, and Canada. In January, it made a winning bid for the ailing Toronto-based de Havilland division of Boeing Co.

The Quebec government is actively orchestrating this economic drive. Quebec's Industry Minister, Gerald Tremblay, has a plan to create 550,000 jobs by the year 2000 and bring unemployment down to 7%, from 12% today. He has divided Quebec's economy into clusters. Some, such as aerospace, electrical power-generation equipment, and information technology, are already competitive. Others, including forest products and petrochemicals, need help. Tremblay gets key companies in these clusters to attack industry problems together and works to change inhibiting government policies.

ROUGH START. A thriving province is one thing; a sovereign nation something else again. Many economists figure that an independent Quebec would be in for rough times in the first few years. Already, Quebec has its weaknesses. With unemployment high, some of Quebec Inc.'s leaders are under pressure. Hydro-Quebec has postponed its $11 billion Great Whale hydroelectric project because of environmental opposition and New York State's desire to renegotiate its multibillion-dollar, 20-year contract on better terms. The forest-products and clothing industries have been pummeled.

Sovereignty could create more economic pain, especially in the short run. A sovereign Quebec would have to assume its share of Canada's $340 billion debt. That in turn could drive Quebec's debt load sky-high, and spooked foreign investors could then force Quebec to pay a premium on its international borrowings.

On the trade front, Quebec could see relations with the U.S. sour despite the province's free-trade stance, as Quebec Inc.'s policies of subsidization come under fire. The U.S. Commerce Dept. is already challenging the low rates Hydro-Quebec offers industrial customers. Trade with Canada would also be strained.

FALLOUT. The man trying to manage the growing crisis is Premier Bourassa, head of the ruling Liberal Party. A federalist who believes Quebec would be better off remaining as part of Canada, Bourassa is trying to quell separatist fervor by insisting that Ottawa cede substantial powers to Quebec. Specifically, his Liberal Party wants Quebec to have exclusive jurisdiction over 22 areas, among them culture, education, and regional development. The federal government would run only six, including defense and currency. Power would be shared in nine other areas. In this way, Quebec would operate with far more autonomy from Ottawa than other provinces -- in effect, a nation within a nation.

While Bourassa tries to sell English Canada on this approach, the Parti Quebecois (PQ) is trumpeting sovereignty. PQ leader Jacques Parizeau argues that support for sovereignty is far stronger now than it was in 1980, when the first referendum on the issue was defeated. In November, polls found that 56% of Quebecers expect the province to be independent within a decade, while only 11% expect the status quo to remain. And 39% support sovereignty, while 32% lean toward federalism. The one-third in the middle sympathizes with Quebec's aspirations but worries about the economic fallout. So Parizeau has nimbly crafted a new definition of sovereignty. While Quebec would "leave" Canada, says Parizeau, it would then negotiate ties to minimize the disruption for itself, such as use of the Canadian dollar, free circulation of goods and services between Quebec and Canada, and the right of Quebecers to hold Canadian passports.

As the fall deadline draws nearer, optimists are betting that the Canadian genius for muddling through will eventually prevail. They may be right, since the costs of divorce are beginning to dawn on many Canadians on both sides. But Canada has never been this close to the brink. Even if the Canadians maintain a single nation, there are likely to be permanent shifts in relations between French- and English-speaking Canada. The consequences will resonate throughout the continent. Whether Bourassa or Parizeau prevails, Quebec's future direction is clear. It is only a question of how far, and how fast, it goes.

      -- World's 15th-largest economy, and 9th-largest trading partner of the U.S.
      -- Leading companies, including Hydro-Quebec, Bombardier, and SNC-Lavalin
      -- Strongly probusiness government, favoring free trade and pushing North 
      America's most aggressive industrial strategy
      -- Good labor relations with very few strikes
      -- Well-developed financial institutions in place, with over $110 billion in 
      -- Would have to assume its share of Canada's $340 billion debt, causing severe 
      debt load
      -- Creditors would force it to pay a stiff premium on international borrowings
      -- Would try to keep Canadian dollar. But this means ceding control over 
      monetary policy
      -- Could face increasingly strained trade relations with both the U.S. and 
      -- Unemployment, already 12%, would rise in the short run to higher levels
      DATA: BW
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