National Post (National Edition)
American union?
IF ALBERTA CAN'T SECURE FREE TRADE WITH CANADA, IT WILL HAVE TO LOOK SOUTH
Alberta wants a fair deal from Canada, but can't seem to get one. Should it build a firewall? Stop trying? Separate? This is one of a series of opinion pieces adapted from the new book, Moment of Truth: How to Think
About Alberta's Future, in which some of Canada's most respected thinkers on the subject debate what the best next steps are for Alberta — and for Canada.
Alberta has a serious need to strengthen its economic position within Confederation. The status quo is no longer viable.
There are a couple of sensible ways this might be accomplished in the near term, but if those efforts fail, Alberta might be left with no choice but to break with Canada and pursue a closer associating with the United States. Indeed, a common market association with the U.S. may be the only credible course of action.
The health of Alberta's economy and the province's ability to trade with the rest of Canada and the world is not simply dictated by the laws of supply and demand, but also critical considerations of public regulation, judicial decision-making, political stability and market access, which, in recent years, have posed major challenges and risks to Alberta's economic health, growth and development.
When it comes to Alberta's strategic trade and investment options, the fundamental question is whether the province's objectives can best be met by pursuing a much more comprehensive interprovincial free trade in Canada and deriving access benefits from Canada's preferential trade agreements (USMCA, CETA, Canada Korea, etc.), or through a more independent approach by Alberta with the rest of Canada and with the world.
In the new book, Moment of Truth: How to Think About Alberta's Future, we offer three options on trade for Alberta in a dire, post-COVID environment that poses an existential threat to the province's social and economic future.
In the first and clearly preferable scenario, Alberta's leadership uses this unprecedented crisis to seek a new, strategic grand bargain with the federal government by negotiating hard, like Quebec has done, especially since Alberta gives substantially more to the federation than it receives. Alberta should use its imbalanced contribution to federal revenues as leverage to secure a new pipeline eastward to the Atlantic Ocean, along with a firm commitment from Ottawa to secure full internal trade liberalization.
The reasons are clear: economist Robert Mansell calculates that Alberta was “by far the largest net fiscal contributor (of any province) over the period 1974-1985, with an average annual net contribution of $7,512 per person, and over the period 1993-2018, with an average annual net contribution of $4,546 per person.” Further, Albertan oil is of growing importance to refineries in Quebec, though public perceptions in Quebec are not aligned with this. As one study notes, “Quebec's supply of crude oil from Western Canada ballooned from less than one per cent in 2012 to 44 per cent in 2017.”
The argument for removing internal trade barriers is even more compelling today, as the world's two largest economies joust between themselves for mercantilist advantage, leaving small- and medium-sized countries to fend for themselves as best they can. If ever there was a time to complete free trade within Canada it is now. The International Monetary Fund predicts that the result would stimulate much greater GDP growth (roughly four per cent growth in Canada's GDP) than the United States-Mexico-Canada Agreement. It would also strengthen Canada's competitive edge and bargaining leverage in global trade.
However, achieving this goal will require leadership and tenacity from Ottawa, which is not assured. Internal free trade also continues to meet with resistance, primarily from Quebec and Ontario, and is more aspirational than real. The original agreement contains 130 pages of “exclusions.”
The federal government must also act to bolster, not hamper, a sector that contributes 10 per cent of Canada's GDP. Alberta should demand that the federal government exercise its constitutional power over interprovincial pipelines and approve Energy East, while dismissing Quebec's right to duplicate regulatory review. Recent court decisions on the Trans Mountain Pipeline endorse this approach.
Alberta, alongside other provinces, should also press for a more open regulatory and policy environment that attracts, rather than repels, investment in Canada and facilitates exports. Unlocking the internal blockages for investments and for exports of Alberta's key oil and gas resources will be the most critical aspect. These have been severely hampered in recent years by constipated federal regulations, by blanket opposition to pipelines by provinces like Quebec and British Columbia, and by limp support from Ottawa other than the expensive purchase of the Trans Mountain Pipeline.
The second option would be to seek the expansion of Western oil and gas pipelines to Ontario, coupled with the development of new petrochemical refinery capacity in Sarnia, Ont., and Edmonton. This option would not only contribute to domestic job creation, but also allow Canada to break the stranglehold that American-based refineries in Texas and Louisiana have on North American petroleum product supply chains.
However, if neither of these options is successful, Alberta might conclude it has no option but to pursue a more independent path that would start with common market arrangements with the United States.
A common market arrangement (such as the European Union) allows for the free movement of capital and labour, as well as goods and services. Also, because rules on trade remedies would be harmonized, Alberta would be exempt from protectionist U.S. trade remedy measures. Alberta would gain preferential and unfettered access to U.S. markets for all its goods and services, including energy supplies, and would become a magnet for U.S. investment without the regulatory shackles and indifference it now faces from Ottawa. A closer economic association would appeal to Democrats and Republicans alike, given long-standing American aspirations of
“manifest destiny” on the North American continent. Such an association would also strengthen U.S. efforts to develop a stronger U.S. bulwark against China. While recognizing the formidable political challenges this would pose, Alberta's leaders and its people may well conclude they have no choice but to take steps leading to a closer association with the United States, especially if unemployment levels rocket to 30 or 40 per cent of Alberta's labour force with little prospect of economic recovery and/or major economic assistance or attention from Ottawa.
This initiative would start with a MacDonald commission-style six-month study of the pros and cons of a common market arrangement with the United States. It would be followed by a high-level informal sounding with the U.S. administration and Congress. Assuming interest in the U.S. and a positive recommendation from the study, the third step would be to subject the study result to a referendum. A positive referendum result would trigger formal negotiations with the United States.
A study by itself would be wrenching for the federation but, in democracies, the moment of real crisis is often the stimulus needed for bold action. Besides, it might prompt a more enlightened response to Alberta's needs within Canada.
Alberta's leverage on federal transfers should be used to try to reverse the trend in the past decade during which actions, or simply inertia, by Ottawa and certain provinces have hobbled Alberta's most promising avenue for growth. But if attempts to strengthen Alberta's position in the federation are ignored, the bolder option for a common market, a break from Canada and closer association with the United States, will indeed become the only credible course of action.
There is no guarantee of success in negotiations, but there is minimal risk in trying and, again, the status quo is untenable.
IF EVER THERE WAS A TIME TO COMPLETE FREE TRADE WITHIN CANADA IT IS NOW. — DEREK H. BURNEY AND FEN OSLER HAMPSON