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                               2 of 4 DOCUMENTS

           Copyright 1996 FDCHeMedia, Inc. All Rights Reserved.
           Federal Document Clearing House Congressional Testimony

                        September 25, 1996, Wednesday


LENGTH: 2799 words








    September 25, 1996

    Thank you, Mr. Chairman, for holding this most important hearing.

    My interest in Canada is long-held and ongoing.  As a White House Fellow, I and my colleagues chose Canada as the country we wished to visit and to study for that year.  As a professor at Stanford, teaching international commercial law and economics, where I still teach, I have been able to study the most profound changes in international trade laws affecting the United States in the last decade -- first the 1988 US-Canada Free Trade Agreement, then, in 1993, NAFTA.

    My reason for raising the question of US interests in a possible division of Canada stems both from my longtime interest in Canada, and also from my concern that these questions are not adequately being considered by our government.  In answer to the question, "Why now?" I would say this: "Why hasn't a committee of Congress held hearings on this subject sooner?"

    On October 30, 1995, the citizens of Quebec held a referendum on whether they wished to remain united with Canada or form their own independent state. This referendum was defeated by the narrowest of margins; 50.6% voted No to sovereignty, and 49.4% voted Yes.  The turnout at the polls was extremely high, with 93.5 percent of eligible Quebecers voting.  When I traveled to Canada earlier this year, I had the opportunity to speak with many Canadians of good will representing the full range of opinions on the national unity debate vis-a-vis Quebec. Each person with whom I spoke had a different perspective on the issue of separation itself, but all were unanimous in advising me that the recent referendum in Quebec was an event of critical importance in Canadian history -- despite the fact that it had gone relatively unnoticed in the United States.

    In addition, almost all were convinced that another referendum on Quebec secession would be held within the next two or three years.  Most believe that such a referendum will occur immediately following the next Quebec provincial elections in 1998.  It could, however, occur sooner if national elections do. Of course, that there likely will be another referendum on this issue does not mean that the referendum will succeed.  There is also the possibility that an accommodation can be reached between Quebec and Canada that will allow this issue to be resolved without the need for another referendum but, based on all I have learned, that contingency is quite remote.  On the contrary, I have been advised by all of the parties with whom I have met that it is likely there will be another referendum on Quebec separatism.  The only question is when it will occur.

    Thus, given the closeness of the vote in the last referendum, is there a real question that this issue will come up again and that this time Quebec will vote to secede? Absolutely.

    Therefore, on my return to the US, I resolved to learn more about how a potential independent Quebec might affect the interests of the United States. After further thought and discussion with various experts on Canada, I concluded that US interests in this matter were real and possibly far reaching.  Yet, despite the fact that Canada is our greatest trading partner and one of our closest allies, there has been little attention paid by the US Congress or the Administration to the specific consequences to the US should a change occur in the status of the Canadian federation.  For this reason, I asked the Chairman to schedule this hearing for the purpose of clarifying the stakes for the United States should partition occur, hoping as I did so to generate concrete recommendations for US policy to safeguard our national interests.  My hope also is that this hearing will raise the awareness of the American people and the Congress to this compelling event in the history of our friends north of the
border.  I am deeply grateful to the Chairman for scheduling these hearings. Where others have been content to look away and pray for the best, he has been willing to become involved.

    I hope that our panel of US experts on Canada will be able today to assist the Congress in answering the following questions:

    First, if there is agreement among our panel of experts that there is a strong likelihood that there will be another referendum in Quebec? What factors might affect the timing of such a vote? Is there any way for the United States to predict the imminence of such a referendum, if not the outcome?

    It has been widely speculated that, if another referendum is to occur, it would be held within the next three years.  Factors that may affect the timing of such a referendum could include the anticipation of parliamentary elections in 1998.  The outcome of a legal dispute that has arisen over how the Canadian Constitution plays into this equation could bring the date of another referendum forward.  The legal dispute to which I refer was filed by Mr. Guy Bertrand, a Quebec City attorney, who is challenging Quebec's unilateral right to secede under the Canadian Constitution.  Mr. Bertrand's suit requests a permanent injunction against the holding of any future referenda that could lead to unilateral secession of Quebec from Canada.  Quebec opposes the injunction, and the Canadian government has intervened arguing that a Quebec referendum to secede would merely be expressive and would still require Quebec to negotiate with Canada.  Alternatively, it argues, a constitutional amendment would be
required with the approval of the rest of Canada.

    This case recently survived a significant litigation hurdle when the Quebec Superior Court rejected the Quebec government's motion to dismiss the suit on jurisdictional grounds.  The case is now expected to proceed through the courts up to the Canadian Supreme Court, if necessary.  The outcome of this case could very well be a ruling that Quebec is not constitutionally permitted to secede from Canada without a constitutional amendment.  Is it possible that the Quebec separatists will not want to wait for such a decision, which would tie their hands, and instead move to hold another referendum before 1998?  A statement that appeared recently in a prominent Canadian newspaper illuminates this point:

". . . the government of Premier Lucien Bouchard is left with only two choices: fight in court and hope for a 'Solomon-like j judgment' that leaves the question undecided, or call a snap election and get the blessing of the electorate for another referendum.  Come to think of it, . . . the arguments in favor of a spring election are more valid than ever." (Globe and Mail, September 5, 1996). For its part, the Quebec government has decided that, rather than take an appeal, it will refuse to participate in the case.  Quebec Justice Minister Paul Begin was quoted as saying, " the only judge that should decide Quebecers' future is Quebecers themselves.  We've decided not to go ahead with the appeal and not to be there when the case continues before the courts." (The Ottawa Citizen, September 5, 1996).

    Thus, the questions that arise in my mind are: Is there doubt that there will be another referendum and, if not, is there any expectation that it would fail? What of the Bertrand case and its potential effect on the timing of another Quebec referendum? Is it possible that Quebec could be facing another referendum as early as next spring? What, if any, are other factors that could affect the timing of a referendum? I hope today to hear our panel of experts explore these questions insofar as the US should be alert to whether and/or when another referendum may occur.

    The second question is really in two parts: (1) What are the potential political, economic, and security concerns for the United States should a
division of Canada occur?  (2) How can the United States anticipate, manage, and protect those interests?

    At the time of the 1995 referendum, President Clinton articulated the official US position that America enjoys excellent relations with a strong and united Canada.  Some believe this statement by the President of the United States, made just prior to the last referendum vote, had an impact on the ultimate decision of the electorate not to secede.  The US has also steadfastly maintained that the issue of secession is an internal matter for the people of Canada to resolve, and I could not agree more.  What has not been discussed publicly by our government, however, is to what extent US interests may be affected by Quebec's secession from Canada, should that occur.

    Indeed, the State Department has chosen today not to send any representative to testify at this hearing, even though it has had exclusive control over our policy from well before the last Quebec referendum.  The Administration was asked to provide a witness for this hearing on Canada so that our principal Canada policy officials could assist the Congress in outlining where US interests lie in the event Quebec secedes from Canada.  One week ago, the State Department's representative told the Canadian Broadcasting Corporation (CBC) that it would be unable to provide a witness for this hearing because they "simply don't have a person available due to the press of business, the very important business that we have to do here." I wonder what else is more importantly occupying the State Department's Canada desk?

    The US and Canada enjoy the largest bilateral trade relationship in the world.  According to the most recent Survey of Current Business published by the Commerce Department, total US-Canadian trade in 1995 reached US$306.4 billion, or approximately US$840 million per day.  A recent CRS publication reports that a Canadian Member of Parliament recently announced that the United States exported more to the Canadian province of Ontario in 1994 than it did to Japan. In 1994, US trade with Quebec alone was approximately US$34 billion, which would have made Quebec our ninth largest trading partner.  Canada, even without Quebec, would remain our largest trading partner by far.  I think it is fair to
say, Mr. Chairman, that the issue of Quebec independence is an issue of the utmost importance to the United States.  Should the next referendum succeed, its impact will be felt by thousands of US businesses and millions of ordinary Americans.  Those living and working in the border states will be particularly affected.  It is astonishing to me that, in light of the many Americans who would be directly affected by a partition of Canada, the Administration declined to accept an invitation from the United States Congress to come before the people and participate in enlightening us all on US interests in this issue.

Perhaps it would be convenient if the Congress did not ask such questions, but it is our duty to do so.  So, let us proceed to pose these questions: Does the US have interests in this issue? Absolutely.  What might some of those interests be?

    (1) NAFTTA: We signed an agreement with a united Canada in 1993.  When an American automobile shipped from Detroit to Windsor, Ontario, ends up at a dealership in Montreal, we expect it to be duty-free.  Quebec insists it will apply NAFTA to the U.S. -- but the terms of its separation from Canada are not clear.  If it imposes tariffs on goods from the rest-of Canada, the good in my example would be subject to a tariff.  The U.S. would thus lose the benefit of what it bargained for in NAFTA.  The Canadian Finance Minister, just prior to the last referendum, warned Quebec that a new economic union with a separate Quebec may not be in Canada's interests, which reflect a balance among all of the regional interests of the country, and that a new economic arrangement between Canada and an independent Quebec may not be achievable because it would
"jeopardize hard-won, major trade advantages negotiated with other countries," as, for example, under NAFTA.
(Attachment 4).

    (2) Debt/Economy: The public debt of Canada will be apportioned between Quebec and the rest-of-Canada.  Perhaps they will not agree on the precise percentage, and perhaps the percentage assumed by Quebec will overload its already struggling economy.  The result will be a devaluation for any holder of Canadian government bonds.  Americans hold a large number of such debt instruments, and it is likely such holders will suffer a loss in value.  In addition to debt instruments, other US investments could also suffer if Quebec nationalizes certain industries or if Quebec is weakened economically.  Prior to the last referendum, Indian nations (Mohawk, Cree and Inuit) in Quebec held their own referenda that determined they would prefer to remain part of Canada and determine their own future in the case of Quebec sovereignty.  I have been
advised that New England and New York receive roughly I 0% of their energy from Hydro Quebec.  Thus, if separation of Quebec from Canada leads to further separation within Quebec, especially of Cree lands in the north where much hydroelectric power originates, with whom do American cities and states negotiate over electric power supply?

    (3) Canadian troops assist in NATO operations; will Quebec troops as well? If not, the value of Canada's current contribution to NATO will be much less. In addition, NORAD may be implicated depending on the location of radar and other US security interests in Quebec.  Of great concern to the US would be a division of the Canadian armed forces, diluting the strength and effectiveness of our ally to the north.  Four days prior to the last referendum, a Member of Parliament of Canada's Official Opposition party, the Bloc Quebecois, who was also then the Vice-Chairman of the Standing Committee on National Defence, faxed a Communique to Canadian bases in effect commanding Quebecois
troops in the Canadian armed forces in the event of a Yes vote to "respect the people's accession to sovereignty" and "transfer their loyalty to the new country whose security they will ensure."
He also stated unequivocally that "Quebec will be part of NATO." A copy of this communique, in French and its English translation, is attached to this statement. (Attachment B).  An independent Quebec might also receive support from other nations that may wish to increase their connection to North America, posing other security concerns for the U.S.

    (4) Atlantic Canada/St.  Lawrence Seaway: If Quebec secedes, the provinces of Nova Scotia, New Brunswick, Newfoundland, and Prince Edward Island -- collectively known as Atlantic Canada -- will be geographically isolated from the rest of Canada.  These provinces are net welfare recipients and form the poorest region in the Canadian federation.  If Ontario and Western Canada decide not to continue to support these provinces, America may be presented with a new territory along its Northeastern border that includes seriously depressed economies and under-funded welfare agencies.  Under this scenario, emigration to the US would likely increase.  Perhaps of necessity, strategic alliances
detrimental to the United States might also seem alluring to Atlantic Canada in return for foreign aid from countries not necessarily friendly to the United States.  The status of these provinces might threaten control of the St. Lawrence Seaway -- jointly operated by the US and Canada -- and what that means for commerce to the Midwest United States.

    (5) A Period of Unrest: Suppose Canada takes the view that separation can only be the decision of all of Canada, not by Quebecers voting alone (as the US did in 1861).  Suppose Quebec disagrees and a referendum approves separation.  A period of hostility on our border with our largest trading partner, with possible trade impediments and political demonstrations, could ensue.  If a period of uncertainty obtains for some time, with whom does the US negotiate regarding St.  Lawrence Seaway matters? Who would form NAFTA dispute panels? Who would attend NATO meetings regarding radar defenses [sic] in the arctic?

    This list of potential US interests in the Quebec separatism question is not meant to be exhaustive.  It is my hope that thoughtful commentary from this panel of distinguished members of the US academic community and experts on US/Canada relations will shed light on the potential impact of Quebec separatism on the United States and provide Congress with a recipe for action should Canada, our greatest trading partner and one of our most trusted and valued allies, determine for itself a course that results in separate governments.

LOAD-DATE: September 26, 1996