Letter in Support of Premier Williams' Position on the Atlantic Accord

I think the current dispute between Canada and Newfoundland needs to be put in the context of 55 years (since 1949) of struggle by a proud but poor people from a disadvantaged and historically exploited area who are trying to do what's right and fair to better their lot in life. They do not want to take advantage or to be taken advantage of.

There is unfortunately an image in the rest of Canada that Newfoundland is a drag on the Canadian economy. In fact a well known Canadian, the late Mr. Gordon Sinclair, was once quoted as saying that Canada would be better of if Newfoundland was towed into the middle of the Atlantic Ocean and sank. I happen to profoundly disagree that Newfoundland has been a drag on the Canadian economy and I will identify later why. As to Mr. Sinclair's comment, it reflects more an elitist attitude than a serious comment on the substantive issue of economic contribution to Canada.

At this stage in our history, I think it is important for the rest of Canada to understand the roots of why Newfoundlanders feel so deeply the way they do. The issues are not simple and it is difficult to express them sufficiently in a letter of this sort. I will try to summarize them in point form below:

1/ Many in Canada are probably not aware that when Newfoundland became a province, it came in with a significant government surplus. And while there was a vote and Newfoundlanders voted to become a province of Canada by a 52% majority; many people feel, and there is much evidence to support, that it was for the most part orchestrated by Ottawa and London. That being said however, I would say that today, Newfoundlanders and Labradoreans are proud Canadians and few would consider leaving this great country. Despite coming in with a surplus we find ourselves today with the highest provincial debt, the highest provincial tax rates, the lowest government services, including health care and in a desperate financial situation. What, after 55 years of confederation has gone wrong with the promised great Canadian experience? Canada prides itself in being a trading nation and if you talk to economists, they credit much of Canada's wealth to its tremendous savvy in international trade. Well most Canadians may not be aware of it, but the exports per capita of Newfoundland is greater than that of any other province in Canada. We have the trade, but who has the wealth and prosperity?

2/ The Upper Churchill contract with Quebec is always high on the list of grievances for Newfoundlanders and Labradoreans. A few short years after we became a province of Canada, the then premier, Mr. Smallwood was anxious to improve the lot of his people and promoted the development of the world class hydro electrical potential at Churchill Falls in Labrador. To do this, he needed to have a market for the electricity which, at the time, was readily available in the energy hungry eastern US. He then needed to be able to get the power from Labrador to the US border. He needed the right to wheel the power across Quebec to get it to market. This should not have been a problem since Alberta had previously been given the right to wheel its gas in a pipeline across Saskatchewan and Manitoba to market in Ontario. This was a constitutional matter and already accepted in Canada. However such was not to be the case for Newfoundland and Labrador's electricity. Quebec objected and said there would be no transmission line across Quebec unless it owned the line and owned the power. Quebec's position was that they would build the transmission line and purchase the power at the Newfoundland / Quebec border and they would sell it to the US. This represented a tremendous road block for the development as well as serous impacts on the financing.

It is important to understand that this was happening at a very difficult time in Quebec. The political situation was very unstable and the FLQ were putting bombs in mailboxes and the like. The Canadian prime minister at the time, Lester B. Pearson, a decent man, called in the new premier of Canada's newest province and said I have a problem. If you ask for the right to wheel your power across Quebec, I will have to give it to you, but if I do, there will be an uproar in Quebec, maybe civil war and a possible breakup of the country.

What tremendous pressure and what a tremendous burden to place on the shoulders of a young province...to be faced with a decision, one of the ramifications of which, was the breakup of the country...a country you had just played a major part in joining a few short years ago. Needless to say Smallwood did not insist on getting the wheeling rights and the current contract was entered into. I suppose you can forgive Quebec in part, since they were arguing for their own self interest as any province would do.

However the position that the federal government took regarding Newfoundland left it in a very untenable and precarious position. Quebec now had all the negotiating power and leverage. They now became the only possible customer for the power. They had all the cards and proceeded to negotiate Newfoundland into the ground on the deal. All Smallwood and Newfoundland got out of it was a few construction jobs for a few years. In fact, the leverage was so great for Quebec, that the contract term was extended to provide that after all the capital costs were recovered and after all the bond holders were paid off, the contract was now to continue for a further 25 years and the price per Kwh was to be reduced. It seems to me that, that by any measure of natural justice, the extended term of this contract should be unenforceable.

Maybe Mr. Pearson was right, maybe it was the right decision, at that time in our history, to save the country, BUT was it right and fair to ask Newfoundland and Labrador, the youngest and the poorest province of this country to bear the whole burden and face the economic consequences of doing so? The contract that resulted now gives Quebec one (1) billion dollars in profit annually which will likely keep climbing over time. The profit going to Quebec on this contract alone would many times exceed all the equalization Canada ever paid to Newfoundland and it continues for another 40 years or so. An interesting twist on this is that the Quebec profit is received by Hydro Quebec (a crown corporation) instead of going directly to the province. The effect of this is that this profit likely does not factor into Quebec's entitlement to Canadian equalization.

3/ Another grievance issue between Newfoundland and Labrador and Ottawa is the fishery. The people of Newfoundland came here and settled here in the beginning to fish. Successive generations since then have over the years continued to carry on this and other related activities. Fishing was the backbone of the local economy, culture and way of life. On joining Canada, the federal government took over management of the fishery. It is very important that Canadians living outside Newfoundland and Labrador understand how emotional and deeply-felt an issue this was and still is in this province. As I mentioned earlier it was our whole reason for being and with confederation someone else became in charge of it.

Well, in retrospect Ottawa's stewardship in managing the fishery has been a disaster. Successive federal governments have traded away fishing rights off Newfoundland's coast to foreigners to gain trading access for products of mainland Canada. Again a further example of Newfoundland and Labrador's unrecognized contribution to Canadian unity and prosperity. The federal government continues even today to give fishing rights around Newfoundland's coast to people and enterprises outside the province while Newfoundland fishermen sit idly by not being able to fish and earn a living.

Also the foreign over-fishing effort on the nose and tail of the grand banks which has been going on for years continues to take place. Yet in Ottawa, Canada's government Talks the Talk but they consistently refuse to Walk the Walk in getting any meaningful solution to this problem. In the meantime, one of the greatest fishing resources on earth, which Newfoundland brought with it into confederation, has been decimated.

4/ Now to get to the current matter of dispute. When oil was discovered off Newfoundland, the federal government claimed it was theirs and not ours. The supreme court ultimately agreed that was the case in law. Again it is important to understand the context of time in which all this was taking place. During this time we had the energy crisis, the National Energy program was being brought in by the federal government and there was tremendous acrimony between Ottawa and the west. Trudeau, Chretien, Lalonde and others came to Newfoundland trying to work out / impose an offshore oil deal...none resulted. During this time the federal team is reported to have made a statement to the effect that 'There will never be another Alberta'. Well, while this was a put down for Newfoundland and Labrador, it was was an even more disparaging remark about the people of Alberta. The fact that Alberta had control of its resources instead of Ottawa clearly did not sit well with Ottawa. The elected government of Alberta, rightly so, were simply trying to prevent Ottawa from expropriating their resources. Alberta needs no support from me in this regard; they are quite capable and have done a fantastic job of protecting their rights. Newfoundland however has had a much more difficult time of it. The federal government seemed adamant that Newfoundland and Labrador be kept in its place and they were going to do whatever they could to prevent us from getting control over our offshore oil and gas resources.

I am not a lawyer and thus can not speak to the legalities involved here. I only know that the Newfoundland oil and gas resources are in our offshore and whatever rights existed then or arose later were rights that came as a result of our joining Canada. If we had not joined Canada, Canada would have no rights to them today. Despite this, the federal government steadfastly refused to give Newfoundland and Labrador its due. It took a change of government in Ottawa and a more balanced view of what Canada could and should be that we got the Atlantic Accord which provided that the offshore resources would be treated as if they were on land, thus making Newfoundland and Nova Scotia the prime beneficiaries of their offshore oil and gas resources.

The reality however is that this principle of being the prime beneficiaries has not worked out the way it was intended. The various federal revenues represents 54% of the total government take. The provincial revenues represented 46%. However the federal government takes back 70% of the province's 46% in its claw back mechanism, which gives the federal government 86% and leaves the province with 14%. Right now with the claw back, for every $1.00 of benefit to Newfoundland, Ottawa benefits by $6.14. Even if Danny Williams gets what he has asked for, for every $1.00 dollar of benefit to Newfoundland, Ottawa will still get $1.17. Who then, with this split in revenues (86:14) is the prime beneficiary in actual fact? This situation is what Premier Danny Williams is so upset about and what Prime Minister Paul Martin agreed to change during the election. He agreed that Newfoundland and Nova Scotia would get 100% of the provincial revenues without the claw back.

WHY you may ask, should Newfoundland and Labrador and Nova Scotia get 100% of the provincial oil revenues (still only 46% of the total government take) and at the same time get equalization as well. In other words, why is the claw back not appropriate here? Well, it is important to understand that the equalization bar is an annual measure of government revenues and government services. It essentially ignores the extent of provincial debt, tax burdens and infrastructure in place in a province. Consequently, when major funds such as oil revenues start to flow in, the equalization starts to flow out. The net result of this is almost a status quo position for the affected province which essentially prevents a province from being able to help itself.

The unfairness of this is recognized and understood by the federal government. In fact before oil was discovered in Alberta, that province was not doing so well in confederation in relative terms. It was a have-not province like many others. The federal government of the day recognized the problem at the time and gave Alberta a transitional period during which its oil and gas revenues were exempt from the equalization formula. This was to enable a reasonable period of time for it to get debt burdens under control, tax rates normalized and an appropriate level infrastructure in place to support a future industry which would bring benefits to both levels of government and in fact to the whole country.

This is what Danny Williams is looking for, for Newfoundland and what Paul Martin promised. However there is a small difference in that Alberta's rights flow from resources on land where provincial rights are constitutionally protected. Newfoundland is relying on a political accord (the Atlantic Accord) which is open to more political influence and maneuvering from Ottawa. I think that what should happen here is to come up with a solution that reflects Newfoundland's current hopeless financial fiscal capacity. The per capita debt in Alberta was never in the range of what it is in Newfoundland and Labrador and government services and infrastructure in Alberta in relative terms were never so divergent from the national average as it is in Newfoundland and Labrador.

Unfortunately over time the poorest and the weakest, always have the least leverage in negotiating any deal. The feds know this and the current bureaucracy is playing it to the hilt. Given the history of exploitation in this province, the population is very circumspect at what is taking place. Will we be screwed again as in the past? Believe me, we understand our weak negotiating power and leverage in this confederation. We have difficulty many times when editorials in national papers that are written without true understanding of the underlying facts. Danny Williams is simply trying to minimize the effects of the power differential, for once in our lifetime. He is trying to get a fair deal for the province and not a deal, any deal, to get what ever monies are offered just because we need it so badly.

Furthermore, it seems to me that if the principal beneficiary provisions of the Atlantic Accord were not and are not being followed, (and it seems that Prime Minister Paul Martin agrees that to be the case or he would not have promised to fix it) then whatever changes are needed to correct it, should be retroactive to the start of production in Newfoundland and Nova Scotia as the case maybe to give these provinces a fighting chance to improve their economies. It should not just be retroactive to April 1, 2004 as offered by Minister Goodale.

5/ Another issue that is worth noting from a Newfoundland and Labrador perspective is with reference to the current sale of Petro Canada shares by the Federal Government which raised some hundred's of millions of dollars for Ottawa. It is important to know that a large part of Petro Canada's asset base is its holdings on the East Coast (Hibernia, Terra Nova, White Rose and Sable). Canadians may not be aware that those interests initially came as governmental crown share allocations for the discoveries on the East Coast. They were granted by the federal government who then claimed ownership in the resource and when Petro Canada was a federal crown corporation. If the principles later established in the Atlantic Accord had applied (namely that the resource was to be treated the same as on land), then any crown share would have accrued to the provinces of Newfoundland and Nova Scotia and not Ottawa. Clause 40 of the Atlantic Accord provides that the costs and benefits of crown share will be shared equitably by both governments. Does Newfoundland and Labrador or Nova Scotia have any claim to a share of proceeds of sale of Petro Canada shares? I don't know, but in principle, did a significant part of Petro Canada's asset base not include what was in essence a crown share in Newfoundland and Labrador's and Nova Scotia's offshore resources? Was the principle of the Accord upheld in this respect? Has anyone addressed it?

Yes, Ottawa has given us Family Allowance, Canada Pension, Medicare and Unemployment Insurance, but Newfoundlanders and Labradoreans pay the same premiums and rates of Federal taxes as the rest of the country for these benefits.

I offer the above comments in an effort to have every Canadian gain some insight and understand some of the history and background as to why we feel the way we do on this Atlantic Accord issue. It's not simple, and unfortunately the flag matter has created a diversion from the substance of the debate. The National Post and the Globe & Mail in editorials have jumped on the flag issue but surely the question that must be on the minds of all editorial writers is 'what are the underlying issues that are causing Newfoundlanders and Labradoreans to be so frustrated that something like this can happen?'

I assure everyone that lowering the Canadian flag does not represent disrespect for the flag. The prime minister called it disrespectful...no matter that the province of Quebec also does not fly the Canadian flag on their public buildings. For Newfoundlanders and Labradoreans, this is not a separatist issue. We are proud Canadians and we love the flag as much as Canadians anywhere and we wear it proudly where ever we go. If there are Canadians who took offence to this action, we are sorry. But give your head a shake...we treated the flag with respect. It was simply lowered as a symbolic protest of the legitimate emotional and deep feelings that continue to linger and be carried inside us about how we have been treated by our federal government.

This is not just about money, even though there are significant dollars being talked about in the press and by politicians. This is really about fairness and dignity for a portion of this country's population that have not been well done by, by the federal government of the country we chose to join, which we love and to which we have made a tremendous contribution. It's about promises made and promises not kept. We thought the current Prime Minister's promise was good and no one more so than Premier Williams who kept assuring the local skeptics among us that the prime minister's word was good. He kept saying the prime minister was an honorable man and he would keep his promise...after all he is the prime minister and if you can not trust the word of your prime minister who in government can you trust?

It seems the federal bureaucracy is now trying to put their own views and conditions into the loop and in doing so, changing the simple and direct promise of the prime minister. They even requested insertion of requirements on how Newfoundland and Labrador was supposed to spend the money that flowed from the agreement, as if we could not be trusted to spent it wisely...HOW INSULTING.

I hope the prime minister is man enough to bring an end to this turmoil and tell those around him that his promise will be honored. It was honorably given and should be honorably kept. I wonder how he feels as prime minister when civil servants say things like 'the prime minister when he made his promise did not really understand'.

There is much more that can be said about the tremendous positive contribution Newfoundland and Labrador has made to Canada, however I have gone on too long already. Hopefully, I have left you a little better informed on our province, the contribution we have made and will continue to make to this great country. Please also understand the frustration we feel in our dealings with the federal bureaucracy in Ottawa on this and other issues.

Sincerely,

Gil Dalton
Executive Vice-President and CFO of Baine Johnston Corporation
St. John's, NL, Canada