The Atlantic Accord functions in Newfoundland and Labrador politics in two ways. There is the agreement between the Government of Canada and the provincial government that established the joint management framework for the Newfoundland and Labrador offshore. At the same time, there is the political prop and the associated mythology that has, in largest measure, replaced the actual agreement in both the popular and political/bureaucratic understanding of it.
Provincial Concerns and Objectives
The Atlantic Accord ended a decade of often acrimonious
dispute between the federal and provincial governments over offshore oil and
gas resources. The province had
initially staked its claim to ownership of the resource in 1975, based on the
premise that Newfoundland and Labrador brought the resources with them
at the time of Confederation and had retained jurisdiction over them.
The Supreme Court of Canada ended the dispute in its decision
on a reference from the Government of Canada. The Court found that, for several reasons, the
right to explore and exploit offshore resources and the legislative
jurisdiction to do so lay with the federal government. The court decided that,
in addition to other considerations, control of the offshore was a function of
Canada’s international status. Under the
Terms
of Union, this part of Newfoundland’s pre-Confederation legal status
transferred to the federal government.
The Supreme Court of Newfoundland and Labrador Court of
Appeal addressed a reference from the provincial government that also concluded
the federal government had jurisdiction over the offshore.
Regardless of the issue of legislative jurisdiction, the
Government of Newfoundland and Labrador had five areas of public policy with
which it was concerned. Legislative
jurisdiction would have allowed the provincial government to address
those. Cabot Martin, then an advisor to
the provincial government, described the five policy considerations in a 1975 article in the Ottawa Law Review.
They were:
- public revenue generation,
- industrial development,
- social disruption,
- provincial autonomy, and
- effective administration.
Thus, provincial administration would give ensure that resources
were developed in a way that would minimize rapid social and economic disruption
in Newfoundland and Labrador while maximising provincial revenues. It would also allow the provincial government
to extract local industrial and commercial development as a price paid by oil
companies for exploiting offshore resources. The development of an industry
based in Newfoundland and Labrador and capable of doing work globally in the
industry was a key part of ensuring that the local offshore provide both
immediate and lasting benefits.
Most important among provincial objectives was the ability
to set and collect revenues. Provincial officials,
politicians and public servants alike, were acutely aware of the promise that
oil and gas development would change Newfoundland and Labrador into a
prosperous province. The provincial
government throughout the 1970s and 1980s relied on federal transfer, including
Equalization, for at least half of its annual revenues. The opportunity to become a “have” province
was at the heart of the provincial government’s interest in control of offshore
resources.
The provincial objectives can be summarized under three
broad headings:
- Provincial control and administration,
- Revenue that would end dependence on federal hand-outs, and
- Local benefits.
The Mulroney Proposal
The Atlantic Accord is as much a child of politics as of policy. While the Supreme Court had settled the legal and constitutional question about oil and gas offshore Newfoundland and Labrador, decisions about the future development and management of the resources were political.
Brian Mulroney was leader of the Progressive Conservative
Party and Leader of the Opposition when the Supreme Court of Canada delivered
its decision. After the decision, he wrote
to the premiers of Nova Scotia and Newfoundland and Labrador to propose an
agreement that he would deliver if he became Prime Minister after the 1984
General Election.
The Mulroney proposal “would recognize the right of Newfoundland and Labrador to be the principal beneficiary of the wealth of the oil and gas off its shore, consistent with a strong and united Canada.” This sentence appears in the second paragraph of Mulroney’s letter. It sets one of the basic principles contained in the subsequent agreement.
The Mulroney proposal “would recognize the right of Newfoundland and Labrador to be the principal beneficiary of the wealth of the oil and gas off its shore, consistent with a strong and united Canada.” This sentence appears in the second paragraph of Mulroney’s letter. It sets one of the basic principles contained in the subsequent agreement.
This phrase is particularly interesting since the idea that
the province would be the “principal beneficiary” had not previously appeared
in public discussions of offshore resources.
Federal proposals before then had allowed the provincial government to
collect some share of offshore revenue.
The term “principal beneficiary” is undefined in Mulroney’s original letter and it remains undefined in the Atlantic Accord. It is clear from the letter and the subsequent Atlantic Accord, that the Mulroney proposal would benefit the province in three significant ways.
First, the provincial government would gain the right to manage the offshore jointly with the federal government. The federal interest would be paramount until national self-sufficiency in oil supply had been reached. Otherwise, the province would take the lead.
The term “principal beneficiary” is undefined in Mulroney’s original letter and it remains undefined in the Atlantic Accord. It is clear from the letter and the subsequent Atlantic Accord, that the Mulroney proposal would benefit the province in three significant ways.
First, the provincial government would gain the right to manage the offshore jointly with the federal government. The federal interest would be paramount until national self-sufficiency in oil supply had been reached. Otherwise, the province would take the lead.
Second, the provincial government gained the right to
collect revenues from the resources as if they were on land. Unlike earlier
federal proposals, the provincial government would determine its own revenues
to be collected from offshore oil and gas development and production. This gave the province the same control of
offshore oil and gas that it had on forestry and mining. The federal government
would only collect business and personal taxes of the kind it collected in
every province.
Third, the province would benefit from the development of local jobs and a local offshore-related industry. Mulroney committed that oil-related infrastructure would be sited in the province, where possible. “Local job creation and labour development would be of paramount concern,” Mulroney wrote.
Third, the province would benefit from the development of local jobs and a local offshore-related industry. Mulroney committed that oil-related infrastructure would be sited in the province, where possible. “Local job creation and labour development would be of paramount concern,” Mulroney wrote.
Mulroney also committed that the provincial government would
not see a dollar-for-dollar loss of Equalization payments. Equalization is a federal program that
transfers a portion of federal general revenues to each of the provinces whose
own-source revenues fall below a national standard. Embedded in the constitution in 1982, Equalization
gives provinces comparable incomes but does not deal with outcomes, that is,
how each provincial government spends the money.
As a provincial government’s own-source revenues increased, its
Equalization payments would normally reduce by an equal amount. Cabot Martin’s
article included a reference to Equalization as a key since, in the worst-case
scenario, oil production would merely displace some or all the province’s
Equalization payments but give it no more revenue beyond that. This would leave
the provincial government as a “have” province like Ontario or Alberta while
being financially in the same relative place it had been before oil production
started.
The Atlantic Accord
After months of sometimes tense negotiations, the provincial and federal governments signed
an agreement in February 1985 called the Atlantic
Accord. It established a system of joint federal and provincial management
of the offshore and laid out the basis on which offshore revenues would be
shared.
Clause 2 of the Accord sets out the objectives of the agreement,
called “purposes” in the document:
(a) to provide for the development of oil and gas resources
offshore Newfoundland for the benefit of Canada as a whole and Newfoundland and
Labrador in particular,
(b) to protect, preserve, and advance the attainment of
national self-sufficiency and security of supply,
(c) to recognize the right of Newfoundland and Labrador to
be the principal beneficiary of the oil and gas resources off its shores,
consistent with the requirement for a strong and united Canada,
(d) to recognize the equality of both governments in the
management of the resource, and ensure that the pace and manner of development
optimize the social and economic benefits to Canada as a whole and to
Newfoundland and Labrador in particular,
(e) to provide that the Government of Newfoundland and
Labrador can establish and collect resource revenues as if these resources were
on land, within the province,
(f) to provide for a stable and fair offshore management
regime for industry,
(g) to provide for a stable and permanent arrangement for
the management of the offshore adjacent to Newfoundland by enacting the
relevant provisions of this Accord in legislation of the Parliament of Canada
and the Legislature of Newfoundland and Labrador and by providing that the
Accord may only be amended by the mutual consent of both governments, and
(h) to promote within the system of joint management,
insofar as is appropriate, consistency with the management regimes established
for other offshore areas in Canada.
The first two objectives establish the national purpose of
the agreement: firstly, to allow development to the benefit of the whole
country, generally, and Newfoundland and Labrador, in particular, and, secondly,
to ensure that Canada has a secure supply of oil and gas.
The third objective – that Newfoundland and Labrador would
be the principal beneficiary - is taken word-for-word from Mulroney’s letter.
The fourth objective establishes the equality of both
governments in management of the offshore.
Note that this objective also mentions a specific concern of Newfoundland
and Labrador to “ensure that the pace and manner of development optimize the
social and economic benefits” to the country and to the province.
The fifth objective affirms Mulroney’s commitment to allow
the provincial government to set and collect resource revenues as if the
resource lay constitutionally within provincial jurisdiction.
The sixth and seventh objectives commit the government to
establish a stable, fair, and permanent management regime. Note that this objective recognizes the need
of the industry for stability and fairness since the governments anticipated
that it would be the private sector that led offshore development.
Clause 39 of the Atlantic Accord describes a series of
payments that the federal government would make to the provincial government to
offset any declines in Equalization payment that resulted from new offshore
revenue. The Equalization offsets would
start in the first year of oil production and, in the fifth year, would decline
gradually until finishing completely in the 12th year after oil production
started.
Have not no more
Clause 64 of the agreement allowed for constitutional
entrenchment of the Accord’s provisions:
The Government of Canada agrees that should the Government
of Newfoundland and Labrador achieve the requisite support among the other
provinces for the constitutional entrenchment of the Accord that it would
introduce a mutually agreeable resolution into Parliament.
That may seem ambitious or pretentious but it is too easy to forget that the Atlantic Accord is a document about how Canada functions as a country. It is a reminder that while the constitution contains both written and unwritten provisions, there is room for an adjustment in those provisions to meet the needs of a particular situation. The constitution is a skeleton legal framework but the tissues, sinews and blood that make it live for Canadians is political.
The Accord took the constitutional framework and made an adjustment to it, one that adapts the fundamental principles of the framework to a new situation. The parties expressly intended it to be a permanent alteration to the relationship between Ottawa and Newfoundland and Labrador but the agreement also contains provisions that it can be used as a template for other provinces in the future.
The Accord also fundamentally transferred Newfoundland and Labrador. Politicians and public servants in the 1970s examined the potential of the offshore. They looked around the world for examples of both the good and bad consequences of oil wealth. They adapted that knowledge to the unique situation in Newfoundland and Labrador and set objectives that they believed would allow the province and it people to develop oil and gas resources in a way that proved both immediate and lasting benefits to them.
In the Atlantic Accord, they found an agreement with the federal government that met their objectives. Five years after the Atlantic Accord, the Government of Newfoundland and Labrador reached an agreement with the original partnering oil companies. By 2003, three of the four major discoveries offshore were either in production of under development producing hundreds of millions of dollars in oil revenue for the provincial government. Local companies worked offshore and used that experience to win contracts around the globe.
Oil and gas exploration and development accounted for $7.5 billion or 34% of the provincial gross domestic product in 2006. In 2008, 21 years after the first barrel of oil came out of a Hibernia production well, the provincial government reached the goal sought 33 years earlier: it no longer qualified for Equalization.
Have not was no more.
That may seem ambitious or pretentious but it is too easy to forget that the Atlantic Accord is a document about how Canada functions as a country. It is a reminder that while the constitution contains both written and unwritten provisions, there is room for an adjustment in those provisions to meet the needs of a particular situation. The constitution is a skeleton legal framework but the tissues, sinews and blood that make it live for Canadians is political.
The Accord took the constitutional framework and made an adjustment to it, one that adapts the fundamental principles of the framework to a new situation. The parties expressly intended it to be a permanent alteration to the relationship between Ottawa and Newfoundland and Labrador but the agreement also contains provisions that it can be used as a template for other provinces in the future.
The Accord also fundamentally transferred Newfoundland and Labrador. Politicians and public servants in the 1970s examined the potential of the offshore. They looked around the world for examples of both the good and bad consequences of oil wealth. They adapted that knowledge to the unique situation in Newfoundland and Labrador and set objectives that they believed would allow the province and it people to develop oil and gas resources in a way that proved both immediate and lasting benefits to them.
In the Atlantic Accord, they found an agreement with the federal government that met their objectives. Five years after the Atlantic Accord, the Government of Newfoundland and Labrador reached an agreement with the original partnering oil companies. By 2003, three of the four major discoveries offshore were either in production of under development producing hundreds of millions of dollars in oil revenue for the provincial government. Local companies worked offshore and used that experience to win contracts around the globe.
Oil and gas exploration and development accounted for $7.5 billion or 34% of the provincial gross domestic product in 2006. In 2008, 21 years after the first barrel of oil came out of a Hibernia production well, the provincial government reached the goal sought 33 years earlier: it no longer qualified for Equalization.
Have not was no more.
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Tuesday: The 2005 and 2019 Federal-Provincial Agreements