CHAPTER IV.    Political Environment


     A.   Nature of Bilateral Relationship with the United States

The United States and Canada share a range of fundamental values
such as commitment to democracy, tolerance, and respect for human
rights.  It is no wonder that the two countries are friends and allies.
Both are also market economies with sophisticated industrial,
agricultural, resource and service sectors and a commitment to high
living standards for their citizens.  These factors and the fact that
they are close geographic neighbors make each the other's best
customer.  Despite occasional frictions, the bilateral relationship,
one of the most intensive and complex in the world, is positive and
cooperative.


     B.   Major Political Issues Affecting Business Climate

A provincial party, the Parti Quebecois, advocates withdrawing
Quebec from Canada and plans to launch a referendum on this
question if it wins the next provincial election that will be held on
September 12, 1994.  The incumbent provincial government of the
Liberal Party supports keeping Quebec within Canada.  The
possibility of separation and, should it occur, a redefinition of the
relationship between Canada and Quebec, could affect how business
is done, both within Canada and with the United States.

In the meantime, the federal and provincial governments face debts
accumulated over the last several years of recession with
concomitant low levels of revenue.  Many economists fear that
Canada is facing a debt crisis with very grave potential
consequences.  Per capita debt ratios are among the highest in the
world, and with taxes already at very high levels, the government's
margin of manoeuver is severely constrained.  Governments at all
levels are struggling to contain costs while maintaining as much as
possible of the social welfare programs Canadians value.  A major
effort to revamp such programs, including unemployment insurance,
is underway and could well reallocate premiums and benefits.


     C.   Political System  --     Schedule for Elections/Orientation of Major
                         Political Parties

Canada is a parliamentary democracy and a federal state composed
of ten provinces and two territories.  The current federal
government was elected on October 25, 1993, when the Liberal
Party won 177 of the 295 seats in the House of Commons.  A
government is elected for a period not to exceed five years, but it
may call elections before that date.

In Canada, the major political parties are:

-    The Liberal Party -- a center-left party which has the majority
     of the House with 177 seats;

-    The Bloc Quebecois -- a party which advocates the
     independence of Quebec, and which, with 54 seats in the
     House, is the official opposition party;

-    The Reform Party -- a western-based populist conservative
     party that saw its number of seats in Parliament rise from
     one (with the member sitting as an independent) to 52 in the
     last election;

-    The New Democratic Party -- a social democratic party which
     holds nine seats in the House;

-    The Progressive Conservative Party -- a center-right party,
     governed from 1984 to 1993, but now has only two seats in
     the House.


Provincial elections will be held in Quebec on September 12, 1994
and may be held in Ontario in spring 1995.