In most respects, this could be a sleepy fishing village anywhere along France's Atlantic coast.

On a recent summer morning, the tricolor flag flapped noisily over Charles de Gaulle Square, where the general once came to express his appreciation for the town's staunch support of the Free French in the dark days of Nazi rule during World War II. Nearby, city workers were sprucing things up for next month's visit of French President Jacques Chirac.

Along the waterfront, three old men in round black caps gathered to watch a fourth repair an old wooden dory. They spoke French with an accent that confirms their ancestral origins in Normandy or Brittany. Later, they would bowl a few rounds of boule in the park.

What's odd, of course, is that this is not anywhere near France. It's 12 miles off the southern coast of Newfoundland, where the French empire maintains a tiny, costly outpost at the edge of the North American continent.

French fishermen have been in St. Pierre for at least 400 years, when explorer John Cabot ran into them on his way back from the St. Lawrence River. Although the British eventually won the battles for control of Canada's Atlantic provinces, France won St. Pierre and neighboring Miquelon as a consolation prize, a place where its fishermen could salt their cod, resupply and find refuge for the winter. The fish were so plentiful that Frenchmen came and stayed.

Others arrived unintentionally. History records more than 650 shipwrecks in the treacherous waters around St. Pierre and Miquelon. That provided not only a steady supply of new residents, but also goods and livestock that were spirited away by the locals long before insurance adjusters could arrive from London.

In time, however, St. Pierre found its real calling in the smuggling trade. In 1922, American bootlegger Bill McCoy discovered the island when he was looking to repair a steamer crammed with cases of Scotch bound from England to Prohibition markets in the United States. Before long, McCoy and other gangsters had turned St. Pierre into a legal way station for their illegal trade. Local residents forsook their trawl lines and gill nets for more lucrative work as teamsters and stevedores.

At its height, St. Pierre was taking in 300,000 cases of liquor a month from distilleries in Canada and Europe. A fleet of 80 fast freighters brought them to the edge of U.S. territorial waters, where they were transferred at night to smaller boats for delivery into isolated New England harbors. Al Capone and other gangsters were frequent visitors to the Hotel Robert. Even today, there are one or two St. Pierre houses with shingles and walls made from the sides of old Cutty Sark crates.

With the end of Prohibition in 1933, and the onset of world depression and world war, it was decades before St. Pierre recovered its economic footing. And now with the collapse of the cod fishery off the Grand Banks, what remains for private sector income comes from shrimp and crab fishing, tourism and small-time smuggling of liquor and cigarettes into nearby Newfoundland. In the future, there could be another bonanza in offshore oil and gas.

For the moment, however, the island--which is officially part of the French "territorial collectivity" of St. Pierre and Miquelon--has now become an economic ward of the state, which directly or indirectly accounts for roughly 60 percent of the island economy. The French government spends about $65 million a year for civil service salaries, pensions, construction contracts, welfare, university scholarships, 60 gendarmes and generous subsidies for the phone service, the cable television and radio station, the airline and all manner of local businesses. That works out to about $10,000 for each of the 6,700 inhabitants of the two islands--enough to give most families here the means to own a house, two cars and a boat and to share a cottage on the beach.

"It's expensive to maintain such a place, but it is important to maintain solidarity with our fellow countrymen," said Remi Thuau, the French government's resident prefect. "The level of aid gives them a better standard of living than their Canadian neighbors."

Its not surprising, then, that St. Pierrites say that the idea of severing ties with France and joining Canada would be "unthinkable"--even though Canada already has a sizable French-speaking province in Quebec.

"De Gaulle once told me that there is no Canada--there is only the English and the French," said Georges Poulet, 83, St. Pierre's deputy mayor, who came in 1965 as the appointed prefect and never left. "We are French so we remain with France."

"You can have a better life here," agreed Emmanuel Bouget, 41, a onetime fisherman who has recently found work as a scuba diver. "There is tranquillity, the natural surroundings are beautiful, the people are nice. And almost everything we have asked for from Paris they have given us."

The bigger mystery, indeed, is why Paris has not severed its ties with its costly faraway territory. But its no mystery to Mireille Andrieux.

"It's simply a matter of pride and prestige," she said as she cut into a fresh raspberry tart she had brought back from her stay in Miquelon. "Why else would they give us so much subsidy?"

CAPTION: "There is tranquillity, the natural surroundings are beautiful, the people are nice," a scuba diver says of St. Pierre.