Lots of talk about trade barriers but deregulation lies between the lines

August 28, 2014

(This article also appeared on the Huffington Post blog.)

Canada's premiers are in Charlottetown for their annual Council of the Federation meeting and once again the apparently catastrophic issue of interprovincial trade barriers ranks high on the agenda. Most premiers would rather talk about a real problem, like lack of infrastructure money, but western provinces and the federal government see their moment to change the conversation for reasons no one is being honest about.

According to their line of thinking, which is fuelled by letters from a list of business lobby groups including the Canadian Federation for Independent Business and the Canadian Council of Chief Executives, interprovincial trade is hampered by barriers too numerous to count, costing the Canadian economy unknown billions of dollars a year.

A new federal government informational video on the "problem" of interprovincial trade barriers depicts people and goods locked in provincial cages, bumping into walls when they try to leave in either direction. The image is so far from reality it is (or should be) impossible to take seriously. As the CCPA pointed out in a 2006 report, The Myth of Interprovincial Trade Barriers:

"There are no customs inspection stations along provincial borders, nor any kind of tariffs on interprovincial trade. Canadians use the same currency and share common legal, financial and economic institutions. Canadians are free to live and work anywhere in the country. The federal government has constitutional power over interprovincial trade and the courts have consistently struck down attempts by provincial governments to obstruct it."

Eight years later, business lobby groups are still searching for elusive barriers, trotting out rare high-profile examples like Quebec's ban -- since removed -- on yellow colouring in margarine, and claiming they can cost up to $50 billion annually. The Canadian Press ran that number through its Baloney Meter, finding that on a scale from "no baloney" to "full of baloney," the $50-billion guess was "full of baloney." Essentially, CP found the number was a multiplication by 10 (for all the provinces) of an already completely discredited guess that B.C.-Alberta trade barriers cost the B.C. economy nearly $5 billion annually.

For more realistic estimates, research conducted as part of the Macdonald Commission concluded that interprovincial trade barriers have an economic impact of no more than 0.05 per cent of Gross Domestic Product, or about $0.9 billion a year (in present-day dollars). Alternately, Ron Parker, former senior assistant deputy minister at Industry Canada, testified to a Senate committee in 2006 that most credible estimates he had seen were around 0.2-0.3 per cent of GDP.

So if the economic impacts aren't as large as claimed, what is this interprovincial trade sideshow really about? In a word: deregulation.

An August 6 letter and discussion paper sent by several corporate lobby groups to the federal government is explicit: "We believe the principle of mutual recognition should be at the heart of Canada's internal market. This means any product or service lawfully produced and/or delivered in one province or territory should be admitted into the market of any other province or territory, and can therefore not be banned for sale unless there is a justified reason for the exemption."

If the product were, say, Corn Flakes or, more topically, wine and beer, this statement might make a bit of sense. Canada's antiquated liquor laws prohibit wine from being transported between provinces but these rules are already changing, showing that interprovincial barriers can be fixed through civilized conversation.

However, adopting the "lowest-common denominator" approach to regulation might be problematic if applied across the board and could impede provincial policy-making.

What if instead of wine the offending product was a neonic pesticide linked to mass bee deaths. Wouldn't you want your province to be able to move more quickly than others to fix the problem, as Ontario is looking to do now by curbing the use of neonics on crops? Should the rules on fracking, or handling chemical waste, or consumer product labelling in your province be determined solely based on what other provinces are doing? With the "lowest-common denominator" approach to regulation, new problems can't be fixed or new rules adopted unless everyone at the table agrees.

Despite the "bad rap" that regulations sometimes get, it is important to remember that regulations are created for a reason. Regulations that protect the environment, workers or consumers can increase costs for business but they also can have significant benefits. Framing regulation as a "trade barrier" that needs to be eliminated is an attempt to make deregulation more politically acceptable.

Federalism, at its best, encourages policy leadership and innovation, whether it's California's policies on clean air and auto safety, Ontario's moves to curb bee-killing pesticides or Alberta's carbon offset protocols. Allowing different jurisdictions to take different approaches and then evaluating the results can lead to better policy-making; we shouldn't abandon the value of this decentralized model without a debate.

On top of "mutual recognition" of provincial rules, business groups are calling on the federal and provincial governments to create an internal process for challenging "technical barriers to trade" that would be open not only to other provinces but also to individual investors or companies.

The letter from CFIB and others requests a new dispute process for the Agreement on Internal Trade that would give Canadian companies the same rights as U.S. and Mexican investors have in NAFTA to sue Canada (or in this case a provincial government) for perceived violations of the agreement's rules on regulations.

Ad hoc NAFTA investor-state tribunals, outside Canada's legal system, have ruled against Canadian environmental measures, including a ban on exporting toxic PCB waste, resulting in millions of dollars of fines. Lone Pine Resources, a Canadian firm registered in Delaware, is suing Canada for $250 million under NAFTA because Quebec's fracking moratorium is apparently an illegal barrier to its investment opportunities. Again, the decision will be made by paid arbitrators, not the courts.

The federal government thinks reproducing this highly problematic and globally controversial investor-state dispute process in the AIT is a good idea. In its August 20 proposal to the Council of the Federation, titled One Canada - One National Economy, the government says, "consideration should be given to concrete proposals on a new, fast, reliable dispute settlement mechanism."

Reviewing and reforming regulations from time to time makes sense, as the wine example shows us. In other cases, such as a national securities regulator, it could benefit the Canadian economy to carefully harmonize or federalize regulatory policies across provinces. That's a conversation we should have. However framing regulations as "barriers" to be removed, as western premiers and the federal government are doing in Charlottetown, is disingenuous and possibly dangerous.