March 2008: The Dark Side of TILMA

B.C.-Alberta pact feeds myth of provincial trade barriers
March 1, 2008

Talk about extraordinary: A public policy debate has broken out over an issue that normally wouldn’t even warrant discussion. For well over a year, an enormous public relations effort has been aimed at convincing Canadians, and their provincial governments, that Canada faces a virtual economic crisis. The crisis? Massive, destructive trade barriers between the provinces.

Let's be clear from the start here: There are virtually no substantive trade barriers between the provinces, and studies done for provincial governments and the federal government before 2005 all testify to that fact.

Donald Macdonald's Royal Commission in 1985, which explored the notion of free trade with the United States, estimated provincial barriers to be about .05% of GDP, and they would be much lower now. UBC economist Brian Copeland did a review of the evidence on inter-provincial trade barriers back in 1998 and found them so low that "efforts to liberalize are likely to have only a small effect on trade flows." In October, 2006, federal officials told a Senate committee that inter-provincial trade barriers might be as high as .38% of GDP. That's it.

But with the signing of the Trade, Investment and Labour Mobility Agreement (TILMA) between B.C. and Alberta in 2006, suddenly, out of nowhere, Canadians were being asked by conservative think-tanks, politicians, lobby groups and academics to believe, as Janice Gross Stein has claimed, that the Canadian economy was literally “balkanized--chopped up” to such an extent that “Canada's future prosperity is at risk.”

The source for all this hyperbole was the Conference Board of Canada, a normally staid research institute. It threw caution to the wind with a 2005 study for the B.C. Liberal government on the economic benefits of TILMA. The Board claimed that getting rid of trade barriers with Alberta alone could create 78,000 new jobs and "save" B.C. $4.8 billion a year—an eye-popping figure, equivalent to what B.C. earns annually from its softwood exports to the U.S., and representing an enormous 3.8% of its GDP.

Jumping on the bandwagon—but doing no original research of their own—were the Canada West Foundation, the Fraser Institute, and business lobby groups such as the B.C. Business Council and the Canadian Chamber of Commerce, which all dutifully trumpeted the Conference Board’s assessment.

But the TILMA promoters have a problem. None of these august bodies or individuals can actually name any of the allegedly devastating provincial barriers (except the margarine example from Quebec). The study by the Conference Board did not name a single example. Its methodology has been ridiculed by a number of senior economists. Internationally recognized UBC economist John Helliwell, who has served on dispute panels of TILMA's predecessor agreement, the Agreement on Internal Trade (AIT), claims: "There is no empirical support for the Conference Board estimates of GDP and employment changes." Patrick Grady, a former senior official in the federal Finance Department, reviewed the study and similarly declared it "not credible."

The CCPA revealed that in the first phase of the Conference Board's study—a survey of industry—only four of 13 industry associations even bothered to respond. The alleged benefits were exaggerated by including utilities, energy, mining, forestry, and fishing—resource industries that were actually exempted from TILMA.

Todd Hirsch, then Canada West Foundation's chief economist, told me last year he could not name any of the barriers between Alberta and B.C. We should not be surprised: there aren't any. As Helliwell said in his review, "Trade is essentially already unfettered among provinces, because trade intensities are already almost as high between as within provinces."

The Canadian Chamber of Commerce, a vigorous supporter of TILMA, also discovered that its members couldn't come up with many barriers either. Of its 170,000 business members, only 37 said they had experienced barriers to trade within Canada, and seven said they "worked with government to resolve the barriers." Yet the chamber publicly claimed: "What our members told us is that they face a plethora of barriers."

What's going on here?

Well, the dirty little secret of the phantom trade barriers is TILMA's real purpose: as a tool for far-reaching, business-initiated deregulation at the provincial and municipal levels. TILMA's most powerful impact will be as an investment agreement. It allows challenges (with penalties of up to $5 million) to provincial and municipal laws and regulations, if these law or regulations simply "restrict or impair" an investment. It’s the lowest threshold for launching a challenge of any such agreement—lower even than NAFTA. With its unrestricted access to the dispute mechanism and the agreement's guarantee of neutrality of treatment, virtually any government measure is vulnerable to a challenge.

Small wonder, then, that its promoters are trying to sell TILMA simply as an attack on “trade barriers.” If there were truth in advertising, this dangerous product would be taken off the shelves.

(Murray Dobbin is a Vancouver writer and CCPA research associate.)