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Canada cautiously lifts barriers to internal trade

upporters of free trade amon g
all Canada’s provinces want to
put today’s domestic trade and
investment restrictions in the
dinosaur room of a museum. Canadian
protectionists counter that the newest
proposal for domestic free trade – already
adopted by the provinces of Alberta and
British Columbia – should go into the
same museum’s predator room.
One of the contradictions in Canadian
policies in the early years of the 21st centur
y i s the commi tment to the
liberalization of international trade combined
with the stubborn resilience of
internal barriers to trade. Since the formation
of the global trading system 60
years ago, Canada has been at the forefront
of the rule making for global trade
treaties and trade negotiations.
In the 1980s, Canada embraced bilateral
f ree t rade agreements as a
complement to the multilateral system
starting with the US and expanding to
Mexico and a range of other countries.
However, progress in reducing the formidable
array of internal trade barriers has
been glacial.
The new agreement linking two weste
r n p r o v i n c e s i s t h e B r i t i s h
Columbia-Alberta Trade, Investment
and Labour Mobility Agreement – known
The Conference Board of Canada, a
moderate think tank, called the agreement
“a promising step.”
Creates bigger market
“TILMA creates Canada’s second largest
economy – a market of almost eight million
people,” said Ron Stevens, Alberta
deputy premier and minister of international
and intergovernmental relations,
on April 15.
“It will mean seamless access to a
larger range of opportunities across all
sectors of the economy.” Stevens issued
his statement after the introduction of
Bill 1 in the Alberta legislature, a law that
will eliminate the need for businesses to
register in both provinces and waive certain
requirements for energy regulators
so that TILMA can take effect.
The Union of British Columbia
Municipalities is concerned that the
agreement imposes thresholds on purchasing,
restricts the power of local
governments to distribute subsidies and
grants, and poses potential obstructions
to environmental protection projects of
cities and towns. Some argue that TILMA
has little if anything to do with interprovincial
trade, but instead removes
measures that were established to serve
broad public or societal purposes. Others
claim that the TILMA could force British
Columbia to reverse a ban on junk food
in public schools.
Province steps back
The newly-elected Saskatchewan Party
government in Saskatchewan, Alberta’s
neighbouring province to the immediate
east, has backed away from its previous
statement of support for joining the trade
pact because of its negative impact on
c e r t a in t a x inc ent i v e s and on
subsidiaries of provincially-owned
In 2008, Canada is committed to the
liberalization of international trade, yet
at home it preserves internal barriers to
trade. In the 1980s, Canada embraced
bilateral free-trade agreements as a
Canada cautiously lifts barriers to
internal trade
Supporters claim economic gains will be huge
By Wi lliam Dymond
William Dymond is the Senior Executive Fellow of the Centre for Trade Policy and Law at
Carleton University, Ottawa, and served as director of the centre from 2000 to 2003.
JUNE | JULY 2008 Federations
Alberta Premier Ed Stelmach, left, and British Columbia Premier Gordon Campbell, centre, have signed a new free trade and investment pact.
Saskatchewan Premier Brad Wall, right, has withheld his signature.
complement to the multilateral system,
starting with the U.S. and expanding to
Mexico and a range of other countries.
Strangely, trade liberalization abroad
was contradicted by the persistence of
trade barriers dividing the provinces at
The Alberta-British Columbia trade
deal came into effect on April 1, 2007, and
was a response to the frustration of the
two governments with the slow progress
made by previous agreements in
attempting to bring down interprovincial
trade barriers across Canada. It is a reasonably
comprehensive economic
agreement, covering energy, agriculture,
transport and investment.
TILMA also ensures that qualifications
and licences issued in one province
are recognized in both. Regulations and
standards that can impede trade are to
be harmonized and no new restrictive
regulations are to be imposed. Also, the
trade pact mandates that there be no discrimination
in government purchasing
of goods worth $10,000 or more, nonprofessional
services worth $75,000 or
more, or construction costing $100,000
or more.
Even cars gain mobility
These requirements will also apply to
public organizations such as Crown (government-
owned) corporations, as well
as local governments, starting April 1,
2009. Under the deal, automobiles registered
in one province can operate under
a temporary registration in the other
Distortive subsidies that give one
party a competitive advantage over the
other are prohibited by TILMA. Subsidies
are permitted in certain sectors, such as
academic research, non-profit organizations,
emergency aid to compensate for
natural disasters, and book, magazine,
film and sound publishers.
On Dec. 5, 2007, legislation was
passed in Alberta providing for enforceable
dispute resolution. According to
Guy Boutilier, Alberta minister of international,
intergovernmental and
Aboriginal relations, “the legislation
means a TILMA dispute-panel ruling will
be enforceable. It will have real teeth.”
If the government found at fault does
not comply with a request to change its
policy, it can be fined up to a maximum
of $5 million, with costs for the panel
paid by the losing party.
TILMA extends and implements a
previous agreement along the same lines.
In 1995, the federal government, the provinces
and territories created the
Agreement on Internal Trade. With that
arrangement, known to economists as
AIT, Canada acknowledged that it would
have to reduce internal trade barriers in
order to realize the full benefits of the
1989 Canada-U.S. Free Trade Agreement
and the subsequent pact of 1994, NAFTA.
Measures enhance trade
In addition to AIT and TILMA, there are
other arrangements in play that deal with
internal trade. They are:
• the Social Union Framework Accord,
signed by all provinces and territories
except Quebec in 1999 with the aim of
supporting labour mobility and not
creating any new barriers through
social policy initiatives,
• the Forum of Labour Market Ministers,
formed in 1983 to encourage labour
market co-operation, and
• the Interprovincial Standards Red
Seal Program, which aims to increase
labour mobility for skilled trades
workers within Canada and has been
in place for over 45 years. Under the
Red Seal program trades workers have
Canada-wide standards and an exam
that provides national recognition.
The objective is to eliminate the need
for workers to obtain new qualifications
when transferring to another
Quebec’s construction industry has
been significantly more regulated than
Ontario’s, presenting problems for
Ontario workers wanting to work in
Quebec. In 1999, Ontario lost patience
and enacted the Fairness is a Two-Way
Street Act. It was tired of Quebec construction
workers streaming across the
Ottawa River to work in Ottawa with no
restrictions, while Ontario construction
workers could not so easily work in
Quebec. This law barred Quebec
construction workers from Ontario
government projects and forced them to
register with the Jobs Protection Office.
The two provinces eventually buried the
hatchet with the June 2006 signing of the
Ontario-Quebec Construction Labour
Mobility Agreement.
The argument against having internal
trade and labour mobility barriers is that
they support vested political interests at
the cost of economic growth. Often billed
as a means to protect jobs and create
wealth, they do the opposite, critics say,
by making both the provinces that maintain
them and the entire country poorer.
S e c t ion 9 1 of the Canadi a n
Constitution Act gives the federal government
exclusive authority over the
regulation of trade and commerce. In
2007, the federal government said it
would “consider how to use the federal
trade-and-commerce power to make our
economic union work better for
Canadians.” The government’s rationale
is clear. As the speech pointedly observed,
“despite the globalization of markets … it
is often harder to move goods and services
across provincial boundaries than
across our international borders.”
Invoking a disputed power
Invoking the Constitution’s trade-andcommerce
power would be a formidable
challenge for the federal government. In
the early years of Confederation, court
decisions severely limited this power by
generous interpretation of provincial
authority over property and civil rights.
Hence if the government were to cite this
constitutional power, it would have to
choose its case carefully.
Supporters of TILMA are urging provinces
east of Alberta and B.C. to embrace
that model at the earliest opportunity.
They cite the November 2007 agreement
between Ontario and Quebec premiers,
Dalton McGuinty and Jean Charest, to
begin negotiating an interprovincial
trade agreement as the next step forward
toward Canada-wide free trade.
Canada had a choice to contribute to
the creation of international trade rules
and the negotiation of lower trade barriers,
or to stand aside and maintain its
sovereignty over t rade bar r ier s.
Internationally, Canada chose to join the
world; internally it stood aside.
The result has been a failure to reap
the full economic benefits of global trade
rules and the global reduction of trade
barriers. It is time, as Alberta and B.C.
have recognized, to bite the bullet, adjust
the policy and enhance future economic
JUNE | JULY 2008 Federations