Home is where the barriers are

Prime Minister Stephen Harper is wasting no chance these days to talk up the job-creating advantages of free trade. Harper’s surprise announcement last week of the broad outlines of a long-delayed trade deal with the European Union gives him his best chance to pitch a story of landmark progress on economic policy, to offset the Senate scandal saga that’s otherwise dominating political news. But to Jennifer Warren-Part, co-owner of Les Fougères, a restaurant and maker of gourmet packaged foods—nestled in Quebec’s woodsy Gatineau Hills, only a half-hour drive from Parliament Hill—all the talk of unimpeded transatlantic trade rings hollow. She would just like to sell across the Ottawa River into Ontario.

But Warren-Part says the refusal of Quebec and Ontario to recognize each other’s food-safety laws means her duck tourtière or lamb burgers with lime chutney can’t be sold in Ottawa stores. “It’s enormously frustrating for us that, for no apparent food-safety issue, we’re not allowed to go to the closest metropolitan centre,” she says. Rules in Quebec and Ontario for small-scale commercial food preparation are, Warren-Part adds, “almost identical.” The provinces aren’t obliged, though, to accept each other’s standards. Big food companies can get federal licences to ship in bulk across provincial borders, but those federal regulations aren’t designed for small, artisanal firms. So Warren-Part is left frustrated—and wondering if the Canada-EU deal might soon allow European food companies to enter the Ontario market more easily than she can.

The red tape that businesses such as Les Fougères must hack through to expand across a provincial border rarely draws as much attention as the aspirations of export-oriented industries striving to break into big foreign markets. Still, even in the shadow of the Canada-EU deal, interprovincial trade barriers are getting a hint of fresh attention. In last week’s Throne Speech, which sets out the federal government’s new agenda, the Conservatives committed vaguely to “continue to work to remove barriers to trade between provinces and territories that cost jobs, inconvenience Canadians, and defy common sense.” Their most ambitious initiative is Finance Minister Jim Flaherty’s bid, with only Ontario and B.C. in agreement so far, to create a streamlined single regulator for securities and capital markets, replacing a hodge-podge of provincial stock market commissions.

Beyond Flaherty’s ambitious push, however, signs of real progress in breaking down interprovincial economic barriers are hard to find, despite decades of on-again, off-again effort. Back in 1994, the federal, provincial and territorial governments signed what’s called the Agreement on Internal Trade, a sort of free trade pact for Canada’s domestic economy. But the AIT hasn’t eliminated a wide range of obstacles. Corporations face separate, unharmonized registration requirements in different provinces. Professionals confront different standards from province to province when it comes to recognizing their qualifications. Consumers in most provinces still can’t order wine from another’s vineyards. Refiners have to mix special batches of ethanol-enhanced gasoline to meet varying provincial rules. And the list goes on.

Why do governments persist in imposing costly, irritating burdens on individuals and companies just trying to function inside their own country? Trade consultant Kathleen Macmillan, who has recently studied the issue for the Public Policy Forum, detects little political motivation to fix the problems. “Generally, provincial and federal governments, with exceptions, don’t view this as especially important,” Macmillan says. “There’s probably a lack of leadership and a lack of commitment.” Industry groups and think tanks that take the matter seriously are watching closely for signs of how much emphasis Industry Minister James Moore, who took over the file in last July’s cabinet shuffle, places on this part of his sprawling new portfolio. Moore is widely ranked among the most powerful ministers in the Harper government, and he is expected to meet with provincial ministers responsible for trade in early December.

Even if Moore takes up the cause, it’s notoriously hard for any federal politician to prod provinces into action. His predecessor, Christian Paradis, now international development minister, bemoaned internal trade barriers as the Canadian economy’s “invisible monster.” But that national view of the damage they do often clashes with provincial concerns about boosting local companies. That’s one reason the Agreement on Internal Trade has never been backed up by a powerful dispute-resolution system, or even monitoring and reporting that might expose provinces that fail to live up to the agreement’s spirit. Macmillian says the AIT’s Winnipeg-based secretariat “hasn’t got teeth.”

But the proposed system for settling disputes under the Canada-EU deal will bite. Brenda Swick, a lawyer who specializes in trade and government procurement at the firm McCarthy Tétrault in Toronto, says that might emerge as a strategic advantage for European firms competing for Canadian public sector contracts. “If I’m a European company and I get shut out of bidding by one of the provinces or municipalities, or even the federal government, there will be rapid dispute settlement,” Swick explains. “You don’t have that under the AIT.” In other words, she sees European companies chasing Canadian government work, at any level, gaining an institutionalized edge over Canadian businesses trying to win similar contracts outside their home provinces.

Experts complain about all kinds of long-standing sources of friction in the functioning of Canada’s domestic economy. Glen Hodgson, chief economist at the Conference Board of Canada, flags those provincial rules for blending ethanol into gas, which force refiners to follow local recipes. “They have to do ethanol blends province by province, which leads to slightly higher gas prices in certain provinces, particularly the smaller provinces, where the providers wouldn’t be able to do large batches,” he says.

It’s possible the Canada-EU trade deal, which isn’t expected to be finalized for up to two years, might spur progress in eliminating Canada’s interprovincial trade restrictions. Europe sets a powerful example: The EU’s rules governing free trade among its 28 nations are stricter than Canada’s for its 10 provinces. Leah Littlepage, a Canadian Chamber of Commerce director, points out that the EU outlaws any restriction in trade or labour mobility among members that’s not spelled out as an allowed exception under its rules. It’s the opposite with Canada’s weaker AIT—provinces are permitted to impose barriers unless they are explicitly forbidden. That means, for example, that all provinces would have to agree to add an AIT chapter on energy before energy is covered—a gaping omission, considering the current dispute between Alberta and B.C. over a proposed pipeline from the oil sands to a new Pacific port. “But we’re never going to see an energy chapter, even though we want to see it,” Littlepage predicts. “I think, politically, it’s too sensitive for the provinces to look at that in the AIT.”

What’s not too sensitive? In the Throne Speech, the federal government vowed to amend the Importation of Intoxicating Liquors Act to let individuals take beer and spirits across provincial boundaries “for their own use.” But, then, the Tories did the same thing last year for wine, which prompted the provinces, not to throw the marketplace wide open, but to enact various regulations. Some allow consumers to order wine to be delivered by courier, others permit only limited amounts to be carried by travellers returning home from trips. Even a straightforward attempt to eliminate a barrier, it seems, runs the risk of creating fresh complications.

Only in Canada, eh?

Red tape between the provinces is imposing costly, irritating burdens on individuals and companies

A reason to whine: Ottawa lifted its ban on interprovincial wine exports, prompting provinces to enact new restrictive rules

Fuelling rage: A lack of harmonized rules for ethanol gas means fuel companies produce separate, more costly batches for each province

Not free to work: Labour-mobility barriers discourage Canadian professionals and some trade workers from moving to other provinces for work

Don’t bother saying ‘cheese’: Dairy marketing boards inhibit farmers from exporting across provincial boundaries

Maclean's November 4, 2013