It’s time for Ottawa to play hardball with provinces on internal trade

TheGlobeandMail.com – ROB/Commentary/ROB Insight
May. 29 2014.   Brian Lee Crowley

It all sounds so familiar.

Industry Minister James Moore has indicated in media interviews that the time is ripe to reopen talks with the provinces to sweep away barriers to trade within Canada. This is a laudable goal, since such barriers disfigure the Canadian economy and cost us, by federal estimates, roughly $50-billion annually.

In fact, the real figure is almost certainly higher than that, since one of the greatest costs of these barriers is the uncertainty they create. Even where barriers do not exist today, businesses making investments have to consider whether provinces might tomorrow throw up new barriers to their products and services or subsidize local competitors to nullify the advantage that investing in national-scale facilities might create.

The issue, though, isn’t the existence of the barriers. Almost every independent observer who has considered them agrees that they are an indefensible drag on the economy. The issue is what to do about them. And here Mr. Moore is stepping right into the trap that has defeated all other efforts to fix these barriers.

That trap is to assume that since the provinces have created many of the barriers, the only way to get rid of them is to beg and cajole the provinces to act under the emollient chairmanship of Ottawa.

This is the strategy that got us the dead (or at least comatose) letter of the 1994 Agreement on Internal Trade (AIT). That agreement has been so ineffective that despite nearly two decades of effort, the energy chapter is still blank and provinces think nothing of simply flouting trade rulings that do not go their way.

The fundamental problem that Ottawa finds so hard to come to grips with is that the provinces have little reason to want to eliminate barriers they have themselves created, whether in beer, wine, transport, electricity or provincial regulatory enforcers. To do so, they must offend powerful local constituencies that lobbied hard for the creation of the barriers, and convince local interests who have prospered under protectionism that they should welcome new competitors because it is good for national consumers.

What Mr. Moore and his predecessors have consistently failed to understand is that it is Ottawa’s job, not the provinces’, to eliminate such barriers. Indeed, in common with all federations, that was the key logic behind the creation of a Canadian national government. As George Brown, one of the Fathers of Confederation, remarked in a pro-Confederation speech in 1864: “The proposal now before us is to throw down all barriers between the provinces – to make a citizen of one, citizen of the whole.”

Something similar happened in the United States when the original Articles of Confederation were replaced by the present Constitution in 1789. One of the strongest impetuses for that change was the realization that a union in which the constituent parts could throw up trade barriers against each other was doomed to failure. Federal units are perforce economic competitors.

The genius of federalism is to allow the creation of a unified national economic space while preserving local social and cultural communities. Unlike the constituent units, the national government derives little benefit from local protectionism, since whatever conduces to national prosperity benefits the national government. Thus the power to regulate trade and commerce is, along with the national defence power, almost universally regarded as the keystone power of federal governments throughout the world.

What makes it worthwhile for local communities to join a federation is at least partly the promise of greater prosperity made possible by larger national markets; but to realize that promise, you must create a nation-building federal government with the power and the will to give all citizens access to opportunity wherever it may be on the national territory.

Provinces that throw up trade barriers are thus not merely protecting local markets, but are undermining the promise of Confederation, namely that people could buy and sell goods and services and exercise their profession anywhere in the country. Internal barriers are an attack on the rights of Canadians as well as a bar to prosperity.

That’s why I (and others) have been advocating for years that Ottawa abandon the failed strategy of making nice with the provinces in the hopes that they’ll do the right thing. They won’t. It is time that Ottawa took its courage in both hands and used its legitimate power under the Constitution to create a charter of economic rights for Canadians that the courts can enforce. The provinces had their chance with the AIT and they blew it. It’s Ottawa’s turn.

Brian Lee Crowley (twitter.com/brianleecrowley) is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca.

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