October 2000 Fraser Forum: The Unpleasant Reality of Interprovincial Trade Disputes
Canadian governments have initiated public consultations on Canada’s Agreement on Internal Trade. These consultations will show what has been apparent for some time—the Agreement has failed to ensure free trade in Canada.
There are clearer and more enforceable trade rules between Canada and the United States and Mexico, than between British Columbia and Ontario, or Nova Scotia and PEI. This weakens Canada economically and politically.
If Canadian governments cannot fix the Agreement, Ottawa should consider using its constitutional power to establish clear and enforceable trade rules for interprovincial trade within Canada. The alternative to action is a continued lessening of Canadian east-west ties in favour of the north-south axis.
The substance of the Agreement is relatively solid, though it has weaknesses. Unfortunately, this largely sound structure is built on quicksand. The Agreement is based on the fundamental assumptions that Canadian governments will honour the agreements they negotiate and that they have the political commitment to ensure free trade within Canada. As later examples will demonstrate, this assumption seems to be wrong.
The other problem is that the Agreement’s dispute resolution process has proven to be ineffective. It is byzantine, expensive, time-consuming and, ultimately, pointless. Governments are free to flaunt it with no penalty. The only enforcement mechanism in the Agreement is itself perverse. A provincial government may retaliate against another provincial government that has failed to implement an Agreement-based finding. The result: more, rather than fewer trade barriers, and maybe an internal trade war.
Companies or individuals with an unresolved trade complaint must first ask their provincial government to intervene. This, in itself, is a significant barrier. It can often be difficult to find or interest the appropriate government officials, particularly if the issue is complicated and likely to become a headache. The situation becomes worse if the problem conflicts with other policies or interests of government.
The Agreement contains a private-party dispute settlement mechanism. But a private-party complaint must first be approved by an independent "screener." This step is meant to eliminate frivolous or vexatious complaints. But the rules governing a screener’s decision are based on subjective and unclear criteria.
If someone making a complaint is able to get over these hurdles—and is willing to keep the charge meter running—the dispute will eventually go to a panel. Unfortunately, the Agreement itself is so complex and ambiguous in many (though not all) sections, that the applicant may need to hire lawyers and trade experts to have any chance of success.
After this, let’s say the applicant gets a favourable ruling. What happens? Most likely nothing. The Agreement has no enforcement mechanisms. Provincial governments may gain politically by ignoring a ruling. Politicians may claim credit for protecting provincial interests. And, since an offending government is never penalized—which would at least give politicians an excuse for enforcing a ruling—acquiescing to a panel decision could lead to political damage.
Here are some examples of how the Agreement is working (or not): In 1997, a PEI dairy, Health Milk, began buying milk products from Nova Scotia-based Farmer’s Dairy, Health’s parent company. PEI changed its regulations to halt sales of imported fluid milk products. Nova Scotia complained. Finally, in January of this year, a panel found that PEI’s regulations are a barrier to trade. PEI politicians have every political reason in the world to ignore the decision —and they have. Nova Scotia milk is still barred from PEI.
Ontario’s legislation and regulations, in effect, permit only Chartered Accountants to certify and give opinions on financial statements. Most other jurisdictions allow qualified Certified General Accountants and Certified Management Accountants to undertake these tasks as well as Chartered Accountants.
The Labour Mobility Chapter of the Agreement is unambiguous. It is intended "to enable any worker qualified for an occupation in [a province] to be granted access to employment opportunities in that occupation in the territory of any other [province]…" (Article 701).
In 1998, both Manitoba and Saskatchewan, at the request of their provincial associations of Certified General Accountants, asked Ontario to address this issue. Nothing happened. In 1999 Ontario also rejected direct consultations with CGA Canada on the grounds the Agreement only requires consultations with other governments.
Manitoba renewed its complaint in January 2000. After nine months the issue is still unresolved and Manitoba could now start the process leading to a trade panel. This could take another 6 months, but even if the panel agreed with the complaint and even if Ontario agreed to implement panel recommendations—which, of course, is not a sure thing—implementation could still take another two or three years. Five or six years after the complaint was first raised it could be resolved—maybe.
In Quebec, government regulations prevent the sale of coloured margarine. Unilever turned to the courts to overturn these regulations but lost the case, although the court appears to agree that Quebec’s regulations are a barrier to trade. Apparently Unilever has asked Ontario to pursue the issue. Ontario has done nothing so far and the company has not attempted to use the private party dispute mechanism. Is this because Unilever and Ontario do not believe the Agreement works?
Maybe Ontario has a problem because of another case. Canuk Sales is a small BC company that imports, packages and distributes soya products. Ontario has legislation that prohibits sale of products that combine dairy products and non-dairy oils that resemble dairy products. There is no health or safety reason for this law. The legislation is a barrier to trade, according to the Agreement.
Ontario appears to acknowledge that its law is a barrier, but says that national guidelines are needed before it can change its measures. Yet no guidelines are required, and they would be voluntary anyway. The federal government regulates nutritional values, consumer protection, and health. Finally, the recent PEI/Nova Scotia panel found that multilateral negotiations were no justification for not applying the terms of the Agreement. Otherwise, governments could postpone action indefinitely.
At Canuk’s request, the British Columbia government complained to Ontario, but without result. Canuk then asked British Columbia to use the dispute resolution processes in the Agreement. British Columbia refused. BC told Canuk that it believes that the dispute resolution process is adversarial and ineffective
Canuk then turned to the private-party dispute mechanism, but was rejected by the screener. Canuk asked the Committee on Internal Trade to review the decision because the screener had gone beyond his mandate, used incorrect information and misinterpreted the Agreement. The Committee said the screeners’ opinions are not subject to appeal and so did not consider the matter. That makes a screener accountable to no one. Apparently, screeners can decide whatever they want regardless of whether they exceed their mandate, use wrong information, ignore facts or misinterpret the Agreement.
Canuk applied to Ontario for a license again, and was rejected again. It has again asked British Columbia to use the dispute resolution process to resolve the issue. This time Canuk has provided a detailed analysis to show why Ontario’s law is a barrier to trade and used the PEI/Nova Scotia panel to support its case. BC apparently has not considered the new information and has refused, again, to pursue the matter, this time on the grounds of the screener’s decision.
In short, the Agreement on Internal Trade is not working, particularly for small- and medium-sized business that can afford neither the time nor expense to contest unfavourable trade decisions. Still, the Agreement does provide a sound basis for an effective free trade regime within Canada. However, to salvage the Agreement a number of concrete steps must be taken:
- The Agreement itself must be simplified, with redundancies and contradictions removed.
- Dysfunctional chapters (for example, those on investment, consumer measures and standards, natural resources processing, energy, and transportation) need an overhaul.
- The dispute process must be radically shortened, simplified, and put in the hands of competent third party adjudicators.
- Most importantly, the process must be given teeth. For example, aggrieved parties could be allowed to sue non-compliant provincial governments for damages.
The absence of clear and effective trade rules within Canada is an economic drag on the nation. The federal government has a responsibility to redress this problem, if necessary through its constitutional powers, if an effective agreement is beyond the reach of Canadian governments working together.
Robert H. Knox provides advice on internal trade issues through R.H. Knox & Associates. From 1986 to 1992, he was the senior federal official responsible for internal trade policy and the co-chair of the intergovernmental committee on internal trade. From 1993 to 1995, he was executive director of the Internal Trade Secretariat. This article is based on a detailed analysis, "Canada’s Agreement on Internal Trade: It Can Work if We Want It To," that the author has written for the Certified General Accountants Association of Canada, to be published in November.
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