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The Progressive Economics Forum

A stronger economic union?

Everyone’s favourite non-issue came up again at last week’s First Minister’s meeting. The outcome of two amendments to the Agreement on Internal Trade was another bit of “progress”, I suppose (see backgrounder below). As usual, the release offers no details on actual trade barriers that are presumed to exist in Canada. With the long-standing margarine case settled as of last year, and this being essentially the only bona fide example of a trade barrier in existence, the premiers must have been searching high and low for other barriers that they could eliminate.

I take it they could not find any because, in the usual fashion, the topic quickly changed to labour mobility, which is, of course, not trade. The existing AIT has actually done a good job of settling outstanding labour mobility issues, so I’m not sure what this amendment gets us. I’m not opposed to such provisions but it seems to me that the only area that still has some contention to it is accountants. If anything there is a danger that we have allowed a process where the lowest standard in the country is acceptable everywhere.

Given that there are no trade barriers to be resolved, the second amendment was to allow for penalties to be imposed for violations of the agreement. At a maximum of $5 million a pop, this hardly seems like much of a deterrent anyway. That said, this is not aimed at trade but differnces in provincial regulations that might pose additional costs to businesses (which is different from actual impediments to trade). I do not like the precedent of penalties being paid for having, for example, strong environmental standards, although the langauge of the AIT is quite balanced in terms of weighing the need for local differences in regulation, unlike the BC-Alberta TILMA.

The final part of the release suggests three outstanding areas to resolve:inclusion of an energy chapter; completion of a broader agriculture chapter; and reconciliation of regulations in the transportation sector.

The energy chapter is really about a longstanding dispute between Newfoundland and Quebec, where NF wants to sell power to the US but has to go through Quebec, who is not letting them. This is not likely to be resolved at the AIT table.

The second relates to provincial differences in meat inspection, although there is already a solution to this as there already is federal inspection process.

Finally, in transportation this is all about trucking and whether provinces like BC should have the same standards for its mountainous roads as its flat neighbours in  Alberta and Saskatchewan. If harmonized downwards this “solution” will be revoked once the first truck flies off the rails into Kicking Horse Canyon in eastern BC.

Backgrounder – Agreement on Internal Trade

16 January 2009
Ottawa, Ontario
Prime Minister Stephen Harper and Canada’s Premiers and Territorial Leaders signed a new Agreement on Internal Trade (AIT) during the First Ministers’ Meeting on the economy.

This agreement contains two key amendments to the existing AIT and marks a significant milestone toward eliminating internal trade barriers and enhancing labour mobility in Canada.

This new agreement is the latest example of the federal Government’s commitment to work with the provinces and territories to enhance the economic union of Canada.  The Government of Canada commends Canada’s Provincial and Territorial leaders for their economic leadership.

Today, it is more important than ever to ensure that we have a strong and efficient internal system of trade, particularly in the current economic environment.  Stronger internal trade will help Canadian workers in businesses of all regions, improve Canada’s competitiveness and productivity, lower costs and attract more foreign investment.

Improved labour mobility will help ensure that Canadian workers’ credentials are recognized across provincial and territorial boundaries.  The Prime Minister and Premiers have also agreed to a tangible dispute resolution mechanism and new incentives for compliance.

The specific changes to the AIT are as follows:

Ninth Protocol of Amendment: Labour Mobility (Chapter 7)
Canadians should be able to work in their chosen occupations anywhere in Canada.  The revised labour Mobility Chapter of the AIT will provide that any worker certified for an occupation by a regulatory authority of one province or territory is to be certified for that occupation by all others.

Any exception to full labour market mobility will have to be clearly identified and justified as necessary to meet a legitimate objective, such as the protection of public health or safety.

The Committee on Internal Trade has approved, in principle, that all Canadians will enjoy full labour mobility by April 1, 2009.

Tenth Protocol of Amendment: Dispute Resolution Mechanism (Chapter 17)

The revised government-to-government dispute resolution mechanism of the AIT will, among other things, provide for monetary penalties of up to $5M for the largest jurisdictions for continued non-compliance with AIT obligations.

These amendments will also significantly strengthen enforcement mechanisms.  As a result there will be a more effective compliance and appeals process, including the possibility of monetary penalties and suspension of dispute resolution privileges.

Signatories must obtain ratification from their respective governments for these amendments to take effect. This process is already underway.

About the Agreement on Internal Trade

On July 1, 1995, Canada’s First Ministers signed the AIT to eliminate barriers to commerce and labour mobility within Canada. The AIT continues to evolve to meet the changing needs of business.  It requires ongoing negotiations and adjustments in order to further liberalize trade throughout the Canadian economy.

In August 2007, at a Council of the Federation meeting, the Premiers agreed to strengthen the AIT through a five-point action plan related to:

  • full labour mobility;
  • stronger dispute resolution, including monetary penalties;
  • inclusion of an energy chapter;
  • completion of a broader agriculture chapter; and
  • reconciliation of regulations in the transportation sector.

    The Government of Canada continues to work closely with all provinces and territories toward implementing this action plan with the goal of improving the AIT for the benefit of all Canadians.

  • Comments

    Comment from Andrew Jackson
    Time: January 21, 2009, 12:55 pm

    Just a note to say that concerns have been raised about the AIT changes undermining Red Seal standards in the skilled trades – which support labour mobility through a common certification standard, as opposed to recognition of the lowest standard.

    Comment from Erin Weir
    Time: January 21, 2009, 2:53 pm

    Thanks for this post, Marc.

    Politics With Don Newman was unceremoniously interrupted on January 15 for a live broadcast of Premier Charest grandiosely announcing these amendments. This is “much ado about nothing” to the extent that the Premiers had already agreed on these amendments last summer.

    Fines for government-to-government disputes are not a huge problem, but we should be vigilant to ensure that they are not extended to person-to-government disputes. TILMA’s financial penalties for person-to-government disputes were a major reason for many Premiers rightly rejecting this deal. They should not be introduced under the radar through the AIT.

    Andrew is correct that automatic recognition of every other jurisdiction’s occupational certification makes the lowest standard anywhere the minimum standard everywhere. In addition to the skilled trades, several regulated professions have raised concerns about this approach.

    Marc is correct that negotiations under the AIT have already been extremely successful in reconciling provincial differences in occupational certification. The new amendment effectively just imposes automatic recognition in areas where mutual recognition could not be negotiated for some specific reasons. Looking at those particular reasons would be preferable to this broad-brush approach.

    On Marc’s third-last paragraph, it is indeed hard to imagine how the AIT could compel Quebec to build more transmission capacity for Newfoundland and Labrador’s benefit. Ultimately, Newfoundland and Labrador needs to cut a bilateral deal with Quebec or seek other options for getting its power to market.

    On Marc’s second-last paragraph, my (limited) understanding of meat inspection is that federal regulation itself curtails the movement of meat across provincial borders. I do not believe that the issue is differing provincial regulations.

    Comment from Scott Sinclair
    Time: January 21, 2009, 3:12 pm

    Marc,

    I think your post underestimates the seriousness of many of the issues at stake here.

    The possibility of a “made-in-Canada” investor-state dispute mechanism, which is a very short step from what they have just agreed to and the next item on their negotiating agenda, is actually quite alarming. A five million dollar fine (less for smaller provinces) is, in my view, likely to act as a substantial deterrent to a broad range of progressive government regulations. Once the new institution is in place, the level of fines can, of course, be increased.

    While most labour mobility issues have already been resolved amicably through interprovincial negotiation, I wouldn’t give the AIT much of the credit. These negotiations occurred mainly under the auspices of labour mobility ministers and were backstopped by mobility rights in the charter.

    As Andrew’s concerns about the Red Seal program illustrate, the AIT encourages a lowest-common-denominator approach to harmonization. Higher standards must be justified as no more burdensome than necessary, discouraging governments from forging ahead of the pack and enacting “leadership standards.”

    It’s true that the AIT contains more balanced language on environmental protection than TILMA, but remember that the first case under the AIT dispute settlement mechanism concerned MMT and the interpretation of the precautionary principle. As I recall, the panel ruling gutted the precautionary principle. It also cleared the way for the disastrous settlement with Ethyl Corporation in the NAFTA investor-state case. The fundamental principle here is that these types of judgements should not be handed over to unaccountable arbitral panels. (By the way, Alex Michalos has written a very good book about the MMT case, Trade Barriers and the Public Good, McGill University Press.)

    My understanding is that the energy chapter is deadlocked over serious differences between Newfoundland and Alberta — fundamentally about the role of government in securing local benefits from resource development. The draft energy chapter, which has still not been made public, will prohibit performance requirements, ban local preferences and so on. This is a critical economic development issue.

    I’m not familiar with the meat inspection issue you refer to. There are also deep divisions among the provinces over the future of supply management. Even though supply management is supposedly excluded from the AIT, some of the pro-supply management provinces are concerned that it might be eroded by extending the chapter. I suspect that these concerns are valid.

    Scott

    Comment from Marc Lee
    Time: January 22, 2009, 7:45 am

    Good comments, all. To be fair, I think I made those points but not so forcefully, so thanks for fleshing out the details. I have fairly consistently opposed expansions of the AIT in the past for their anti-democratic character, and was mostly focusing my commentary on the false front made in favour of expansion — that is, the claim that this process is required because of huge barriers to trade that are impeding our economic union.

    Comment from Leigh Thomson
    Time: January 22, 2009, 9:09 am

    Thanks Scott for your comments here.

    The GATS-type necessity test embedded here is very disturbing:
    “Any exception to full labour market mobility will have to be clearly identified and justified as necessary…”.

    In addition to points you have mentioned, I am reminded of changes to some provincial regulations which consider ‘public’ and ‘private’ ‘bodies’ to be interchangeable in service management. Instead of rolling back privatization of key public services like water, health care and education, the Ninth Protocol could instantly expand it across the country.

    Comment from Leigh Thomson
    Time: January 22, 2009, 9:15 am

    ie) expand it with this clause, in the context of the chill threat of $5mill fines to lower tier governments which have the guts to keep public services public and non-profit.

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