The Ottawa Citizen on TILMA

The Ottawa Citizen endorsed TILMA on Tuesday. I drafted an op-ed in response to the editorial, but Larry Brown of NUPGE beat me to the punch with an excellent letter printed in yesterday’s Citizen. For posterity, my op-ed follows:

What Internal Trade Barriers?

The Ottawa Citizen has endorsed the Trade, Investment and Labour Mobility Agreement (TILMA) without specifying any of the alleged “barriers” that this agreement might remove (“Trading with the neighbours,” May 15). In fact, almost no such barriers exist. TILMA, which came into effect between Alberta and British Columbia on April 1, should be abandoned because it severely constrains the capacity of provincial governments, municipalities and school boards to act in the public interest.

Canadians share common legal and financial institutions and are free to live and work anywhere in the country. There are neither customs stations along provincial borders nor tariffs on inter-provincial trade. The federal government has constitutional jurisdiction over inter-provincial trade and the courts have consistently struck down provincial attempts to obstruct it.

The Citizen’s editorial claimed that “provincial protectionism – reflected in regulatory duplication, ‘buy local’ requirements and multiple licencing regimes – costs the economy billions of dollars.” Regulatory duplication and multiple licencing regimes are inevitable in a federal system. The existing Agreement on Internal Trade has already eliminated almost all “buy local” requirements from provincial procurement.

What many commentators call “inter-provincial barriers” are, in fact, regulatory differences between provinces. There is no economic evidence that these differences have a measurable effect on inter-provincial trade.

Relative to distance and market size, trade between provinces is as intense as trade within provinces. From 2000 through 2006, inter-provincial exports grew four times faster than Canada’s international exports.

Research conducted for the 1985 Royal Commission on the Economic Union and Development Prospects for Canada, chaired by Donald Macdonald, concluded that inter-provincial barriers cost no more than 0.05% of Gross Domestic Product. This percentage equals less than a billion dollars in today’s economy. Since the Agreement on Internal Trade has eliminated most of the barriers that existed in the 1980s, the cost of whatever remains must be closer to zero than to one-billion dollars.

The Macdonald Commission reported, “The direct costs of existing interprovincial trade barriers appear to be small . . . their quantitative effect on the level of economic activity in Canada is not sufficient to justify a call for major reform.” Certainly, this tiny quantitative effect does not justify TILMA’s sweeping legalistic approach, which treats regulatory differences as trade barriers.

TILMA’s dispute-settlement process allows private interests to sue provincial governments, municipalities and school boards for up to $5 million over alleged violations. It is unclear how the dispute-settlement panels, which meet behind closed doors, will interpret the agreement’s extremely broad language. This uncertainty is already having a chilling effect on regulators in Alberta and British Columbia who fear being sued.

Rather than simply preventing measures that discriminate among provinces, TILMA purports to “eliminate barriers that restrict or impair trade, investment or labour mobility.” Almost everything governments do influences the market and could be challenged under the agreement. TILMA’s weak exceptions protect a policy only if the government can prove that there is no conceivable alternative policy.

Why sign a comprehensive agreement hoping that panels will apply it narrowly to genuine barriers? A more sensible process would begin with business compiling publicly-available lists of inter-provincial barriers. Citizens could respond by assessing the social, economic and environmental purposes of these alleged barriers.

Governments could then reform measures that entail economic costs, but do not serve important policy goals. Indeed, provincial governments have already established mutually recognized credentials in many skilled trades and are currently working to harmonize licensing by professional bodies to enhance labour mobility.

The risks of signing TILMA far outweigh the costs of supposed internal trade barriers. Instead, Canada needs a transparent, incremental approach focused on the few minor inter-provincial frictions that still exist.

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