A New Agreement on Internal Trade?

Last week, Canada's premiers wrapped up the summer meeting of the Council of the Federation in Whitehorse, Yukon. Item number one on the agenda, the elimination of internal trade barriers. While

The Source of Jaw Jaw Over Trade Trade

the press release referred to the "agreement" as a "...ground-breaking agreement that will support..." the premiers' "...vision for promoting trade, investment and labor mobility across provincial and territorial boundaries,"






the reality was something far less than "ground-breaking" and really amounts to an agreement continue talking (press release linked here). I have written at some length in this blog about the neoclassical stages of integration, including their application to domestic settings (see link). Ideally, last week's meetings in Whitehorse would have aimed to build upon the Agreement on Internal Trade and the New West Partnership.  To most observers of international trade, the kinds of things being talked about in Whitehorse are the domain of world trade negotiations. And that's definitely true.

However, what's fascinating about the talks in Whitehorse is how pervasive the very same kinds of issues can be in a domestic setting-- particularly a federal setting like Canada's in which power is divided and shared over different jurisdictions.

Beer Brouhaha

Entering the Whitehorse meetings, one of the issues that ensured internal trade barriers would top the agenda was a spat between Alberta and Saskatchewan over the application of taxes on beer sold in Alberta (see link). Alberta has applied a sales levy to beer sold in the province that has fallen most

Beer

heavily on larger producers. From Alberta's perspective, the idea behind the graduated levy has been in incentivize the more craft breweries into existence. Saskatchewan, however, cries foul arguing that the application of the levy is applied in a way that unfairly discriminates against that province's more developed craft beer producers.

Alberta's Rachel Notley and Saskatchewan's Brad Wall

If this sounds familiar, it should. One jurisdiction's tax incentive to small business is another jurisdiction's barrier to trade. One jurisdiction's job creation program is another jurisdiction's barrier to labor mobility. One jurisdiction's regulation protecting health and safety standards looks to another jurisdiction like a protectionist measure not based on flimsy evidence of need.

The political sensitivity of harmonizing or negotiating away these measures is the same whether we are talking about the movement of goods, people, and capital across international borders or across state and provincial borders in federal states like Canada. What nation or province easily cedes its sovereign powers to tax or regulate in "the public interest?" What jurisdiction simply waives its capacities to tax, spend, and legislate areas of policy under its control? It's very difficult.

However, what's interesting about Canada is that while we most often talk about these matters in the context of North American integration-- ie) how can we get rid of such barriers to trade across international borders (I have a lot of pieces about that here too)-- the fact is that most of Canadian economic history has been about about trying to advance the country into ever-deeper stages of neoclassical integration. Canada is not nearly as fluid an internal market for flows of goods, people, and capital as you might think. In a recent post about the perennial softwood lumber dispute between the United States and Canada, I explained that THE most important source of this dispute has to do with the way each country's constitution assigns jurisdiction over natural resources (softwood post link).

Further, whereas the so-called Commerce Clause of Article I, Section 8 of the U.S. Constitution has been powerfully interpreted by the U.S. Supreme Court to sweep away many barriers to inter-state commerce of all kinds (goods, people, capital), the Canadian Constitution (Section 92) assigns jurisdiction over most things of economic importance to Canada (natural resources) to the provinces. It's a power each of them zealously protects from intrusion by Ottawa, but also results in considerable variability among provinces in how each governs these responsibilities.

The Agreement on Internal Trade and the New West Partnership are designed to move Canada in this direction. Even more interesting, the New West Partnership is only comprised of B.C., Alberta, and Saskatchewan. In international trade terms, the New West Partnership would be the equivalent of a regional preferences or free trade agreement. Put differently, the New West Partnership is to Canada as the NAFTA is to the global trading system; a group of break-away jurisdictions that agree to deepen and harmonize their economic ties.

Wine Preferences

How could I resist?

This past week in Whitehorse, three different provinces-- B.C., Ontario, and Quebec-- agreed to what is effectively a "sectoral preferences" arrangement in the (freer) trade of wine (see link). At present, it's impossible for consumers to order wine online without having to go through their provincial liquor control bureaucracies. B.C., Ontario, and Quebec-- the three biggest Canadian producers-- have just agreed expand that capacity, but only between producers and consumers in those three provinces. In other words, a single sector (wine) preferences (liberalization among the three) agreement. For those provinces where wine is not produced, the capacity to monopolize (and monetize) its "importation" and distribution in wine and spirits outlets remains an area of policy sovereignty they are unwilling to relinquish. Note: my personal hope is that liberalization of the Canadian wine market will make American wines less expensive in Canada-- can only assume the monopoly power of provinces over wine and spirits is responsible there.

Tip of the Regulatory Ice Berg

While the Whitehorse meetings featured a fuss over alcoholic suds, and what amounts to a regional preferences agreement in wine, the agreement talk further isn't unimportant. So long as Section 92 of the Canadian Constitution remains, the provinces will be very powerful, semi-sovereign economic actors. In turn, that means a patchwork of regulatory regimes across Canada as 10 provinces and 3 territories enact measures within their respective domains. That patchwork translates into an unevenness in Canada as a fully integrated economy that will require much work in the years ahead; securities regulation, inter-provincial transportation rules, labor mobility barriers, and regulations in everything from agriculture to climate change will need significant attention.

The trick is turning last week's recognition by the Council of the Federation of the need for more talk into real measures aimed at making Canada's internal economy more efficient. B.C. Premier Christy Clark was pleased that Canadian "grapes had been made freer" through the arrangement with Ontario and Quebec, but also acknowledged the important work that still needed to be done internally in light of the protectionist rumblings from those running to be President of the United States.