toilet seats, trucking and other trade tie-ups A new solution to the old problem of Canadian internal trade november 2019 sarah pittman, carlo dade & martha hall findlay canada west foundation 2018-19 patrons cwf.ca Trade & Investment Centre The Canada West Foundation focuses on the policies that shape the Arthur J.E. Child Foundation Endowment West, and by extension, Canada. Through our evidence-based research Fund at the Calgary Foundation and commentary, we provide practical solutions to tough public policy challenges facing the West, and Canada as a whole, at home and on CN the global stage. Export Development Canada This report was prepared by Sarah Pittman, policy analyst; Carlo Dade, Director of the Trade & Investment Centre; and Martha Hall Findlay, Government of Alberta President and CEO. The authors would like to thank those who agreed to be interviewed for this study. Their insights and contributions were Government of Manitoba invaluable in preparing this report. 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(#11882 8698 RR 0001) ii Toilet seats, trucking and other trade tie-ups: A new solution to the old problem of Canadian internal trade contents 02 23 executive summary conclusion 07 25 facts, discussion appendix a and analysis key history and elements of internal 07 trade in canada Trade Barriers in Canada 27 appendix b 08 post-cfta internal trade timeline The Federal Government’s Role and s. 121 29 11 appendix c source material problems and solutions canada west foundation 01 Executive Summary As Canada enters more free trade agreements This report does not attempt to repeat the already abroad, internal trade at home remains anything extensive work done reviewing the specific but free. Despite various internal trade agreements barriers themselves (see Appendix A, Bibliography). (and despite recent efforts on the part of some And although the solution will require co-operation provinces, particularly Alberta and Manitoba, among the federal government and all the unilaterally reducing their internal trade barriers), provincial and territorial governments, we focus progress on an open internal market in Canada has our attention on what the federal government can – been slow. So slow, in fact, that Bank of Canada and should – do. Governor Stephen Poloz, at a recent armchair chat, called them “absurd.” The problem of internal trade cannot be solved by the federal government alone. Indeed, Barriers that remain create inefficiencies that create some provinces are taking bold steps forward. costs for businesses, consumers and taxpayers; Success will require effort from the federal, limit overall economic activity and growth; and provincial and territorial governments, with the impede businesses’ achievement of economies of provincial and territorial governments playing key scale through access to a whole-of-Canada market. roles. However, strong, well-funded action by the These in turn limit our global competitiveness, which federal government will encourage the remaining reduces export and investment opportunities and provincial and territorial action. makes Canada less attractive for both domestic and foreign investment. Finally, internal barriers harm Canadian social and political cohesion. Yet political promises, including during the recent federal election campaign, miss the point of what has worked, what has not, and what can be done to finally make progress; it is time to be bold. 02 Toilet seats, trucking and other trade tie-ups: A new solution to the old problem of Canadian internal trade The Problem Reasons for lack of progress on freer internal trade 01 03 Major lack of data and comparative analyses Lack of a robust and functional secretariat by province and territory The status quo of the Internal Trade Secretariat (ITS) Although there have been studies of the various – which is part of the current pan-Canadian trade barriers, regulatory differences, costs and lost agreement, the Canadian Free Trade Agreement opportunities, this data is still too general and (CFTA) – simply will not do. It is woefully underfunded, pan-Canadian. There remains too little data about understaffed, under-resourced and materially under- specific barriers at a more granular level as to how functioning, completely unacceptable for a country each of the provinces and territories is affected so diverse and so geographically spread out, with as compared to other provinces and territories, and an economy as large as Canada’s. Its governance with respect to specific goods and services. It is structure reflects political compromise far more than also difficult to get the provinces and territories to a desire to get things done. prioritize funding for this kind of work. 04 02 Lack of knowledge about our own backyard Lack of political will There is significant lack of knowledge among Despite stated intentions, there remains a lack Canadian businesses (and their provincial and of political will among most of the provinces and territorial governments) about possibilities in our territories to really tackle internal trade barriers. This own Canadian domestic markets, potential domestic varies across provinces and territories, but the lack suppliers and supply chains in other parts of of will among some keeps the whole from opening the country, and potential for economies of scale up. What are the causes of this lack of political and collaboration with others in different parts will? Is it due to lack of knowledge of what can of Canada. This knowledge is critical to compete be gained? Or lack of knowledge of what the real with international competitors at home and abroad. costs are, province-by-province? Is it due to lack of resources to do the necessary research and data 05 gathering? Removing barriers often has broadly Too many exceptions disbursed benefits but narrowly focussed costs for a vocal few. It is difficult to explain the extent of the Even though the CFTA uses a “negative list” costs for each province, or the extent of the potential approach – a significant improvement over the benefits, without the necessary data. At the same agreement it replaced, the Agreement on Internal time, it is extremely difficult to get the provinces to Trade (AIT) – there are still far too many exceptions prioritize funding for this kind of data collection and that have been insisted upon, not only by the analysis – particularly if they are not aware or not provinces and territories, but also the federal persuaded of the extent of either the costs or the government. There are also federal regulations that potential benefits specific to them in the first place. can impede trade, simply because of inconsistency For the same reasons, there is insufficient public with provincial or territorial equivalents. pressure to encourage the provinces to do more. canada west foundation 03 The Solution What can the federal government do? Some commentators have suggested using s. 121 entirely on its own – without requiring provincial/ of the Constitution to legally impose freer domestic territorial contribution, and without any strings trade among the provinces/territories.¹ We do not attached. The information and analyses should then – for both legal and political reasons (see section be made transparently available to all. It must also called “The Federal Government’s role and s. 121” remain an independent, arm’s-length organization. on page 8). We recommend the creation of a Canadian Internal Trade Bureau (CTIB) (with more detail later in this A key finding in our research is that the provinces and report) as the vehicle for this effort and repository territories profoundly distrust the federal government for this data. when it comes to internal trade. This creates a challenge and may be a key reason why prior 02 collaborative-style approaches have failed. Unless Encourage political will by making the data the federal government can address the lack of trust, available that shows more effectively than now, there is very little it will be able to do on this file. the costs and lost opportunities and use it to encourage public pressure. In this context, we have the following specific recommendations for the federal government to Rather than “tell” the provinces what to do, use address the five key barriers listed on page 3. the research and information gathering to increase awareness of (i) the benefits of more open domestic 01 trade, specifically for each province and territory, Create and significantly fund – without as well as (ii) the problems and costs of the expecting the provinces or territories to status quo.