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Alberta's decision to ban B.C. wine as retaliation for opposition to the Trans Mountain pipeline has opened up a trade war — but it's a battle that neither province can afford to escalate, report Justine Hunter and Carrie Tait

Hostilities in the B.C.-Alberta trade war didn't cease on Valentine's Day, but there was a lighter tone when the Alberta NDP caucus delivered a message to British Columbians via Twitter: "Roses are red, Violets are fine; Let's build a pipeline and we'll take back your wine."

British Columbia's NDP caucus ignored the love note, but the B.C. government did declare April as B.C. Wine Month, promising a greater variety of tastings of B.C. wines in its own liquor stores. Take that, Alberta.

The cheeky messages aside, the NDP governments in both provinces remain entrenched in a messy conflict that is goading the federal government to intervene more forcefully in a dispute it would rather avoid.

The economies of British Columbia and Alberta are entangled by far more than oil pipelines and wine, and with billions of dollars' worth of goods flowing each way across the Rockies each year, both provinces have no shortage of weapons if they wish to escalate.

The crux of the Alberta argument is that B.C. does not have the jurisdiction to say what goes into a federally approved, federally regulated pipeline. British Columbia's NDP government insists it does in fact have that authority. The federal government is being pressed to resolve that jurisdictional question.

All three parties to this battle – B.C., Alberta and Ottawa – have legal, regulatory and financial powers they can reach for, but they are in a minefield.

The spat was triggered by B.C.'s threat to cap the amount of Alberta oil flowing through Kinder Morgan's Trans Mountain pipeline at the existing rate of 300,000 barrels per day, pending a review of oil-spill safety. While the province has actually done nothing more than talk, the uncertainty it has created could be enough to spook investors in Kinder Morgan's $7.4-billion pipeline expansion project.

In return, Alberta banned the sale of B.C. wines from its liquor stores – Albertans would otherwise consume close to 1.5 million bottles every month – and Premier Rachel Notley has appointed a task force to find new measures to force B.C. to back down.

Ms. Notley has not ruled out the tactic of imposing a toll on the gas pipelines that flow from B.C.'s gas producers to link to Alberta and markets beyond. After all, B.C. needs Alberta's network of gas pipelines to get more than half of its natural gas to market.

But this example underscores just how intertwined the two provinces' economies are. Ninety per cent of all B.C. gas is produced by 20 companies – and every one of those companies is based in Alberta. If Alberta curtails B.C. gas, Calgary hurts too.

B.C. has rejected suggestions that it ban Alberta beef in response to the wine ban, but the province is considering a trade complaint against Alberta. Both provinces are signatories to the New West Partnership and the Canada Free Trade Agreement, and Mr. Horgan said the wine ban is a contravention of both those agreements. Ms. Notley has already said she is prepared to pay any fines imposed, however, so the only thing a challenge might accomplish is to expose the trade deals as ineffective.

Canada's four western provinces are party to the New West Partnership Trade Agreement, designed to reduce trade and employment barriers. These provinces, as well as organizations within their borders, can challenge trade decisions, but only after all other options have been exhausted. The maximum fine a compliance panel, which would weigh the arguments, can set is $5-million. Ms. Notley has said she is willing to risk that in exchange for what she calculates is a pipeline worth $1.5-billion a year to the Alberta treasury.

If the provinces are willing to risk a penalty, they could also elect to defy the New West Partnership's requirement to open up public-sector contracts to businesses across Western Canada, but it would undo years of efforts to reduce interprovincial trade barriers.

Brian Crowley, managing director of the Macdonald-Laurier Institute, said Ottawa is to blame for allowing the dispute to escalate to this point. "The only reason that the dispute has dragged Alberta in is because Ottawa has been so lax, so weak, in defending and asserting its authority," he said. "It is Ottawa's responsibility to defend its jurisdiction."

Nelson Wiseman, director of the University of Toronto's Canadian Studies Program, said Ottawa is likely on the right side of the law, should it choose to take the matter to court by referring the question of jurisdiction to the Supreme Court of Canada. But there is a risk in such an approach, he cautioned.

"The legal weight would be on the federal side – but of course you never know how the courts would rule, and it could really be a blow to the federal power if it were tested in the court," he said.

There is another hitch as well, in that B.C. has yet to produce even a draft regulation to contest, Prof. Wiseman added: It's not clear that the courts would look at anything until Mr. Horgan's government makes a concrete move.

Ms. Notley this week stressed that Alberta is going to give the federal government time to negotiate with British Columbia before she further escalates the trade war. However, she warned her patience is limited.

"Make no mistake: We are not standing still," Ms. Notley told reporters Wednesday in Edmonton, as she sat with a group of experts assembled to advise her government on how best to punish British Columbia and persuade Ottawa to take more dramatic measures.

"We're going to keep the pressure on. That includes any and all measures to ensure that all provinces respect their constitutional responsibilities," Ms. Notley said.

Ms. Notley's government has, so far, dismissed suggestions the province halt B.C.'s access to Alberta energy products, arguing that would hurt Albertans more than their western neighbours.

Trade between Alberta and B.C. is roughly balanced, according to the most recent data available from Statistics Canada. In 2014, Alberta's exports to B.C. were worth about $16.75-billion; B.C.'s exports to Alberta rang in at $17.6-billion.

Jock Finlayson, chief policy officer for the Business Council of B.C., said both provinces can end up bruised if they mess with that trade balance.

"Any tit-for-tat responses from the two provincial governments in the coming weeks and months will end up hurting consumers and businesses in both jurisdictions," he said. "A trade war between two provinces that are economically very interdependent should be avoided at all costs. The losers under such a scenario will vastly outnumber the winners."

With a report from Jeff Lewis in Calgary