Saskatchewan Premier Brad Wall is threatening retaliatory measures against Ontario if it doesn't drop protectionist rules that favour local firms bidding for infrastructure contracts, complicating provincial efforts for freer trade across the country.
The two provinces appear to be heading for a showdown at the premiers' Council of the Federation meeting in Charlottetown this week over the issue.
Mr. Wall told The Globe and Mail that his government will "react … and level the playing field for our companies" if Ontario does not change its local preference rules, which he says gives Ontario companies as much as a 10-per-cent competitive advantage.
"If we can't get improvement on that front we are not going to be Boy Scouts about that in Saskatchewan," he warned.
Mr. Wall is pushing for the dismantling of interprovincial trade barriers that cost the Canadian economy billions of dollars every year. He is presenting his plan, which includes taking aim at Ontario's local preference rules, for open provincial borders Thursday.
Barriers exist in many sectors, including energy, labour, transportation and procurement.
Infrastructure Ontario, the agency that handles billions of dollars in construction each year, favours companies that have "local knowledge" in doling out contracts – a rule that gives a leg up to Ontario-based firms.
Mr. Wall's stand will come as no surprise to Ontario Premier Kathleen Wynne, he says, as his officials have been talking to her people about these protectionist rules.
Ontario is attempting to pull itself out of economic doldrums through massive infrastructure spending. Ms. Wynne, who believes the economic policy will create jobs and stimulating the economy, allocated $130-billion for infrastructure in her July budget.
The province Tuesday showed no sign of backing down in the face of Mr. Wall's demands, defending Infrastructure Ontario's protectionist rules.
"When it comes to infrastructure procurement, our government believes that experience working with local firms is important because of the local job creation that comes with new infrastructure," Ontario Economic Development Minister Brad Duguid wrote in an e-mail. "This approach is in line with existing trade agreements and it helps create even more jobs in communities across Ontario."
Ontario has fought hard to maintain the "local knowledge" provision: The province even gained a special exemption in Canada's free-trade deal with the European Union that allows Infrastructure Ontario and municipal governments to give priority to local companies.
Proponents of freer trade say Ontario is among the most protectionist provinces and is crucial to any nationwide loosening of trade restrictions.
"If Ontario doesn't lay down some of its arms, we can kiss goodbye any progress on internal trade for some time," Canadian Federation of Independent Business President Dan Kelly said in an interview.
And he cautioned that matters would only get worse if Saskatchewan punished Ontario's intransigence by taking protectionist measures of its own.
"It would be a disaster if we saw retaliatory measures cropping up across Canada," he said. "I understand Premier Wall's frustration, but the worst thing that could happen is to have more trade barriers slapped on."
Mr. Wall says, however, that if Ontario does not move on this issue that his government will "have to consider every option."
"One of them might be the same sort of 10-per-cent head start for our companies," he said, adding that the measure would be limited to Ontario as it is a province "engaged" in this protectionist practice.
"But we are hopeful that will change," he said.
"After all of these decades, the issue of whether freer trade and freer procurement is better than protectionism, not perfect, but better than protectionism – the argument, I think for the most part, has been settled."
He says that in his province, the opposition NDP, for example, was once opposed to free trade but is now onside, as is federal NDP Leader Thomas Mulcair.
"So now at the provincial level … some perhaps want to defy what I think has been accepted by people of all parts of the political spectrum as to what might be better for the economy," he said.
Mr. Wall believes, however, that progress has been made so far on the internal trade file since he proposed the new plan in July. He and the other Western premiers sent a letter to their provincial colleagues calling for a "commitment" at the Charlottetown meeting to modernize the 20-year-old Agreement on Internal Trade (AIT).
At the time, Mr. Wall said that under the new international trade agreements negotiated by the federal government, it will be "easier for a European country to get involved in some provincial procurement than it would be for companies from another province."
Under his proposed reforms, provinces would start from the premise that everything is open and then negotiate what should not be included in the agreement.
There would be stronger enforcement provisions, as well, giving some recourse to businesses bidding for contracts who felt that they were unfairly treated by another government.