Canada’s internal trade barriers must fall

When foreign clients ask Toronto-based trade lawyer James McIlroy where to put their Canadian beachhead, he tells them to go to the United States.

"There's better access from the U.S. to enter the Canadian market," insisted Mr. McIlroy, a former federal trade official.

Even if he's only half-serious, it's a disturbing indictment of the state of Canada's economic union.

Two decades after Ottawa and the provinces signed the Agreement on Internal Trade to reduce interprovincial trade barriers, Canada remains a country of sometimes impenetrable economic walls.

Federal Industry Minister James Moore acknowledged last week that trade deals with the United States and Europe make Canada more open for business to the world than it is inside the country.

"To have less economic freedom within Canada than we consent and have agreed to with the rest of the world is completely backwards," Mr. Moore said bluntly after meeting his provincial counterparts in Toronto as part of an effort to renew the internal trade pact next year.

Don't hold your breath. Provinces are unlikely to touch a clutch of the most significant internal barriers. And Ottawa is reluctant to invoke its own constitutional powers to force them into submission.

"I've seen this movie before, and it just goes on and on," Mr. McIlroy lamented.

"No one is going to do anything until the feds exert jurisdiction."

Blame the sacred cows of internal trade – energy, booze, financial services regulation and supply management. These are the entrenched and often unseen barriers that no one wants to discuss, but which impose a significant economic burden on consumers, taxpayers and businesses.

So while Mr. Moore is saying all the right things, he's unlikely to be able to deliver on the big things that create such a balkanized landscape.

Provincial electrical utility monopolies block consumers from buying power at the best available rates and discourage the most efficient use of the country's energy resources.

It's a similar story in the liquor business, where provinces thwart interprovincial trade with their powerful and lucrative distribution monopolies.

Ottawa also oversees a system that allocates strict provincial production quotas in the dairy, poultry and egg sectors – both on farms and in the processing industry. The result is smaller and less-efficient farms, significant barriers to the free movement of goods and disincentives to invest in new processing capacity.

And in financial services, Quebec and Alberta continue to block federal efforts to create a single national securities regulator.

When Mr. Moore talks about tearing down internal trade walls, he's really talking about tackling other barriers, such as differing provincial regulations, rules that direct government contracts to local suppliers and conflicting professional standards.

These barriers can also add to the costs faced by business, government and consumers. But they are generally much less controversial than the sacred cows.

The fundamental problem is that Ottawa is unwilling to use its constitutional muscle to tackle both the big issues and the smaller ones, according to Toronto trade lawyer Lawrence Herman.

"We have a constitution that we are afraid to rely on," Mr. Herman said.

The constitution, he argued, gives the federal government exclusive jurisdiction over the regulation of trade and commerce.

But the internal trade agreement is a renunciation of that power because it's structured like an international trade agreement, treating provinces as if they were sovereign states when they are not, Mr. Herman said.

"As a legal matter, even though they can regulate locally, the provinces have no constitutional authority to prevent the flow of goods and services across provincial boundaries," he added.

Renewing the internal trade pact perpetuates the constitutional confusion.

Mr. Moore may want to tear down the walls.

But until Ottawa and the provinces show a willingness to tackle the really big things, the internal trade pact will remain a sideshow.

And the pressure to create a single market will continue to come from outside Canada, as Ottawa pursues international trade deals, with Europe and the Trans-Pacific Partnership.

Somehow, that doesn't seem right.

As Mr. Moore put it, it's "completely backwards."