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Economic Insight B.C.’s election result will only aggravate Alberta and Saskatchewan’s economic woes

British Columbia Premier Christy Clark waves to the crowd before making a speech at the B.C Liberal election party in Vancouver, British Columbia, Canada May 10, 2017.

BEN NELMS/REUTERS

Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent, non-partisan public-policy think tank in Ottawa.

Geography distributes its bounty capriciously and the results can be extremely painful for those who end up penalized by their place on the map. The outcome of the recent election in British Columbia may be about to deliver a lesson in this principle to this country's only two landlocked provinces: Alberta and Saskatchewan.

Internationally, being landlocked is a very uncomfortable place to be. Unless you are in Botswana exporting diamonds (small, light and high-value products that can be shipped by, say, plane), you likely need to put your exports on a ship to get them to world markets, thereby realizing their highest value.

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Because ocean shipping is so vital to economic success, the world's countries agree that ships engaged in bona fide commerce will not be obstructed. Countries can't target the shipping of other countries and demand ransom to let it reach its destination. That's piracy.

The main exception is when military or diplomatic conflict causes countries to throw up embargoes against offending countries' goods, or to prevent them from receiving shipments of things such as arms or nuclear materials. Such exceptions are exceedingly rare when seen against the volume of ocean-borne trade.

But landlocked states face a completely different obstacle: their goods must cross another country's territory to get to port. International law is of little help, and the 45 some odd such landlocked countries must negotiate access with neighbours who may have conflicting economic interests, historical enmities or, simply, little interest in helping.

What the neighbours universally have, however, is the whip hand in the negotiations. They tend to use that to extort benefits far in excess of the actual economic value of the infrastructure and services needed to get their landlocked brethren's goods to port. And having to get their products through a "transit country" makes companies reluctant to invest in the landlocked. It injects a level of political risk that is difficult and costly to manage.

Landlocked countries thus tend to be poorer than their economic fundamentals justify. All because of accidents of geography and the political leverage they create.

Before 1867, the various colonies that were to become Canada suffered from the ability of each to impose tariffs on the products of the other as they crossed their territory. A key benefit of Confederation was explicitly to tear down these barriers, turning Nova Scotian or Quebecois products into Canadian products that could move freely across the national territory, including to ports for export to world markets.

But as we're discovering, the thirst of transit provinces for bounty to allow neighbouring provinces to move their products has never gone away.

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Our only Pacific province has lately been the most egregious offender, preying on the vulnerability of landlocked Alberta and Saskatchewan in their efforts to get their resources to world markets.

Take the Kinder-Morgan pipeline, intended to bring Alberta petroleum to Asia via a B.C. port. Before this week's election, the Liberal Premier Christy Clark had already shaken down the pipeline company for $1-billion to "allow" the pipeline expansion to go ahead. The province has no jurisdiction, pipelines being a federal matter, but the province could threaten enough obstructive behaviour that the company could see that peace with the province might be worth a hefty price tag. This is nothing but corruption carried out at the expense of Canadian resources, a corruption only made possible by the arbitrary fact of Alberta's landlocked geography and Ottawa's complacency.

Now B.C. has doubled down on transit-province bounty-seeking, this time targeting thermal coal. The province has threatened a thermal-coal export tax, ostensibly to punish the United States for its softwood-lumber machinations, but the result will be to sideswipe Alberta, which might lose as much as $300-million in sales of such coal now going through the West Coast. Saskatchewan hasn't been targeted yet, but they understand all too well that they are no less landlocked, and therefore vulnerable, than Alberta.

Assuming recounts and other factors don't change the B.C. election result, the situation will only worsen. With the Green Party, unalterably opposed to Kinder-Morgan, holding the balance of power, count on all the parties to vie to outdo each other in environmental virtue and the chauvinistic promotion of B.C. interests, as if they can be separated from the national interest of all Canadians. Kinder-Morgan is sure to be a flashpoint. This behaviour is a dagger aimed at the beating heart of federalism.

As for the much-vaunted new free-trade agreement between the provinces, it is silent on this issue, proving yet again what a paper tiger it is. Meanwhile Ottawa, created in 1867 in part to be the guarantor of the integrity of Canadians' freedom to trade, looks on benignly.

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