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Could provincial trade barriers fall in a display of constitutional fireworks?

Finn Poschmann is president and chief executive officer at the Atlantic Provinces Economic Council.

Politicians, diplomats, economists and lawyers (plus activists and lobbyists) consume a lot of fine paper and jet fuel in negotiating international trade agreements.

Every once in a while, contemplating the persistent costs of trade barriers closer to home, Canadian business folk wonder aloud, "What about trade within Canada?"

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They have a point, and legal and constitutional history suggest the possibility of driving it home in a way that sticks. In a really, really big way.

Between 1848 and 1850, the Province of Canada and the colonies of New Brunswick and Nova Scotia passed matching trade reciprocity legislation, saying that among them, "the growth, production, or manufacture, of any such province into which the importation of all articles, the growth, production, or manufacture, of this Province, (excepting Spirituous Liquors), shall be so permitted free from duty."

By Confederation, however, that language had become more expansive, and Section 121 of the Constitution Act, 1867 says, "All articles of the growth, produce, or manufacture of any one of the provinces shall, from and after the union, be admitted free into each of the other Provinces."

The wording change, leaving out a reference to duties, was not accidental; the drafters really wanted trade unencumbered. In the House of Lords constitutional debate in early 1867, Lord Carnarvon spoke of customs and tariffs. But he went further: "Canada needs harbours on the coast and a connection with the sea. That connection, indeed, she has, during the summer … the broad stream of the St. Lawrence; but in winter henceforth she will have it by the intercolonial railway."

(A present-day reader might be forgiven for silently adding, "and a pipeline.")

What has since come into question, primarily owing to years of work by Ian Blue of Gardiner Roberts, is the legal basis for provincial trade barriers that go beyond a prohibition of duties or tariffs. The fact that such barriers persist, say, in the trade of milk and eggs, goes back to a 1921 Supreme Court decision related to Prohibition.

Canada's way out of the Prohibition morass, you see, had been to punt jurisdiction from the federal to the provincial level. And in early 1921, an Albertan liquor merchant, the Gold Seal company, was prevented by the terms of then new amendments to the Canada Temperance Act from shipping its products to Saskatchewan or Manitoba. Gold Seal brought a legal challenge, on the basis that the act had not been duly proclaimed in Alberta.

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Procedural shenanigans followed, and Gold Seal lost. In oral argument, however, the company's lawyers had raised the issue of Section 121's protections, and three of the court's justices, in their written reasons, in passing rejected that section's application to the issue at hand.

Their more or less offhand discussion, and result, began to be entrenched in a 1943 case from New Brunswick, (Atlantic Smoke Shops, Ltd. v. Conlon, [1943] A.C. 550), in which the plaintiff shop owner argued that the province had no jurisdiction to impose a tax on tobacco imported from another province for personal consumption. The Supreme Court relied on the justices' statements in Gold Seal.

Perhaps the biggest damage, however, was inflicted in 1978's Supreme Court Reference re Agricultural Products Marketing Act. The question then: Can the federal government, working in cahoots with the provinces, impose provincial egg production quotas set by the Canadian Egg Marketing Agency, and levies to enforce them, to ensure that unwitting Ontarians, for instance, were protected from a landslide of Quebec eggs?

The court did extensive mental gymnastics in convincing itself that a provincial quota system backed by fees and charges was not a barrier of the sort the Constitution's Section 121 intended to prohibit. And, after all, they had the Gold Seal and Atlantic Smoke Shops cases to rely on.

One of the reasons court might have done so is for fear that an expansive reading of the Constitution's trade provisions would brutally circumscribe the provinces' freedom of choice in legislation and regulation. Many of us today share that fear.

What the court did have in hand, however, was an ingenious formulation due to Justice Rand in an earlier case, who argued that while provinces possessed full freedom to legislate in what he called subsidiary features, "what is forbidden is a trade regulation that in its essence and purpose is related to a provincial boundary." So a province might establish a minimum age for purchasing alcohol, or a direct tax on its sale, so long as such taxes were non-discriminatory with respect to provincial origin.

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That reasonable boundary has not been thoroughly tested in court. But it soon may be, owing to another New Brunswick case, R v. Comeau 2016, in which the police, acting in the role of a border patrol or customs authority, fined a man for bringing what in their judgment was an excessive amount of alcohol across the border from Quebec. So far, says a New Brunswick provincial court, when looking at Section 121 of the Constitution, the province has no authority to do so.

This view, long considered a legal stretch, becomes rather plausible if the 1921 court had reached its decision based on a legal misreading, or if subsequent cases had pushed the Gold Seal interpretation too far.

If the current New Brunswick case makes it to the Supreme Court of Canada – odds are it will – the fireworks may be spectacular. An expansive read of the Constitution could, in turn, allow milk to flow and eggs to roll across provincial borders, and much else besides. And that would be very handy for consumers, workers, businesses and the strength of our economy.

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