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Canadian internal trade pact deal sparks cautious optimism
By Jeff Buckstein
August 12 2016 issue

Canada’s provincial and territorial premiers are backing in principle a new Canadian Free Trade Agreement (CFTA), a move that was announced after much speculation at their summer meeting in Whitehorse.

Premiers “recognize the role that more open internal trade can play in helping businesses be more productive, create jobs, and grow the economy,” they said in a joint communiqué.

“The CFTA is a ground-breaking agreement that will support their vision for promoting trade, investment and labour mobility across provincial and territorial boundaries, as part of a broader economic vision for Canada,” the statement added.

The CFTA is meant to improve elements of the Agreement on Internal Trade (AIT), which came into force in 1995, but has been frequently criticized as weak and unenforceable. Although details of the CFTA have yet to be fleshed out, some experts see signs for optimism.

“I think it’s an agreement in principle that actually is worth celebrating. This has been something the business community and many others in Canada have wanted for a long time. It’s an agreement that gives us a stronger economic union,” said Laura Jones, executive vice-president of the Canadian Federation of Independent Business (CFIB) in Vancouver.

“Having said that, make no mistake. There is going to be a lot of work that is still left to be done after this agreement comes into force, particularly when thinking about regulatory differences between provinces that create unnecessary barriers,” she added.

Torben Drewes, a professor of economics at Trent University in Peterborough, Ont., noted that in the past, provinces have been very reluctant to give up ground and have resisted true free trade.

“Every premier of every province wants to announce infrastructure funding and add that this will create jobs in the province, which means they want preferential procurement for local suppliers who have to have local knowledge — those kinds of things. The provinces can’t just keep doing that,” said Drewes.

In order to make the CFTA succeed, the federal government is going to have to be the driver, he stressed.

Canadians are aware of international free trade agreements, but generally unaware of internal trade issues, with cost estimates of internal barriers ranging from $50 billion to $130 billion a year, said Drewes.

Jones expressed hope that the CFTA will allow the provinces to deal more constructively with their trade differences than they have been able to under the AIT. She cited as a key improvement the CFTA’s “negative list” approach under which basically all goods, services and investments are included in the agreement unless otherwise specifically listed as exclusions.

The AIT works the opposite way, featuring a “positive list” of specific goods and services available for free trade, but excluding everything else, explained Cyndee Todgham Cherniak, founder of LexSage Professional Corporation, an international trade law and sales tax firm in Toronto.

“Negative lists are always better. Negative lists always mean greater market access,” she added.

Another advantage the CFTA is expected to provide is added transparency compared to the AIT.

“One can look at those exceptions and say ‘is that a reasonable exception or not?’ It will very quickly give us a temperature taking of how open the provinces are across Canada. We’ll be able to see their exemption list, and provinces with long exemption lists are being more protective than provinces with short lists,” said Jones.

The old agreement was problematic for not having that kind of negative list approach, and so a lot of trade barriers were hidden, she added.

The premiers said the CFTA will provide support for innovation through ensuring open access to new products and services that will benefit Canadians. They noted that since the AIT was signed more than two decades ago, technology has advanced and commercial innovation has multiplied.

“Trade in new goods and services will be supported by the rules of the new agreement, promoting long-term economic development,” their communiqué stated.

The premiers also touted increased consumer choice offered by the CFTA, saying it will provide access to a wider range of goods and services produced in other provinces and territories. They cited, for instance, the benefits associated with better and more transparent access to services such as real estate, telecommunications and engineering.

The CFTA also addresses the issue of reducing regulatory burden, which has long been proposed by many business groups in Canada, including professional accounting bodies in recent years.

“Provinces and territories have agreed to reduce unnecessary differences in regulations identified as barriers to trade, which can raise operating costs for companies. The agreement will establish a new mechanism to address these barriers, which will help eliminate burdens in a range of areas,” said the premiers.

Examples include the number of hours truckers can operate their vehicles in other provinces, the shipping of equipment across Canada and the freer flow of gasoline across the country.

The news is being greeted positively by the business community.

“One of the pieces I’m most excited about is creating this mechanism to reconcile those red tape barriers,” said Jones, who noted the CFIB has some key priorities it will be raising, including rules around workers’ compensation which require a business to register in every province it operates in, even if workers are only there temporarily.

“If you’ve got a business in British Columbia, but you’re working for a few days in Alberta, you’ve got to have your workers register there. Transportation rules would be a second category for us. These are things like different rules for truck dimensions and wide load signs, [and] different rules for the dimensions of a mirror on a truck,” said Jones.

The communiqué also said the provinces and territories would agree to substantially expand access to their individual government procurement.

“This will provide a more level playing field for Canadian suppliers by expanding access to contracts tendered by all levels of government and will open up procurement markets to competitive bidding by Canadian businesses, increasing choice and value for taxpayers. Provinces and territories have also agreed to a more transparent and effective dispute resolution process for procurement for provincial, territorial and federal government purchases,” the communiqué said.

Todgham Cherniak said it doesn’t make sense that provinces and territories have better trade relationships with some other countries than they do with each other in Canada.

“This is something that’s been a long time coming. The Fathers of Confederation envisioned free trade within Canada when Canada was created, and we are now coming up to 150 years from Confederation. In my opinion, we should have free trade within Canada for all goods and all services,” she added.

Jones said that while the CFIB is very optimistic about the CFTA, she is taking a cautious approach until more details are known about what will actually be in the final agreement.

“Particularly [regarding] that mechanism to reconcile red tape barriers between provinces, we’re going to have to wait. It will be great if it works well, and it will be awful if it doesn’t. The proof [will be] in the pudding on that one. We’re going to have to see how much they accomplish, and how ambitious they are, and really look to hold them accountable,” she added.

Michael Dolega, a senior economist with TD Economics in Toronto, is concerned about how much of what is being proposed will actually be implemented, along with the timeline.

“Obviously the sooner the better as far as the Canadian economy is concerned. It could certainly use a boost from opening up increased trade between provinces. But there’s a lot at stake — a lot of revenue sources and business interests internally within provinces that may be against opening up some of these markets,” he said.

Stefanie Power, a spokeswoman for Innovation, Science and Economic Development Canada, told The Bottom Line the federal government’s goal is to ratify the agreement by Canada’s 150th anniversary in 2017.

In the meantime, “Premiers have tasked internal trade ministers to conclude negotiations on technical issues before submitting the agreement to first ministers for consideration,” Power said.

Click here to see this article in our digital edition (available to subscribers).