The Economist gets high on TILMA

The Economist so fetishizes “free trade” that it eagerly swallows TILMA without bothering to do any fact-checking. The way this is framed below, you would think people in BC are cheering that they will finally be able to buy Alberta oil. As for evidence, the article points to the Fraser Institute, who has not done any research on the topic but who have merely recycled a discredited number from 1991 by the Canadian Manufacturers’ Association. The best estimate of barriers comes from the 1985 MacDonald Commission which put them at a measly one-twentieth of one percent of GDP (and that was well before the 1995 Agreement on Internal Trade). The Economist also cites “500 trade impediments” though I have no idea where this number came from – I have read almost everything on the topic of internal trade and have never seen a listing of barriers compiled.

The fact of the matter is we already have free trade within Canada: there are no customs inspection stations at provincial borders; we share the same currency; no passport is required for internal travel; people are free to trade, invest and move anywhere in the country. Proponents of TILMA between them can only come up with a handful examples where differences in provincial regulation (“non-tariff barriers”) are an irritant to business, but they have never proven that even these few examples actually cause economic harm to companies. TILMA is really about deregulation, and gives investors the ability to sue governments for regulatory differences perceived to violate the deal.

Consider another federal system: the United States of America. Like Canada, states have different regulations, laws and procedures. If anything these are more of a challenge than in Canada because of the number of states and the rather decentralized form of federalism they have (think about California’s approach to climate change, for example). Yet, I have never heard one complaint that “free trade” does not exist in the US. Unlike Canada, if politicians said such things they would likely get laughed out of the room.

My challenge to provincial governments is this: get your business associations to come up with a list of their top ten irritants in engaging in commerce with other provinces, then deal with them. As long as they do not compromise legitimate public interest regulation, I have no problem with this approach. It would capture almost all of the benefits of TILMA while avoiding the costs. I said this much to BC’s minister, Colin Hansen, and he replied that TILMA was needed as an overarching framework not so much to solve problems with internal investment but to spur international investment. They obviously feel that this is a political winner for them, and will not be convinced otherwise. We can only hope that other provinces are smarter.

Barrier-busting: Free trade comes to the Rockies

ITS thriving economy owes much to the North American Free-Trade Agreement with the United States and Mexico, and it is negotiating similar deals with other countries. But Canada’s commitment to free trade has not applied inside its own borders. Business chafes at the manifold non-tariff barriers that hinder trade among the country’s ten provinces and three territories. Now, at last, comes an effort to knock down some of these walls.On April 1st a Trade, Investment and Labour Mobility Agreement will come into effect between British Columbia and Alberta. This is supposed to eliminate almost all barriers to the free flow of trade, investment and labour between Canada’s westernmost provinces.

Governments can still pursue differing tax and labour policies. But businesses will need to register only in one province, rather than in both as before. Investment and government-procurement rules will be standardised, no longer favouring local businesses. Skilled workers will be able to work on both sides of the Rocky Mountains without having to take new courses. When the agreement is fully implemented in two years’ time (following further negotiations), many regulations will be reconciled and needless ones scrapped. No longer, for example, will farmers trucking hay across the provincial border have to restack their loads to comply with an arcane transport rule.

The agreement, reached after three years of talks, is the result of “mutual frustration” with the lack of progress towards countrywide free trade, says Colin Hansen, British Columbia’s minister of economic development. Talks on that have drifted along for 12 years—even though their aim is only to eliminate internal trade barriers “to the extent possible”.

Some economists say this balkanisation of the economy is a big reason for Canada’s sluggish productivity growth. There are perhaps 500 separate trade impediments, ranging from regulatory fine print to outright protectionism, such as Quebec’s ban on margarine coloured to look like butter. These barriers cost the equivalent of 1% of GDP, according to the Fraser Institute, a pro-business think-tank.