What Inter-provincial Barriers?

Like so many commentators on this topic, Andrew Coyne attacks the inefficiency and absurdity of alleged “internal trade barriers” without actually naming any. He could presumably trot out the two or three usual suspects, but does he believe that Canada’s “economic union” depends upon the colour of margarine in Quebec?

Coyne writes that, “Viewed strictly as a legal matter, the feds could probably invoke the Trade and Commerce power, and strike down provincial trade barriers unilaterally.” This possibility was briefly raised at the federal conference on internal trade that I attended at the end of March. The courts have fairly consistently ruled that a provincial government may regulate trade in a commodity if it is predominantly sold within the province in question, but not if much of it enters into inter-provincial exchange. There is no need for the federal government to “invoke the Trade and Commerce power”: anyone could simply take a provincial government to court for acting outside its jurisdiction and have the offending legislation struck down.

Because the Constitution has always banned genuine inter-provincial trade barriers, almost none exist. What many commentators call “inter-provincial barriers” are, in fact, regulatory differences between provinces. All of the economic evidence indicates that these differences have no measurable effect on inter-provincial trade flows.

In some areas, including securities regulation, it would probably be good if the federal government established a common national standard. The problem with TILMA, and with Alberta’s call for “mutual recognition” among provincial securities regulators, is that this approach pushes provincial standards toward the lowest common denominator.

Coyne’s second-best solution is a “Grand Bargain”, through which the federal governments would give tax points to provincial governments in exchange for the elimination of internal trade barriers. Indeed, he had been quite disappointed when the most recent federal budget addressed the fiscal imbalance without any such quid pro quo:

And what did the feds get in return? Last year’s [2006] budget made some encouraging noises to the effect that Ottawa would use the leverage of its largesse to make some demands of its own, insisting that the provinces get serious about the economic union, harmonize their sales taxes with the GST, accept a national securities regulator, and so on. And now that the money has been delivered? The usual bumf about “working with” our provincial partners to build upon the precedent set in the zzzzzzzzzzz.

Now Coyne’s hopes are up again, but he should be careful what he wishes for. One of the federal government’s stated “economic union” goals is to have more provincial governments join TILMA, an agreement of which Coyne is rightly skeptical.