Jim Prentice’s TILMA Testimony

Last week, Industry Minister Jim Prentice appeared before the  Senate Banking, Trade and Commerce Committee to make the case for TILMA as a means of overcoming those dreaded interprovincial trade barriers, examples of which, according to the Minister “are legion”. What examples does the Minister cite? Here is what I can find:

For example, some Canadians, such as teachers and nurses, may  still be denied their right to work anywhere in Canada because their qualifications are not recognized in another jurisdiction.  In other circumstances, businesses face regulatory requirements that discourage any expansion outside their province such as in the case where differing provincial technical standards exist for ethanol blending in fuels.

… Without belabouring the point, you are well aware of the restrictions in terms of some food products, things like alcohol highlight the fact that it is easier for a truck to carry a heavy load of goods from Alberta to Mexico than it is to travel to British Columbia in certain respects because the weight and dimension restrictions for transport trucks vary in this country from province to province.  We have different provincial technical standards for ethanol blending in fuel as well, and we have a large number of other issues, in particular procurement, where barriers and restrictions need to be examined if we are going to continue to expand the Canadian economy.

Let’s unpack this a bit. First of all, given the demand for nurses around the country I have not heard any stories of mobility issues here. There may be the odd bit of upgrading for teachers, but I would suggest “denied their right to work” is overstating any problems that exist. Second, it is incorrect to call labour mobility issues a “trade barrier, even though I am sympathetic to ensuring that professionals have their qualifications recognized in other provinces. While historically there have been legitimate concerns related to differences in certification requirements by professional self-regulating bodies, much progress has been made in resolving such issues. The few remaining areas that need attention are being looked at through an interprovincial process through the AIT. These largely constitute delays in being able to practice, rather than barriers to mobility. In some cases, however, such delays are warranted as laws and local conditions differ from one province to the next.

In my searches through several hours of testimony before the Senate Committee , I could find only two items that could be considered bona fide barriers to trade. The first is alluded to by Prentice: independent provincial inspection of meat products is considered a barrier, but it is also acknowledged that there exists a federal inspection regime, which if complied with, eliminate this so-called barrier.  The second, vegetable oil products, is at the heart of the Quebec margarine issue, in which Quebec restricts the colouring of margarine to appear the same colour as butter.  This may well be a classic barrier, though testimony by the relevant industry association put their costs of the barrier at roughly 0.2% of their total revenues, and since removal of the barrier would mean a loss elsewhere in the existing marketplace, the net benefit is likely to be rather small.

The ease of trucking to the US and Mexico, compared to BC, is surely incorrect. Border waits alone would comprise a major economic cost, compared to anything at the Alberta-BC borde, though ensuring that loads can handle the mountainous terrain in BC is surely a reasonable source of regulatory difference. In any event, the vast majority of good shipment across that border is on rail not trucks.

The ethanol blending issue is news to me. I will probe deeper, but for the moment I will concede this one to Prentice. But the sum total of evidence so far leaves me underwhelmed that we have a serious issue here. Prentice goes on to make a funny when he compares serious studies about the costs of alleged barriers to the truly preposterous estimate of the Conference Board, in its BC-government-commissioned “study”:

When one tries to assess the cost of internal trade barriers you will hear from economists and people with more expertise than myself on this and those estimates vary considerably, but whether you are speaking of the low end of the range, which some people have categorized as 0.2 per cent of GDP, this amounts to $2 billion to $3 billion annually, up to higher figures, estimated costs as high as 3.8 per cent of GDP, obviously much more significant numbers.

In a review of a similar contract with the Saskatchewan government, UBC economist John Helliwell likened the Conference Board exercise to “estimating national GDP by asking households how they think everyone else is doing these days”, and concluded that the Conference Board estimates had “no empirical support”.  Even the CD Howe Institute, in its testimony to the Senate Committee, while supporting the abstract case for trade barriers, claimed the Conference Board estimates to be “widely exaggerated.”

In fact, the Whalley and Trela estimate for the MacDonald Commission, though twenty years old now, was even smaller than the range cited by Prentice, at 0.05% of GDP. While some of the evidence is now quite dated, the finding that interprovincial barriers must be incredibly small is corroborated by “gravity models” estimating border effects (pioneered by Helliwell and now-Liberal finance critic John McCallum). Such models find that, after adjusting for population size and distance to market, Canadian provinces are substantially more likely to trade with each other than with US states.  That number has fallen in recent years but still amounts to a factor of 12 for goods and 30 for services.

Moreover, in recent years, interprovincial trade has grown faster than international trade: between 1997 and 2006 BC’s exports to other provinces increased by a total of 95% compared to 43% for international exports; BC’s imports from other provinces grew by 63%, while imports from other countries grew by 52%.