TILMA’s fuzzy math

BC and Alberta signed a new agreement earlier this year to reduce interprovincial barriers to trade. The Trade, Investment and Labour Mobility Agreement (TILMA) is due to go into effect in April 2007. Apparently Saskatchewan and Ontario are now considering signing on as well. While it is widely believed in business circles that there exist large barriers to trade within Canada, this has never been proven to be the case. I have even heard claims that barriers to trade within Canada are larger than for Canada-US trade, which is, of course, absolute nonsense.

The BC government is touting some huge numbers that it says will be the economic benefits from the deal:

… According to a recent report by the Conference Board of Canada … the B.C. and Alberta agreement has the potential to add $4.8 billion to real GDP and create 78,000 new jobs in B.C. alone.

Consider that BC’s exports to the US of softwood lumber are $4.8 billion. I find it completely implausible that this amount, about 2.5% of BC’s GDP, could be realized through TILMA. This is in the range of what many economists predicted as the benefit to Canada from the Canada-US free trade deal, and that reduced real tariff barriers. In terms of jobs, this would be an increase of 3.6% over current employment levels, another astonishing number.

There are two principal differences across provinces that might be considered “barriers”, neither of which has a solid empirical claim to gains on that order of magnitude. The first is labour mobility, largely the ability of professionals to get certified in a different province should they move there. This is a national problem that is being worked on outside the TILMA agreement. But accelerating accreditation it is unlikely to have much economic impact, especially if labour markets are tight on both sides of the border. There would be a plausible economic benefit if, say, there were a large number of unemployed workers in Alberta that could be readily put to work in BC if only they could get accredited. But it could also be the case that skilled workers find it easier to leave BC for Alberta if Alberta can offer higher wages; this cuts both ways and oil-rich Alberta has deep pockets.

The second matter is differences in regulation. This raises the whole issue of why there should or should not be regional differences in environmental protection, employment standards or consumer protection. And thus we have to consider not just the cost of regulation to business but the benefits of regulation to everyone else, and on that score there is good reason to believe that benefits outweigh costs (though the methodologies deployed get murky pretty quickly on both sides of the ledger). But even if we were to leave these questions aside, regulatory harmonization is unlikely to deliver the gains claimed by the BC government.

The problem is that this “recent report” from the Conference Board was actually commissioned by the BC government, and it has not been released publicly. A colleague of mine who is doing an analysis of the TILMA agreement tried to get a copy from the Conference Board and was told by the study’s author:

That study is under lock and key. I’d go to jail if I released that report. You know it’s like the saying “Can’t comment because it’s still before the courts.” I’ve had a lot of requests for the study and I call up BC and they’ve said oh, no, no, no, we’re still negotiating with Alberta and that could jeopardize the negotiations. So the whole report’s highly secret.

Asked to comment on the claim that there were indeed huge interprovincial barriers, the author stated:

That’s was just on the basis of counting. That’s just the mass of them. We did not do the impact of interprovincial trade barriers on Canada. I don’t know what that is.

A number of media outlets also claimed that trade barriers cost 1% of GDP, attributing this to the Conference Board. In reality, it is from a widely debunked article from the Canadian Manufacturs Association around 1990 (more on that bit of chicanery here). Response:

1% of GDP is not our number. I haven’t got a clue where the 1% of GDP comes from. I know we did a lit review. The press usually don’t screw it up that badly. So I’m sure somewhere in there there’s some figure that we quote that estimated a 1% cost.

… I never analyzed for Canada the cost of interprovincial trade barriers. Shit, that’s a few million bucks. Find somebody to give me that kind of money and I’ll go out and do it. It’s not easy, I’ll tell you.

The figures don’t exist. Nobody knows. There’s work done by the Fraser Institute. The Fraser Institute has possibly the most credible estimate but it’s very rough and ready. I think we do quote the Fraser Institute in Death by a Thousand Cuts. We didn’t give them high marks.

Nor did the study look at the benefits of regulations:

No we didn’t do that. You could do that. That’s the other side of the coin. I didn’t think I need to look at the benefits of how many more people would not die. We did look at possible benefits from regulation for business.

So there you have it. While most organizations or academics publish their findings to put them in the public domain, the BC government is keeping the source of its exaggerated claims “under lock and key”. The methodology is not stated, either. If this deal is as profound as the government claims and the benefits are so large, shouldn’t people have an opportunity to see the background calculations. It is hard to scrutinize something that you cannot see.

This is important because there are some major downsides to the TILMA deal, such as the ability of companies and individuals to use commercial arbitration procedures to sue governments for up to $5 million in compensation should a public interest regulation impair their profits. There are exemptions in the agreement, but a secret panel of trade lawyers will be the final arbitors. So, another low point for accountability and transparency.