Senate Transcripts of Erin and Marc’s Excellent Adventure

The Senate has posted transcripts of the Standing Committee on Banking, Trade and Commerce’s meetings on May 16, when I testified about “issues dealing with interprovincial barriers to trade,” and May 17, when Marc testified about this topic. Marc has already posted his written presentation. My section of the transcript follows:

Proceedings of the Standing Senate Committee on Banking, Trade and Commerce

Issue 23 – Evidence – May 16, 2007

The Chairmen (Senator Grafstein): Honourable senators, we are now moving to a different topic, the barriers to trade within Canada. We do not have a free trade zone in Canada; we have a number of interprovincial barriers. Our Standing Senate Committee on Banking, Trade and Commerce is now examining interprovincial and inter-territorial trade barriers that exist in Canada and more particularly the extent to which these trade barriers are limiting the growth and profitability of the affected sectors, as well as the ability of businesses in these provinces and territories, jointly with relevant U.S. states, to form new economic regions of growth that we believe will enhance prosperity.

We are looking at the impact of interprovincial barriers and new ways of forming partnerships along the border to increase productivity in Canada.

The committee believes that the topic of internal barriers to trade is critically important as we seek a prosperous and competitive future. The barriers, in the view of this committee, often increase costs for business and perhaps ultimately for the consumers and may lead to inefficiencies in the marketplace that reduce Canada’s productivity and competence. We need to focus on actions that will enhance competitiveness and productivity and removing internal barriers to trade that are harmful to achieving this goal.

We also believe that the hearing today is important in the context of the Minister of Finance’s statement back in November 2006 about increasing competition and productivity.

There are two particular policy commitments in terms of our industry, namely, to foster a stronger economic union by continuing to engage with provinces and territories with respect to internal trade and labour mobility — there has been some news on that front — and to work with provinces to create a common securities regulator, and more about that in the future.

With are pleased today to have before us a representative of the Canadian Labour Congress, Mr. Weir, who is an economist.

Mr. Weir, before you start, let me apologize. The hearing got a bit out of hand because of the intense nature of the question. We will go as long as we can and then we intend to have you back at the earliest opportunity, if that is okay with you. You are in Ottawa, I take it, so it is easy for you to return.

I apologize on behalf of myself and the deputy chairman. Please proceed.

Erin Weir, Economist, Canadian Labour Congress: Thank you for the opportunity to appear before this committee. The main message that I want to bring today is that the issue of alleged interprovincial barriers has been significantly overblown and that in many cases the proposed cures are worse than the supposed disease.In Canada, we have neither customs stations along provincial borders nor any sort of tariff on interprovincial trade. The Constitution clearly assigns jurisdiction over interprovincial trade to the federal government and the courts have consistently struck down attempts by provincial governments to obstruct it.

What many commentators refer to as interprovincial trade barriers are in fact differences in regulation between provinces, which I would argue are inevitable in a federal system, but most important, there is no economic evidence that these regulatory differences between provinces have any effect on interprovincial trade. I have submitted to you a paper by Dr. John Helliwell. Research that he has conducted demonstrates that relative to distance and market size, trade between provinces is just as intense as trade within provinces. In other words, there is no indication that provincial boundaries obstruct trade in any way.

Statistics Canada data shows that from the year 2000 through the year 2006 Canada’s interprovincial exports grew four times faster than our country’s international exports. There, again, it is not clear that interprovincial barriers are obstructing interprovincial trade.

Continuing on with this theme, the 1985 Macdonald Royal Commission examined the issue. Research conducted for that commission concluded that interprovincial barriers cost no more than 0.05 per cent of gross domestic product — that is, one twentieth of 1 percentage point of GDP. We have seen since then that the agreement on internal trade has eliminated many or most of the barriers that existed at the time of the Macdonald commission. This percentage of 0.05 percentage of GDP corresponds to less than $1 billion based on Canada’s current economy, but the cost of those barriers that still remain must be closer to zero than to $1 billion.

I wish to give you the conclusion put forward by that commission in 1985: The direct costs of existing interprovincial trade barriers appear to be small. Their quantitative effect on the level of economic activity in Canada is not sufficient to justify a call for major reform.

I would suggest that those few barriers that remain are certainly not sufficient to justify the sweeping legalistic approach of the Trade, Investment and Labour Mobility Agreement that recently came into effect between Alberta and British Columbia. This agreement’s extremely broad language combined with almost unlimited capacity for private interests to sue provincial governments, municipalities and school boards could have all sorts of pitfalls, risks and negative effects on provincial policy. The papers that I have submitted to you by Gould and Shrybman outline a number of ways in which this agreement would constrict the ability of provincial governments to act in the public interest.

My conclusion essentially is that if we are talking about the proposed Trade, Investment and Labour Mobility Agreement, it would deliver no meaningful economic benefit but would entail significant costs in terms of reduced policy capacity for any provincial governments that sign on to it.

Senator Ringuette: I wish to invite this witness to appear at another time so that we can go through all these papers and be efficient in our quest.

Senator Moore: I find your comments interesting. You said that it is not clear that interprovincial barriers are the cause of loss of productivity, and you quoted some numbers. You said that the agreement between British Columbia and Alberta was not warranted, especially in view of the significant labour costs that would be involved.

That is contrary to everything we have ever heard. Everyone who has been before us, from the Governor of the Bank of Canada to other premiers, have all said the contrary.

In the case of the British Columbia and Alberta deal, we were told that it would enhance the economy of Alberta alone by $450 million in the first year and would add about 4,400 jobs, which I thought was indicative of the value of such an agreement. Obviously, Ontario must have thought similarly because Ontario is now trying to become part of such an agreement.

Senator Meighen: Quebec wants to join the agreement.

Senator Moore: That is right, Senator Meighen.

I find your comments to be interesting. Maybe you can enlighten me. Are all those people wrong? The numbers are happening, it seems. Tell me the basis for your thesis that that it is not a good thing.

Mr. Weir: You are absolutely correct in suggesting the perspective that I have presented is different from ones you have heard in the past. That is precisely why I appreciate the opportunity to appear before this committee.The numbers that you alluded to regarding the benefits from this Trade, Investment and Labour Mobility Agreement were generated by the Conference Board of Canada. Those numbers are open to significant question. The paper that I coauthored with Marc Lee, which I have submitted, presents a detailed critique of the Conference Board of Canada’s estimate with respect to British Columbia. The board estimated that British Columbia would gain $4.8 billion from the agreement, which is more than half the value of all the goods and services they currently export to Alberta. It is just not believable that an agreement that would slightly facilitate those exports of goods and services would deliver benefits equal to half or more than half of the current value of those exports.

I have also submitted to you a note by Patrick Grady, a former senior finance official, who essentially endorses my critique of the conference board’s report with respect to British Columbia.

Finally, turning to Saskatchewan, the paper by John Helliwell that I have submitted deals with the conference board’s study of that province. He is a former president of the Canadian Economics Association. He writes that “there is no empirical support for the conference board estimates of GDP and employment changes.”

Senator Moore: Is that in this report?

Mr. Weir: Yes. It is on page 7, the start of the section entitled “Summary and Possible Next Steps.”

Senator Meighen: Senator Moore, may I have a supplementary question on that?

Senator Moore: Yes, go ahead.

Senator Meighen: Mr. Weir, even if those estimates are wildly exaggerated, you alluded to some dangers or negative effects, as I interpreted your remarks. What would those be in those labour mobility agreements?

Mr. Weir: The negative effect is essentially that the agreement — the acronym is TILMA, Trade, Investment and Labour Mobility Agreement — does not try to ban measures that are discriminatory between different provinces, but, in fact, purports to ban any measures that “restrict or impair” interprovincial trade, investment or labour mobility.

The Chairman: Mr. Weir, just for a moment, TILMA refers to the Trade, Investment and Labour Mobility Agreement. We now have two. We have one between Alberta and British Columbia; we understand other provinces are joining. We now have one between Ontario and Quebec. We understand that now Mr. Charest wants to expand.

Senator Ringuette: We do not.

Senator Meighen: We do not. The Charest government is proposing one.

The Chairman: Mr. Charest is proposing one, but there is one in Alberta and other provinces are now negotiating to be added on. That is what TILMA refers to.

Mr. Weir: To be crystal clear, I am referring to the agreement between British Columbia and Alberta. It proposes to ban anything that restricts or impairs these economic activities. I have a great deal of difficulty thinking of any significant public policy or law or regulation that does not in some way influence those economic activities. The agreement, I suppose, has yet to be tested before these dispute resolution panels, but it seems to me that at best the agreement will have a chilling effect where municipalities and school boards will be afraid to do all sorts of things or to strengthen their standards in any way for fear of being sued for up to $5 million under this agreement. It is far more sweeping than the North American Free Trade Agreement. We have already had some problems with chapter 11 of that agreement in some of the cases brought forward. This agreement’s dispute resolution process makes it even easier for private interest to challenge public policy. That is the real risk I see, the fact that it could constrict the ability of governments to fulfill their duties and act in the public interest.

As I mentioned, these papers by Gould and Shrybman go into specific examples of how that might happen.

There has already been a case of a school board in British Columbia that was proposing to ban junk food in its schools and was told it would not be permitted to do so because it would violate TILMA.

Senator Goldstein: I have read what trade unionists have been saying about TILMA. Larry Hubich — who, I assume you know, is the president of the Saskatchewan Federation of Labour — spoke to the concerns that he had, and I am quoting here, “that school boards would lose the ability to mandate healthy lunch programs, municipalities would be powerless to limit building heights or ban pesticides, provinces would be incapable of regulating nursing homes,” et cetera.Surely, that is an issue where the extent of interference by a pact or an accord of this nature is measured only by the language that is within that pact. If the language within the pact deals with and limits itself to the reduction or elimination of barriers to free trade without regard to wider language, then surely you should have no concerns about this.

Second, out of an interest of clarity, it seems to me that your example of the B.C. school board was an example of someone giving advice to the school board or to the school and is certainly not a judgment that was rendered by a court or by an arbitration tribunal.

Frankly, I get the feeling — and I am going to be blunt about it and I apologize if you think I am too blunt — that trade unions that are provincially based are very interested in maintaining their power base within the province and do not like the idea of having a broader interprovincial type of trade going on. I refer, for instance, to the NAFTA agreement where, with all of its problems, we have not had schools not being able to ensure that junk food is not sold. It just does not happen that way.

Mr. Weir: To go to the first part of your question, the unfortunate thing about this agreement is that the language is very broad and does not restrict itself to dealing with the genuine interprovincial trade barriers. In fact, as I have suggested, very few such barriers exist. What I would prefer to see is some sort of agreement that identifies specific problems and proposes specific solutions rather than an agreement that purports to be comprehensive for almost all of the entire economy and then gives private interests the ability to sue governments for alleged violations.It may be that all of these pitfalls will not come to pass. However, why take the risk, given that the problem is not that great and given that there are better ways of addressing it?

In terms of the B.C. school board case, you are absolutely right, that is not a tribunal judgment. In fact, the agreement does not come into force for school boards and municipalities for another two years. I think it does speak to the chilling effect that I mentioned where having this broad agreement out there may deter entities from pursuing good public policy.

In terms of the notion of trade unions being provincially based, I would simply point to the fact that the Canadian Labour Congress is very much a national organization. In fact, we are very much in favour of strong national standards in many of these areas. What we are concerned about is an agreement that might push standards in all provinces down to the lowest common denominator.

Senator Goldstein: Mr. Weir, if I am a master electrician in northern Manitoba and a member of the union, and I get a job offer to go do some work next door in Ontario, I cannot do that without joining the union — correct?

Mr. Weir: Are you suggesting that the existence of trade unions is an interprovincial issue?

Senator Goldstein: No, that would be the last thing I would suggest. I am, however, suggesting that the restrictiveness of union membership and the absence of agreements between different provincial unions preclude labour mobility, in very large measure.

Mr. Weir: I will speak to labour mobility specifically within the skilled trades. The federal government has established something called the Red Seal Program, which sets up high nationally recognized standards in many trades, including electrician.

Senator Goldstein: Yes, but the Red Seal standards have yet to be adopted by a single trade union.

Mr. Weir: I beg to differ. My father trains apprentice electricians in Saskatchewan and all of them are trained to meet the Red Seal standard in that province.

Senator Goldstein: Yes, but being trained to meet the Red Seal standard does not permit a Saskatchewan electrician to go work in Manitoba.

Mr. Weir: I believe that it does, unless Manitoba does not recognize the Red Seal Program.

Senator Goldstein: It is the unions that do not. They recognize it, but they will not, nevertheless, accept the master electrician that goes from one province to the other.

The Chairman: This is a factual dispute. Perhaps you might look into it and given us a letter to respond to it. I think there is a difference of opinion here, and we cannot settle it here. Maybe you will do a little bit of homework and we will do the same. Please send in a letter of clarification to our clerk.

Senator Massicotte: You are an economist by profession, so I need some of your help. What I learned at school is this: The more fluid the markets are, the more fluid the labour markets and the capital markets, basically product, will assist the economy adjust more quickly to all economic adjustments it must make on a consistent basis and therefore allow the market economy to be more efficient and eventually in satisfaction of allocation of its needs within the society.As a starting point, you say, no. When you read the objective of that agreement, it is fluidity of adjustments in the economy. However, you are saying, no, that could not be the interest. Help me out there. Explain why that objective would not be in the interest of the best economy.

Mr. Weir: I believe you have correctly articulated the basic economic theory of free trade. My argument is that there are really no interprovincial barriers that impede fluidity in any measurable way.If you look at interprovincial trade flows, we find that relative to distance and market size, Canadian provinces are about 12 times more likely to trade goods with each other than with American states. They are about 30 times more likely to trade services with each another than with American states. Undoubtedly, some provincial regulations do impose costs on business in achieving certain public policy objectives, but I have not seen evidence that those regulations impede trade between provinces or impede the overall fluidity of our economic union.

Senator Massicotte: Yet, in my province of Quebec, it is normal politics whereby there is political pressure for the premier to adopt policies that favour votes, and therefore it seems to be in his favour. However, a lot of common sense analysis suggests that it is really only short term. It does impede trade and fluidity of the labour markets, or capital markets or materials markets. Therefore, only in conjunction with a master agreement where all parties put down parochial, partisan interests can Canada benefit. Just that common sense observation would suggest that there are many of these agreements and therefore merit to free trade agreements, but are you saying there are not?

Mr. Weir: This is an area where this committee could make a useful contribution to the debate. It does make sense to scrutinize provincial regulations and weigh the costs that they impose on business against the public policy objectives they seek to achieve. If we find that there are regulations that do not achieve a worthy objective and do entail economic costs, then by all means those are good grounds to reform. However, we should look at provincial regulations on their own merit rather than through this fog of concern that has been created about interprovincial trade. Many of these regulations are worthwhile issues to debate; however, there is no evidence that they influence interprovincial trade. Therefore, I do not find it helpful to discuss them in that context.

The Chairman: Let me take a minute or two. I want to take up Senator Moore’s line of questioning. This comes as a bit of a surprise to this committee. Perhaps we have been suffocated by the so-called fog of lack of information. However, the report you referred to was the report of Donald Macdonald in 1985. We are talking about the change in statistics at that time to the present time.This committee did a study, and we received information, not just from the Conference Board of Canada but also from the Canadian Centre of Living Standards. Based on the information we received at that time, we concluded that a number of sectors of the economy that were inefficient. One of the leading sectors was the financial services sector. We do not have a single regulator. Ours is the only country in the world that does not have a single securities regulator, and that is inefficient and it costs more to raise capital and slower in Canada than in other places. Therefore, that impedes growth.

We also heard from individuals from the construction industry — and this I believe relates to Senator Goldstein’s question — with respect to the construction industry. We know in Toronto, for example, there was a splurge of construction and we could not get, because of the interprovincial trade barriers, bricklayers or electricians or others to come across the border, and they were out of work and not doing well in Montreal.

Somehow you have raised the issue for us and we will obviously have to go back and track this, but just talk about the construction industry for a moment, which by the way is one of the most unproductive in terms of productivity, and we have satisfied ourselves with that. Do you not think that that present a problem? Does this labour mobility agreement between, for example between Alberta and British Columbia, not help that situation, allow labour to move easily across the border to where there is demand?

Mr. Weir: I will begin by saying I support the idea of a national securities regulator. In terms of the construction industry; I also support the Red Seal Program and would support expansions of that program. Both of those types of approaches speak to establishing high common national standards recognized by all provinces, which is a good idea.The agreement between Alberta and B.C. in terms of the construction trades simply recognizes and goes along with the existing Red Seal Program. The agreement does not do anything more to increase labour mobility in that area. In fact, if you read the Conference Board of Canada’s impact assessment on British Columbia it even makes the argument that there could not be gains in the construction industry because there already is labour mobility there under the Red Seal Program. Even the conference board, which is quite an aggressive advocate of getting rid of interprovincial trade barriers, concedes that in the case of construction there really are no such barriers.

In general, I reiterate that in cases where there are specific problems I am all for federal and provincial governments sitting down and figuring out specific solutions to those problems. I object to signing a sweeping agreement that purports to apply to almost all areas of the economy and then relying on these tribunals to interpret it in a limited way so that it applies to specific barriers.

The Chairman: As I understand it, and senators can correct me if I am wrong, the number of exemptions in the labour mobility agreement between British Columbia and Alberta was approximately 178. It is not as if it is total free trade. It is full of exemptions. We heard evidence on the question of accountants, the dispute between the chartered accountants and the certified general accountants. They could not move freely because of so-called high standards. When we cross-examined and determined those standards, those high standards were really productive measures, they were not those that would increase mobility in terms of allowing CGAs to move easily across borders and be recognized. When you say “high standards,” we automatically think: Is it high standards, or are they protective measures in themselves that decrease labour mobility?

Mr. Weir: You are definitely right to pose the question with respect to the regulated professions. In many of those professions, mutual recognition agreements are already being signed between different provinces. Some of the reasons that some of those professions are exempt from TILMA is that those professions are regulated at arm’s length from provincial governments, so it is very difficult to iron out those things through any sort of interprovincial agreement. There certainly is the possibility for self-regulating professions to abuse their regulatory power to protect their turf, but it is difficult for me to think of what the constructive solution to that could be other than negotiation with those bodies or provincial governments being quite heavy handed in taking over the regulation of those professions, which it does not seem to me anyone is advocating, including the supporters of this B.C.-Alberta agreement.

The Chairman: We are at the end of our meeting. Mr. Weir, I would hope that you will come back again. I intend, subject to a steering committee, to invite back representatives of the Conference Board of Canada, and perhaps you could bring your experts, so that hopefully we can get to the bottom of this factual dispute between yourself, your advisers, and the conference board and others. Perhaps we might have them, as Senator Goldstein says, at the same time. We will refer this matter to our steering committee because we want to get at the facts here and we want the facts to speak for themselves.Thank you for your evidence. We will bring you back at time convenient to you and to this committee. We want to thank you for this very interesting and quite different information that we have received today.

The committee adjourned.