Free trade deals stymied by domestic barriers
Embassy, Canada
Free Trade Deals Stymied By Domestic Barriers
The trade minister claims Canada is back in the game, but interprovincial trade barriers are keeping the country from being in top form.
By Lee Berthiaume
27 June 2007
When International Trade Minister David Emerson announced earlier this month Canada’s first free trade agreement in six years, he said the deal, combined with the government’s intentions to conclude ongoing talks with several other trading partners and start a host of new negotiations, was a sign that Canada was "back in the game."
Less than two weeks later, Mr. Emerson and his Indian counterpart, Kamal Nath, revealed that the two countries had signed a Foreign Investment Promotion and Protection Agreement, considered the precursor to a free trade deal.
Mr. Nath went so far as to say last week at the International Economic Forum of the Americas in Montreal, where nearly a full day was devoted to discussing ways the Canadian agricultural and agri-food industries can plug into the vast Indian market, that he would like to see bilateral trade reach $20 billion by 2012.
Yet while the government’s efforts to promulgate new trade and investment deals have received applause from many corners, experts and private sector leaders say that Canada will never see the full benefits of any deal so long as our own house is not in order.
And while a host of domestic problems have been identified as detracting from Canadian competitiveness and ability to succeed abroad, experts say the protectionist attitudes and numerous non-tariff barriers between provinces, ranks as one of the most damaging.
"We still have barriers in place in Canada that would be illegal in Europe," said Perrin Beatty, president and CEO of the Canadian Manufacturers and Exporters. "It’s bizarre that in the case of [propane tanks], you need to have 10 different certifications by provincial governments. Why does your propane tank become dangerous when it crosses provincial barriers?"
When the Canadian government under Brian Mulroney signed a free trade agreement with the United States in 1989, at which time Mr. Beatty was a Cabinet minister, one of the hopes was that Canada would eliminate its internal barriers to the mobility of goods and labour.
That never happened, Mr. Beatty said. The barriers not only protect such groups as unions, but also reduce competition for local companies, so they can survive. But on the flipside, experts say the companies end up being uncompetitive, inefficient, and only able to operate in smaller markets.
When barriers with other countries are dropped, Canadian companies are therefore unable to compete or take full advantage. Mr. Beatty said the business community is frustrated as the barriers not only contribute to inefficiency, but add extra costs as well.
"We are a small market and we need every advantage we can get when competing in the global marketplace," he said. "That certainly means you don’t fragment your domestic market."
In a report released in March, the Conference Board of Canada found that making changes to Canadian policies-such as interprovincial trade and mobility barriers-is a critical first step for international success.
"In order for Canadians to boost trade and investment by taking full advantage of greater access to other markets and successfully promoting Canada abroad," the report reads, "leaders need to ensure that our companies are competitive by establishing the conditions for global success at home."
The report noted that in December 2006, the Organization for Economic Co-operation and Development ranked Canada as one of the most restrictive developed countries in terms of investment controls such as barriers to foreign personnel, operational freedom, screening and foreign ownership.
Barriers Make Success ’More Difficult’: B.C. Minister
In 1994, federal, provincial and territorial premiers signed the Agreement on Internal Trade, which was supposed to reduce barriers on goods, services, investments and labour mobility between provinces. But the agreement has been considered largely ineffective.
Nine years later, the premiers agreed to form the Council of the Federation to tackle the same problems, but experts say the council has been moving ahead only incrementally and was taking too long to tackle the real interprovincial barriers.
The same day Mr. Emerson announced the successful completion of a free trade agreement with the four-country European Free Trade Association, U.S. Ambassador David Wilkins raised his own concerns about interprovincial barriers in a presentation to business leaders and government officials.
"Canada and the United States would benefit from reducing interprovincial barriers," he said.
Earlier this month, Industry Minister Maxime Bernier delivered a strongly worded message to the premiers during a meeting at St. John’s, Nfld., admonishing the provincial and territorial leaders for failing to make any progress on labour mobility, which is essentially the recognition of professional credentials across borders.
"Canadians should be free to work and to have their occupational qualifications recognized across the country," Mr. Bernier said in a statement on July 7. "This should be a right of citizenship.
"We want to take action to foster a stronger economic union by working with provinces and territories to eliminate barriers to labour mobility within Canada," he added. "With leadership, political will and flexibility, we can eliminate barriers to the movement of persons, goods, services and investments within Canada."
In light of the slow progress being made by trying to hash out agreements between all the provinces and territories with the Agreement on International Trade and Council of the Federation, Alberta and British Columbia last year signed what is essentially a free trade agreement between the two provinces that has created the second largest economy in Canada.
The Trade, Investment and Labour Mobility Agreement came into effect on April 1 and has already garnered praise from the likes of Mr. Bernier and Mr. Wilkins. Colin Hansen, B.C.’s minister of economic development, said word is already spreading in foreign markets that the two provinces are open for business.
"I wouldn’t say [the interprovincial barriers] are preventing us from succeeding," Mr. Hansen said in an interview with Embassy last week. "But it certainly makes it more difficult."
While foreign businesses will now have fewer hurdles to jump through if they want to do business in both provinces, Mr. Hansen said Canadian companies based in Alberta and B.C. will also be more competitive abroad.
"It’s often been said that there aren’t many Canadian companies that are big enough to build significant export opportunities for goods or services," Mr. Hansen said.
"We are working today to build the consortium of companies and the collaborations that will actually get a large enough synergy to make a mark on the international stage. When we can do that more easily with B.C. and Alberta companies, it will make it that much easier to export goods and services."
The agreement is designed so other provinces can sign on at any point if they wish, but Mr. Hansen said it lies on the private sector to apply enough pressure on provinces to do so.
Mr. Beatty, who will leave Canada Manufacturers and Exporters in August to become president and CEO of the Canadian Chamber of Commerce, said the vested interests that have kept the barriers up will continue to do so and tearing them down.
"There’s so much inertia, so many vested interests wanting to protect their own localized turf," he said. "It really takes political will to make the change."
