Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 23 - Evidence - May 17, 2007
OTTAWA, Thursday, May 17, 2007
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:50 a.m. to examine and report on issues dealing with interprovincial barriers to trade.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I welcome our witnesses, senators and Canadians watching this program from coast to coast and also via the Internet.
The Standing Senate Committee on Banking, Trade and Commerce is continuing our examination of the interprovincial trade barriers that exist in Canada and, more particularly, the extent to which these barriers are limiting the growth and profitability of the affected sectors, as well as the ability of businesses in these affected provinces, jointly and with relevant U.S. states, to form economic regions that will enhance prosperity.
We are looking at trade barriers within the country between the various provinces and seeing if the new models of economic regions that straddle the border will be a way of enhancing economic growth, efficiency and competition.
This committee believes the topic of internal barriers is critically important as we seek a prosperous future. The barriers, in our view, often increase costs to businesses — and ultimately consumers, so we have been told. Yesterday, we heard something different. These barriers, we believe, may lead to inefficiencies that do reduce competitiveness and productivity. We have to focus on specific actions that will enhance competitiveness and productivity and remove internal barriers to trade that are harmful in one way or another to achieving this goal.
We are pleased to have before us one of the most distinguished policy institutes in Canada, representing the C.D. Howe Institute. I once happened to meet Mr. C.D. Howe; he had quite a formidable personality. We are delighted that our key witnesses are Mr. Finn Poschmann, Director of Research, and he is with Kathleen Macmillan, President of the International Trade Policy Consultants.
Mr. Poschmann, over to you; I understand you have some brief introductory remarks.
Finn Poschmann, Director of Research, C.D. Howe Institute: Good morning, Mr. Chairman, and members of the committee. It is a delight to be here. I will make some introductory comments before I turn the floor over to Ms. Macmillan, who has been thinking deeply about the issues coming before this committee.
A quick disclaimer if I may: Ms. Macmillan and I are here, loosely speaking, under the C.D. Howe Institute umbrella, but we speak for ourselves and views may not be shared by the institute members or our directors.
I am genuinely appreciative of this committee's efforts to breathe federal life into the economic union. That is how I see the committee's program here. As you may recall, the state of the political and economic union has been a major part of my institute's work, especially in the late 1980s and throughout the 1990s when dealing with the political union occupied national attention at the same time as the major shifts were happening in North-South trade relationships. The Free Trade Agreement, FTA, and the North American Free Trade Agreement, NAFTA, were seismic economic events just as the Meech Lake Accord and the Charlottetown Accord were important events in the formation of the political union and economic union as we know it today.
One of the good things that happened in that period was the unanimous Agreement on Internal Trade, AIT, which offered the promise of a strengthened union and more value to economic citizenship.
By 1996, we were worried that the forces of decentralization and federal-provincial disentanglement — which are not bad things from a federalist perspective — and the burgeoning North-South economic relationship would erode the value of economic citizenship. After all, if Quebec's economic relationship with New York, for example, grew to dominate the province's economic well-being, what would the relative harm be in barriers to trade with Ontario?
Our hope, in 1996, for the most part forlorn, was that federalist institutions — such as the AIT — could and would be strengthened, providing balance to the countervailing decentralist political forces and pull of North-South economic forces. Therefore, with stronger federalist institutions, we had better be able to retain the value of the political and economic union.
Not much has changed since then. The AIT has had successes, but mostly it has been moribund. I believe we all agree on that.
However, I see the new agreement between Alberta and British Columbia as a federal wake-up call. The Trade, Investment and Labour Mobility Agreement, TILMA, is an impressive accomplishment — notwithstanding that more than a third of its text is taken up with listing exceptions. It is impressive because it represents far-reaching thinking on the part of the provincial governments, imagination, openness and willingness to go out on a political limb in pursuit of future Canadians' well-being. The British Columbia government, in particular, deserves credit for leading the residents in a new direction on this front.
However, the aspect we should think about is the bizarreness of TILMA's existence.
Think of the parties to TILMA as two jurisdictions, each surveying the geopolitical horizon, concluding that multilateral talks on trade liberalization were going nowhere. They decided instead to pursue mutually advantageous bilateral talks and come up with a bilateral agreement, leaving other parties to puzzle out whether to sign on, create their own agreements or pursue other trade linkages.
It is bizarre that we are talking about provinces within Canada. Seen this way, the existence of TILMA could be viewed as testimony to federal — and provincial — inattention to the health of the economic union.
It leads me to conclude that the committee is embarking on the right study, and, if it can produce actionable recommendations on the federal role in improving the health of the economic union, it will have served Parliament and Canada well.
Kathleen Macmillan, President, International Trade Policy Consultants, Inc. (ITPC), C.D. Howe Institute: Thank you for the opportunity to speak to you today about barriers to internal trade, investment and labour mobility. I am the author of a forthcoming C.D. Howe Institute background paper on this topic. We provided draft copies of the paper to you yesterday. I have also written about internal trade issues for the Canada West Foundation, the Government of Canada and the Canadian Chamber of Commerce.
I would like to speak to you about TILMA, signed between British Columbia and Alberta and the promise that it holds for liberalizing trade within Canada. However, I am also aware of your interest in cost of internal trade barriers and the list of important internal barriers, so I will touch briefly on those first.
As you have heard from other witnesses, it is difficult to get a handle on the economic costs of internal trade barriers. If you ask businesses, they consider these costs to be considerable, as would any individual that is denied the opportunity to work in another province. However, empirical studies that try to assess the economic welfare costs of internal trade barriers indicate that they are very small — in the neighbourhood of less than 0.5 per cent of GDP.
The absence of hard economic evidence on internal trade costs has not stopped important groups such as the Organisation for Economic Co-operation and Development, OECD, and the International Monetary Fund, IMF, from singling out internal trade barriers in Canada as one of the most important issues that explains our relatively poor productivity performance. The perception, legitimate or not, that Canada is rife with internal trade barriers affects the way we are regarded by international investors. They may be small, but they create a big impression about our commitment to competitiveness and international trade liberalization.
The bottom line, as far as we are concerned, is that the right to work and do business anywhere in Canada should be all the justification necessary to address the remaining barriers to trade and mobility in this country.
Business leaders typically identify the most important barriers as labour mobility, local preferences in government procurement and business regulations — notably those in the agriculture area and those affecting security regulation.
The AIT provided a forum for dealing with labour mobility problems and made some important progress there. It was also very successful in dismantling local preference in government procurement. It has been less successful in addressing regulatory issues and that is something that businesses identify over and over again as a key problem in the internal market.
The AIT's basic problem is threefold: One is basic architecture, which is that unless government measures are explicitly included within its scope, they fall outside of the list of obligations. Second, it requires unanimity in order to make progress. For example, after 12 years we still have no energy chapter. We have a single provincial hold-out with respect to energy, and that has been enough to hold up progress in that area. Third, the absence of an effective dispute settlement system means parties have been able to ignore their obligations without penalty.
The Trade, Investment and Labour Mobility Agreement was borne out of frustration with the slow progress being achieved under AIT. The basic architecture of the B.C.-Alberta agreement is different from that of AIT. It presumes that every measure that concerns trade, investment and labour mobility falls within the scope of the agreement unless it is explicitly excluded. Among TILMA's provisions is mutual recognition or harmonization of business regulations and labour standards. Thus, a person who is qualified to work in one of the provinces would be entitled to work in the other without having to re-qualify. Businesses and motor vehicles registered in one of the provinces would not have to re-register in the other province. TILMA also provides for an effective, binding dispute settlement system. It gives easier access to private parties, and it is possible that if parties ignore their obligations, they might get hit with monetary penalties. Therefore, in that respect, it is an important advancement.
It goes beyond the elimination of trade barriers. The long-term objective of the B.C.-Alberta bilateral agreement is regulatory convergence and greater economic cooperation.
The B.C. and Alberta governments are providing leadership in this way, the same kind of leadership that had been provided back in 1994 by the federal government at the time that the AIT was negotiated. These two provinces have now stepped into that leadership role.
As Mr. Poschmann indicated, the other governments in Canada are studying this agreement very carefully. It was negotiated under the accession clause of the Agreement on Internal Trade and, as such, other parties are open to join the B.C.-Alberta agreement. It is unlikely that many will chose to do so, because there are some aspects of TILMA that governments find unpalatable, notably in the area of business subsidies and agriculture.
As governments assess their policy options, however, they would be well advised to look very closely at the B.C.- Alberta agreement. It has certain aspects that are very attractive and that could be imported into AIT. One is its dispute settlement mechanisms; the other is its provisions with respect to harmonizing business technical standards, agricultural standards.
My hope is to give the TILMA model a chance, and I hope that the governments would have the courage to look at it carefully.
Senator Ringuette: I am always interested in labour issues, and I must say that I find TILMA positive. I also find that the federal government has a leadership role to play in order for labour mobility to happen. For instance, currently, the legislation of the federal government accepts geographic barriers to apply for certain — and that is 45 per cent — of federal government public service jobs.
The federal government has a major role to play in labour mobility. It will be a problem until the provinces see that leadership happen. The removal of interprovincial trade barriers is not progressing at the pace that the business community and citizens would like to see it happen. The federal government provides much money for interprovincial roads — upgrades and so forth — and yet there are no binding conditions for a single registration for motor vehicles as there is in the B.C.-Alberta agreement.
With respect to the trucking industry, there are different regulations travelling from Nova Scotia to New Brunswick to Quebec to Ontario and so on. With Canada's geography, I see that it is similar to labour mobility: unneeded red tape and regulation that is very costly to the business community and to the trucking industry, et cetera.
What kind of leadership role do you see the federal government assuming in these transport and labour mobility issues?
Mr. Poschmann: I will comment on transportation regulation first.
The good aspect of the B.C-Alberta agreement is the long-haul goal of regulatory harmonization. That is a happy end target and addresses directly the regional differences you mentioned with respect to transportation and licensing.
I do not know if you intended this or not but you also pointed out one of the tools available to the federal government. There is plenty of leverage that the federal government is able to exert in encouraging provinces to harmonize their standards without even pushing on the strongest leverages, which of course are constitutional ones. There are some straightforward encouragements with respect to road interprovincial transportation linkages where the government can apply its pressure in the right direction.
On labour, I agree, the federal government is not perfect here, but I believe labour mobility is an absolute given. The value of the economic citizenship is something that belongs to Canadians individually and all governments should be taking the necessary steps to ensure that individual Canadians can take full advantage of that citizenship.
Ms. Macmillan: Thank you, that is an excellent question. I completely agree with Mr. Poschmann's comments and would like to add to them. Labour mobility is pretty well an issue that is within provincial jurisdiction and is strongly linked to associations, because a number of the associations, such as nursing, legal and professional engineering are provincially chartered. Provinces have to work with these associations in order to make progress. The federal role is an important role in some respects, but I believe most of the issue should be dealt with by the associations and the provinces.
However, you raised a very interesting question with respect to the federal government's own hiring practices. We tend to see the federal government as being the overseer of all of this; however, in fact, they are a party to these agreements. They are part of the solution, but in some important ways they are also part of the problem, and they have to look at their own policies.
Having an effective, binding dispute settlement mechanism would resolve many of the issues of labour mobility. The mechanism would allow private individuals, who are denied work opportunities in some provinces, access to one of these arbitral panels and guarantee them a binding outcome. There would be the ability to dismantle these barriers if individuals could challenge them directly and know they would come out with a final solution. These associations would then have to look very seriously at what is happening.
Senator Ringuette: I am not pointing any fingers at any political stripe government. Canadians have guaranteed mobility rights to earn a living across the country; it is in our Canadian Charter of Rights and Freedoms. However, the Charter is a federal responsibility and that has never been taken seriously by any government to use as their tool.
For instance, another means is immigration. Employers in different sectors across the country are advocating for the federal government to agree to many immigrants in certain sectors. We have seen a boom in immigrants in agriculture in Ontario, and we see major requirements in other parts of the country. Immigration is handled by the federal government. They have a leverage tool to say to professional engineers, the medical or nursing society, ``We agree that your industry has a need, and we will try to satisfy that need through immigration. However, you have to make sure that this happens.''
I know that it is a tough issue, and, so far, it has just been discussed. It has taken TILMA, two provinces agreeing to move ahead without waiting for the other provinces to make decisions, to draw attention to the issues. The bottom line is I agree with what you are saying. I would like to see the federal government play a bigger role in that regard.
Mr. Poschmann: I would be a little nervous about the prospect of the federal government imposing a particular standard to professional certification or training. The federal government does not necessarily have comparative advantage in determining those standards.
However, the B.C-Alberta agreement does offer a model that the federal government can take advantage to pressure provinces, through numerous available levers, to agree on mutual recognition of those standards, because there are some fairly easy answers there.
Senator Tkachuk: Andrew Coyne has written about how bizarre it is that Alberta and B.C, like two sovereign countries, are doing a trade agreement when trade is a federal responsibility. The provinces have separate agreements, leaving out other provinces in the country in a way that may lead to potential balkanization in the future.
Ms. Macmillan, you had mentioned that in the B.C.-Alberta agreement there were some items other provinces would agree with, but that there were two — one was subsidies and the other was agriculture — that other provinces might find unpalatable. Could you provide some examples of that?
Ms. Macmillan: Some examples of the provinces that might find it unpalatable?
Senator Tkachuk: You mentioned that the other provinces might have problems getting into the agreement because of the impediments of business subsidies and agriculture, and you left it hanging. I do not know exactly what you mean by that.
Ms. Macmillan: There are some provinces that would find absolutely every aspect of the B.C-Alberta agreement unpalatable as far as they are concerned. They would object to aspects such as the binding dispute settlement system, because they feel it would trump their areas of legitimate provincial jurisdiction. Some provinces are closer to getting their minds around it.
In general, the B.C.-Alberta agreement is tailored to the B.C.-Alberta situation. Those provinces do not have large supply-managed agricultural sectors. The suggestion in TILMA is there would be harmonization of all technical standards in agriculture, even though they would keep away from supply-managed commodities. Provinces with a large percentage of their agricultural sector in supply-managed commodities might find they are uncomfortable with that.
It is a slippery slope, as far as they are concerned. Once you start talking about margarine colour, before you know it you are into fluid milk. That is the kind of thing that could be disastrous as far as some provinces are concerned.
With respect to business subsidies, Alberta and British Columbia have decided between them that they would prohibit subsidies that cause any kind of injury to a business in the other province. For example, they do not support regional development subsidies; the kind of subsidies that are regularly given within provinces and by the federal government.
The provisions of the B.C.-Alberta agreement with respect to subsidies are a little vague and have not been tested. The language of the subsidy provisions of the bilateral agreement is quite different from that of the Agreement on Internal Trade, which is merely a statement of principles and a prohibition on outright poaching of businesses. Beyond that, there is not a great deal to say on subsidies in the Agreement on Internal Trade.
Those provinces that are attached to regional development subsidies or subsidies to certain industrial sectors have a bit of discomfort with what the B.C.-Alberta agreement provides in that area.
Senator Ringuette: It is a surprise to me that you are saying that B.C. and Alberta are against regional development programs. Yesterday, we heard there is a full-fledged urban development agreement for Vancouver. What will happen to that?
Ms. Macmillan: For example, if an Alberta company somehow felt excluded from doing business or otherwise harmed by subsidies, they could take a case before this dispute settlement panel. They would have to establish that it was a subsidy that was given, that the subsidy hurt their interests and that it was contrary to the obligations to which the two provinces had agreed. Then they would have to win the case.
It is similar to our obligations under the World Trade Organization, WTO, where ostensibly Canada is not permitted to give a whole host of subsidies, but, as we well know, we do. We have to be careful they do not directly harm the commercial interests of our competitors.
As I said to Senator Tkachuk, these provisions have not been tested yet, but on the face of it the language does appear to be stricter than the existing Agreement on Internal Trade.
Senator Tkachuk: It is similar to the film industry: Everyone wants to be in Hollywood, so it develops part of the country. Other provinces want a Hollywood too, so they start pumping cash in and trying to buy a movie here and there.
In Saskatchewan it is a problem; and it does not help internal relations between the provinces, because it is highly competitive.
We should focus on the most egregious barriers. Government procurement comes to mind. Anyone in Canada should be eligible to compete for any government contract. It should not be difficult to find a solution to that suggestion. Another barrier that comes to mind, as Senator Ringuette mentioned, is labour mobility. Within those two areas, if we said they were the two priorities, what would be some of the largest impediments to overcome to create a free flow of bidding for government contracts and reasonable labour mobility?
Likely, it would not be possible in all areas because, for example, lawyers and other professionals have provincial examinations for their qualifications to practice. We would not be able to change that. There are areas that we can change, for example, a carpenter building a house in one part of the country needs the same skills as a carpenter building a house in another part of the country. Could you help us to focus a bit on some of these areas?
Mr. Poschmann: I would ask Ms. Macmillan to comment on that, because I would like to come back to the beginning of your question on sensitive areas. I would be remiss if I did not insist that someone speak directly to agriculture before this committee.
Senator Tkachuk: That would be great.
Ms. Macmillan: I completely agree with you, senator, that when we consider policy effort, we have to focus on the most egregious barriers. As well, we have to focus on the ones that are the easiest to dismantle. The Agreement on Internal Trade, signed in 1995, made significant progress in the area of government procurement. We have excellent disciplines on local preferences, but more could be done. For example, we could reduce the thresholds, and there is a long list of excluded enterprises for consideration. AIT has been very effective at disciplining provincial government purchasing and has also brought Crown corporations, municipalities, academic institutions and social services within this rubric. This is not to say that the job is entirely done, but this has been a tremendous achievement of the Agreement on Internal Trade.
Changes in labour mobility would have to be done hand-in-hand with the professional associations. When I first started writing about internal trade in the 1980s, hairdressers could not work in New Brunswick if they were licensed in Manitoba. Heaven knows, we all like our hair to be cut properly, but it was so silly to require that hairdressers be licensed in order to cut hair. Progress has been made in that area.
My view is that the best way to blow those barriers apart is to institute an effective dispute settlement system, give access to individuals who are denied opportunity and let them oblige the governments to adhere to their obligations in that respect, and work with the professional associations.
Another issue is regulatory convergence, which brings us to provincial securities commissions, transportation and agriculture — Mr. Poschmann's point. These might not be face classic barriers in the sense that they are not explicit protectionist policies or intentionally put in place to restrict access, but there are excessive regulations, redundancies and meaningless differences pertaining to such areas as truck axle widths and heights. These issues do not amount to anything, but someone has to make sense of them.
The beauty of the B.C.-Alberta agreement is that everything falls under the agreement unless explicitly excluded — every single aspect is on the table. It provides an important forum to pick the low-hanging fruit, so to speak, where work could be done provided people sit down and have a conversation about it. I would add this regulatory issue.
Senator Tkachuk: I have one follow-up question on an irritating provincial barrier — liquor stores. We make great beer in Canada, and we have a wonderful wine industry. In the government stores, you have to access a list in order to sell your product. That means only one thing to me, and I do not like to talk about it, but, nonetheless, it is protectionism. Alberta has private liquor stores, which raised quite the controversy. When people travel, that is where they want to buy wine; Alberta has wines from all over the world. The products are fabulously displayed. As well, corner stores are serving their own little market.
How did Alberta and B.C. resolve that issue in their agreement, because B.C. has government liquor stores and privately owned wine stores while Alberta has totally free enterprises?
Ms. Macmillan: I do not know. The agreement came into force April 2007. They have two years, until April 2009, to make sense of it, so I am afraid I do not know yet how they resolved the differences. However, the Alberta government still has a monopoly on the importation of liquor. The only privatization that has occurred has been in the area of its retail distribution. Presumably, they would come up with some kind of system, but I do not know what it would be.
Senator Tkachuk: In Ontario, if we find it somewhere, the government will import it for us. There is no impediment to the government wholesale house actually buying the product. What is Saskatchewan protecting in the wine industry? We do not make wine.
Ms. Macmillan: They are protecting the tax revenues from the sales of wine.
Senator Tkachuk: Mr. Poschmann will talk about agriculture.
The Chairman: If I may, I would suggest that the committee gain some sense of the priority placement of the areas that have been suggested for reduction. I understand that you gave a slightly conflicting response when you suggested these are some of the areas but here are some that are easier to do. One is a tactical question about how you reduce some, even though they are not as protectionist, if you will. It would be most helpful if each of you could provide the committee with an individual list of these areas.
The issue is becoming complex, and we want to focus on the major issues as well as some of the minor ones. Mr. Poschmann, you wanted to respond to Senator Tkachuk.
Mr. Poschmann: Perhaps I can do that list at the same time. Labour mobility is the place to start, and the route begins with mutual recognition of standards. That is crystal clear. The other is the broader regulatory harmonization project, which the federal government can encourage, and the B.C.-Alberta Trade, Investment and Labour Mobility Agreement, TILMA, is showing us a good route to accomplish that.
I will not let agriculture get by with a nudge and a wink. In terms of major impediments and costs to economic success for Canadians, one has to point to the agriculture sector and wonder why Canada does not have an internationally competitive dairy processing sector. Why are we not major producers and exporters of cheese, milk and whatever else we want to be? We cannot get there from here, not because we are at risk of balkanization, senators, because we are balkanized due to supply management. If we are not willing to say that, then heaven help us.
Senator Moore: Yesterday, a gentleman appeared before the committee: Mr. Erin Weir, from the Canadian Labour Congress. He said a couple of things that were quite opposed to evidence that we have heard in the past on this topic. He said that it is not clear that interprovincial barriers are the cause of loss of productivity in the country. He said there has been a fog created about interprovincial trade being an obstacle to the growth of productivity.
He cited something, which I notice you mentioned in the draft report that you have circulated entitled A New Prescription: Can the B.C.-Alberta TILMA Resuscitate Internal Trade in Canada? On page 3, you say:
The case for reducing or removing barriers does not require exaggerated estimates of their cost.
Down below in the footnote, it says:
One high estimate of the cost of internal trade barriers is a recent Conference Board (2005) study showing that the TILMA would raise GDP in B.C. by 3.8 per cent or $4.8 billion, or ten to twenty times previous estimates of the cost of barriers for Canada as a whole.
We have a big range here. He is saying that it does not matter; that the impact of barriers is negligible — one- twentieth of 1 per cent being the negative impact of barriers.
The Chairman: Do you recall, from yesterday, what year he said that number was done?
Senator Moore: He referred to the Macdonald report of 1985.
The Chairman: We read that, but he does not cover many areas. When was his statistical analysis? Was that in response to the Conference Board of Canada study?
Senator Moore: That was a 2005 figure.
The Chairman: Therefore, it is current.
Senator Moore: You say the case for reducing or removing barriers does not require exaggerated estimates of their costs. You are saying these numbers are high. What are the numbers, in your estimate?
How will this help B.C. and Alberta? Someone said the Alberta productivity will increase by $450 million and create 4,400 jobs. Are they hard numbers?
Ms. Macmillan: I know you have heard from a number of witnesses and asked them all the same question about the cost. It is an extremely difficult area. If we look at traditional macroeconomic modelling, the costs that they produce are very small.
However, if we ask an individual business who is not able to sell goods in the province next door, or an individual worker who is not able to work in another province or territory, we would agree that, to the extent that people are denied opportunity, the cost is very high.
There are different methodologies for estimating costs. Personally, I do not feel the Conference Board of Canada took the right approach. For that reason, I believe their estimates of the benefits of TILMA are widely exaggerated. As I say in my draft report, we do not need exaggerated estimates in order to substantiate the argument for reducing these internal trade barriers. It is a basic right of all Canadian citizens to be able to work, live and earn a living everywhere in the country.
The work that was done by the Macdonald commission is old. The other thing worth pointing out is that since that work has been done, there has been a vast amount of progress made — especially in the area of government procurement and wine and beer marketing, which were the big ticket items in terms of cost — in dismantling those barriers.
Senator Moore: If these numbers are exaggerated, are they 50 per cent correct?
You talk about their approach. I do not know what their approach was, but have you looked at their approach and tried to rework it to come up with numbers you feel are more reasonable and reflective of what the result will be of TILMA for B.C.?
Ms. Macmillan: No, I have not. I have looked at their approach enough to know it is not a valid approach, in my opinion.
Senator Moore: Are they 50 per cent wrong or totally wrong?
Ms. Macmillan: I would not have undertaken the same analysis as they did. They surveyed a very small group of businesses and asked them their opinions on how TILMA was likely to affect their business. They arbitrarily assigned a percentage — will your business grow 5 per cent, 15 per cent? They compiled this very small group of responses and came up with this massive number, which most economists would agree is vastly exaggerated.
The better approach is to do what the studies did back in the 1980s for the Macdonald commission, to look at a welfare model and examine what the efficiency losses are as a result of those barriers.
That approach also presents problems, however. Let me give you an example. If I am denied the ability to work in your province, that costs me income. However, you may get the job; you would get the income, so your benefit wipes out my cost.
There is a small amount of extra net cost because I might have been better qualified for the job than you — so the necessary cost to the economy will be tiny. That is what those macro-welfare models measure; but they are not measuring the cost to me of not being able to work at a job for which I was probably best suited. Those are the methodological questions or approaches we are grappling with here. In our opinion, it is a basic question of rights.
The Chairman: When I looked at the Macdonald report, a number of areas were not covered. We have studies from the United Nations that indicate that red tape is a physical cost to efficiency and productivity. We gathered that from our study when we looked at productivity. Those analyses were not in the Macdonald report, and I do not believe they were in the Conference Board report.
We have now heard unanimous opinion from everybody — from the governor, the banks, recent witnesses, the Conference Board and others — that one of the impediments to efficiency and productivity is the regulation of securities. That was not included. That number cannot be measured, other than that fact that everybody knows it is very substantial.
It is the same with the other regulatory mechanisms, such as corporations. We have heard from Senator Moore, certified general accountants and many groups. Within those groups, which are broad-spread, they say it is not efficient. Nursing, foreign doctors — there is a whole raft of things here.
No one has coagulated those numbers. When they destroy or undermine the Conference Board numbers — and we are not here to defend them — people say it is one-twentieth of 1 per cent, and we know that it cannot be. That is the scepticism you are hearing here. We need some help. We are not here to create facts; we are here to examine facts and determine what is cost-efficient.
It would help us if you would look at some studies on the regulation side. The UN did a study about the cost of regulation; it was a very good study that said that Canada was very bad in this. There was a whole cost of litigation because of the delays in courts and the problems there. There is a whole raft of issues that are all related. If you can help us with this, this would be important.
Senator Moore: I am from Nova Scotia. Last month, there was a meeting of the four ministers responsible for trade in the Atlantic provinces and 25 business people. They met in Moncton. One of the people there was Leanne Hachey, a vice-president for the Atlantic region for the Canadian Federation of Independent Business. She said it costs Atlantic Canada's small- and medium-sized enterprises more than $1 billion a year to comply with the myriad of trade rules between the four provinces. Have you looked at this issue on a regional basis, such as the Atlantic?
Ms. Macmillan: No. In response to your question and that of the chairman, there has been some work done in this area. The Conference Board of Canada has produced another study, not the one that I cite as being exaggerated. I would be happy to provide you with the citation.
They have done some work on the costs of regulation and how it affects Canadian productivity. Most of the information we have about this is simply through business surveys.
The problem with measuring the cost of regulation is how to measure the difference between desirable regulations — because we all agree that it is important to have meat inspectors and highway speed limits — and the undesirable. We must decide what the benchmark is. This is the difficulty.
Some interesting work has been done in Europe on this, and I would be happy to provide you with some sources. Unfortunately, I am not aware of anything specifically beyond the Conference Board work that looks at the Canadian economy, beyond the kinds of things where they are merely polling business people to ask them what it costs to comply.
Mr. Poschmann: Some work has been done on the capital markets aspect, and this gets to the securities regulation issue. There is quite general agreement that it is costly.
Senator Moore: Are you talking about regional, Mr. Poschmann?
Mr. Poschmann: I am talking about national: first, effectively raising the cost of capital for business, which inhibits investment; and second, raising and reducing returns to investors because of the costs involved with marketing securities across Canada, across 13 different jurisdictions.
Those are real costs, however I would counsel against getting too hung up on the dollar that is assign to those costs, because that is not what this is about. First, it is about the notion of economic citizenship, mobility and freedom. That is absolutely crucial. Second, it is a big world out there. It is a very big world. Being competitive from a business, investment and job creation perspective for Canadian workers, to be focused on the very parochial issues is baffling.
Senator Moore: Some of us are involved in the Canada-U.S. interparliamentary group. We have meetings on various topics, one being economic. We have had meetings over the past year with people from the Pacific NorthWest Economic Region, PNWER. Have you looked at that?
This is removal of barriers between provinces and states. It has been most beneficial for those participants, including B.C. and Alberta, but going north and south. They have legislation to provide for these minimums that I believe you are suggesting, but it opens up the way to cooperatively promote and seek trade between the states and the provinces. Have you looked at that, PNWER specifically, and that sort of example?
From the Atlantic perspective, I am thinking of Nova Scotia and New England and a version of PNWER in the East. Have you looked at those sorts of things?
Mr. Poschmann: I have not, in any detail. It is intriguing that the economic pressure on these regions is sufficient that they would develop mechanisms that work across international borders at a brisker pace than we can do in Canada's Eastern provinces, for example.
Senator Moore: They passed mutual pieces of legislation to facilitate these economic activities.
Ms. Macmillan: The Quebec government has entered into an agreement with the State of New York for providing New York businesses access to procurement opportunities with Hydro-Quebec. This is not open to firms in Ontario or any other provinces. In other words, the New York suppliers have a more advantageous access. This kind of agreement is frustrating.
Senator Moore: Does Quebec have a business office in New York?
Ms. Macmillan: Yes.
Senator Goldstein: We heard yesterday from Mr. Erin Weir, who was representing the Canadian Labour Congress, and we had a number of counterintuitive statements coming from him, which some of us found surprising.
One of the things that was said was reflected in an article in the National Post last week quoting the Saskatchewan Federation of Labour president, Larry Hubich:
``This may be in the best interests of a very few people in the boardrooms of the multinational corporations,'' says SFL president Larry Hubich. ``But it's not in the interests of Canadians.'' Union leaders warn of school boards losing the ability to mandate healthy lunch programs; municipalities powerless to limit building heights or ban pesticides; provinces incapable even of regulating nursing homes; waterways selling to the highest bidder . . . .
I found that startling. Is there any justification that you can see, as economists, to that kind of analysis to the effects of TILMA or any other kind of interprovincial pact or agreement that would try to reduce barriers to cross-border trade?
Mr. Poschmann: The short answer is, no. The slightly longer answer: Ms. Macmillan mentioned earlier that the existing carve-outs in TILMA, for example, are there, but they do have to be defended. In other words, if identifiable harm is caused across the border, the jurisdiction has to defend it. They have to win an argument.
Ms. Macmillan: It shows a fairly fundamental misunderstanding of the provisions of the trade agreement. Essentially, it is a principle called national treatment; although in this case it is provincial treatment. That says that the two jurisdictions are able to do what they wish with respect to lunch programs and environmental policy, et cetera, provided they do not treat a firm from the other province in a harsher fashion than they treat their own firms. If they want to have those policies, they are entitled to do so.
In the case of environmental policy, it is explicitly excluded from TILMA. Governments simply are not able to discriminate on the basis of the supplier's home province. However, they can have whatever kind of programs they want. I would disagree with his interpretation of what cross-border trade agreements would do.
Senator Goldstein: From what I have been able to read, there is an endemic hostility or opposition, to use a less provocative word, by labour to the progress being made with respect to interprovincial agreements to reduce trade barriers. The Canadian Labour Congress is in the forefront of this.
To what extent — and you may not want to answer the question — is there a union turf issue that motivates this kind of opposition?
Mr. Poschmann: It is a good question, senator. I do not know, and I would not care to hazard a guess.
Senator Goldstein: The European Union, in a relatively short number of years, has had significant success in breaking down trade barriers amongst its members. It is not yet a federated state; it is not a Canada. It is simply a compact between independent nations which remain independent.
There are a very limited number of protections available in the European Union pacts dealing predominantly with protection of the uniqueness of culture in respect of jurisdictions. Aside from that, there are no great economic barriers. To what extent can the European Community example be used to advantage in Canada?
Ms. Macmillan: It can be used two ways: One, they have a very strong statement of obligations in the Treaty of Rome; second, they have an effective dispute settlement system.
My short answer is those two ways. We ought to look carefully at a mechanism for resolving disputes between parties under the Agreement on Internal Trade in a way that obliges governments to respect their obligations made under the agreement.
Senator Goldstein: Canada has not had a great deal of successful experience with international dispute resolution bodies.
Ms. Macmillan: I do not agree with you on that.
Senator Goldstein: I am thinking of the softwood industry issues. It is true that there has been success in other areas. Do you feel the creation and execution of a dispute resolution mechanism, which does not require recourse to the courts but rather requires recourse to specialized bodies who are able to deal with the issues involved in trade is something that Canadians are ready to accept, given the softwood lumber experience?
Ms. Macmillan: Yes, I do. The softwood example eclipses all the very significant successes we have had in the international trade forum with dispute settlement. It has been a regrettable and terrible experience. We should not forget the idea that a small power such as Canada benefits greatly from a system that puts us on equal footing with our trading partners and resolves disputes in an impartial, independent manner if partners observe the rules of the game.
It is interesting to note the new softwood lumber agreement has a different mechanism for resolving disputes.
The B.C.-Alberta Trade, Investment and Labour Mobility Agreement has a different mechanism than the NAFTA panel system for resolving disputes. The world of dispute resolution is evolving more to arbitral panels.
The basic premise that if one signs an agreement and undertake a series of obligations, one should be held accountable when one ignores those obligations is terribly important. Maybe we can tinker with the best way of actually enforcing these obligations; however, the basic idea that people should be held accountable is very important.
This is a serious reason behind the failure of the Agreement on Internal Trade to resolve matters such as labour mobility issues, because people are denied opportunities; they do not have access to these panels; the panels even end up, in certain cases, agreeing with the parties and yet governments ignore the obligations and walk away. I know you have heard from the CGAs on that, so I do not need to repeat it, but it is a very important issue.
Senator Eyton: I have been a long-time member of the C.D. Howe Institute. I am pleased to have you here today, particularly for that reason.
There is agreement in general that barriers are a bad thing, yet barriers exist everywhere — in nooks and crannies and in centre court. Are there good barriers that you could mention? You have talked about different categories of barriers that need to be dealt with. Are there instances where barriers serve some useful purpose when they are properly drafted and applied?
Mr. Poschmann: Are there good barriers? That is an interesting question. It would depend on the goals. What is the goal that policy seeks to achieve in establishing a barrier? For instance, a barrier might be good if the goal was to limit competition in a particular marketplace. Why that goal would be chosen, I do not know, from an economic perspective. I have generally a conceptual problem with framing a desirable barrier outside of a framework where there is a particular policy goal.
Senator Eyton: I was assuming our perspective and looking at existing barriers when asking that question.
Mr. Poschmann: There is a general concept of subordination, in that, to the extent possible, voters should be able to establish the sort of economic, political and cultural life that they choose to have. This is a part of life in a democracy. The point to be made, however, is that when these barriers go beyond that and become barriers to a smoothly functioning economy, barriers in particular to the ability of individuals to pursue their livelihood in the country in which they live, then they become indefensible.
The Chairman: Examples of this that have been put to me exactly on your point, namely, beer, wine and cheese. If we take a look at beer, we could probably serve the entire Canadian public with one plant located anywhere in Canada efficiently and bring down the prices. One plant could do that. However, if that one plant dominates the marketplace, it does not leave room essentially for other economic choices. We have a whole series of pocket or regional beer companies that, with some provincial protection, have been able to grow, turn into profit and ultimately compete. Wine, without protection, would not be an industry in Canada. We would still be drinking, if it was Canadian wine, Baby Duck — I started on Baby Duck. The same situation would apply to cheese if we allowed French cheese or whatever to pervade. Senator Eyton does have a point, and we are trying to get a balanced picture here. Are those examples accurate? They are anecdotal.
Mr. Poschmann: Those are great examples, but they are examples of the merits of bringing down barriers. Consumers are sovereign in the marketplace. They do not all want one kind of beer. There are very few barriers to entry into the beer production market in Canada now. Did Budweiser sweep the market with a single brand, a single stock? No. There is a sovereign marketplace out there. There is a variety of tastes.
Does Canada have better wine now than it did in the 1970s and 1980s because of barriers? No. We have much better wine now because we brought down those barriers in the course of negotiating the Free Trade Agreement. The world of Ontario wine and B.C. wine is entirely different from what it was a generation ago. It is because we dropped those international barriers to competition.
There are some fascinating niche markets for cheese in Quebec. I would like to see them sweep the world. That will not happen in the framework under which we conduct the regulation of dairy products in Canada.
Senator Eyton: Let us return to the general presumption that barriers are a bad thing. You have both addressed what needs fixing in the different categories, those being the energy and business subsidies, and we can go on with the list.
What do we do about it, and how do we fix it? I look at our record, first with the Agreement on Internal Trade that became effective in 1994-95 combined with the Council of the Federation, which was created in 2003 and gave a progress report in 2006. Just looking at the dates, I would say that that is a process or function that is going nowhere very fast.
I look at the progress report in 2006, and it talked about the short-term objectives — this is after 11 or 12 years — where they asked to recommit to honour all obligations under the current agreement, complete the provincial territorial negotiations on procurement and then develop a comprehensive communications plan. They put on the long-term agenda all the important items, such as labour mobility, energy, agriculture, regulations, standards and so on. In my view, that is a recipe for assuring failure; they will never get to where they want to go.
We talked a bit about TILMA, which resulted out of exasperation, in part, with the process on the other side. It too has many exemptions, but it does have a dispute settlement mechanism. It seems, at least in the sense of our values and discussion today, to be a better alternative. However, it is still flawed and, to date, represents only British Columbia and Alberta. Those are two alternatives.
How do we fix this? If I were tasked with making the decision alone, I would give up on the Canadian Agreement on Internal Trade, which is going nowhere, but I might look at TILMA. Is there another process? Could we have a uniform bill or agreement that provinces could sign onto — including Alberta and British Columbia — to accelerate the process so that we would deal, in a timely way, with business subsidies, regulations and all of the other issues that we are concerned about in a year or two? We seem to be able to do many international agreements that are progressing on exactly the same subjects. It is odd that Canadians cannot come together and fashion some process to deal with the barriers within Canada. Could you comment, please?
Mr. Poschmann: There is an agreed premise that the federal government has not taken the internal economy seriously in the past decade. It has not addressed a number of important issues that might have been addressed through the AIT framework. However, the Agreement on Internal Trade is simply not constructed to succeed on this front and will not succeed without hefty federal pressure. That has not occurred yet for a number of reasons, including unanimity, for example, which is unlikely to be successful even if the federal government put a little effort into it. The conclusion is correct that other routes are applicable.
How heavy a thumb on the scale does the federal government wish to bring to bear? I mentioned that when it comes to recognition of standards, certification, harmonization and mobility, provinces can be pressured to deliver on these. The federal government has not only carrots but also sticks. There is a trade and commerce clause. At the end of the day, the federal government has a hammer that it can bring to bear if we want to take this seriously.
Ms. Macmillan: This echoes a comment made by the chairman a while ago. It is an issue of regulatory convergence. I agree with Mr. Poschmann's opinion: The AIT model has not been proven effective after 12 years. We have no energy chapter and no progress on the agriculture issues that you detailed. The business community is saying to us increasingly that the issues include a lack of a single securities regulator, transportation issues, Agri-Food standards, et cetera.
In a multilateral and foreign trade sense, we are sitting down with our trading partners in Europe and in the U.S. to discuss regulatory issues. Perhaps that is the kind of parallel discussion that could take place here. I am not suggesting replacing the Agreement on Internal Trade or the kinds of plural lateral initiatives that are happening, such as TILMA, but perhaps a suggestion would be to open a second front and sit down with the provinces and pick at some of that low-hanging fruit on the regulatory tree; we should take a constructive look at transportation issues, for example.
I also tend to feel that the idea of departing from the model of unanimity is sad — as Mr. Poschmann says, a sorry testament to the state of our federation — but perhaps the kind of creative experimentation that is happening in Western Canada with the bilateral agreement could serve as a kind of example for what could be done elsewhere in the country. If another province or two were to decide to sign on or if we were to import aspects of the bilateral agreement to the AIT, it would all be in the interest of progress. Maybe that is the best we can hope for right now.
The Chairman: We have not had a chance to talk to you about the new regional private-public partnerships that are working quite well, particularly in the West in Alberta, British Columbia, the Yukon and the adjacent American states. They decided that, economically, they have common issues on which they can work together, such as tourism, education and transportation. The partnerships are highly effective; it is called Pacific NorthWest Economic Region, PNWER. We have had access to them, and they have come to speak to the committee. The C.D. Howe Institute and you might want to look at these in terms of how we could increase productivity and prosperity in the various regions. We have not had a chance to deal with it today, so if you have comments, please contact the clerk of the committee. We would be interested in your views on the subject.
Our next witness is via video conference from Vancouver, Mr. Marc Lee, Senior Economist with the Canadian Centre for Policy Alternatives. Mr. Lee, please proceed with your presentation. We are anxious to hear what you have to say, because we know you have a different viewpoint than many of our witnesses.
Marc Lee, Senior Economist, Canadian Centre for Policy Alternatives: Thank you for having me testify before you today. Almost everyone seems to agree that interprovincial barriers to trade are astonishingly large, that they undermine our productivity performance as a nation and prevent us from being a true economic union — everyone that is except economists who have studied the issue in detail.
I would like to provide a bit of a reality check for the committee. I would like to build on the comments of my co- author, Erin Weir, who spoke to you last night, because none of those assertions are substantiated by the available economic evidence. At the broadest level of abstraction, we have a fairly substantial rhetoric about alleged barriers based on the logic of free trade. There are a number of anecdotes, not too many, that also come up. I did review the testimony before this committee and found very few examples of bona fide trade barriers. In between the anecdotes and the rhetoric, there is not much data that one can point to that could be considered persuasive evidence that there is a fundamental problem with internal trade.
A couple of reports, which, in my opinion, have been discredited, suggest barriers are costly. A 1991 study by the Canadian Manufacturers Association, CMA, argued that barriers cost 1 per cent of Canada's GDP. However, the Canadian Manufacturers Association made only a crude estimate of some costs without considering any of the benefits of existing policies. More than three quarters of the CMA estimate stemmed from government procurement practices, based on the assumption that liberalization would reduce procurement costs. In only one area did the CMA cite a classic barrier to trade: restrictions on alcoholic beverages. In both of these areas, the vast majority of gains have already been reaped through the Agreement on Internal Trade.
More recently, the Conference Board of Canada claimed in a report for the B.C. government that the B.C.-Alberta Trade, Investment and Labour Mobility Agreement would add 3.8 per cent to B.C.'s GDP. This report is deeply flawed. It made no attempt to list or estimate the cost of barriers; and upon close examination, the Conference Board essentially made up its numbers after looking at a very small sample of results from a survey of business organizations and government ministries. Its estimate was actually doubled through a simple arithmetic error.
The best available economic evidence suggests that any barriers to trade in Canada are minuscule. Over 20 years ago, the Macdonald commission found that barriers amounted to about one twentieth of 1 per cent of Canada's GDP. Since then, the Agreement on Internal Trade has reduced that number even further.
While that evidence is now quite dated, the finding that interprovincial barriers must be incredibly small is corroborated by research pioneered by the University of British Columbia's, UBC, John Helliwell and former cabinet minister John McCallum. They find that Canadian provinces are much more likely to trade with each other than with U.S. states, after adjusting for population size and distance to market. That number has fallen in recent years due to the Canada-U.S. Free Trade Agreement, but it still amounts to a factor of 12 for goods and 30 for services. That is, Ontario and B.C. trade goods with each other 12 times more than Ontario trades goods with California, after adjusting for market size.
In recent years, the data tell us that interprovincial trade has grown faster than international trade. Between 2000 and 2005, interprovincial trade grew by 25 per cent compared to only 9 per cent for international imports and 6 per cent for international exports. All told, I do not believe there is a prima facie case that Canada is suffering from internal trade barriers.
That said, I do not mean to suggest that in those isolated cases where barriers do exist, we should not act to ameliorate the situation. As long as we do not compromise the public interest — in particular, environmental regulations, labour standards and consumer protection — those changes need not be controversial. However, we should not falsely convince ourselves that to address remaining barriers will be a magic bullet to solve our productivity problems.
Moving forward, we also need to be clear in our use of language. This issue is incorrectly framed as ``barriers to trade,'' when really we are talking about differences in provincial regulation due to the federal nature of our government, different business registration and reporting requirements and differences in professional certification standards. This committee can perform a valuable public service if it were to clearly outline specific problems and leave the rhetoric at the door.
With the resources at its disposal, this committee could greatly add to the debate on internal barriers by developing a list of the top 10 or 20 irritants in interprovincial commerce, vetting those to make sure they do not violate the public interest concerns and to press for action using federal constitutional powers to resolve the issue if necessary. This would be a better approach than seeking sweeping legalistic approaches such as the B.C.-Alberta agreement.
I caution the committee to distinguish between bona fide barriers to commerce and constitutional differences related to federalism. There are regulatory differences among the provinces, but, by and large, these are not trade barriers per se, though they may pose some additional cost to business. Our Constitution gave provinces the ability to make regulations based on their local needs, so any attempt to harmonize regulations must consider the loss of local decision making as a cost that must be netted against any benefit arising from harmonization.
That said, the changing nature of the Canadian economy and its trade and investment relationships with the United States and others may require new approaches that upload responsibilities in certain areas to the federal government in order to create national standards and regulatory frameworks. If so, these should aim, where possible, to achieve a high national standard and avoid lowest common denominator approaches, such as mutual recognition.
Finally, I would like to make a few comments about TILMA. In light of the evidence on trade barriers, at best, TILMA is a gimmick; but I believe the agreement contains some very broad language that may prove problematic with the passage of time. TILMA is essentially a top-down agreement; everything is in unless specific exemptions are made. That means that governments have to anticipate the full legal jeopardy of what is in and what is not.
There are some exemptions to TILMA and some provisions for legitimate objectives, but my reading of the agreement is that these are fairly narrow. The agreement enshrines investor rights to challenge public interest regulation, which will cause problems in that trade panels will be able to second-guess domestic decision making. Moreover, the presence of this type of language creates a chill over the creation of new regulations.
My organization published a study by Ellen Gould — which I believe you have — looking at public interest regulation and comparing that to what we know about public services and public enterprises. She finds that a number of areas are exposed by TILMA, including most areas of municipal planning, a number of environmental regulations and even efforts to restrict private health care.
Whether these areas will be challenged, and whether those challenges will be successful, remains to be seen. However, I suggest to the committee that it is of concern that decisions on the interpretation will be made by trade dispute panels that are outside the domestic legal system, not by the architects or proponents of the agreement.
If we are to have a dispute resolution process, I believe it should be within the courts. In doing so, we would achieve a level of transparency and rights of appeal that are not usually the case in commercial arbitration panels, where secrecy is the norm.
Ultimately, TILMA is a solution in search of a problem. I would not recommend other provinces to sign on to the agreement.
I would like to thank the committee again for having me here. I hope I have challenged some of your assumptions about the issues and clarified what some of the real issues are moving forward.
The Chairman: I would like you to send us, as best you can, a list of the irritants that you say should be addressed. You also indicated bona fide barriers. If you could give us your understanding of those irritant lists in order of priority and the bona fide barriers, that would be helpful when we consider your evidence again.
Senator Moore: Yesterday, we heard from your colleague, Mr. Weir. I was interested in his comments, which are in line with what you said here today, that it is not clear interprovincial barriers are a cause for loss of productivity. He even said that a fog has been created; that this issue is mythical and only one twentieth of 1 per cent is a resulting cause of a decrease in GDP due to interprovincial barriers. Then we had the Conference Board numbers with regard to the results for B.C. in TILMA, which you, Mr. Weir and the people at the C.D. Howe Institute have said were high. You mentioned the estimates were doubled by a simple arithmetic error. Are the estimates by the Conference Board stating that the GDP would be increased by 3.8 per cent or $4.8 billion in error? You said these estimates were doubled, so are they to be halved? Is half accurate?
Mr. Lee: I only point out the simple arithmetic error as one of many flaws in the study. In the paper that I submitted to the committee, we go through the methodology issues in detail; therefore, I will not bore you with the details now. I suggest that the amount of those barriers is incredibly small. They are based on a survey that was sent out to some business organizations and government ministries.
Senator Moore: You said it was a small sample.
Mr. Lee: Only four business organizations actually responded out of 13 business organizations contacted. That, in itself, suggests that there is not much interest within the business community.
The survey simply asked the businesses to rate a number of areas on a scale of minus three to plus three; they took those numbers into consideration and then created their own scale for those numbers. This was not in the actual survey, but they argued that plus one is an increase of 0 per cent to 5 per cent in GDP, plus two was an increase of 5 per cent to 10 per cent and so forth. When they made the calculations they just assumed that a number one was actually 5 per cent, not the midway point, which is 2.5 per cent. John Helliwell did an analysis of a similar report done for the Government of Saskatchewan. He likened it to estimating the country's gross domestic product by asking households how they think everyone is doing, that this is not a solid empirical basis upon which to move forward.
Senator Moore: Are you familiar with the Pacific NorthWest Economic Region trade agreement between provinces in the West and the United States, the impact of that, their efforts to remove barriers and to increase or enhance trade between those regions?
Mr. Lee: I do not believe there is an actual PNWER text agreement. It is a talk shop.
Senator Moore: They all passed fundamental legislation to enhance and facilitate economic activities. Have you looked at that in some detail or not?
Mr. Lee: I have not seen any legislation in British Columbia that refers to that. My sense is that this is a roundtable that meets periodically to talk about issues common to the region. I have not seen any legislation arising from that.
The Chairman: Senator Moore is alluding to — and we both have knowledge of this, because we have attended their meetings — a legislative partnership between Alberta, British Columbia, the Yukon and the adjacent American states. It is a public-private partnership, but the partnership is based on a legislative partnership. You should be able to find it; it was passed by the various legislatures in those states, so it is not just a talk shop.
Mr. Lee: If so, it has not been very successful. One of the main trade irritants in British Columbia with the United States — and this is largely due to the Western United States — is softwood lumber. We took, if I may say so, a bath on that one, senator. Therefore, if it is a trade agreement, it is not a very successful one.
Senator Eyton: You gave some numbers of international trade and internal trade and a comparison of the small effects of the existing barriers to internal trade. Our notes give some statistics and a graph entitled ``International and Internal Exports Canada 1981 to 2004.'' In 1981, Canadian provinces and territories were trading internationally and internally at comparable levels, but during the subsequent two decades, internal exports increased nearly threefold while international exports increased more than fivefold. If you look at the graph you will see that there is acceleration in the international trade coincident with the Free Trade Agreement with U.S. and NAFTA. Because that is such an important element in international trade, it seems fairly compelling. Those numbers seem different than the numbers you recited to us, can you comment?
Mr. Lee: It should be expected that international trade would have increased faster than interprovincial trade in the aftermath of the Canada-U.S. Free Trade Agreement. I do not feel that is any surprise. Since 2000, however, interprovincial trade has actually expanded much more than international trade. I would point out — and it would be worth the senate's time to bring in John Helliwell or John McCallum to testify, because it is on their research that I speak — when we adjust for distance to market and the size of that market, we get this difference. The general stylized fact is that the presence of the Canada-U.S. border is equivalent to about 10,000 kilometres in terms of distance. When comparing trade between B.C. and Ontario and Ontario and California, we have to adjust for California being a market of 30 million people and B.C. being 4 million people. When we make the appropriate adjustments — the distance is about the same from Ontario — then we find that, in fact, we do trade substantially more within the country, and that is because of historical networks, relationships and, what John Helliwell calls, social capital. We trade much more within the country than economists expect we should.
The Chairman: Mr. Lee, thank you very much. We will be back to you. We will call Mr. Helliwell and Mr. McCallum. We are really trying to get at the facts as objectively as we can, and we will come to our policy conclusions. Staff will be back in touch with you to arrange a further time. We found your evidence very interesting and obviously thought provoking.
The committee adjourned.