John Ivison: Premiers missing opportunity to make real progress on interprovincial trade

David Longbottom spent 30 years working as a technology executive around the world.

In 2016, he bought an old engineering warehouse in Ottawa and set up Flora Hall Brewing, which opened a year later.

Yet in all his time trading across international borders he said he has never encountered anything as “complex or expensive” as trading beer across provincial borders in Canada.

Under antiquated liquor monopoly rules, Flora could not produce beer in Ontario and sell it five kilometres away in Quebec.

To highlight the farcical nature of interprovincial trade barriers, he teamed up with a small brewery on the other side of the Ottawa River, Gatineau’s Brasserie du Bas Canada, to do an end run around the sales restrictions. They drafted a recipe together, exchanged head brewers, and sold the resulting Brut IPA in both provinces.

The beer was called “Gerard Comeau”, after the New Brunswick man who launched a legal battle that went all the way to the Supreme Court of Canada . Comeau was fined $292 by the RCMP for buying 14 cases of beer and three bottles of liquor in Quebec and driving them across the provincial border to his home.

The “free the beer” case didn’t succeed but it inspired people like Longbottom to keep up the pressure. For alcohol, the bottle-necks are the liquor control boards in many provinces. “In Quebec, you have to go through the SAQ, which exercises price controls. The price of my pint is prohibitively expensive by the time it’s in the bars,” said Longbottom.

It’s not just the beer industry that suffers from antiquated interprovincial restrictions on trade. A New York Times article last weekend pointed out that British Columbia’s wine industry faces legal constraints in Canada. “It’s easier to sell wine in China (than elsewhere in Canada),” said one producer.

A Statistics Canada report in 2017 estimated that barriers to free trade amounted to a 6.9 per cent tariff on internal trade between 2004 and 2012. The International Monetary Fund said last year that GDP could see a four per cent boost, if such impediments were eliminated.

Last week’s throne speech acknowledged there is work to do to foster internal trade.

“Now more than ever, Canadians must work together – including eliminating barriers between provinces to full, free internal trade to get the economy back up and running and Canadians back to work,” it said.

It’s a noble sentiment, diminished in effect by its familiarity. Every throne speech in the past 40 years has claimed a similar ambition. Some progress has been made, most recently in the Canadian Free Trade Agreement of 2017, but its critics argue it left too many barriers intact. The number of exclusions was longer than the text of the agreement, making explicit exactly how protectionist each province is.

Residents close to provincial borders, such as those either side of the Ottawa River, know that if they want a carpenter, a funeral director, a real estate agent or a roofer, they are obliged to hire locally.

The solution lies with the premiers but, publicly at least, internal trade has not been the top priority

It is clear that neither Ottawa nor the courts are willing or able to do what is necessary.

In the Comeau decision, the Supreme Court adopted a narrow interpretation of section 121 of the Constitution that states products should be “admitted free into each of the other provinces”. In the top court’s eyes, if there is no tariff, there is no Constitutional violation. Yet, while monetary tariffs are not imposed, there are plenty of other legal and regulatory hurdles that make the cost of doing business impractical.

The solution lies with the premiers but, publicly at least, internal trade has not been the top priority.

When four right-leaning premiers – Ontario’s Doug Ford, Quebec’s François Legault, Manitoba’s Brian Pallister and Alberta’s Jason Kenney – came to Ottawa earlier this month, it was to pester the federal government for more healthcare dollars.

It was a missed opportunity. Since came to power, 12 of 13 premiers have changed, with most provinces flipping from left-of-centre to right-of- centre governments. The alignment that allowed Trudeau to push through the climate change framework and the Canada Pension Plan expansion has oscillated. The alignment still exists but conservative parties dominate from the Rockies to the Atlantic Ocean – a group of seven premiers united in their resentment at what they consider a jurisdictional over-reach by the federal Liberals.

If the premiers were minded, they could by-pass Ottawa and strike their own trade deals.

But are leaders like Legault and Ford, who both have plenty of political capital to spend, ready to take on the entrenched interests that would oppose trade liberalization?

A senior source in the Ontario government said Ford and Legault are allies when it comes to internal trade. “Both premiers are pragmatic about economic growth,” he said, pointing out the topic was a priority at the Ontario/Quebec summit earlier this month. “We are looking at ways Ontario and Quebec can jointly develop industry as well as trade,” the source said. “There is quiet diplomacy underway – a genuine willingness to give and take for mutual gain.”

Both sides are motivated by an indignation at what they see as “intrusion” by the federal government in areas of provincial jurisdiction. Both realize there are barriers that will remain – protection for Quebec’s cultural industries and hydro monopoly, for example.

But Ford’s government sees areas of mutual interest. “Legault’s an accountant. He loves numbers and I think the math of a closer trade relationship with the rest of Canada makes sense to him. It does for us,” the source said.

No wonder – a genuinely open market between Ontario and Quebec would be worth $1.3 trillion, the fourth largest economic space in North America, behind California, Texas and New York State.

If the barriers to doing business came down, and Canada behaved like one nation, David Longbottom would be delighted. “My interest is as a business person but also as a consumer,” he said.

Not only is it difficult to get into another province’s distribution channels, it is illegal for a Quebec customer to load up his or her trunk with beer at the brewery and drive across the border. “Both restrictions are absurd,” he said.

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