By Ryan Manucha, July 8, 2019
Canada’s pursuit of an economic union has stalled. The nation’s 25-year trial with domestic free trade agreements (the 2017 Canadian Free Trade Agreement, and its predecessor, the 1995 Agreement on Internal Trade) has taught us that mere political agreements in the spirit of co-operative federalism, while a noble effort, simply do not work.
Despite the enactment of these domestic agreements, interprovincial trade barriers have collectively amounted to a 6.7 percent tariff on internal commerce, as reported by StatsCan. And in May 2019, internal obstacles to trade received global attention when the International Monetary Fund approximated that the Canadian economy could see a 4 percent boost to its GDP from a reduction in its domestic trade barriers.
Heading into this summer’s Council of the Federation meeting where internal trade barriers will be at the top of the agenda, broad-based support for finally tearing down these barriers to trade between Canadians has reached unprecedented levels. Nearly nine in 10 Canadians want free trade between provinces. And nearly three-quarters of Canadians disagreed with the outcome of R v. Comeau in 2018 (a case detailed later in this article).
Premiers from across the country have pledged support for freer internal trade, including Manitoba Premier Brian Pallister, Alberta Premier Jason Kenney, and former Premier of Quebec Jean Charest. Over the course of his tenure, Prime Minister Justin Trudeau has sought to improve internal trade, most recently tasking intergovernmental affairs and internal trade minister Dominic LeBlanc with the mandate. And at the beginning of June, Conservative leader Andrew Scheer proposed that if elected he would appoint an interprovincial trade minister whose sole portfolio mandate would be to negotiate a comprehensive free trade deal amongst the provinces. The political will for liberalized domestic trade makes the issue particularly salient as the Premiers meet in July.
The global economy is in a period of substantial disruption. Recent events have shown the existential threat to the rules-based order with the growing political and economic strength of China, the vulnerability of Canada to the demands of economic allies, and a looming collapse of the World Trade Organization (WTO). As will be discussed, the imperative for fundamental reform to domestic trade in the form of a Charter of Economic Rights is thus two-fold: to realize the aspirations of Canadians, and to strengthen Canada’s competitiveness in the 21st century.
The Case for a Charter of Economic Rights
The case for a Charter of Economic Rights starts by examining the inadequacy of the current tools available to tackle obstacles to trade within Canada.
The Canadian Free Trade Agreement
No other country has implemented a political solution such as the Canadian Free Trade Agreement (CFTA) to address internal obstacles to trade. Inspired by its international counterparts during the era of the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), it was thought that a political agreement amongst Canada’s provinces, territories and the federal government could solve impediments to the flow of goods, services, people and investments within Canada. Very capable Canadians came together to negotiate and implement a highly aspirational intergovernmental agreement in 1995, and then again at its renegotiation in 2017.
Despite best efforts to push Canada towards a more unified economy, the project was fundamentally hamstrung for several reasons, most notably by an impotent dispute resolution mechanism. Unlike Canadian courts, the CFTA dispute resolution system is highly inaccessible. The substantial cost to launch a claim, as well as the procedural protocols a claimant must follow, make the commencement of a CFTA claim nearly impossible.
To date, only well-financed industry groups and corporations have made claims that successfully obtained attention of a dispute panel. A disconcerting fact is that 100 percent of the AIT/CFTA cases have had a ruling – at least in substantial part – for the complaining party. When compared to analogous international venues, this 100 percent win-rate is unmatched. The rate stands at 33 percent for NAFTA cases, 90 percent for WTO cases, and 31 percent for International Center for Settlement of Investment Disputes (ICSID) cases. If this were a truly legitimate dispute forum, there would be at least some instances of cases going the other way. Due to the steep cost to launch a claim, and the exacting procedural barriers required to do so, afflicted Canadians simply forego economic opportunities rather than formally contest the barriers.
At its core, the CFTA can only be seen as aspirational. And there simply is no reform that can cure the CFTA of its fundamental shortcoming – it lacks authority to require a provincial government to change its laws. Nor should it. CFTA panelists are not appointed members of the judiciary, and they should never be given the authority to force a change in legislation by any government in Canada. Though CFTA panelists can award monetary penalties for successful complainants, this does not achieve the fundamental objective of the domestic free trade agreement – to liberalize commerce within Canada.
At its core, the CFTA can only be seen as aspirational. And there simply is no reform that can cure the CFTA of its fundamental shortcoming – it lacks authority to require a provincial government to change its laws.
The CFTA (and its predecessor, the AIT) were an important experiment in the trajectory of Canadian federalism. However, practice has shown that the CFTA has fallen well short of its intended objectives. A number of Executive Directors of the very agency in charge of administering the AIT/CFTA, including Robert Knox and Anna Maria Magnifico, are notable critics of the intergovernmental agreement. Despite the agreement’s existence, local interests are still aggressively asserted, and true competition remains elusive. In addition, Canadian governments have inserted a long list of exemptions within the text of the agreement, which narrows the applicability of the CFTA.
Judicial Challenges to Trade Barriers
Legislators drafting the British North America Act of 1867 – the core of Canada’s constitution – included Section 121, which proclaimed that goods from one Province “shall be admitted free into each of the other Provinces.” Though one might expect from the presence of s.121 that Canada would grow up to become a tightly integrated economic unit, this has not been the case. The Supreme Court of Canada has endorsed a narrow interpretation of the phrase “admitted free,” stemming as far back as Gold Seal Ltd. v. Dominion Express Co. in 1921, and most recently re-asserted in R. v. Comeau in 2018. For a law to violate the meaning of s.121, it must act like a tariff, with its essence being to restrict trade.
Illegitimate obstacles to internal trade are thus perpetuated by Canadian Supreme Court jurisprudence that has propagated a mid-20th century conception of obstacles to trade. Case law has not been adequately modernized to handle the second-generation barriers that are littered throughout provincial and territorial laws and regulations.
Tariffs are no longer the means to achieve interprovincial protectionism. Instead, barriers come by way of the far more insidious and discrete manner of regulatory and legal frameworks that indirectly accomplish the same objective. The Canadian judiciary is not alone in failing to progress. These same issues plague the WTO, where the 1994 GATT proved unable to regulate modern trade barriers.
In Comeau, the Supreme Court was rightly cautious of disrupting the constitutional prerogatives of provincial governments and the federal-provincial balance of power. In its unanimous decision, the Supreme Court aptly notes that full economic integration “would harm the ability of provincial governments to freely act.” And indeed, mandated regulatory harmonization could tie the hands of provincial and territorial governments from acting in the best interests of their electorates. However, as will be discussed, a Charter of Economic Freedom does not ask for “full economic integration.” Instead, such a Charter would ensure that Canadians have recourse to the courts when provinces erect inherently protectionist laws and regulations that the courts are currently not equipped to handle.
As seen in the ongoing debates about the future of the WTO, nations all over the world are struggling to devise updated rules that can address new forms of international trade barriers. Canada’s jurisprudence has also failed to progress on these same issues, and a Charter of Economic Freedom endows in Canada’s judiciary the means by which to enhance the rules overlaying the operation of the domestic economy.
A Comprehensive Solution
Canada’s unique brand of federalism begets a need for a unique solution – a Charter of Economic Rights. Such a Charter would maintain the philosophical underpinnings of the Charter of Rights and Freedoms. It would also bring to bear the intentions of Canada’s founders. Most importantly, it would realize the desires of Canadians – both those living, and those unborn – of an economic union. The Macdonald-Laurier Institute (MLI) has previously expanded on the case for a Charter of Economic Rights, and further detail can be found in its 2010 policy proposal.
A Charter of Economic Rights will allow for legitimate government policy, while giving individual Canadians the ability to guard against debilitating protectionism. A Charter will require that restrictions on the movements of goods, services, people and investments across internal borders will need to be rationally related to a legitimate objective, and constrain economic freedom as little as possible. A Charter will allow provinces and territories to regulate in the interests of the environment, health, consumer protection, and any other legitimate objective that falls within their constitutional heads of power. However, where the measure justifiably discriminates against out-of-province commerce, it will have to do so by way of minimally restrictive means.
A Charter of Economic Rights will allow for legitimate government policy, while giving individual Canadians the ability to guard against debilitating protectionism.
At CFTA Article 202, a government already bears the burden of establishing that a trade-restricting measure is still permissible. Under the Agreement, the government must show:
- The purpose of the measure is to achieve a legitimate objective;
- The measure is necessary to achieve that legitimate objective;
- The measure is not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between Parties where the same conditions prevail; and
- The measure is not applied in a manner that would constitute a disguised restriction on trade.
In light of the extant obligations under the CFTA, a Charter of Economic Freedom and its attendant restrictions are not novel. Article 202 was a product of provincial agreement, and it reflects a national consensus as to the appropriate form of legislation and regulation.
Importantly, a Charter of Economic Rights would take domestic trade and investment disputes outside the realm of domestic politics. Canadians will be able to bring their claims that the Charter had been violated before an applicable domestic court. The court would have the discretion to render judgments that would invalidate the unjustified policy barriers. Conversely, the court would also have the discretion to rule that the law or regulation of concern may be justifiably upheld. Trade obstacles will no longer serve as a source of discord in otherwise productive inter-provincial relationships. Provincial and territorial governments can leave trade disputes to the courts, and focus on more important policy initiatives.
The political reality is that provincial and territorial buy-in may require additional incentives from the federal government. One option explored by Manitoba Premier Brian Pallister and MLI Managing Director Brian Lee Crowley is Ottawa’s full recognition of provincial responsibility over health care, and the transfer of tax points to ensure adequate funding.
A Canadian Charter of Economic Freedom finds likeness in the doctrine of the Dormant Commerce clause of the United States. The Dormant Commerce clause stems from the federal authority over Commerce in Article I of the US Constitution. Its underlying principle is that state and local laws are unconstitutional if they place an undue burden on interstate commerce. The trajectory of US jurisprudence shows that since Gibbons v Ogden in 1824, the US Supreme Court has managed to effectively protect the ability of US states to regulate, but deny protectionist rule-making. This American judicial doctrine accounts for, at least in part, the highly liberalized flow of goods and services within the United States. Some commentators have even pointed out that trade between Canada and the US under NAFTA is freer than trade between Canadian provinces and territories.
Canada cannot expect any such doctrine from its own judiciary in the near future. Unlike the US, change must happen at the legislative level before Canada can entrench economic unity in its own jurisprudential tradition.
Legal Basis for a Charter of Economic Rights
The legal foundation for a Charter sources to section 91 of Canada’s constitution. That section lays out the broad grant of federal authority to make any and all laws for the “Peace, Order and good Government of Canada.”
It is true that s.91(2) sets out Trade and Commerce as a head of power falling under the purview of the federal government. But even if this had not been the case, s. 91 also provides that the central government has exclusive authority over all matters not assigned to the provinces at s.92. Because power over Trade and Commerce is not found inside of the enumerated list of provincial powers at s.92, the Trade and Commerce power firmly rests with the federal government.
At s. 92(16), provinces do maintain power over matters of local and private nature. However, s.91 already states that Trade and Commerce shall not be deemed to come within the “Class of Matters of a local or private Nature.”
There is a very real constitutional limitation to the federal government’s Trade and Commerce power – the Constitutional grant of power over property and civil rights to the provinces. But by way of s.91, the provinces must still obtain special permission to intrude into the domain of Trade and Commerce.
Canada’s 25-year experiment with the CFTA and the AIT has demonstrated that a political agreement amongst Canadian governments is not the solution for discriminatory and distortive trade barriers that harm the full flourishing of an economic union, as well as Canada’s global competitiveness. Moreover, the Court has shown that without legislative change, the judiciary is an ineffective venue to tackle modern barriers to trade.
A Charter of Economic Rights preserves the ability of provinces, territories and the federal government to enact laws and regulations that serve their electorates. However, it wards off against those devices that serve purely protectionist interests and which hinder Canadian unity and economic vitality.
Ryan Manucha holds a J.D. from Harvard Law School, and obtained his B.A. in economics from Yale University. He is a 2019-2020 Frederick Sheldon scholar at Harvard University, focusing on the issue of interprovincial trade in Canada.
 Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, s 121. (The British North America Act, 1867 was renamed the Constitution Act, 1982 with the patriation of the Constitution.)
 Gold Seal Ltd. V. Dominion Express Co., 62 S.C.R. 424, at para 152; R. v. Comeau, 2018 SCC 15, at para 90.
 Comeau, at para 8.