All for One, One for All?

Will the Whitehorse agreement on interprovincial trade turn out to be truly ‘groundbreaking’? Or will a constitutional reference at the Supreme Court of Canada come along that takes down provincial regimes?
Illustration: Marta Antelo
Illustration: Marta Antelo
Following the July 22 announcement at the Council of the Federation summit in Whitehorse that Canada’s Premiers had reached a “groundbreaking” deal on interprovincial trade, a nagging question lingered among those most concerned about Canada’s tangle of domestic trade barriers: where were the feds?

How, they wondered, can the provinces possibly deliver an effective new trade deal to Canadian businesses in affected sectors, such as the beer and construction industries, without them? Some observers say they can’t. And that would put a quick end to the hopes of some companies looking to expand, while protecting the interests of entrenched incumbents.

In the end, though, it may not be the premiers and the Prime Minister who take the next significant step to tear down Canada’s internal trade barriers, but a beer-loving retired steelworker named Gerard Comeau from New Brunswick. The beer industry, according to free trade proponents, is one that is plagued by a tangle of policies and regulations designed to protect provincial government beer monopolies.

Comeau was ticketed for violating a section of New Brunswick’s Liquor Control Act in 2012 for buying the equivalent of 14 cases of beer and some spirits in Québec (where they are significantly cheaper) and driving them to his home in Tracadie,
NB. Section 134(b) limits the individual importation of beer into New Brunswick from other provinces to just 12 pints. Comeau pleaded not guilty, arguing the ticket violated the constitutional guarantee under s. 121 of free trade between provinces. On April 19, a provincial court judge agreed, striking down s. 134(b) and dismissing the charge against Comeau.

The province has appealed, and some observers suggest the case could make its way to the Supreme Court. Depending on the outcome, that could do more to smash the brick walls blocking interprovincial trade than the proclamation by 13 wide-smiling premiers in Whitehorse that they’d signed an agreement in principle on a new Canada Free Trade Agreement
(CFTA). The announcement was accompanied by plenty of hype. Every premier, it seemed, expressed a bone-deep belief in the benefits of internal free trade to Canada’s economy.

For in-house advisors in sectors most affected by the morass of current interprovincial trade barriers
the construction, beer, wine, dairy and trucking industries to name the most obvious the 190-word statement issued by the premiers gives scant guidance on how to prepare for this supposedly barrier-free future. About all it gave us was this: “Unlike the previous AIT [Agreement on Interprovincial Trade], this agreement will be based on a ‘negative list’ approach, where all government measures would automatically be skewed towards free trade unless specifically excluded.”

The
AIT approach was exactly the opposite: provinces could essentially maintain existing and protective trade barriers across the board except in a handful of industries or situations specifically exempt from such protection under the agreement. The result, says Gordon LaFortune, who has represented the Canadian Vintners Association (CVA) in trade and other matters over the past decade, are differing regulations in each province for the still protected industries that are “a dog’s breakfast.”

Details of the
CFTA deal, including that all-important “negative list,” were supposed to be released this fall. But there’s no guarantee the CFTA will be ratified.

Still, LaFortune, a trade lawyer and partner in the Ottawa firm Woods LaFortune
LLP, who emphasized he wasn’t speaking to Lexpert on behalf of the CVA, isn’t convinced internal trade is as complicated and prohibitive as critics say. “In terms of the [AIT] I don’t know that we are overwhelmed with internal barriers to trade. …. Most goods move freely. Alcoholic beverages don’t because of historical circumstances. We have federal/provincial agreements in place to support supply management that limit your ability to produce poultry, dairy and eggs ...  in different parts of the country. But no one is going to overturn that. Most other products, so long as you can show they meet federal standards, can move freely.”

HEARD IT ALL BEFORE

For Ottawa-based Michael Atkinson, President of the Canadian Construction Association (CCA), the Whitehorse agreement echoes hollow promises made in 1994 when the provinces signed the AIT. That agreement has been widely disparaged as ineffective in tearing down the many walls inhibiting interprovincial trade.

Atkinson, who holds a law degree and sometimes acts as in-house counsel for the
CCA, which represents more than 20,000 member firms, has little optimism the CFTA will be any better than the AIT has been for the construction industry. Without the federal government’s involvement in upholding the free-trade mantra, what leverage is there to nudge the provinces to make meaningful changes?

“The provinces,” Atkinson says, “have no constitutional right to demand a seat at the table with respect to interprovincial trade. That is the solid jurisdiction of the federal government under the Constitution.” And while he’s fine with the feds seeking the provinces’ opinions on trade, “at the end of the day the federal government must be the decision maker, must be a leader. Not a referee.”

But considering Prime Minister Justin Trudeau’s calls to fight global anti-trade sentiments and protectionism at the G20 Summit in China in September, his government has stood back to let the provinces haggle over interprovincial trade problems on their own.

When the Agreement on Interprovincial Trade came into force on July 1, 1995, it contained conditions meant to prevent new trade barriers between provinces and start reducing remaining ones. The AIT calls for equivalent treatment by all Canadian governments for goods and services, although it makes exceptions for some sectors such as transportation, labour mobility, agricultural products, government procurement, alcohol and a few others. Nevertheless, it requires governments to ensure “their policies and practices do not have the effect of creating obstacles to trade.”

It didn’t quite turn out that way. For instance, in giving an example of how it intends its “No Obstacle” rule to work, the
AIT says, “Governments must ensure that the tendering of contracts covered under the Agreement does not favour suppliers of a particular province.” Yet in the construction sector Atkinson says this happen regularly, in part because some Crown corporations are exempt from the AIT.

On September 1, 2015, he points out, Saskatchewan introduced its Crown Sector Procurement Preference Policy. It was a retaliatory move against Ontario and Québec
the latter accused of favouring Québec contractors for building Loto-Québec casinos and other projects.

Saskatchewan’s new policy states that, when prudent, all
AIT-excluded Crown corporations including SaskEnergy and SaskPower will, for contracts of $100,000 or more, give preference to businesses in the New West Partnership Trade Agreement (NWPTA). (That 2010 agreement between BC, Alberta and Saskatchewan is an enhanced trade agreement designed to eliminate even more barriers than the AIT and enhance investment and labour mobility between the signatories.)

Atkinson wonders why
since such preferential provincial procurement programs offend the AIT — the federal government remains silent on them. Even though some of his members might benefit from preferential procurement policies, Atkinson says the CCA has “a long-standing policy that we are opposed to preferential treatment, because in the long run we believe it is detrimental to local businesses.

Yet not everyone in the construction industry sees biased provincial procurement policies actually impacting their businesses. A lawyer by training, Peter Clarke has been
CEO of Toronto-based Dineen Construction since 1980 and has opened offices and bid on projects in Alberta, Saskatchewan, New Brunswick and PEI.

All he had to do, says Clarke, was open up a new office in a province and incorporate a subsidiary, then bid on jobs. “It’s very easy. It happens all the time. … I can go set up tomorrow. It’s no big deal. And basically the lowest bidder gets the jobs.” That won’t ruffle local industry feathers, adds Clarke, because any out-of-province firm that comes in from elsewhere is going to use local subcontractors and trades to do the work. “All construction is local
we are just managing the thing it’s the local guys that are doing the building.”

OUT OF HARMONY

Provinces in 150 years of effort to protect their agricultural bases, favoured industries and powerful lobbyists have created a labyrinth of regulations, packaging rules, policies and professional accreditation requirements that can give in-house counsel a serious headache.

Every province, for instance, has its own taxation rules for beer sales, with most charging higher markups (taxes) for beers imported from outside provinces. Even rules on required bottle sizes differ from province to province. That makes it difficult to penetrate markets in non-home-base provinces, especially for smaller brewers that can’t afford to build parallel bottling systems for any new provincial market they’re eyeballing.

For instance, in a report on internal trade released last March by the Standing Committee on Banking, Trade and Commerce, Ontario-based Beau’s All Natural Brewing Co. complained to the committee that it spent eight years and $100,000 just to get the approval required to sell its beer in Québec. The committee ultimately decided that the
AIT needs a serious overhaul that “must be as ambitious and comprehensive as any trade agreement Canada has with a foreign country.”

Canada’s brewers and vintners
sectors most heavily handcuffed by powerful provincial liquor boards and monopolies that control where alcoholic products can be sold seem to have low expectations for the CFTA to fix their internal trade issues. LaFortune says he shrugged when he heard an agreement had been reached in Whitehorse. “Since the federal government is responsible under the Constitution for internal and international trade, I don’t see how you can have something effective without the feds at the table.”

HISTORY IN THE UNMAKING

When the founders of Confederation gathered to forge this country, a prime objective was to create a nation where goods, services and labour would flow as easily as water from shore to shore.

That notion was eventually written into s. 121 of the Constitution Act, 1867: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.” The founders also made it clear in s. 91(2) of the British North America Act, 1867 that Canada’s federal government is responsible for the “Regulation of Trade and Commerce.”

The federal leaders, however, who came to power after Confederation have failed to live up to the domestic free-trade dream, argues Brian Crowley, Managing Director of the Macdonald-Laurier Institute
(MLI), an Ottawa-based public-policy think tank. Crowley says past federal governments have all neglected their constitutional prerogative to grab the reins of trade and commerce away from the provinces.

“I am gobsmacked that successive fed governments have just waved this away.” That, despite the fact that “the Constitution is signalling in every way it possibly can that the intention was to create a national, unified economic base, and that Ottawa is the guardian of that base.”

As such, he adds, the feds have failed to defend the rights of Canadians “to carry on their business and exercise their profession and sell their goods and services in every part of the country.”

CORPORATE TRADE TIMIDITY

For those companies and the lawyers working on their behalf who believe trade barriers infringe their businesses and even their constitutional rights, fighting back is tough. “The dispute-settlement system with the Agreement on Internal Trade is toothless,” says LaFortune.

Companies impacted by another province’s trade barriers, whether visible tariffs or more subtle policy obstructions, have no standing under the
AIT to complain. Only signatories the provinces and territories can do that.

“That makes it far more difficult for anyone to make use of [the Agreement on Interprovincial Trade],” continues LaFortune. “Because the first thing you have to do as a company, if you are being injured by a measure in another province, is go to your own province and convince them there’s enough of an issue to take it to the dispute-settlement process under the
AIT. Then, if you are successful, the most you can get is a report that says Province B was bad and we think they should change. That’s it!

Hardly worth it for an aggrieved company to kick its internal or external counsel into high gear for that kind of cost/reward scenario. And other hazards lurk for companies wanting to challenge interprovincial trade barriers.

Shawn Moen, a former criminal and commercial lawyer who also holds a master’s degree in international trade, is a secretary of the Saskatchewan Craft Brewers Association
(SCBA). He’s also CEO and co-owner of 9 Mile Legacy Brewing Co. in Saskatoon. Liquor boards across the country determine what alcoholic products get listed in their specific province. Get delisted says Moen perhaps for expressing bitterness about a province’s rules that impede external competition — and a brewer, especially a small one, could go out of business. That delisting threat, says Moen, “can operate as protectionist measure too, depending on how they are administered.”

CONSTITUTIONAL CHALLENGE

Should the CFTA prove as feeble as skeptics predict, it may come back to the Comeau case to get the Supreme Court to address the contemporary constitutional issues foaming up from interprovincial trade policies and rules.

Comeau was caught by New Brunswick
RCMP in a sting operation designed to nab New Brunswickers buying beer in Québec, where it’s substantially cheaper, who were bringing it back to New Brunswick in excess of its Liquor Control Act. He faced a $292.50 fine.

In finding in favour of Comeau, Judge Ronald LeBlanc found a number of Supreme Court precedents regarding trade laws
including the seminal 1921 case Gold Seal Ltd. v. Alberta were wrongly decided. Gold Seal essentially held that s. 121 only applied where a tariff, customs duty or like charge was imposed at a provincial boundary on incoming goods. New Brunswick’s liquor limit was not such a customs duty it only banned individuals from bringing alcohol into the province save for a minor specified amount.

Judge LeBlanc accepted defence evidence that he should ignore stare decisis and the Supreme Court’s findings in the Gold Seal case. He wrote, “I believe that the narrow and strict interpretation placed upon section 121 in the Gold Seal case was unwarranted and unfounded.”

He ruled, in addition, that New Brunswick’s restrictions under s. 134 for bringing alcohol into the province for personal use violated constitutional free-trade provisions under s. 121 and therefore are of no force and effect. The province appealed and the case, bypassing the Court of Queen’s Bench because of its importance, is expected to be heard in the New Brunswick Court of Appeal by early 2017.

Judge LeBlanc’s contrarian ruling likely jolted awake many of the in-house advisors and lawyers working for companies mired in the political bog of interprovincial trade. Observers, however, debate whether this case will make it to the Supreme Court after the appeal is heard.

Ian Blue is confident it will. “In such a constitutional case and such a politically charged atmosphere about trade barriers, I think there would be a good chance that [the Supreme Court] would choose to grant leave to appeal from either side.” A Toronto energy lawyer with Gardiner Roberts LLP, it was Blue who, as part of a team, took on the Comeau case pro bono and wrote the defence’s constitutional arguments.

LaFortune, however, would “be very surprised if it survives appeal. I just think LeBlanc’s decision was badly reasoned from the start.” Nor does he see the government jumping in with a reference case to the Supreme Court to clarify the reach and meaning of s. 121, though many, like Crowley, wish it would.

Comeau’s defence team extensively re-examined the history of Confederation with respect to free trade. Blue contends that Judge LeBlanc “took the argument further. You see, what he had to do as a provincial court judge was say that he was disagreeing with four decisions of the Supreme Court of Canada.

Comeau’s team went so far as to bring in University of Liverpool historian Andrew Smith, an expert who testified on the “constitutional moment”
the events leading to Canadian Confederation. Smith testified that drafts of the Constitution evidenced that the founders of Confederation wanted a Constitution that created an economic union with “unfettered exchange” across the country.

In light of Smith’s evidence, Blue says Judge LeBlanc “gave proper meaning to s. 121, which is that it applies to all provincial trade barriers.”

The implications could be profound for Canadian companies and their legal advisors. According to Blue, “It would mean that any marketing legislation, such as federal and provincial marketing boards, to limit quotas of milk, eggs, poultry and what have you, and prohibit them from being purchased from one province to the other, will all fall down. And any law that creates a provincial preference and excludes people from another province from supplying goods or services are gone. They just can’t stand under [Judge] LeBlanc’s interpretation of s. 121.”

If Blue is right, in-house advisors in the alcohol, transportation, construction, food and a few other sectors will have interesting work ahead.