A stronger role for provinces in trade policy could mean greater economic benefits for all Canadians

Posted on Tuesday, October 30, 2012

A new Graduate School of Public and International Affairs study suggests that the Government of Canada's resolution to unilaterally decide trade policy could lower the expected benefits of new trade agreements.

The study, Twenty-First Century Trade Agreements: Challenges for Canadian Federalism, by University of Ottawa professors Patrick Fafard and Patrick Leblond, was recently released by The Federal Idea, a Montreal-based think tank. The paper reviews the interplay of federalism and trade policy in Canada and other federations like Australia and the United States.

While the provincial governments were given a modest role in negotiating Canada's proposed economic and trade agreement with the European Union, their role in approving the final text of the agreement remains unclear. “This creates the very real possibility that one or more provinces will choose not to fully implement a prospective agreement. The resulting uncertainty will cause companies in both Canada and Europe to approach trade deals more cautiously, which means that it may take years to achieve the economic benefits of the agreement,” says Patrick Leblond, co-author of the study. The federal government may also find itself defending provincial non-implementation of the agreement and paying any financial penalties that arise. Much of the same holds true for proposed trade and economic agreements with Japan, Korea and other Asian countries.

Professors Fafard and Leblond take a closer look at the proposed Canada-EU Comprehensive Economic and Trade Agreement (CETA), a second-generation trade agreement, where the emphasis is not on tariffs but on government standards, regulations as well as procedures that have an impact on the volume of trade and investment. The study shows that Ottawa, the provinces and even the municipalities have enacted a series of rules that—perhaps unintentionally—restrict trade and investment. CETA negotiations and similar ones with other countries are designed to adapt these rules to ensure Canadian companies do not enjoy an unfair advantage and thereby expand the volume of trade and investment.

The study reviews similar disputes under the North American Free Trade Agreement (NAFTA) and describes how Ottawa ended up paying $130 million to resolve a dispute between Newfoundland and the forestry giant AbitibiBowater.

“We can do better than this. We can learn from our own experience and those of other countries in order to design a process that gives provinces a meaningful role in trade negotiations,” says Professor Fafard. The study suggests that Ottawa and the provinces hammer out an intergovernmental agreement at the same time as they are conducting their EU negotiations. An agreement of this type would allow for formal input on the terms of CETA by the provinces while clearly setting out their obligations—something that may lead to provincial agreement to passing legislation, thus strengthening their commitment to implementing the deal with the EU.

“There's no way to force the provinces to fulfill the commitments they made during CETA negotiations,” says Professor Leblond. However, according to Professor Fafard, “investor confidence would increase if Ottawa and the provinces were to rediscover the tradition of collaborative federalism.”

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