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Greater Niagara Chamber of Commerce

The Canadian Free Trade Agreement

It’s not NAFTA. It’s not CETA. It’s not TPP. This is a new free trade agreement just for Canada, between the provinces and territories. What is it, and what does it mean?

On July 22nd, the 13 premiers reached an agreement-in-principle on the Canadian Free Trade Agreement (CFTA) at Whitehorse, Yukon. It will replace the 23-year-old agreement on internal trade. But at this time, we know very little about it. As the Financial Post put it, it’s a free trade deal that isn’t free and isn’t a deal (yet). The Premier of Ontario’s statement was correspondingly vague, as was the Government of Canada’s.

Academic studies have pegged the economic losses caused by internal trade barriers at somewhere between $50 and $130 billion per annum. Trevor Tombe and Lukas Albrecht, two economists at the University of Calgary, concluded that trade barriers add between 8 and 15 per cent to the price of goods and services and, if removed, would gain about $7,500 a year for every Canadian household.

The reason why free trade deals are popular and why governments spend so much time pursuing them is because of their positive impact on business.  Since 1993, NAFTA has led to a tripling of Mexican and U.S. investment in Canada, and the Canada-U.S. Free Trade Agreement (CUSFTA) more than tripled the value of Canadian exports to the United States. Fears that NAFTA would wipe out Canada’s manufacturing sector were never realized.

The outgoing interprovincial agreement only covered specific economic sectors. The new one reverses that practice and takes a “negative list” approach, meaning the default will be deregulation or harmonization, except for a specific list of sensitive items.

What’s on that list? Nobody’s saying right now. But there are a couple of good bets.

Procurement is a sensitive topic for free trade. Procurement is, simply, the process by which government acquires goods and services for citizens. For example, if the government wants to build a school, it can’t do so directly – the government is not a land developer or a contractor. Instead, it will find a firm to build the school for it, and pay them. How does it find that firm, how much does it pay, and what are the terms of the agreement? Procurement processes and policies determine the answers to those questions.

Of course, governments would like to give contracts to local firms if they could. It’s a stimulus to the local economy and creates jobs in the community. The Alberta government, whose economy is currently in a slump due to the downturn in the energy sector, wants to give preference to Alberta firms in provincial procurement.

The agreement that was reached purportedly states that the signatories to the New West Partnership (Alberta, Saskatchewan, and British Columbia, with Manitoba a possible future signatory) will be able to bid on equal footing in Alberta. The four Atlantic provinces could also be exempted. However, Ontario and Quebec firms would face a disadvantage in Alberta.

However, this might contradict CETA, the upcoming free trade agreement with the European Union. One Alberta official suggested that these procurement arrangements would not survive the ratification of CETA, expected within a couple of years and certainly before a possible UK exit from the European Union, to be concluded within two years of an invocation of Article 50 of the Lisbon Treaty. Read more about the “Brexit” here.

The other sticking-point is alcohol. It seems that the new agreement will preserve the existing restrictions against purchasing or shipping alcoholic beverages directly from producers and suppliers. For a region like Niagara, this is important, as smaller independent wineries that can’t get deals with the provincial monopolies will be essentially shut out of the market in other provinces. Howard Anglin, Executive Director of the Canadian Constitution Foundation, has argued that this arrangement is unconstitutional, and that any internal free trade agreement is redundant given that the Constitution already effectively provides one.

Section 121 of the Canadian Constitution mandates that “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 interpretation that this forms a free trade agreement which supersedes, for example, provincial restrictions on alcohol trade was recently upheld by a trial judge in New Brunswick, who threw out a fine levied against a man who had purchased alcohol in excess of interprovincial trade limits in Quebec and driven it home across the border.

British Columbia, Ontario, and Quebec announced plans separately to make it easier to buy Canadian wines in each province, but each province’s liquor board would still regulate the system. The LCBO contributes $1.7 billion to provincial revenues per year, which could be seriously reduced by cross-border purchasing. Obviously, opening up the alcohol trade and ending or curtailing the liquor board monopoly would be a huge benefit to Niagara and its famous wine industry.

So that’s all we know right now. The GNCC, in concert with our partners at the Ontario and Canadian Chambers of Commerce, will continue to advocate for free trade and for greater opportunities for Niagara business both in Canada and abroad – and we’ll keep you updated on our progress. Stay tuned!