How to Get Internal Free Trade Back in the Constitution

By: on September 2, 2014 |

This summer, Canadians were treated to stereo calls for freer trade between the provinces. In Ottawa, Industry Minister James Moore announced the federal government’s intention to create a true free trade zone within Canada, with plans to begin negotiating with the provinces in the autumn. Meanwhile, the three Western premiers – British Columbia’s Christy Clark, Alberta’s interim leader Dave Hancock, and Saskatchewan’s Brad Wall – issued their own letter to the other provinces, calling for a dismantling of the internal trade barriers that do the Canadian economy so much harm.

It’s a welcome message given the reality that, as Mr. Moore has pointed out, some people in foreign countries now have “more access to the Canadian economy than Canadians.” Yes, apparently it’s easier to negotiate complex international trade agreements across multiple languages and cultures than it is to convince Ontario to allow its residents to order a bottle of vino directly from a B.C. winery.

Yet, as my colleague Derek James From noted in a recent Winnipeg Free Press op-ed, there’s something a bit odd about waging a political war on interprovincial trade restrictions. Not because such a war isn’t justified or worthwhile or to the benefit of the country as a whole. But rather, because we have a Constitution that, if interpreted correctly, already makes such barriers off limits.

In fact, it’s hard to imagine the wording of Section 121 of the Constitution Act, 1867 being much clearer on the point: “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.” In other words, don’t block interprovincial trade.

History bears out this reading. As Toronto litigator Ian A. Blue has noted in the Dalhousie Law Journal and elsewhere, at the same time they were discussing confederation, Canada’s Founders also happened to be dealing with a trade problem of their own: U.S. President Abraham Lincoln’s announced intent to impose stop and inspect procedures that would delay the shipment of Canadian goods to the United States. It seems highly likely that concern over this impending non-tariff, non-duty trade barrier was part of the Founders’ motivation for choosing the terminology “admitted free” in Section 121 – rather than a narrower statement such as “free of duty,” which was used in earlier pre-confederation statutes – to avoid similar blockages against moving goods from one province to another.

At the very least, the quotes of the time from the Fathers of Confederation suggest a desire to achieve free interprovincial trade in a broad and expansive sense. Canada West’s George Brown enthused that union of all the provinces would “break down all trade barriers between us,” and throw open “a combined market of four millions of people. You in the east would send us your fish and your coals and your West India produce, while we would send you in return the flour and the grain and the meats you now buy in Boston and New York.”

Similarly, Sir John A. Macdonald noted in 1865 that Canada wanted “unrestricted free trade, between people of the five provinces.” While Macdonald would go on to demonstrate far less appetite for unfettered free trade between Canada and the United States – the full effects of his protectionist National Policy weren’t really overcome until 1988 – his intent here to call for complete internal free trade seems unmistakable.

So why, in 2014, are we still arguing about the ability to order an Alberta craft beer online from a computer in a Montreal living room?

For this, the blame lies with the Supreme Court of Canada’s 1921 Gold Seal Ltd. v. Alberta (Attorney-General)decision, which interpreted Section 121 as a narrow restriction on the imposition of duties on goods being shipped across provinces, rather than a more robust protection of the free interprovincial flow of goods. Remember that distinction between “admitted free” and “free of duty” that Ian Blue alerted us to? He suggested that “admitted free” was a phrase purposely chosen by the Founders to encompass more than just duties and tariffs, and include the sort of stop and inspect procedures the U.S. had been imposing on Canadian goods. Surely such a phrase was at least broad enough to include all-out bans of the kind being imposed in Gold Seal. Unfortunately, the court paid such considerations no mind.

The ruling was a hangover from the Prohibition era, even though Ottawa had repealed its liquor ban by then, and most provinces including Alberta would soon follow suit. Nevertheless, in Gold Seal, the court held that banning interprovincial importation of alcohol for temperance purposes did not violate Section 121 since there was no imposition of duties or tariffs at issue. And the rest was impeded interprovincial trade history.

The Gold Seal precedent is a very large part of what stands between us and a current vibrant constitutional protection of interprovincial free trade in everything from alcohol to eggs to wheat. It is therefore a large part of what stands between us and meaningful inter-provincial free trade period, since getting politicians to voluntarily agree to such changes will always be a Herculean effort. Those making money off of interprovincial protectionism simply have too much to lose. Here, for example, is Ontario’s Finance Minister Charles Sousa’s response to the western premiers’ letter: “We have a number of sectors within the economy that are protected, and the strength of those sectors exist because of some of the processes we put in place.” He continued, “We don’t want to jeopardize the livelihood of Ontario companies as well. So we’ve got to make certain that we’re working fairly for all concerned.”

Sousa was likely thinking in part of Ontario contractors and construction companies, who now get strong preference for the billions of dollars of government contracts awarded through Infrastructure Ontario. And why not? Introducing the preferences was an effective way for then-premier Dalton McGuinty to court the financial and electoral support of the construction industry – powerful unions, tradesmen, project managers, engineers, site supervisors and the like. And strengthening the preferences has been a winning strategy for Premier Kathleen Wynne as well.

That’s what we’re up against on the political side. On the legal side, while Ian Blue has, through his writing, been an indomitable and persuasive force for viewing Gold Seal as ripe for overturning (or at least thorough reinterpretation) through a purposive interpretation of Section 121, we have yet to see an actual case to test his theory. It’s high time for that to change.

The Constitution is only as strong as the parties and lawyers willing to take to the courts to enforce it. Reinterpreting Gold Seal could emancipate an entire population from the costs of protectionism and confer the extensive free trade benefits the Founders intended; but the Supreme Court isn’t going to reconsider the case on its own initiative. The key is for someone who cares about economic freedom to put their money where their mouth is and litigate the matter, rather than accepting the flawed status quo based on a dubious judicial decision from the previous century.

The case for forcing a reconsideration of Section 121 seems to me to be highly relevant for a number of reasons, not least because it underlines this lesson: Calls for reopening the Constitution to fix a current problem are often premature.

In many cases, the protection of individual freedoms that we seek is already provided by our Constitution, but it simply hasn’t been well litigated by a public interest lawyer – or hasn’t been litigated at all – because the price tag for the case would be too big, and the defending bureaucrats’ coffers too deep. Take it from someone who runs a non-profit law firm: Suing the government isn’t cheap.

Yet suing the government can be crucial to the health of the country. In the case of Section 121, establishing meaningful free trade between the provinces would not only be an economic boon on its own, it could potentially lessen the need for heavy handed federal transfer payments designed to reduce disparities in the fiscal capacities of the provinces. It might even undermine the case for regional employment insurance rules and the subsidies doled out in the name of regional and sectoral development.

Free interprovincial trade would increase job mobility and standards of living, while decreasing consumer costs, allowing Canadians to more easily pursue the best opportunities for them regardless of geography, and forcing the provinces themselves to become more efficient and competitive.

Don’t get me wrong. Even the most generous reinterpretation of Gold Seal could not be expected to directly impact the constitutionality of equalization or regional employment insurance rules. Section 121 concerns itself with “Articles of the Growth, Produce, or Manufacture of any one of the Provinces.” It’s talking about goods. Still, one wonders if there might be an opportunity to enhance labour mobility by legally challenging some of the more arbitrary and protectionist licensing and accreditation standards in provinces such as Ontario where, for example, fees for mandatory certification for hairstylists just went up 600%.

However, there’s every reason to be optimistic that in an economic environment in which manufacturers and producers were truly competing openly throughout the entire country, both the appetite and call for regional and sectoral subsidies would be significantly diminished, while the fruits of expanded economic opportunities and choices would be enjoyed by every Canadian.

That’s a tough prize to forego given how inefficient equalization and regional subsidies like Employment Insurance are. As the Atlantic Institute for Market Studies’ Don McIver has shown, equalization has the perverse consequence of plundering low-income federal taxpayers from the “have provinces” to indirectly subsidize high-income people in “have not” provinces. Other AIMS research has shown that equalization leads to higher government spending in general and that every dollar of regional subsidies suppresses about a dollar’s worth of regional economic activity.

Would we really accomplish all that simply by reinterpreting Gold Seal? It may seem like a stretch to believe that a single legal decision could have such a dramatic effect on how our Constitution protects us and how we do business, and perhaps even how our country addresses its own internal economic inequities. But it wouldn’t be unprecedented.

In the United States, it was long considered accepted wisdom that that states could legally ban the direct shipment of alcohol from out of state to their residents. After all, the 21st amendment to the U.S. Constitution – the amendment that repealed prohibition – provides that: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” The idea was that states could still enact their own prohibition laws if they wanted to, even after the federal prohibition was repealed.

Then came along a libertarian public interest firm called the Institute for Justice.  In a case called Swedenberg v. Kelly, IJ successfully argued that as clear as it is, the 21st amendment still did not repeal the U.S. Constitution’s commerce clause, which disallows states from creating protectionist schemes. The U.S. Supreme Court agreed with this interpretation and in 2005 struck down New York and Michigan laws banning direct shipments of out-of-state wine.

With that one case, interstate trade was freed significantly in the United States and the way paved for unimpeded online sales and shipments. Juanita Swedenberg, the feisty farmer and owner of a small Virginia winery, was free to send her products to customers in the Big Apple and beyond.

While the particular legal questions at issue with Section 121 interpretation are, obviously, completely different from the arguments in Swedenberg about whether and how to harmonize the 21st amendment and dormant commerce clause, the sweeping effect that could be had from successful constitutional litigation to protect economic liberty and free internal trade is not.

Our Constitution is ready to protect free trade within Canada. The question is, are we?

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Marni Soupcoff is executive director of the Canadian Constitution Foundation, a non-profit, charitable public-interest law centre dedicated to the protection of individual rights from unwarranted government intrusion. Her writing appears weekly in the National Post, and she is a regular commentator on CTV News Channel and on The National on CBC.

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