Quebec and Ontario should negotiate a free-trade deal – Template could be the pact between Alberta and B.C.

On April 1, a trade agreement between Alberta and British Columbia – the Trade, Investment and Labour Mobility Agreement – came into force.

The Alberta and B.C. governments believe that the TILMA will create a seamless economic unit between the provinces that would be better able to compete with the two largest economies in Canada, Quebec and Ontario.

Their aim is to erase the provincial boundary for economic activity and establish an efficient market where differences in regulations, duplicate fees and information requirements are removed, leaving no restrictions on trade.

Quebec and Ontario should want to do the same thing.

They are each other’s biggest trading partners: In 2003, Quebec sold almost $31 billion in goods and services to Ontario and Ontario sold $38 billion to Quebec. For Quebec, this is 62 per cent of it domestic exports and for Ontario it is 41 per cent. Interprovincial trade between Ontario and Quebec represents 28 per cent of all domestic trade in Canada.

International trade has grown faster than domestic trade since 1991 but this has changed in the last few years and now domestic trade is growing faster. Both provinces must continue to optimize trade both inside and outside Canada but it is clear that the Ontario and Quebec economies are inseparable. The two provinces should seek to optimize this relationship to improve the efficiency of their economies in their mutual interest.

In the summer of 2006, Quebec and Ontario agreed to resolve the long-standing restrictions on Ontario construction workers’ and companies’ access to work and construction projects in Quebec. There are no restrictions on Quebec construction workers and companies that wanted to work or bid for contracts in Ontario.

Probably Quebec’s policy is inconsistent with the existing Agreement on Internal Trade although this has never been tested. In trade terms there is no good reason why Ontario should give Quebec workers and construction companies access to Ontario if their workers and companies don’t have the same access to the Quebec market.

If Quebec and Ontario can resolve this problem, that characterizes and illustrates the differences between the economies, they should be able to deal with any other trade, investment or labour mobility problem.

The Agreement on Internal Trade that all Canadian governments signed in 1994 was supposed to resolve domestic trade, investment and labour mobility issues, but it doesn’t. The AIT doesn’t cover all trade issues, and it is complex, inaccessible and unenforceable.

Alberta and B.C.’s TILMA is a better trade agreement. It is also sanctioned by Article 1800 of the AIT that encourages «trade-enhancement arrangements» among two or more Canadian governments and that can be extended to other governments that want participate in the agreement.

Alberta and B.C.’s TILMA applies to any measures that restrict trade that are not necessary to protect such things as consumers, public health and safety and the environment.

It operates on the principle of «mutual recognition» as the default mechanism for dealing with regulated trades and professions and for regulations and standards for goods, and investment.

It has straightforward and more readily accessible dispute- resolution arrangements that include a potential for financial penalty if a government fails to implement a panel report. This award is not compensation for injury caused by a restrictive government and is not available if a government removes a restriction. It is intended as an incentive for governments to make timely changes in measures that have been found to be restrictive.

Finally, Alberta and B.C.’s bilateral trade arrangement establishes a clear and substantive commitment to an open and efficient interprovincial market. It also puts in place a continuing intergovernmental process to identify and fix any policy, administrative arrangements, regulatory or other measure that impairs the openness and efficiency of their common economic space. This is the most important feature.

It is time for Ontario and Quebec to stop dealing with the relationship that is essential to their mutual and continued economic success in a reactive and ad hoc way. Like Alberta and British Columbia, they need to commit to an open and efficient interprovincial market by entering into a Trade, Investment and Labour Mobility Agreement.

Alberta and British Columbia have shown them the way.

Robert Knox est senior fellow à l’Institut économique de Montréal.