May 2, 2018
Over 150 years ago, the minds of Confederation came together to unite the provinces of Canada. One of the chief goals behind this was economic unity; that is, one country, one market.
George Brown, one of the leaders behind Confederation, predicted “[the] union of all provinces would break down all trade barriers between us, and throw open at once … a combined market of four million people.”
Alexander Galt, a fellow member of the Great Coalition government that secured Confederation, believed “[one of the] chief benefits expected to flow from Confederation [would be] the free interchange of the products of the labour of each province.”
Unfortunately, Canada is far from the once envisioned bastion of free trade and unity. Rather, governments continue to fracture the national market, implementing absurd and archaic rules that limit what people or businesses can bring across provincial borders, and continue to obstruct and delay large projects that could inject billions of dollars into the economy.
The BC government’s consideration of applying stringent permits to the flow of diluted bitumen travelling through their province is the most recent example of this point.
The Comeau Case
The “Comeau Case” offered the courts the opportunity to strike a blow to Canada’s countless internal trade barriers.
The case began in 2012, when retired New Brunswick steelworker, Gerard Comeau, attempted to bring cheaper Quebec liquor into his home province. He was caught by the RCMP, and fined $292.50 for violating New Brunswick law that prohibits adults from bringing more than one bottle of spirits, one bottle of wine, and 12 pints of beer into the province.
Comeau took this fine to the courts, arguing that the prohibitions under New Brunswick’s Liquor Control Act violate section 121 of Canada’s Constitution, which states that the goods of one province must be “admitted free into each of the other provinces.”
New Brunswick’s provincial court ruling found the Liquor Control Act to be in direct violation of the Constitution. Unlike previous interpretations, the New Brunswick court interpreted s. 121 to prohibit all internal trade barriers—not just tariffs.
The Supreme Court decision
The Supreme Court of Canada (SCC) agreed to hear the provincial government’s appeal. On April 19, 2018, the SCC ruled unanimously that the Liquor Control Act of New Brunswick did not violate s. 121 of the Constitution.
The SCC found that s. 121 does prohibit tariff and tariff-like measures that limit trade within Canada. However, the court ruled that provinces should not lose their ability to legislate under s. 92 (the part of the constitution that describes areas under provincial government authority), even if that might impede internal trade.
The SCC outlined a two-part test to determine whether a provincial law violates s. 121 of the Constitution. A provincial law is only considered a trade barrier that violates s. 121 if (a) the law discriminates against out-of-province producers by increasing the cost of trading within Canada (like a tariff or quota), and (b) the primary purpose of the law is to restrict internal trade.
What this means for internal trade
This decision grants provincial governments significant leeway to restrict trade within Canada.
Under the SCC decision, a provincial government can avoid violating s. 121 by illustrating that their law is “rationally connected” to some other purpose, such as protecting public health or the environment.
For example, New Brunswick’s limitations prohibiting more than 1 bottle of spirits, 1 bottle of wine, or 12 pints of beer from entering the province was not considered a violation of s. 121 because the government’s regulatory intent is “to enable public supervision of the production, movement, sale, and use of alcohol within New Brunswick.”
If this type of strict limit on the amount of goods that can be brought into a province does not violate s. 121, it appears easy for a government to restrict internal trade by simply offering another reason for implementing the barrier.
The degree of leeway granted to the provinces is especially concerning when we consider all the recent reasons provincial governments have been conjuring to obstruct trade.
Under this new interpretation of s. 121 (although perhaps not under other sections of the Constitution), a government could make a rational argument that limiting the increase in pipeline flows is primarily motivated to protect the environment.
The future of Canada’s economic union
More than 150 years after Confederation, there are unfortunate realities facing Canada: we remain far from the once held ideal of national economic unity. We remain far from a time where Canadian businesses can easily, and directly, supply Canadian consumers with the goods and services they demand.
We remain far from a time where investors can be confident that internal politics won’t override science and sound economics.
With the recent Supreme Court decision, hopes of a united Canadian market guaranteed by the Constitution are disappointed. The responsibility to remove internal trade barriers now rests solely in the hands of our elected officials.
Unfortunately, the federal government, along with eight provincial governments, intervened against the removal of Canada’s liquor restrictions in the Comeau case.
We hope this doesn’t foreshadow their future efforts to reduce internal trade barriers.
