Canadian economic union

GPC 2015 platform background paper

Businesses and individuals want to take their goods, services, or skills across provincial borders.  Yet they face a veritable obstacle course of differing rules and regulations in order to do so. Some hurdles just mean more paperwork; others are brick walls. The continuing fragmentation of our economic interests limits job creation and makes it difficult to negotiate internationally. Canada still has more internal barriers to trade than the 28 countries of the European Union. We have long needed more vigorous national support of effective economic union, including more modern and practical national standards that will help generate opportunities in the national and global economies, while protecting the Canadian national interest.

“Barriers to trade among provinces create particular difficulties for small businesses across Canada. One of the greatest challenges is the subtle nature of the regulatory differences that are at the heart of such barriers.” (Dan Kelly. President and CEO, Canadian Federation of Independent Business, December 12, 2014.)

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Canada’s internal economic union (the rules that govern business transactions and the movement of workers between provinces), is extraordinarily disconnected and inefficient. Despite some recent progress, we still have more internal barriers to trade than the 28 countries of the European Union. In one absurd example, since 1928 it has been a federal offence to bring wine across provincial borders. That federal law is about to be abolished, but similar provincial restrictions remain. The Canadian Chamber of Commerce says internal barriers to trade are among the top 10 obstacles to improving Canada’s international competitiveness.

The Agreement on Internal Trade (AIT), which came into force in 1995, was a first step in breaking down barriers in certain sectors of the Canadian economy. Signed by the federal, provincial and territorial governments, the AIT set out some principles and goals.  Despite the potential of this initiative, a succession of federal governments took so little interest in the AIT that not much more was accomplished. Generally the AIT was considered cumbersome and ineffectual. More recently some provinces have worked effectively in pairs to reduce internal trade barriers with decidedly mixed results. Ontario and Quebec finally worked out arrangements to allow construction workers to work on both sides of the Ontario-Quebec border in 2006, and concluded the Ontario-Québec Trade and Cooperation Agreement in September 2009. Alberta and British Columbia concluded the bilateral Trade, Investment and Labour Mobility Agreement (TILMA), which came into effect in 2007. Saskatchewan then joined TILMA in 2010 to create the New West Partnership Trade Agreement (NWPTA), but progress has been very slow in harmonizing standards and regulations with respect to trade, investment and labour mobility.

As was the case with the AIT, federal governments of various stripes have generally failed to facilitate intergovernmental collaboration to build a true economic union within Canada. Often they have made the situation worse by playing one provincial government against the other, paternalistically doling out localized incentives and special deals. This is why we still have no consistency in the structure of sales taxes. Ontario, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador have the HST (as did British Columbia until April, 2013): a Harmonized federal-provincial Sales Tax; Saskatchewan and Manitoba collect separate provincial sales taxes and the federal Goods and Services Tax (GST). Alberta collects federal GST only, and Quebec has a sales tax (QST) that applies on top of the federal tax.

The economic crisis of 2008 provided the incentive for a brief flash of federal leadership to strengthen Canada’s economic union. Prime Minister Harper hosted his only First Ministers’ Conference in January 2009, and the leaders agreed to “enhance full labour mobility by recognizing, across all jurisdictions, any worker certified for an occupation by a regulatory authority of one province or territory.” This initiative led to a burst of activity by the provinces and has resulted in some progress towards synchronizing the standards of nine professions, with six more in the works. Yet so much remains to be done (more than 440 bodies regulate 51 professions in Canada), not just for Canadians who want to expand their businesses across the country, but also for the many immigrants whose ability to work is stalled by complications in recognizing their foreign professional credentials.  (The First Ministers made a commitment — still unfulfilled — to develop a common framework to recognize foreign credentials by September 2009.)

In Budget 2014, the Conservative administration said it would develop an Internal Trade Barriers Index modeled on the OECD’s Services Trade Restrictiveness Index, with a view to eventual elimination of all barriers to trade within Canada.  As of Budget 2015, however, all that was completed was a contract hiring the consulting firm, Ernst and Young, to complete the study by December 2016. Today as we negotiate the Comprehensive Economic and Trade Agreement with the E.U., our intergovernmental divisions have been on full display. Our interests are not served by a failure to collaborate sufficiently.  This weakens our negotiating strength in international fora.

The Green Party accords a high priority to the national government taking urgent steps together with other levels of government to eliminate the debilitating barriers to the movement of people, goods and services across Canada.

Strengthening our economic union and expanding business and employment opportunities for Canadians involves national standards impacting a wide range of key areas: the digital economy, foreign investment, financial risk and securities regulation, and consumer protection.

Digital economy strategy

Canada needs a digital economy strategy. The Green Party supports the goal of universal, affordable access to computers and high-speed Internet services, with the federal government leading a focused collaborative effort to achieve this in partnership with the provinces and the private sector.  Digital accessibility is important for commerce, culture, education and political participation.  Currently we have only embarrassing half-measures with respect to broadband access.  For example, in the absence of clear goals, the already delayed deadline of 2017 for improving services to 280,000 Canadians currently without digital access or with access at slower speeds, has now been extended to 2019.

Clearly we need a plan for investment in networks and digital infrastructure to promote greater openness and access to such services, one which will establish legal frameworks to provide more effective privacy protection, as well as ensure tougher enforcement of Canada’s net neutrality rules. We also need to increase regulation of vertically integrated companies and undue preference rules for broadcasting.^[1] The so-called “Big Three” – TELUS, Rogers and Bell – still control 90% of the market.

The Copyright Modernization Act that finally took effect on January 1, 2015 was a reasonable step forwards, but at least one area remains controversial and will require review.  This was the Act’s failure to ensure enough flexibility in the digital lock provisions for legitimate use by consumers, as well as for open source software developers.

Foreign investment

Another urgent priority is to implement more coherent and clear Canadian foreign direct investment rules. Canada needs foreign investment to support a dynamic economy that encourages creativity and innovation. However, the Green Party is particularly concerned with investor-state agreements otherwise known as FIPAs (Foreign Investor Promotion and Protection Agreements).  It is all too clear that existing FIPAs are failing to ensure Canadian environmental and labour laws are not undermined and ignored by foreign investors [Link J].

In general, the federal rules and framework governing the national interest in foreign investment lack coherence and clarity. We urgently need better guidelines for seeking the venture capital that is in short supply in Canada.

In the summer of 2010, BHP Billiton proposed to take over the Potash Corporation of Saskatchewan and confusion reigned as to whether the sale would meet the test of “net benefit” to Canada under the Investment Canada Act. Ultimately potash was correctly identified as a strategic national asset, and the bid was withdrawn. The language of the net benefit test in the legislation needs to be more precise: specifically, the 2009 amendment that identified foreign acquisitions that jeopardize Canadian “national security” requires clarification. The government has yet to explain the meaning of “national security” in this context and continues to sidestep Parliament, failing even to act on a preliminary review of the issue by the House of Commons Industry Committee. Instead, it substantially raised the threshold for intervention in foreign takeovers from acquisitions of $300,000 to those of $1 billion, and simply gave new powers directly to the Industry Minister to disclose more information about foreign takeovers.  On a more constructive note, the Minister now has the power to compel foreign purchasers to put up bonds to backstop commitments to create jobs or investments in Canada, a useful step in response to the lengthy fight between the Canadian government and the U.S. Steel Corporation over the commitments it made after acquiring Stelco in Hamilton.

Certainty and consistency in application of the law are required more than ever in light of the growing investments in the Canadian mineral, energy, and communications sectors by Chinese state-owned companies such as PetroChina, Sinopec, the Chinese National Overseas Oil Corporation (CNOOC), and the China Investment Corp.  Until the takeover of Nexen by CNOOC, most of the Chinese energy investments in Canada had been for equity, not a controlling stake, and at most these helped to diversify supply and increase competition. However, because Chinese companies are subject to state direction, a cautious approach is fully justified in defining the national interest served by the operation of state-owned enterprises in Canada. We will need to defend Canadian decisions vigorously against FIPA (the Canada-Chinese investor state agreement - [Link H]) challenges by Beijing.  Thanks to Stephen Harper, future Canadian governments must be prepared to write large cheques to the People’s Republic of China in order to maintain our own laws.

Financial risk and securities regulation

Although the Supreme Court of Canada has said clearly that Ottawa cannot take over the day-to-day regulation of securities, it conceded that there is a national role for government to play in better coordinating information about systemic financial risk in order to enhance prevention of international crime and fraud. This court decision did not endorse the status quo.  With no national regulator, Canada is not a member of the International Organization of Securities Commissions and is represented disjointedly through a collection of individual provincial regulators. The Green Party supports the creation of a national securities regulator.

The current situation is exacerbated by the unacceptable degree to which Canada’s top financial regulators operate in secret. The generically-named Senior Advisory Committee (SAC) chaired by the deputy Minister of Finance, includes the heads of the Bank of Canada, the Office of the Superintendent of Financial Institutions, the Canada Deposit Insurance Corporation, and the Financial Consumer Agency of Canada. The content of their discussions is not disclosed publicly and is blacked out in responses to any Access to Information Request. Clearly we need a more rigorous regulatory regime and more openness and transparency.

Currently, the Finance Department (and the Minister of Finance) is by default the only overseer of weak spots in the broader Canadian financial system and, disturbingly, this critical job is monitored only by politicians. This means that Canada’s regulatory regime is only as strong as the resolve of the Finance Minister whose primary motivation is usually to be reelected.  The time is overdue for Canada to establish a full-time non-political body with clear responsibility for watching over our financial system.

Consumer protection

Many everyday consumer products and services need national regulatory oversight and standards. Both consumers and industry in the telecommunications and financial sectors are calling for strong national standards. Rogers Communications, Canada’s largest mobile service provider, has proposed a mandatory national consumer protection code to replace the growing hodgepodge of provincial regulations for wireless services. Industry Canada’s Office of Consumer Affairs (OCA) provides useful information on safety recalls on children’s toys, but it is seriously understaffed. The Consumer Product Safety Directorate (Health Canada) and the Road Safety Recalls Database (Transport Canada), among other federal agencies, do good work and should be better supported and have expanded mandates.

The Financial Consumer Agency of Canada (Finance Canada) needs to expand its powers beyond imposing monetary penalties on financial institutions for non-compliance with industry standards, to being able to provide redress to customers who are mistreated by financial institutions. Both the Public Interest Advocacy Centre and Options Consommateur have called for a separate ombudsperson to address complaints and the regulation of consumer banking fees. At the very least, a comprehensive financial consumer code to consolidate the patchwork of rules under the Bank Act, regulations, voluntary codes and other guidelines is long overdue.

Payday loan regulation

Payday loan companies such as National MoneyMart Co., Cash Money, and Cash4YouCorp have proliferated in Canada since the industry began in the mid 1990s.  Nearly 2 million Canadians a year use pay-lending services. The fees are outrageous – a 2-week payday loan in Ontario costs $21 per $100 borrowed, which amounts to a 546% annual interest rate. The equivalent annual rate in Alberta, Saskatchewan and British Columbia is 600%!  At best, the disclosure and collection practices of such companies are questionable.

Today the payday loan sector has more storefronts and online lenders in the country than either McDonalds or the Royal Bank of Canada. The town of Surrey in BC has found it necessary to impose a by-law requiring at least a 400-metre separation between payday storefronts, and Calgary and Winnipeg are considering a similar initiative.  This is absurd.

The Green Party believes that, at the very least, the time is overdue for an effective national initiative to ensure adequate regulation of payday loan activities. The only action by the Harper government in this regard has been to repeal the relevant section of the Criminal Code dealing with criminal rates of interest in favour of allowing provinces to regulate payday loan activities as part of their consumer protection regimes. Provinces and territories can set limits on the cost of borrowing and regulate the business practices of payday lenders. Admittedly the Criminal Code provision was a clumsy consumer protection tool, having been designed to address loan-sharking connected to organized crime, but the provincial regulation of payday lenders is piecemeal. The exception is Quebec that has taken steps to ban the loans by imposing an annual interest rate cap of 35% that no longer makes payday operations profitable. Manitoba has passed clear regulatory legislation. Ontario has so far only chosen to require additional written disclosure of payday loan borrowing costs.

The Green Party believes that the federal government should, at the very least, draft uniform legislative provisions for payday loans perhaps modeled on the Manitoba legislation, and persuade provinces to adopt substantially similar legislation. At a minimum two critical reforms are required: all payday lenders must publicly post their fees as an annual interest rate, and the industry must establish a centralized computer system to track multiple loans. 

Ultimately, it would be far better to find ways to reduce the need for payday loan services. The federal government could copy Quebec’s approach to eliminating payday loan operations, encourage our banks to get back into the business of providing short-term credit and lower-cost loans, and support micro-lending by non-profit financial services centres in low-income neighbourhoods. While the Canadian Bankers Association is defensive about adopting these kinds of measures, arguing that Canadians can always go to banks for small short-term loans and credit options, the reality is otherwise for the clientele of the payday loan sector, especially in low-income neighbourhoods. In the meantime, First Calgary Financial credit is trying out a micro-loan pilot project, and Vancity – Canada’s largest community credit union – started a lower-cost alternative to the payday loan in March 2014. Certainly these initiatives should be assessed and encouraged.