CD HOWE PAPER
Drawing on our Inner Strength - Canada's Economic Citizenship
by Daniel Schwanen

Canadians’ common economic citizenship is central to the economic well-being and social mobility of individuals and to the competitiveness of firms within the economic union. Yet the configuration of the union is facing challenges posed by greater north-south trade and the trend toward disentanglement and decentralization of responsibilities. To respond to these challenges, ways need to be found to improve institutions underpinning the economic union - in particular, the recent Agreement on Internal Trade (AIT).

The AIT is a unanimous agreement among the federal and provincial governments to eliminate discrimination on the basis of province of residence in various provincial and federal practices, and to harmonize standards where differences cannot be justified using objective criteria. The Internal Trade Secretariat set up under the AIT should be empowered to analyze obstacles to the implementation of the agreement and to recommend solutions and deadlines to remove them. Canadian governments should then be required to vote on these recommendations using a qualified majority system rather than the consensus rule now in place.

As well, current efforts toward disentanglement and decentralization should be given greater impetus. But this must be accompanied by efforts toward greater policy cooperation between the various levels of government. Other ways to strengthen the economic union include addressing spillovers that result from high labor mobility and more effective regional representation in federal institutions.

Press Release from CD HOWE - June 18, 1996

Disentanglement, decentralization should be accompanied by enhanced economic union, says C.D. Howe Institute study

The advantages Canadians derive from common economic citizenship should not be eroded by efforts to disentangle and decentralize overlapping federal and provincial economic jurisdictions, says a C.D. Howe Institute Commentary released today.

The study, entitled Drawing on Our Inner Strength: Canada’s Economic Citizenship in an Era of Evolving Federalism, was written by Daniel Schwanen, a Senior Policy Analyst at the C.D. Howe Institute. He says that the rights of economic citizenship - such as the ability to work in any province and the right not to be discriminated against in competing for business outside one’s province of residence - ought to be strengthened in the face of challenges posed by increased regional reliance on north-south trade and pressures for disentanglement and decentralization within the federation. This means reinforcing institutions -in particular, the 1994 Agreement on Internal Trade (AIT) - that underpin Canada’s common economic citizenship.

Schwanen notes that the AIT - a unanimous agreement among federal, provincial, and territorial governments - is founded on basic rules of nondiscrimination by governments on the basis of province of residence and harmonization of provincial standards where differences cannot be justified. Unfortunately, however, too many of the AIT’s implementation details have been left to future negotiations, sometimes between the very departments whose mandate it is to administer measures not conforming to the AIT in the first place. Moreover, the AIT’s effectiveness is hampered by numerous temporary and even permanent exceptions to the rules, the lack of specific deadlines by which obligations must be met, and the need for consensus among all governments before each implementing step is taken.

Schwanen argues that decentralization should be accompanied by increased two-way "vertical" cooperation among the federal and provincial governments in areas such as trade, immigration, and manpower training. Also needed are a strengthening of the "horizontal" obligations of common economic citizenship, such as those contained in the AIT, and well-targeted mechanisms for dealing with spillovers resulting, for example, from the movement of welfare recipients fromone province to another. Schwanen also notes that no well-function- ing economic union exists without some degree of effective common decisionmaking, accompanied by the ability to implement decisions.

Accordingly, Schwanen recommends that a federal cabinet committee be formed to give greater visibility and impetus to current disentanglement and decentralization initiatives within the federation. In addition, a blue-ribbon commission should be set up to report on whether these initiatives are proceeding as thoroughly as possible, and in a way that does not compromise needed policy coordination within the federation.

Schwanen says that the Secretariat set up under the AIT could be given a much greater role in the implementation of the agreement and one more independent of government. In particular, it could assess outstanding issues, monitor and report on obstacles to implementation, propose solutions, and suggest new deadlines where appropriate - for example, on the mutual recognition of occupational standards. In the event of a lack of progress, however, the federal government should be prepared to use its constitutional powers to ensure that under-takings under the AIT are respected.

Schwanen recommends that Canadian governments adopt other policies to enhance common economic citizenship, such as streamlining private sector access to the AIT’s dispute settlement mechanism, finding ways to compensate provinces for negative or positive spillovers resulting from labor mobility, and increasing regional representation in federal institutions, in order to increase the real and/or perceived fairness of central government policy.

This publication continues the C.D. Howe Institute’s postreferendum research agenda, which comprises two Commentary series. The first series, "The Canadian Union Papers," focuses on ways to enhance Canada’s political, economic, and social union. The first paper in the series examines some of Ottawa’s legal and constitutional options for strengthening the economic union. The second paper presents ways to enhance Canadians’ common economic citizenship rights. Other papers will offer analysis and recommendations aimed at improving Canada’s political institutions, protecting the social union in a "disentangled" federation, and devolving primary responsibility for language and culture to the provinces.

Complementing this effort is another Commentary series called "The Secession Papers," which will examine issues relating to the following areas:

• the terms and conditions of a possible future referendum on Quebec sovereignty;
• the circumstances which the country might confront after a Yes vote, together with the processes by which the secession of Quebec might be addressed;
• the means by which a new Canada without Quebec might be established, should Quebec leave Confederation.

The papers will be guided by the following principles: respect for democratic norms and the rule of law; the necessity for an authoritative decision and a stable outcome; and minimizing the social and economic costs of any transition. In the light of the results of the recent referendum in Quebec, "The Secession Papers" aim to assist Canadians to "think about the unthinkable."

Both series are being published under the supervision of David Cameron, a political scientist at the University of Toronto.

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Main Findings of the Commentary

• One of the benefits of Canadian citizenship is "common economic citizenship" in the Canadian economic union, which offers individuals a wide range of opportunities for earning a livelihood, and firms more opportunities to be competitive, than would be the case if the regions of Canada operated as separate economic units.
• In addition to the existing constitutional underpinnings of the economic union, the 1994 Agreement on Internal Trade (AIT), signed by the federal, provincial, and territorial governments, took further steps toward strengthening Canadians’ common economic citizenship, including forbidding federal or provincial practices that discriminate against persons or products based on their origin within Canada and committing governments to push for greater harmonization of standards.
• The AIT’s implementation process, however, leaves much to be desired, since many details have been left to future negotiations with few specific deadlines, and governments have to agree unanimously before any specific implementing step can be taken.
• Increased north-south trade has, for the most part, not undermined the value of Canadians’ common economic citizenship; indeed, pressures toward decentralization of responsibilities within the federation call for improved cooperation in areas where the policies of each government affect the union as a whole, and for more effective institutions to safeguard common economic citizenship.
• A blue-ribbon commission should be set up to report on whether decentralizing and disentanglement initiatives are proceeding as thoroughly as possible, but in such a way that they do not compromise needed policy coordination within the federation.
• The AIT should be reinforced by giving its Internal Trade Secretariat - as opposed to governments - the mandate to evaluate independently reasons for missed negotiating deadlines, to assess outstanding implementation issues, to monitor and report on obstacles to its implementation, to propose solutions, and to suggest new deadlines where appropriate - for example, with respect to the harmonization of occupational standards.
• Governments should have to vote formally on theseproposals. Considering they have already agreed to the principles of liberalization, a qualified majority of provincial votes should be sufficient to adopt specific measures proposed by the Secretariat.
• Other policies to strengthen the economic union should also be adopted, such as finding targeted ways to compensate provinces for negative or positive spillovers resulting from mobility - such as having the province of origin pay the cost of welfare recipients moving to another province - and more effective regional representation in federal institutions in order to increase the real and/or perceived fairness of those institutions.

Full text of the paper, (in .pdf format), or hard copies, may be obtained from the CD HOWE INSTITUTE