Saturday, October 14, 2006

On balancing agreements

A few months back, I discussed the regulatory harmonization agreement (the TILMA) between Alberta and B.C. based on. It appears that the media reports were less than thorough in assessing the deal, so after running into the actual TILMA text I'll take some time now to point out some of the problems with the deal which didn't appear in the press at the time.

My earlier positive comments were based in large part on the assumption that the deal would result in harmonization to the higher of the respective regulatory standards in Alberta and B.C. However, the deal itself only requires that the provinces "reconcile" their standards, with no mention of which direction that should take. From Article 5:
1. Parties shall mutually recognize or otherwise reconcile their existing standards and regulations that operate to restrict or impair trade, investment or labour mobility...

5. Parties shall cooperate to minimize differences in standards or regulations adopted or maintained to achieve legitimate measures.
In other words, any obligation to harmonize standards at all is based purely on future negotiation between the provinces. There's no clear language suggesting that the provinces are obligated to work toward the higher possible standard; that seems to be purely a side arrangement which can be ignored as the provinces actually decide how to harmonize.

In contrast, the provinces' obligation not to introduce or maintain any "measures" (a term which includes any form of government action) which could possibly affect trade except under the narrow terms of TILMA is far more clearly stated. Article 3 reads as follows:
Each party shall ensure that its measures do not operate to restrict or impair trade between or through the territory of the Parties, or investment or labour mobility between the Parties.
And Article 5 includes a specific commitment not to introduce new regulations or standards:
3. Parties shall not establish new standards or regulations that operate to restrict or impair trade, investment or labour mobility.
The exception to this obligation to pursue free trade above all else comes in Article 6, but only through a painfully restrictive provision:
A Party may adopt or maintain a measure that is inconsistent with...Articles 3, 4 or 5...provided that the Party can demonstrate that:
a) the purpose of the measure is to achieve a legitimate objective;
b) the measure is not more restrictive to trade, investment or labour mobility than is needed to achieve that legitimate objective; and
c) the measure is not a disguised restriction to trade, investment or labour mobility.
On its face, this provision offers a route through which restrictions on trade can be maintained where justifed. But there are a few major problems with the phrasing which look to make the provision at best shortsighted, and at worst potentially useless when it comes to allowing governments to justify what should be reasonable policy choices.

The first problem in Article 6 lies in the definition of "legitimate objective" (p. 33), which is confined to a closed list of matters. In principle, one can argue that the list probably includes most, if not all, matters which the provinces in question currently regulate (or might plan to regulate). But TILMA also ties down future government action. And while future needs could evolve in any direction, the agreement provides no scope for addressing those needs if they can't be lumped into the existing categories of "legitimate objective". Which makes for a striking contrast between the closed list of "legitimate objectives" or listed exceptions, and the absolutely open-ended commitment not to limit trade for any reason other than those presently-anticipated matters.

Sadly, this lack of foresight is far from the biggest problem with Article 6. That instead comes in (b), which essentially suggests that governments will be forced to prove that all regulations are set to precisely the optimal level "needed" to achieve their stated objective, and will be liable if they exceed that level in the slightest.

By way of comparison, consider that the test to uphold a government measure under s. 1 of the Charter of Rights and Freedoms consists of a "rational connection" standard, and a "minimal impairment" test which at least allows for a government actor to choose from a range of reasonable options. In essence, (b) provides that governments face a significantly higher standard of justification in limiting freedom of trade between B.C. and Alberta than in violating their citizens' Charter rights, requiring them to be perfect in their assessment of what measures are justified rather than reasonable. And that seems far too likely to create an incentive for the provinces to avoid doing anything.

As an added bonus, even meeting the first two criteria isn't enough to defend a governmental action due to (c). This provision implies that a reviewing tribunal should look for reasons to declare that even though a legitimate objective exists and is met to the letter by the government's action, the action should instead be considered a disguised attempt to limit trade.

And to top it all off, the article as a whole places the onus on a province to "demonstrate" the application of each part of the test. In the case of (c), this essentially leaves provinces with the obligation to prove a negative in order to maintain or implement any restrictions on trade.

The rest of the agreement contains additional problematic possibilities. For example:
- Article 7.2 may (depending on the article's interpretation) force each province to seek comments from the other before implementing any future trade restrictions;
- Article 8 provides that provinces may delete agreed exemptions unilaterally but may only add new ones by agreement, meaning that a single right-wing government could singlehandedly destroy a province's entitlement to use exemptions which a previous government had fought for (the same applies to "transitional measures" under Article 9); and
- Article 26 provides NAFTA-style ability for individuals or for-profit corporations to seek damages for any government action which violates any provision of TILMA, including those discussed above. (Note as a point of interest that under the definitions of "enterprise" and "person", this same ability doesn't extend to not-for-profit entities.)

In sum, while I stand by my view that it's perfectly possible for a trade agreement to both expand trade possibilities and appropriately protect governments' freedom to act, on a detailed review there's little reason to believe that TILMA is such an agreement. Which means that rather than looking to sign on to TILMA, Saskatchewan would be best off looking to negotiate a more balanced agreement - whether with Alberta and/or B.C., or with other provinces who aren't so determined to tie their own hands for ideological reasons.

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