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Thursday, June 18, 2009

Part 4: The Canadian Economic Union

(This is Part 4 of "The descent of national politics into irrelevance and insignificance: Can it be reversed?" The previous parts can be found below.)

Reviving the national government’s ability to take the lead in critical areas will take patience. For one thing, most of the provinces need persuading that the national interest is more than the sum of their activities. Whoever is the next prime minister will have to convincingly articulate the need for specific national action as part of the election platform. Since all Canadians vote for both levels of government, a prime minister who can obtain a clear mandate from the voters will have more power to negotiate a satisfactory federal role with provincial governments.

The Canadian economic union is one area that requires urgent national attention and action. The 1995 inter-provincial Agreement on Internal Trade – intended to reduce barriers to goods, services, and people – is so weak that we are now more disconnected and dysfunctional than the European Union. In fact, the European Union refuses to conclude a free trade agreement with Canada unless provinces and municipalities agree to sign on and not to discriminate against the EU in their procurement policies.

Our internal barriers to trade, especially local procurement preferences, mean that our opposition to the Buy American policies in the U.S. rings hollow to Americans who face what they interpret as Buy Canadian policies. In 1994 the provinces refused to agree to liberalize procurement under NAFTA Article 1024, or to sign the WTO Agreement on Government Procurement, with the result that Canadians have been excluded from government procurement with 40 American states including New York, Michigan and Pennsylvania, for some time. Mr. Harper’s recent proposal to reopen NAFTA and include local procurement as a way to prevent Buy American policies, is simply a diversion to avoid a clear national initiative on the economic union and serious discussions with the provinces.

The Council of the Federation, composed of provincial premiers and territorial leaders, recently acknowledged the need to break down all barriers to the free flow of people, goods, services and capital across Canada. Indeed British Columbia and Alberta have implemented a successful bilateral economic union. But the federal government must take its own legislative action to implement the Canadian economic union and guarantee compliance across Canada. The need for unambiguous national action must be an integral part of the campaign platform of the next prime minister, and on the agenda of the first post-election First Ministers Conference (the group that includes the federal government).

Strengthening the Canadian economic union by eliminating all barriers to the mobility of goods, services, capital and people among provinces logically includes the establishment of a single national securities regulator in the capital markets. The global financial crisis and turbulent capital markets have made this step all the more urgent.

Recent commentary has noted the strength of Canada’s banking system – thanks to coherent national regulation by the Office of the Superintendent of Financial Institutions, the Bank of Canada and the Department of Finance. That same positive outlook does not extend to Canada’s capital markets, which have been adversely affected by the failures in the U.S. and international markets. With 13 different securities regulators, Canada lacks coherence in international forums and discussions, and is unnecessarily exposed to market risks and instability.

As early as August 2007, inadequate securities oversight resulted in freezing $32 billion in toxic asset-backed commercial paper (ABCP), something that has seriously impacted the legitimate commercial paper market, in spite of completing – in late 2008 – a tortuously negotiated agreement to unfreeze the ABCP. Although the Bank of Canada was vigorously involved in this final agreement – and has stepped up its capital market expertise and surveillance role in monitoring systemic risks in the financial system, there is no substitute for effective national regulation and oversight.

The stability of the financial system in Canada has never been more important. There are huge advantages to the establishment of a Canadian securities regulator. For example, the cost of raising capital will be lowered by eliminating the current multiple filing requirements. Investors will have greater protection through a more effective enforcement process and a single independent adjudicative tribunal. Canada’s competitive advantage will be increased and we will be able to play an important global leadership role in coordinating international action to end the global credit crunch and financial instability in the capital markets

Mr. Harper has taken steps toward the establishment of a National Securities Commission in Budget 2009. He has proposed a Council of Ministers consisting of the federal Minister of Finance and a Minister designated by each participating jurisdiction, to act as a forum to discuss the development of securities policy and the ongoing administration of the system. This is clearly an area where provinces are reluctant to cede their dominance, and compromises will be necessary on all sides. But the Harper proposal to give provincial ministers (representing a majority of the provinces and the population of Canada) the power to veto amendments to the federal legislation may be going too far in compromising the national interest.

To be continued. Part Five will deal with climate change and clean energy policy.

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