Agreement on Internal Trade

Summary of the Agreement on Internal Trade

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On July 18, 1994, First Ministers signed an Agreement on Internal Trade to eliminate barriers to trade, investment and mobility within Canada. This Agreement came into effect on July 1, 1995 and provides:

  • general rules which prevent governments from erecting new trade barriers and which require the reduction of existing ones in areas covered under the Agreement;
  • specific obligations in 10 economic sectors — such as government purchasing, labour mobility and investment — which cover a significant amount of economic activity in Canada;
  • for the streamlining and harmonization of regulations and standards (e.g. transportation, consumer protection);
  • a formal dispute resolution mechanism that is accessible to individuals and businesses as well as governments; and
  • commitments to further liberalize trade through continuing negotiations and specified work programs.

Index of the Internal Trade Agreement

Preamble

General
Operating Principles
General Definitions

Constitutional Authorities
Reaffirmation of Constitutional Powers and Responsibilities

General Rules
Reciprocal Non-Discrimination
Right of Entry and Exit
No Obstacles
Legitimate Objectives
Reconciliation
Transparency

Sectoral Chapters
Procurement
Investment
Labour Mobility
Consumer-Related Measures and Standards
Agricultural and Food Goods
Alcoholic Beverages
Natural Resources Processing
Communications
Transportation
Environmental Protection

Institutional Provisions and Dispute Resolution Procedures
Institutional Provisions

Dispute Resolution Procedures

Other Provisions
Trade Enhancement Arrangements
Relationship to International Agreements
Future Negotiations
General Exceptions (e.g. National Security, Aboriginal Peoples, Culture, Regional Economic Development)

Preamble

Identifies the broad policy objectives that governments had in mind in developing the Agreement. When necessary, the preamble can be used in interpreting the Agreement.

"Governments…resolved to promote an open, efficient, and stable domestic market for long-term job creation, economic growth and stability…"

Preamble, Agreement on Internal Trade

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General

Sets out the operating principles and the general definitions which form the basis of the Agreement and establish the extent of obligations.

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Constitutional Authorities

Reaffirms that the Agreement does not alter the Constitutional powers of governments.

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General Rules

The Agreement is based on six general rules.

Rule 1: Reciprocal Non-Discrimination

Establishes equivalent treatment for all Canadian persons, goods, services and investments by requiring governments to provide treatment that is no less favourable than the "best-in-Canada" treatment.

Examples:

Governments cannot charge businesses from other provinces higher fees than they charge their own businesses.

Provinces cannot require products manufactured in another province to meet higher safety standards than those manufactured within the province.

Rule 2: Right of Entry and Exit

Prohibits governments from adopting or maintaining measures which prevent or restrict the movement of persons, goods, services or investments across provincial or territorial boundaries.

Example:

A province cannot impose minimum processing requirements on mineral resources before they can leave the province.

Rule 3: No Obstacles

Requires governments to ensure that their policies and practices do not have the effect of creating obstacles to trade.

Example:

Governments will have to ensure that the tendering of contracts covered under the Agreement does not favour suppliers of a particular province.

Rule 4: Legitimate Objectives

Recognizes that, in pursuing certain non-trade objectives, it may be necessary to deviate from the three preceding trade rules. Governments would then need to meet a four-part test designed to minimize any adverse trade impact. Specifically, the measure must:

  • be intended to achieve a "legitimate objective" — a defined term that includes specified objectives like consumer protection, environmental protection, public health and safety;
  • not operate to "impair unduly" the access of persons, goods, services or investments which meet that legitimate objective;
  • not be more trade restrictive than necessary to achieve that legitimate objective; and
  • not create a disguised restriction on trade.

Example:

A province can prohibit the transportation of hazardous goods through its territory in unsafe containers. But…

Insisting on a particular container design rather than a performance standard for the containers may be more trade restrictive than necessary and could be a disguised trade barrier, e.g. if the only firm manufacturing that particular design is located in-province.

Rule 5: Reconciliation

Provides the basis for eliminating trade barriers caused by differences in standards and regulations across Canada.

Example:

Governments will be required to harmonize standards and related measures on a range of issues such as labelling and direct selling.

Rule 6: Transparency

Contains a number of provisions — such as publication and notification — to ensure that information is fully accessible to interested businesses, individuals and governments. It exposes potentially unacceptable policies and practices to public scrutiny.

Examples:

Governments must identify a place where businesses and individuals can get information about their policies.

All proceedings before dispute resolution panels must be open to the public.

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The Sectoral Chapters

Here's how the general rules are applied or adapted in the 10 sectoral chapters:

Procurement

Governments will not be permitted to discriminate against suppliers of another province through means such as local price preferences, biasing technical specifications or imposing unfair registration requirements or unreasonable time constraints.

  • Prohibits policies that favour local suppliers of goods, services and construction in a market valued at over $50 billion annually. Broader coverage of Crown Corporations — to be negotiated by July 1, 1996 — could add another $25 billion to the open procurement market for Canadian suppliers.
  • Canadian suppliers will be able to bid on virtually all contracts of government departments which exceed $25,000 for goods and $100,000 for services/construction.
  • Purchases by municipalities, academic institutions, school boards and hospitals (the "MASH" sector) will be subject to the chapter.
  • A Working Group will examine expanding the use of an electronic tendering system to improve access to suppliers across Canada.
  • Governments have agreed to review their bid protest systems within three years of the coming into force of the Agreement, with a view to streamlining them or having a single harmonized system. In the meantime, bid protests regarding federal procurement will allow suppliers to directly challenge federal procurement at any point in the process.

Examples:

Governments cannot restrict bids to in-province firms or direct contracts to local suppliers.

Governments cannot require contractors to use local materials on construction projects.

The closing date on tenders must provide sufficient time to allow bids from out-of-province suppliers.

Investment

The objective of the investment chapter is to ensure that Canadian firms are able to make business decisions based on market conditions rather than on restrictive government policies.

  • Provides for non-discriminatory treatment of Canadian businesses regardless of where the head office is located, where the firm is incorporated or where the owners live.
  • Limits the imposition of local presence and residency requirements as a condition of carrying on business or making an investment.
  • Restricts the use of local content, local purchasing, and local sourcing requirements.
  • Sets out a work program to reconcile corporate registration and reporting requirements which should ease the compliance burden for firms conducting business in more than one province or territory.
  • A Code of Conduct prevents governments from giving incentives to specific enterprises to lure them away from other Canadian jurisdictions ("poaching"). It also discourages the use of incentives which could be harmful to the economic interests of other parts of Canada.

Example:

Governments cannot provide relocation incentives to firms of other provinces and agree to avoid providing subsidies which could harm firms in other provinces.

Labour Mobility

The Labour Mobility chapter contains two fundamental elements that will increase access to jobs — it restricts the use of residency requirements and establishes a process for the recognition of worker occupational qualifications and the reconciliation of occupational standards across Canada.

  • Limits the use of residency requirements as a condition of licensing, certification and registration or as a condition of eligibility for employment and allows local hiring preferences to be used only in certain defined circumstances.

    Example:

    Provinces cannot require electricians to live in the province in order to get a licence to work there.

  • Establishes a process for the recognition of occupational qualifications of workers — in regulated occupations — and provides governments with the opportunity to move toward even greater uniformity of occupational standards.

    Example:

    Governments must reconcile their occupational standards in order to allow for the recognition of worker qualifications.

Consumer-Related Measures and Standards

The objective of this chapter is to streamline and harmonize standards and regulations designed for consumer protection — greater uniformity in standards allows firms to capture the benefits associated with a larger market and puts downward pressure on prices.

  • Eliminates trade barriers in two ways — it requires governments to reconcile differences in Consumer-Related measures and standards and ensures that consumer protection is not used to create disguised trade barriers.

    Example:

    Governments must harmonize their cost of credit legislation by January 1996, with implementation a year later — this will benefit both consumers and businesses.

  • Prevents governments from requiring individuals to live in the province or territory as a condition of licensing, registration or certification as a supplier, and allows the use of local presence and residency requirements for businesses only where necessary for consumer protection.
  • Governments will no longer be allowed to charge discriminatory fees for licensing, registration or certification of suppliers.
  • Provides a schedule for the reconciliation of specific consumer protection measures — such as those related to labelling — and sets out a framework for building on this process of trade liberalization.

Agricultural and Food Goods

Canada's agricultural trade policies are being reviewed by Agriculture Ministers in parallel with the review required by international trade agreements.

  • Agriculture Ministers are examining programs such as supply management, price and income stabilization, credit and other financial assistance programs within the framework of the Agri-food Policy Review.
  • The Agreement on Internal Trade contains a standstill on new trade restrictions except where necessary to prevent the spread of pests or disease to humans, animals, plants and agricultural products — so-called "sanitary and phytosanitary measures".
  • Certain agricultural regulations and standards will be subject to the Agreement by September 1, 1997. Other technical regulations and standards will be subject to the Agreement immediately.

Example:

Governments will reconcile a number of agricultural regulations such as those relating to margarine colouring and imitation dairy products.

Alcoholic Beverages

Progress has been made on reducing barriers related to alcoholic beverages.

  • Elimination of barriers pertaining to wine, by the year 2000, except for access to certain retail outlets.
  • Outstanding barriers on beer will be eliminated or reviewed by specified dates.
  • Eliminates any remaining barriers on distilled beverages and other alcoholic beverages, including cider and coolers.

Natural Resources Processing

Governments are prohibited from introducing new trade barriers in a key area of the Canadian economy — the processing of natural resources.

  • Prohibits the introduction of new trade barriers relating to the processing of forestry, fisheries and mineral resources products.

Communications

A barrier free communications system is a crucial condition for Canada's ability to compete in an increasingly high-tech global marketplace. The Agreement on Internal Trade moves Canada further in that direction.

  • Canada has a largely barrier free market in communications as most interprovincial barriers have been struck down by federal legislation and Supreme Court decisions. The Agreement on Internal Trade supports and expands a single communications market.
  • Governments may not discriminate in providing access to public telecommunications networks and use of public telecommunications services.
  • Governments cannot allow monopolies to use their economic power to engage in anti-competitive behaviour in their non-monopoly markets.

Transportation

Barriers to trade in transportation services within Canada will be reduced — particularly for trucking. An efficient trucking sector is a key to Canadian competitiveness. The provisions in the chapter will help to reduce the cost of transportation in Canada.

  • Governments will reconcile a variety of measures to provide a more uniform system which is prerequisite for a competitive trucking industry.

    Example: Governments are to reconcile their rules relating to licensing and inspection, including vehicle weights and dimensions, requirements for extra-provincial trucking operations, truck safety rules and truck bills of lading.

  • Governments will engage in negotiations to further extend coverage of the chapter with respect to local, municipal and regional governments by July 1, 1996.

Environmental Protection

The Agreement on Internal Trade places special emphasis on environmental protection, with the objective of ensuring balance between trade and environmental objectives.

  • Contains a specific chapter on environmental protection. Environmental protection is recognized as a legitimate objective, and disciplines are established to ensure it is not used as an excuse to create unnecessary trade barriers.
  • Requires the harmonization of environmental regulations and standards across jurisdictions. This will reduce the compliance and regulatory burden on firms, and lower the cost of doing business in Canada.
  • Prohibits governments from relaxing their environmental regulations and standards to attract business.

Institutional Provisions

Institutional provisions establish the structure for the effective operation of the Agreement.

  • The ministerial-level Committee on Internal Trade is the main body which will oversee the implementation and operation of the Agreement.
  • A key function of this Committee will be to determine the areas and timetable of future negotiations on removing internal trade barriers.
  • A Secretariat, based in Winnipeg, will provide administrative and operational support to the Committee on Internal Trade and any Working Groups or Sub-Committees that it establishes.

Dispute Resolution Procedures

An agreement without a mechanism to resolve disputes is meaningless in a practical sense. The Agreement on Internal Trade has a formal dispute settlement mechanism to deal with grievances. It is accessible to both governments and the private sector.

  • Focuses on consultative approaches via the relevant sectoral chapter to resolve differences arising under the Agreement.
  • Encourages dispute avoidance. Governments can challenge proposed measures to avoid problems before they happen.
  • Disputes that cannot be resolved at the sectoral level are addressed by a general mechanism based on hearings by an impartial panel. Panelists are chosen from a roster of experts designated by the governments.
  • Provides for government-to-government dispute resolution on behalf of affected constituents. Also provides for direct access by business and individuals, if necessary, with the awarding of costs to successful private party complainants.
  • Panel recommendations are enforced through "sunshine" approaches, — public pressure can be very effective in persuading governments to change unfair or discriminatory practices. For disputes between governments, retaliatory action may be taken, as a last resort, after consultation with the Committee on Internal Trade.

Other Provisions

The Agreement contains several other important provisions; including, trade enhancement arrangements, relationship to international agreements, future negotiations and general exceptions.

  • Gives governments the flexibility to enter into new trade enhancement arrangements provided they are also then offered to other governments on the same terms.
  • A relationship to international agreements clause increases federal-provincial cooperation on international trade matters.
  • Provides for future negotiations in areas not covered by the Agreement, and prohibits governments from introducing new barriers or increasing existing barriers in areas subject to such future negotiations.
  • The general exceptions in the Agreement on Internal Trade have been kept to a minimum.
    • The federal government can take any action necessary to protect national security or to maintain international peace and security.
    • Aboriginal peoples are not covered and existing aboriginal and treaty rights are not affected.
    • The Agreement does not deal with the regulation of financial institutions as this issue is being dealt with in parallel negotiations.
    • Measures relating to culture or cultural industries are exempt.
    • The Agreement provides an exception for regional economic development, subject to a number of conditions:
      • the exception cannot be used at all in some areas — such as bidding for government contracts and environmental protection;
      • in other areas, when the exception is used, its impact on trade must be kept to a minimum; and
      • all such regional development programs must be subject to public scrutiny and evaluation.

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The Agreement on Internal Trade: Building on 1995

  • The Agreement is a first step. It eliminates many barriers, prevents new ones and establishes processes to eliminate others.
  • Like the General Agreement on Tariffs and Trade (GATT), the Agreement on Internal Trade, has been designed to be a series of progressively more liberalizing agreements.
  • Canadian business, workers and consumers can play an important role in making the Agreement work by bringing existing barriers to the attention of governments, suggesting new areas that might be added to it and other ways in which it might be improved and strengthened.

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