Borders, Barriers and Benefits: Inter-Canadian Investment Protections

The concept of free trade has taken on increased relevance in recent weeks for Canadian businesses and consumers. To counteract potential international tariffs connected to the flow of goods into and out of the American market, many businesses are considering ways to expand their reach within the Canadian market. In this context, free trade holds interprovincial relevance due to Canada’s decentralized federal system.

Although the Canadian Constitution Act, 1867 requires the goods of each province to “be admitted free” into other provinces, this has been narrowly interpreted to only prohibit tariffs or tariff-like measures while still permitting regulation that has incidental effect on interprovincial trade. As a result, a significant amount of interprovincial regulation, such as safety or labour regulation, restricts the free movement of goods and services across provincial borders.

Interprovincial Trade Agreements

Companies doing business or investing across provincial borders within Canada should be aware of and consider protections against interprovincial barriers available under the Canadian Free Trade Agreement (CFTA) and the New West Partnership Trade Agreement (NWPTA), which were a negotiated attempt to reduce interprovincial barriers to trade. The federal and several provincial governments have also recently made commitments to further reduce barriers to interprovincial trade.

The CFTA is an agreement between Canada, its ten provinces and three territories. The NWPTA is an agreement between the provinces of British Columbia, Alberta, Saskatchewan and Manitoba.

These are interprovincial free trade agreements that, among other things, generally provide, subject to some exceptions, that a province will not adopt or maintain measures that restrict or prevent the movement of goods across provincial or territorial boundaries or impair trade and that provinces will treat goods of any other province no less favourably than their own like goods (and in the case of the NWPTA this also applies to services, investors and investments).

Person-to-Government Dispute Mechanisms

Importantly, in addition to providing mechanisms for the governments to resolve disputes with each other, each of these agreements also provides for person-to-government disputes where there is an alleged breach. These mechanisms are subject to certain conditions, specific procedures, time limits and exceptions that may apply depending on the specific case or provision breached, which must be reviewed carefully on a case-by-case basis.

Broadly speaking, however, under the CFTA:

• A person may make a written request to its provincial government to initiate proceedings on its behalf against another provincial government.
• If its provincial government decides not to initiate such proceedings, that person may then directly request the initiation of proceedings by written request to the other province complained of, the relevant party with that other province and the Internal Trade Secretariat.
• A person who has initiated proceedings may also request consultations with the complaint recipient. If the parties forego consultation or the matter in question has not been resolved following consultations, the person may make a written request to the Secretariat to establish a panel to hear the dispute.
• The panel is to then issue a report based on the submissions of the participants and any evidence received during the proceeding, including its determination as to whether the measure in issue is inconsistent with the CFTA and, if applicable, whether the measure has impaired trade, investment or labour mobility within Canada and has caused injury or denied a benefit. At its discretion, a panel may stipulate a period within which the recipient of the complaint must comply with the CFTA.
• There is provision of an appeal procedure to an appellate panel, and a compliance review mechanism one year after the report (or other stipulated compliance period). A Compliance Panel, within specified limits, may among other things impose a monetary penalty.

Under the NWPTA, broadly:

• A person must exhaust all other reasonable means to resolve a matter before using the NWPTA dispute resolution procedures; this includes using the established dispute resolution process of a regulatory body where a dispute falls within that regulatory body’s jurisdiction. A person is not required to complete a judicial review application or other court proceeding to comply with this requirement, but if it does, proceedings under the NWPTA will be suspended until the court proceeding is complete.
• Similar to the CFTA, a person may request its province to initiate consultations with the responding province on the person’s behalf. If that request is rejected, the person may make its own request for consultations. If consultations fail to resolve the matter, the parties may individually or collectively request the establishment of a panel to hear the matter.
• Following the hearing, the panel is to issue a report with its findings and recommendations, including whether the measure in issue is inconsistent with the NWPTA and specifying a reasonable time for implementation of its recommendations.
• The agreement also provides for convening a compliance panel to determine whether the report has been complied with, and, similar to the CFTA, the compliance panel may issue a monetary award within specified limits.
• A disputant may request judicial review of a final panel report.

Enhancing Trade in Canada 

The CFTA and NWPTA contain a number of other provisions aimed at enhancing the flow of goods, services and investment within Canada. While each specific case has to be reviewed carefully on its facts, these agreements can be an important source of protection for businesses seeking to expand their Canadian footprint.

The federal and several provincial governments have also recently made commitments to improve interprovincial trade. For example, Nova Scotia proposed legislation that would treat goods produced in and meeting the regulatory standards of another province that has enacted reciprocal legislation as if those goods were manufactured in Nova Scotia. Service providers licensed in a reciprocating province would also be treated as though they were certified in Nova Scotia. Other provinces have expressed interest in similar legislation.

As the Canadian market becomes more important for companies doing business within or across provincial borders, knowledge of these protections and processes is important in order to minimize administrative and financial burdens to investment and trade.

For more information, please contact the authors or any other member of our Litigation & Dispute Resolution or Arbitration groups.