New West Partnership imperfect, but a good first step

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This article was published 20/5/2016 (1250 days ago), so information in it may no longer be current.

There are few topics that charge up the ranks of the Progressive Conservative Party of Manitoba more than the New West Partnership.

The much-celebrated internal trade agreement between British Columbia, Saskatchewan and Alberta held very little appeal to the former NDP government in Manitoba. Former Premier Greg Selinger shunned overtures to join the NWP, arguing Manitoba needed a national agreement on internal trade barriers, not a regional pact that theoretically erected as many barriers as it tore down.

Selinger was not wrong. Negotiations for such a national agreement were ongoing. And Selinger argued — correctly — that the majority of Manitoba's internal trade was conducted with provinces to the east. It seemed counterproductive to join a trade agreement that could potentially frustrate the province's primary internal trading partners.

And yet, in Tory circles, Manitoba's refusal to sign on with the NWP became a symbol of a destructive regional isolationism. Premier Brian Pallister's frequent pledge to jump on the NWP bandwagon always played well to core supporters.

Pallister argued that by joining the NWP, the province would save $14 million on the cost of procuring goods and services and guarantee Manitoba companies would be free to compete all across the West.

These bold predictions appear to be, at first blush, a triumph of hyperbole over empirical data. How real are his claims?

University of Calgary economist Trevor Tombe not only lives in a NWP province, he is among Canada's leading experts in internal trade. According to Tombe, Canada is in desperate need of a comprehensive national trade agreement that can eliminate provincial preference barriers, standardize regulations and allow for goods, services and professionals to move freely back and forth across the country.

Earlier this month, Tombe and fellow researcher Lucas Albrecht published a study in the Canadian Journal of Economics that calculated internal trade barriers cost the Canadian economy more than $100 billion annually in lost GDP growth. In Manitoba, Tombe believes government and citizens pay a 10 per cent premium for goods and services because of internal trade barriers.

Unfortunately, negotiations on a national pact, which were to conclude in March, have stalled yet again. In a scenario like that, what can the NWP partnership do for a province like Manitoba? To answer those and other questions, Tombe elaborated on the true nature of the NWP and its potential benefits.

Is the NWP a true freer trade agreement?

This will likely anger Pallister and other NWP boosters, but Tombe said the NWP does not necessarily accomplish much of what it claims, and, in fact, there is no evidence it actually works.

That's because it is very hard to pull specific data out of the economy to prove the value of eliminating trade barriers, he said. This job was made even more difficult because Statistics Canada only recently started collecting data on internal trade again, after several years of inactivity.

Tombe said even in the absence of data, there are concerns which limit the effectiveness of the NWP. Chief among those concerns is a list of exemptions that is, in Tombe's opinion, much too long and broad. Creating a freer trade agreement rife with exceptions isn't much of a free trade agreement, he added.

Is it possible to calculate the specific value of benefits of an agreement like the NWP?

Broadly speaking, Tombe said although his research has been able to identify general cost savings, in the absence of hard data, "you can't really break it down like that."

If the NWP were a true free trade agreement, how could it create a windfall for government?

Tombe said the removal of internal trade barriers promotes greater competition among suppliers of goods and services, which rewards high-productivity companies and ultimately punishes those companies that relied on a trade barrier as a competitive edge. In other jurisdictions, this has proven to lower the costs of goods and services, and boost productivity.

However, it also means companies that are, for example, bidding for government contracts, have to be able to do what they do at a much lower overall cost. Tombe said that is a challenge that will drive many lower-productivity companies out of business.

With all the pros and cons, should Manitoba join the NWP?

Tombe was unequivocal that Manitoba should be a partner in the NWP. Although it is true that regional trade agreements can create as many barriers as they remove, and the NWP has way too many exceptions, there are still benefits to being part of a pact with the other provinces while everyone waits for a national agreement to unfold.

"I think Manitoba would gain from being in the New West Partnership," Tombe said. "Is (the NWP) the best that Manitoba could do? No. Manitoba would benefit much more from a national trade agreement, but for now, it's a good first step."

dan.lett@freepress.mb.ca