Wednesday, March 29, 2000
The Halifax Herald Limited

No province is an island when it comes to trade rules

By Brian Lee Crowley

IT ISN’T only the great, the big and the good who leave their mark on the world. All of us leave a legacy, for good or for ill, a legacy that sometimes reaches far beyond our intentions.

Prince Edward Island is one of those small places that sometimes leave such a mark, the centre of an event or an idea that reverberates beyond its borders. P.E.I. did it at least once before, in the Charlottetown Conference that was the precursor of this wonderful, awkward and lovable country. This time, however, the legacy that P.E.I. is preparing is one that no one should be proud of.

The event itself may seem small, even trivial. The government in Charlottetown has not followed the ruling of a dispute-settlement panel under the agreement that regulates interprovincial trade. The dispute centres on a Nova Scotia dairy company that bought a company in P.E.I. and, as part of their regional strategy, tried to import some milk to their new subsidiary from Nova Scotia. This they were entitled to do under the rules then in force. P.E.I.’s rules were quickly changed, thus frustrating the Nova Scotia company’s attempts to organize its business in the most efficient and competitive way possible. This was in clear contravention of the promises that the P.E.I. government made whan it signed the Agreement on Internal Trade (AIT).

The company, Farmers Dairy, exercised its rights under the AIT, and asked its home province to intervene. The Nova Scotia government duly asked P.E.I. to stop breaking the rules. They refused. An impartial dispute-settlement panel examined the case and reported unanimously that P.E.I. was in contravention of its obligations.

Unchastened and unashamed, the government in Charlottetown has done nothing. Apparently, they would prefer to withdraw from the AIT rather than allow off-Islanders to import milk. The P.E.I. government’s solemn undertakings, apparently, count for little if they mean any inconvenience.

The issue is not the losses suffered by a single company. That would be a tempest in a milk carton. Much worse is the flouting of the rights of Canadians to work and invest and carry on a lawful business wherever they choose. That principle is as fundamental a right as that of free speech or free association, which is why the AIT was so necessary. But that’s still not the worst part of what P.E.I. is doing.

The worst part of it is that the government in Charlottetown is apparently of the view that parochialism and protectionism actually defend the interests of Islanders. Nothing could be further from the truth.

In fact, the entire agricultural sector of P.E.I. depends mightily on trade with off-Islanders. Who do you think eats all those potatoes? And the bulk of the business of the Island’s dairy industry lies in exports, too – of products such as cheese. Violating the rules of fair trade invites retaliation. And that’s a battle that small jurisdictions, heavily dependent on the kindness of strangers for the sale of their products, cannot possibly win. Two Island dairies have already been refused permission to export milk to Nova Scotia because of this dispute.

In fact, that is the lesson of free trade. Free trade always benefits small, open economies the most. Switzerland, Ireland, Taiwan, Hong Kong and Singapore are all powerful examples. But one of the best is Canada itself. We export one-half of our private-sector production, and are hugely wealthier as a result.

But such dependence on trade made us vulnerable to American protectionism. To ensure that trade disputes would be settled according to fair rules, and not superior economic power, we negotiated a free trade agreement with the Americans, and our economic position is more secure as a result.

The Island’s government has apparently not yet learned that lesson, and is content that Canadians should be less free to trade and invest with Islanders than Albertans or Newfoundlanders. But under free trade, your home market is everybody else’s export market, and an inward-looking strategy only deprives you of the vast outside markets where Prince Edward Islanders are fully capable of succeeding.

The AIT cannot withstand many blows like this. P.E.I.’s decision, small as it is in itself, may well come to be seen as the turning point in its decline. And the next time P.E.I. farmers are harmed by protectionism in other provinces, they will see too late the value of the rules their government is treating so cavalierly today.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies.

Copyright (c) 2000 The Halifax Herald Limited