Martin Aquilina, International Business Lawyer
Marcela Souki, Student-at-Law

In the recent case R v. Comeau,[1] the Supreme Court of Canada (“SCC”) reaffirmed its commitment to upholding provincial legislation that limits the movement of goods between Canadian provinces. In Comeau, a resident of New Brunswick, Mr. Comeau, crossed the bridge to Quebec and bought a significant amount of liquor. On his way back to New Brunswick, Mr. Comeau was stopped and fined for bringing illegal alcohol into the province. The amount he was carrying exceeded the amount allowed by New Brunswick’s Liquor Control Act[2].

Decision at the Provincial Level

At the provincial level, Justice Ronald LeBlanc found New Brunswick’s legislation to be unconstitutional because it restricts the amount of alcoholic beverages purchased outside the province that can be brought back into the province. Justice LeBlanc cited section 121 of the Constitution Act, 1867[3] in his reasoning. The court held that section 121 aims to protect Canada’s economic unity, and that New Brunswick’s legislation offends that purpose insofar as it imposes free trade barriers to products coming from other provinces.

Supreme Court’s Decision

The SCC overturned the decision and ruled that the New Brunswick legislation does not infringe section 121. The SCC held that section 121 only applies to disallow tariff barriers as restrictions to the free movement of goods across provinces. The court found that the barriers imposed by New Brunswick’s legislation were non-tariff restrictions and, for that reason, did not offend section 121. The SCC also explained that despite the statutory restriction on the inter-provincial movement of goods, the provincial legislation is constitutional given that its main purpose is to regulate the supply and use of liquor in the province.

Consequently, the SCC established a two-part test to determine whether provincial legislation will infringe section 121. The first part of the test aims to find if the legislation’s “nature and essence” is to restrict or prohibit the free movement of goods by imposing tariffs on products coming from other provinces. The second part of the test focuses on assessing if the legislation’s “primary purpose” is to restrict or prohibit free trade.

The court found that the Liquor Control Act imposed non-tariff barriers to products coming from outside the province and thus the answer to the first part of the test was negative. In analyzing the second part of the test, the court explained that the legislation’s primary purpose was to regulate the production, movement, sale and consumption of alcohol in the province rather than impose trade barriers. Therefore, New Brunswick’s legislation did not infringe section 121.

Non-Tariff Barriers

Non-tariff barriers impose more challenging impediments than tariff barriers and are more effective in curbing free trade.[4] Non-tariff barriers place a substantial burden on producers who have to comply with different regulations for each Canadian province and are also subject to quantitative limitations imposed by each province. In some highly regulated sectors like alcoholic beverages, provinces’ monopolies and non-tariff restrictions play a major role in keeping producers away. Many provinces often defend these restrictions on public policy grounds including health, safety, and environmental concerns.

The EU’s Approach – Supra-National Uniform Standards | Single Market Concept

European authorities adopt a very different approach to the free trade of goods. When it comes to overcoming trade barriers of all sorts, including those grounded in health, safety and environmental concerns, the European Union (“EU”) has developed artful mechanisms to enhance the free circulation of goods and prevent the imposition of non-tariff barriers between its members.

The European Parliament made it clear that Non-Tariff Barriers (“NTBs”) are a “disproportionate or discriminatory regulatory action” and must be eliminated “as soon as possible in order to unleash the still untapped potential of the single market.”[5]

The European Union adopts the “European Single Market” concept. This idea has its foundations in the Maastricht Treaty, which established the pillar structures of the EU back in 1992. The European Single Market essentially allows people and goods to circulate freely between EU’s 28 Member States. This concept treats 28 Member States as “one territory without any borders and regulatory obstacles to the free movement of goods and services.”[6] Nonetheless, the Commission to the European Parliament and the Council have both said, “EU laws allow for markets to be regulated to pursue legitimate public interests such as public security, public health, social rights, consumer protection or the preservation of the environment (…).”[7]

Harmonized and Non-Harmonized Sectors

While Canada still restricts the circulation of goods between its provinces on health, safety, and environmental grounds, the EU has long overcome this obstacle by creating “Harmonized” and “Non-Harmonized” sectors. Harmonized rules have been adopted by a majority of European sectors benefiting from free trade in the economic union. Harmonized rules lift any NTBs between member states as long as the member’s national regulations comply with the broader European standards of production on health, safety, and environmental procedures.

In other words, if members of the EU wish to guarantee that NTBs will not be imposed upon their products, they must not create internal standards of production that do not comply with European rules. Consequently, the EU ensures that when a product is sold by one European country to another, the sale will not give rise to any health, safety, or environmental concerns since the same health, safety, and environmental standards are followed by all members. In other sectors, Harmonized rules may involve compliance with technical specifications instead.[8]

Non-Harmonized Sectors and the Mutual Recognition Principle

For Non-Harmonized sectors, the EU still grants a right to free trade in articles 34, 35, and 36 of the Treaty on the Functioning of the European Union (2007) (“TFEU”). These articles prevent member countries from imposing quantitative restrictions on imports and exports. In particular, Article 36 establishes that although some prohibition or restriction on imports and exports may be imposed on certain grounds, national rules shall not impose undue barriers to free trade.[9]

Non-Harmonized sectors still benefit from the EU’s rules of Mutual Recognition, which state that “any product lawfully sold in one EU country can be sold in another.”[10] The Mutual Recognition principle guarantees free trade even if the product in question does not comply with some technical requirements. Additionally, Directive (EU) 2015/1535 imposes the need to notify the European Commission before any technical regulations are put in place. The Commission then examines the proposed technical regulations to determine whether they introduce any undue restrictions to free trade. This mechanism ensures that national legislations will always comply with broader EU standards for the production of goods.[11]

Something Canada Can Learn From the EU?

The imposition of barriers on free trade between Canadian provinces seems odd, and indeed antiquated, when compared to EU’s system.  Indeed, one would have imagined that establishing the same rules across provinces of one federation would be easier than establishing common rules across several countries with very diverse characteristics.

EU’s well accomplished free trade scheme exposes the flaws in Canada’s inter-provincial restrictions on the free circulation of goods. The EU has developed a successful solution to many of Canada’s concerns on free trade (i.e., health, safety, and environmental issues) such that the free movement of goods is the rule rather than the exception.

It may have been wishful thinking that Europe’s successful example of a free market would have shed a new light upon provincial legislation that intend to restrict free inter-provincial trade in Canada. The EU proposes interesting approaches and solutions to health, safety and environment concerns, and other issues arising from its single market. As the world’s largest trading block, the EU should be a source of inspiration when it comes to economic integration. However, despite the apparent protection to the free inter-provincial movement of goods granted by section 121 of the Constitution Act, 1867, it is now clear that the Canadian constitution does not provide much protection to inter-provincial free trade.

Footnotes

[1] 448 NBR (2d) 1; 398 DLR (4th) 123; [2016] CarswellNB 167; r[2016] NBJ No 87 (QL) [Comeau].

[2] Liquor Control Act, RSNB 1973, c L-10

[3] Section 121 of the Constitutional Act, 1864 provides that: “All articles of Growth, Produce or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the Provinces.”

[4] Daly, Paul. “R. v. Comeau, 2018 SCC 15: Reflections from Europe”. May 10, 2018 Online: https://www.administrativelawmatters.com/blog/2018/05/10/r-v-comeau-2018-scc-15-reflections-from-europe/

[5] Annual Report on the Single Market Governance within the European Semester 2017 (2016/2248(INI)).

[6] https://ec.europa.eu/growth/single-market_en

[7] Communication from the Commission to the European Parliament and the Council: Protection of intra-EU investment. COM/2018/547 final

[8] https://ec.europa.eu/growth/single-market/goods/free-movement-sectors_en

[9] Ibid

[10] Ibid

[11] Ibid

This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Martin today.  613-747-2459 ext.308, maquilina@hazlolaw.com