Trade barriers between provinces still hogtie Canada> Premiers hope for solu

TORONTO — As the walls between trading partners come down in North America and around the world, Canada is casting an embarrassed and impatient eye at the hundreds of barriers to free trade that still stand within its borders.

“Canadians of all political persuasions have come to the conclusion that it’s nonsense for us to be party to lowering global trade barriers while keeping them in our own country,” said New Brunswick Premier Frank McKenna in an interview.

Despite progress on removal of these barriers in recent months, protectionist habits die hard. The country’s fiber is knit of provincial and federal efforts to boost regional economies of Canada by creating local employment and insulating these businesses from market forces.

Over the years, and especially in the modern era, Canada’s 10 provinces have enacted a vast patchwork of labor regulations, plant-siting requirements and government procurement policies that favor their own workers and companies over those from out of the province. Canadian provinces enjoy far greater political autonomy than American states, and the U.S. tradition of federal authority over interstate commerce has no Canadian analogue.

Horror stories abound.

Until last summer, it was all but impossible to purchase Moosehead beer, a product of New Brunswick, in Ontario — although it was widely available in the United States. Today, thanks to a relaxation of the laws, Moosehead is sold in Ontario’s provincial alcohol outlets — but is treated, and priced, like an import.

Another favorite Canadian story about provincial protectionism run amok concerns a sidewalk built in Aylmer, Quebec, a few years ago. Officials discovered that some of the contractor’s bricks were made in Ontario and had the sidewalk ripped up and replaced with Quebec-made ones.

“It’s really ludicrous,” said economist Leo de Bever of Nomura Research Inc. “It’s a throwback to mercantilist European society.”

Political leaders across Canada, whose predecessors created the trade barriers in the name of provincial economic development, seem to be coming around to the same view.

Only two years ago, in a prolonged wrangle over rewriting the Canadian constitution, the provincial premiers considered interprovincial trade too vexing a question even to address. But in the wake of their failure to revise the constitution, and now that the North American Free Trade Agreement and the GATT global tariff reductions are in place, the premiers have given new momentum to formal negotiations among all the provinces. Their stated goal is to reach a formula by June for the elimination of trade barriers across Canada.

“It’s ambitious but entirely feasible,” said Stephen Van Houten, president of the Canadian Manufacturers Association. “The politicians are becoming embarrassed by their failure to deal effectively with this problem, and they know they look silly, not just at home but abroad.”

Others are skeptical that progress of that scope is possible. “It’s a philosophy that dies very hard,” said de Bever. “One man’s subsidy is another man’s attempt to increase the standard of living of his people.”

The manufacturers association put the “cost” of some 500 interprovincial barriers to the Canadian economy at 1 percent of gross domestic product, or nearly $5 billion (U.S.). Other economists say that widely cited estimate is too high by a factor of as much as 10 but do not dispute that some of the barriers are a drag on economic growth in a country struggling to revive its economy by becoming more competitive in global markets.

The most dramatic sign of a willingness to tackle a politically thorny situation came the day before Christmas, when Ontario and Quebec, Canada’s two largest provinces, agreed to drop a controversial set of barriers. But it took some hardball politics to force the agreement.

Quebec traditionally denied work permits to all but 300 Ontario construction workers in Quebec, even as thousands of Quebecers streamed across the border to work on Ontario construction sites. It required any contractor doing business in Quebec to have a place of business within the province. It required out-of-province bidders for government contracts to best Quebec bidders by at least 10 percent.

Fed up, Ontario in September matched Quebec rule for rule. Trying to buy time, Quebec offered a modest concession to Ontario that sparked angry and unruly street demonstrations in Quebec.