FAQ's on the Agreement on Internal Trade (AIT)

Many Canadian companies and individuals face obstacles when trying to do business outside of their home province or territory. The Agreement on Internal Trade (AIT) was signed in 1995 by the First Ministers of Canada to allow freer trade between the provinces so that all may benefit.

Some common questions about the Agreement are answered below to help you understand its purpose and how it works.

Why do trade barriers exist?

Some trade barriers exist because governments created them to protect their economies from outside competition. Governments also put policies in place to protect the environment, establish workforce standards, or achieve other consumer protection or other regulatory purpose. Sometimes they did so in a fashion that affected the ability to conduct trade when they might have been able to achieve the same results a different way without affecting trade.

Barriers, or protectionism, discourages competitiveness, distorts market forces, and reduces efficiency. Estimates on the costs of barriers in Canada range as high as $14 billion per year.

No - Barriers made sense when provinces produced and consumed mostly their own goods and services. They also served as a means of protection against overly powerful competitors. In today’s global economy, however, barriers serve only to fence us in. They prevent local people and businesses from reaching large outside markets. Provinces now produce much more than they can consume of goods, services, or investment and thus need a larger market to prosper.

The AIT was created to eliminate such barriers within Canada.

Aspects of the Agreement

What is the Agreement?

The agreement is a tool that commits the Federal, provincial and territorial governments to reduce trade barriers within Canada. The goal is to have people, goods, services and investments moving freely across the country.

A formal agreement that commits governments in Canada to remove trade barriers is the only way to eliminate harmful protectionism and improve the economy. It establishes rights, obligations, and exceptions; provides for consequences; and creates a rules based system to deal with interprovincial trade, establishing procedures and certainty.

The Agreement establishes a framework for Canadian governments to work together, on an ongoing basis, to develop and maintain an open, efficient, stable, and predictable domestic market.

There are six general rules forming the backbone of the Agreement around which all sector chapters are built: reciprocal non-discrimination, right of entry and exit, no obstacles, legitimate objectives, reconciliation, and transparency. These six rules establish consistency of treatment from one sectoral to the next, and ensure that the Agreement is firmly linked to the general principle of trade liberalization.

The eleven sectoral chapters included in the Agreement reflect the areas where the majority of barriers and impediments to trade exist.

The Agreement lays out principles, rules and a code of conduct. Governments have to operate under these principles and trade by these rules. The Agreement resolves many of the specific issues and provides a mechanism for continuing review and negotiation in the future.

A rules-based approach provides:

• consistency, predictability, and stability in trade and commerce;
• the opportunity for fairness and equity for Alberta, which the existing economic and political structure of Canadian federalism does not always provide;
• durability - it can only be changed through the unanimous consent of governments.

The Agreement applies to the provincial, territorial and federal governments. It also applies to purchasing by municipalities, academic institutions, schools and hospitals. There are requirements to include Crown Corporations as well.

The Committee on Internal Trade (CIT), a committee of provincial, territorial, and federal Ministers, is responsible for the Agreement as a whole. The committee of Internal Trade Representatives (ITRs), made up of senior officials from all jurisdictions, coordinates its operation. Working groups and committees look after each of the areas the Agreement covers. The Internal Trade Secretariat, based in Winnipeg, provides administrative support for the day-to-day operation of the Agreement, including dispute settlement.

Enhanced competitiveness, increased economic activity and increased investment.

Yes - fewer barriers mean lower costs. For example, companies no longer have to maintain an office in every province in which they do business.

Governments are able to lower costs by purchasing goods and services at the lowest possible price from anywhere in Canada.

Alberta benefits through:

• new opportunities and new Canadian markets for suppliers of goods and services;
• potential for Alberta companies to bid on government contracts anywhere in Canada;
• increased interprovincial mobility for licensed professionals;
• elimination of provincial or regional favouritism by the federal government, for example, in procurement decisions; and,
• reduced government intervention as the combined effect of the Agreement lessens the pressure for inter-regional redistribution of wealth (transfer payments).

Removing barriers to trade encourages Canadian companies to specialize and increase productivity, contributing to efficiency. Costs to taxpayers and consumers are reduced and national unity is strengthened through increased interaction.

Political and Economic Significance

What is the economic significance of the Agreement?

It is an important step towards modernizing the Canadian economy, by creating a climate conducive to investment, wealth generation and job creation. It reforms economic federalism by expanding wealth creation among regions.

The Agreement covers government procurement, investment, labour mobility, consumer-related measures and standards, agricultural and food goods, alcoholic beverages, natural resources processing, energy, communications, transportation, and environmental protection.

The AIT is an example of success in cooperative federalism and executive federalism.

The Agreement can be viewed as a companion piece to our Constitution. The Constitution sets out the division of powers and provides the authority for Parliament and legislatures to make laws. The Agreement does not and cannot alter the Constitution. Governments retain all of their Constitutional powers and responsibilities.

In the Agreement, governments volunteer to exercise their constitutional powers in a way that strengthens the economic union. In other words, the Agreement places discipline on governments making laws and spending money in relation to the movement of people, goods, services and investment.

The Agreement provides a dispute resolution mechanism involving consultations and, as a last resort, independent Panels.

There are two types of disputes: government-to-government and person-to-government. A government may enter a dispute on behalf of a company or private individual. If the government does not take up the dispute, however, the company or individual may go ahead and enter a person-to-government dispute. This requires review and approval by a screener to commence dispute resolution proceedings.

• Refer to "Screener" in the Glossary

Disputes not resolved through consultation can be referred to an impartial Panel. If a Panel finds a government in violation of the Agreement it will recommend that offending measures be removed or amended.

No - a Panel's ruling is not legally binding.

The complaining Party has two options:

1. the government can go public with the case; or,
2. it can go to the Ministers' Committee and ask permission to retaliate.

Companies or individuals who win disputes can be compensated for incurred costs during the dispute resolution process, though not for damages. Complaining governments cannot be compensated for costs or damages.


Future of the Agreement

What can be expected in the future?

Governments are constantly looking for ways to improve and broaden the Agreement. Negotiations are ongoing to strengthen its effectiveness.