December 2003

The Voice of Canadian Business ^TM
Le porte-parole des entreprises canadiennes ^MD

Eliminating Barriers to Internal Trade

Canada must develop a more efficient trading system within its own borders, and fully implement the Agreement on Internal Trade (AIT) which was signed in 1994 and took effect in 1995. While Canada has accomplished much in terms of liberalizing trade on a bilateral and multilateral level, federal/provincial/territorial governments have been unduly slow in removing barriers to internal trade. The economic costs of internal trade barriers are significant – estimated to be in the range of 1 to 2 percent of Gross National Product. Barriers are primarily related to standards, procurement, investment, labour mobility, agriculture, food goods, and energy. Until internal trade barriers are removed Canada will be unable to leverage its resources in the most efficient manner, which impedes Canada's economic potential. Further, limiting Canadian companies' domestic growth potential hinders the international competitiveness of Canadian companies, which is detrimental to the long-run competitiveness of the Canadian economy.

Mutual Recognition Agreements

In an integrated North American marketplace, business continues to face significant costs in dealing with the often parallel and overlapping regulatory and standards setting processes and bodies in Canada and the US. These steps create delay, higher costs and inefficiencies. In an integrated North American marketplace, there should be room for Canada/U.S. authorities to implement mutual recognition of standards, greater harmonization of approval processes and streamlining the steps necessary to get products and services into the market.

Streamlining of regulations is one area where we believe that Canada and the U.S. can make concrete progress. The Minister for International Trade, Pierre Pettigrew, boldly suggested in a speech in October 2002 that Canada and the US should "move to the principles of mutual recognition and the elimination of duplication". He noted that some of this work is already being done in areas such as pesticides, aviation safety, biotechnology.

The House of Commons' Standing Committee on Foreign Affairs and International Trade has also recommended that Canada and its NAFTA partners should "implement mutual recognition schemes for existing regulations".

This does not mean that Canada would automatically adopt U.S. standards. Nor does it mean a "race to the bottom" or a lowering of standards to the lowest common denominators. It means simply that, in areas where the two governments are collecting essentially the same information or performing essentially the same health or safety test, it makes little sense to collect the same information twice or perform the same test. Doing so costs time and money, and delivers little tangible benefit to the consumer. Collecting such information or performing such a test once in either jurisdiction should be sufficient for both.

Each government should retain the sovereign right to regulate as it sees fit, and each should be perfectly free to have regulations differing from the other, should it be deemed necessary to do so. In many cases, however, the two governments have deemed it necessary to duplicate each other's work.

If we truly wish to build a common North American economic space that works for the benefit of all, let's start to build a regulatory framework that suits such an economic space. Currently, this does not exist. As a starting idea, it may be useful for the governments of Canada and the U.S., with assistance from the business sector, to identify two or three sectors where mutual recognition agreements might make most sense.

The following are a few specific examples of regulatory differences that can be addressed through Mutual Recognition Agreements:

Meat: The intent of the Canada/United States Free Trade Agreement Article 708.3 was to effectively eliminate border inspections for meat. These inspections have yet to be eliminated. As well there were commitments to reform technical regulations to the greatest extent possible with compatible standards. The possibility for equivalent grading standards for beef exists, yet no effort has been made to develop a set of equivalent standards.

Drug classification: For example, any product containing sunscreen in Canada is classified as a drug while in the U.S. it is not. As companies move to put sunscreen in cosmetics like lipstick and moisturisers, Canadian products are subject to drug restrictions; and

Food regulation: The definition of daily nutritional requirement is different, making label harmonization with the U.S. virtually impossible.

Streamlining Securities Regulation

The Canadian Chamber of Commerce applauds the federal government's initiative to resolve the long-standing debate on the structure of securities regulation in Canada and welcomes the creation of the Wise Persons' Committee. There is a strong consensus among our members that the status quo is not right. Canadian listed companies consider the burden of regulatory overlap, duplication and fragmentation one of the biggest problems they face. Not only do companies face an onerous burden in terms of getting listed (companies wishing to issue shares in each province and territory must have their prospectuses approved by all 13 members of the Canadian Securities Administrators and pay 13 different fees) but also in terms of regulatory compliance. Simply put, Canada's fragmented system of securities regulation is inefficient and costly. It hampers Canada's ability to compete on world markets for capital investment and it poses a serious threat to our nation's competitiveness.

Sound and effective regulation and the investor confidence it generates are important for the integrity, growth and development of securities markets. In turn, a robust and competitive securities market is vital to the health and vitality of Canada's economy. It supports corporate initiatives and strategies, finances entrepreneurial upstarts and facilitates the management of financial risk. In short, it supports innovation. The Canadian Chamber fully believes that maximizing the innovative capacity of our nation will have tremendous economic benefits – i.e. increasing productivity levels, wage levels, return on capital, corporate profitability, employment, and, ultimately, a higher standard of living.

It is important to state up front that the Canadian Chamber of Commerce believes that a consensus-based approach is the best approach to developing an optimal securities regulatory structure for Canada. As such, it is critical that the federal government work with the provinces/territories and key stakeholders to expeditiously streamline securities regulation in Canada and ensure consistent enforcement of securities regulations across the country.

It is the view of the Canadian Chamber of Commerce that it would be most preferable to establish a single regulator for Canada. Canada is unique in being the only G7 country without a single securities regulator. A national regulator would be controlled jointly by the provinces/territories with the federal government's co-operation and participation. This recognizes the local and regional sensitivities that exist, addresses the concerns of the provinces, and acknowledges the constitutional division of powers in Canada. Failing this, existing rules must be simplified and harmonized across the country. Indeed, uniform rules and legislation that are interpreted, applied and enforced in a consistent manner across Canada would represent a significant improvement over the current situation.

Federal and provincial/territorial governments as well as key stakeholders in the Canadian capital markets cannot afford to delay any longer to resolve the issues surrounding Canada 's securities regulatory structure. Ensuring Canada has a modern and efficient system of securities regulation is an issue of national importance. Our ability to attract capital is critical to our global competitiveness. Canadian companies must be able to access the financing they need to grow, innovate, prosper and create jobs. We need a securities regulatory structure that is effective, efficient, transparent and attractive for investors and issuers.

Use of the Precautionary Approach/Principle

The precautionary principle is an approach to risk management that has been developed in circumstances of scientific uncertainty, reflecting the need to take prudent action in the face of potentially serious risk without having to await the completion of further scientific research. The most broadly accepted definition of the Precautionary Principle is Principle #15 of the June 1992 Declaration of the Rio Conference on Environment and Development, which reads:

"In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation."

This definition of the precautionary principle is currently enshrined in the 1999 Canadian Environmental Protection Act (CEPA):

"Whereas the Government of Canada is committed to implementing the precautionary principle that, where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation."

Unfortunately, not all definitions currently in use in Canada are compatible with this definition. For example, in the Canada Marine Conservation Areas Act (Bill C-10) which received Royal Assent in June 2002, the definition reads as follows:

"Whereas the Government of Canada is committed to adopting the precautionary principle in the conservation and management of the marine environment so that, where there are threats of environmental damage, lack of scientific certainty is not used as a reason for postponing preventive measures"

This definition lacks certain key principles, which are contained in the CEPA/Rio definition. These principles ensure a balance between the requirement for science in decision-making and the need to protect the environment in the face of probable threats.

The federal government has recognized in its June 2003 A Framework for the Application of Precaution in Science-Based Decision Making About Risk that "the application of precaution is distinctive within science-based risk management and is characterized by three basic tenets: the need for a decision, a risk of serious or irreversible harm and a lack of full scientific certainty". The document also notes that Canada has a long history of applying precaution in areas of federal regulatory activities.

Governments can rarely act on the basis of full scientific certainty and cannot guarantee zero-risk. The goal of risk management is scientifically sound, cost-effective integrated actions that reduce risks while taking into account social, cultural, ethical, political and legal considerations. It is very important for public credibility that throughout government there is a consistent approach to risk management. This can be accomplished through the use of the precautionary principle as defined in the Declaration of the Rio Conference on Environment and Development and using the principles laid out in the June 2003 Framework.

Consistent Commercial Legislation

The Canadian government must work towards the development of a nationally consistent commercial legislative framework. Governments must promote uniformity/harmonization of legislation throughout Canada on subjects on which uniformity may be found to be desirable and practicable. In this regard, the following are a set of uniform legislation that must be implemented in each province for the benefit of having consistent regulatory frameworks. Inconsistent regulatory frameworks negatively impact our economy as they result in significant incremental costs for business, due to complying with varying and sometimes inconsistent provincial legislation.

Uniform Sale of Goods Act

Current sale of goods legislation does not conform to what businesses actually do. For one thing, sales of goods legislation does not contemplate electronic transactions. The goal is to determine the inadequacies of current sales laws in the context of electronic transactions and, in particular, the extent to which current sales legislation provides (or does not provide) a minimum level of protection for electronic transactions.

In addition, despite a century of application, the legal outcome of many disputes remains uncertain. Further, this law does not fit in well with more modern commercial law or with the international regime on the sale of goods. There is also a need for significant discussion around the extension of this legislation to include "services".

Uniform Electronic Commerce Act

It is clear that practical and consistent laws governing e-commerce transactions have become more critical with the rapidly increasing globalization of business. The benefits of efficiency and interactivity that flow from the expansion of electronic communications are reduced by persistent legal uncertainty. Many legal relationships, especially contracts, depend on the intention of the parties. It has not been clear to what extent such intention can be communicated automatically, or by symbolic actions like clicking on an icon on a computer screen. Numerous efforts have been devoted to resolving these uncertainties. Therefore, it is important to promote the enactment of this uniform act in all jurisdictions.

Uniform Liens Act

The Uniform Liens Act, adopted in 1996, creates a unified set of rules about the nature and extent of certain non-consensual liens, the priority of liens against third parties and the procedure for enforcement. It also provides benefits to a wide variety of persons, but particularly small businesses and consumers by increasing sources of financing for the former and facilitating the grant of credit to the latter.

A few provinces have enacted modern lien legislation, but the current law in most jurisdictions is narrow in scope and does not reflect modern commercial realities. For example, although it is desirable in many instances for lien rights to continue even after the lien claimant has released physical possession of the goods, this is not possible in many jurisdictions.

The current law in most provinces provides unpredictable and often un-registerable lien claims for businesses such as repairers, storers, garage owners, innkeepers, warehousers and woodsmen.

Uniform Documents of Title Act

A Uniform Documents of Title Act would codify the law relating to all forms of documents of title that have an established commercial usage. It covers bills of lading, warehouse receipts and other negotiable and non-negotiable documents of title. Documents of title are used primarily in interprovincial and international trade. A Uniform Documents of Title Act was approved in principle in 1995 but a final draft has not yet been prepared.

Uniform Arbitration Act

This Act modernizes the law of commercial arbitration. A Uniform Arbitration Act was adopted in 1990. It provides a framework for conducting an arbitration, while leaving the parties latitude to design rules that suit themselves. The Act attempts to minimize the opportunities to delay the arbitration, either by refusing to participate or by seeking the intervention of the courts. The courts do have their place in arbitration under the Uniform Act, however. They can keep proceedings moving in the face of resistance, they can protect the position of parties during proceedings, they can help ensure that the arbitral award applies with the law, and they can lend their weight to the enforcement of the award.

It has been adopted by some provinces but there is a need for uniform legislation across the country.

Uniform Enforcement Law

Uniform acts relating to enforcement law create a harmonized system for granting and enforcing judgments throughout Canada. These are particularly important in light of the volume of crossborder commerce in Canada and the increasing mobility of Canadians.

A Uniform Enforcement of Canadian Judgments Act was adopted in 1992. A Uniform Court Jurisdiction and Proceedings Transfer Act was adopted in 1994. Together they implement a harmonized system for granting and enforcing judgments throughout Canada. The jurisdiction Act provides for Canadian courts to follow a uniform set of rules in determining whether they have jurisdiction to hear a case. Then, under the enforcement Act, a judgment granted anywhere in Canada will be enforced in the same manner as if it had been granted by that court. Both Acts have been enacted and proclaimed in force by only a limited number of provinces.

The Uniform Enforcement of Canadian Decrees Act deals with enforcement of non-money judgments, such as injunctions, across provincial borders. In general, there is no statutory scheme or common law principle which permits the enforcement in one province of a non-money judgment made in a different province. This is in sharp contrast to the situation that prevails with respect to money judgments which have a long history of enforceability between provinces and states both under statute and at common law. With the increasing mobility of the population and the emergence of policies favouring the free flow of goods and services throughout Canada, this gap in the law has become highly inconvenient. The purpose of this Uniform Act is to provide a rational statutory basis for the enforcement of non-money judgments between the Canadian provinces and territories. A Uniform Enforcement of Canadian Decrees Act was adopted in 1997, and is available, either as a stand-alone Act, or in a version in which it is combined with the Uniform Enforcement of Canadian Judgments Act.

In order that Canadians may benefit from these acts, efforts must be made to encourage jurisdictions to proceed with the required proclamations. It is imperative that Canada be provided with a predictable, responsive and efficient legal system, which would regulate the marketplace while supporting Canada's competitive position in the world. Inconsistent regulatory frameworks result in significant incremental costs for business as they have to comply with varying and sometimes inconsistent provincial legislation. There are also lost business opportunities flowing from the failure of some jurisdictions to keep legislation current (e.g. e-commerce) and the fact that international transactions are often concluded in jurisdictions other than Canada to allow the parties to benefit from more modem commercial law provisions of other countries. Higher costs of compliance for business are borne by consumers in the price of goods and services and in the tax burden related to the cost of government regulatory functions. Last, but not least, consumers experience difficulties as a result of inconsistent, out-dated and difficult to understand standards in different jurisdictions.