New West Partnership Agreement Is Flawed Flawed Flawed!

Erin Weir is a respected economist with the Progressive Economic Forum. He has completed an exhaustive analysis of the 'New West Partnership Agreement' signed last week by the governments of BC - Alberta - Saskatchewan. Weir has a Master's in Public Administration from Queen's University. Mr. Weir has written extensively for Canadian Centre For Policy Alternatives

New West Partnership
by Erin Weir
May 2nd, 2010

On Friday evening, I was in Kingston listening to a speech by western Canada’s best Premier. The following morning, I awoke to discover a far less coherent op-ed by the other three western Premiers on The Globe and Mail’s website.

They were trumpeting Friday’s unveiling of the New West Partnership. As the Saskatchewan Federation of Labour and the Jurist have already pointed out, this arrangement is a backdoor for Saskatchewan to join Alberta and BC in the Trade, Investment and Labour Mobility Agreement (TILMA).

Saskatchewan had rejected TILMA because it empowers business to directly challenge a broad range of public policy, without identifying or solving actual problems. In addition to implementing that flawed model, the New West Partnership also hoses Saskatchewan in several specific respects.

The Window Dressing:

One has to love the term “New West.” Social democrats live in fear of being accused of advocating 1970s-style policies. However, conservatives have no shame about reviving slogans of the same vintage.

The New West Partnership includes some apparently positive elements: combining procurement orders to lower costs through increased buying power, collaboration on research and development, and joint international trade missions.

But there is no obligation to coordinate in these areas. Certainly, the three westernmost provinces did not need a “New West Partnership” to work together on procurement, research or international trade, as they have frequently done in the past.

Indeed, it presumably makes sense for Saskatchewan, Alberta and BC to also cooperate in these and other areas with the seven provinces that have not signed the New West Partnership. In promoting international trade, the greatest economies of scale could presumably be achieved by Canadians combining our efforts through the federal government.

Where’s the Beef?

The New West Partnership’s core is the “New West Partnership Trade Agreement” (NWPTA). If you do not want to read the whole thing, check out the five-page backgrounder.

The first page describes it as “a comprehensive agreement to remove barriers to trade, investment and labour mobility [that] covers all public sector entities, including government ministries and their agencies, boards and commissions, Crown corporations, municipalities, school boards, and publicly-funded academic, health and social service organizations.”

The second page provides for “financial penalties of up to $5 million if a government is found to be non-compliant with its obligations.” In case the reader still doubts that NWPTA replicates TILMA, page four helpfully notes that “British Columbia and Alberta fully comply with the agreement” already and then lists a series of “Saskatchewan-Specific Transition Measures.”

There is no quid pro quo: only Saskatchewan has to change its tendering system, regulations and standards. There is no compromise: Saskatchewan must harmonize to the existing Alberta-BC model.

Where are the Barriers?

The Globe op-ed commits to “break down unnecessary barriers between our provinces,” “interprovincial barrier-free trade,” “removing barriers to trade” and not “allow internal borders to stifle opportunity.” As usual, it does not bother to identify any actual trade barriers.
Since Alberta and BC are already in compliance with NWPTA, these unidentified barriers must be in Saskatchewan. However, they have had no apparent effect on internal trade flows. Between 1999 and 2008 (the most recent data available), Saskatchewan’s interprovincial imports rose 70%. By comparison, its international imports rose only 56%.

The most recent figures on bilateral trade between particular provinces are for 2006. That year, Saskatchewan bought $1.8 billion more goods and services from Alberta than it sold to Alberta. Also, Saskatchewan bought $419 million more from BC than it sold to BC.

So, Saskatchewan’s market is wide open to goods and services from its western neighbours. NWPTA will not affect those trade flows since there are currently no real trade barriers. However, if NWPTA somehow did increase these two-way flows, the result would be a larger interprovincial trade deficit for Saskatchewan.

Crown Corporations:

NWPTA’s inclusion of Crown corporations is notable for at least four reasons. First, the Saskatchewan Party cited its intention to continue using Crown procurement to support Saskatchewan industry as a major reason for rejecting TILMA. The Saskatchewan government should at least acknowledge changing its mind on this matter and explain why.

Second, other deals that cover provincial procurement, such as the longstanding Agreement on Internal Trade and the recent Canada-US Agreement on Government Procurement, do not apply to Crown corporations. As far as I know, NWPTA will be the first trade deal to restrict procurement by Saskatchewan Crowns.

Third, since Saskatchewan has a much wider array of Crown corporations than Alberta and BC, it is committing much more. For example, Alberta and BC businesses will gain a legally-enforceable right to access SaskTel’s procurement. But Saskatchewan businesses will have no parallel right to access procurement by Telus, the main telephone company in Alberta and BC.

Fourth, a document unveiled Friday indicates, “NWPTA does not apply to any corporation, partnership, trust or other entity or organization established, owned or controlled by either the Alberta Investment Management Corporation or the British Columbia Investment Management Corporation.” There is no similar exemption for the Crown Investments Corporation of Saskatchewan (or any part of it).

Procurement Thresholds

The usual objection to “free trade” in procurement is that governments may legitimately want to use procurement to pursue social goals other than minimizing cost. However, even if monetary savings are the only goal, one must weigh the potential of more competition to lower prices against the cost of administering an open tendering process.

For large purchases, tendering costs are trivial. But for small purchases, these costs could easily outweigh any savings from competitive pricing. Therefore, procurement deals generally only cover purchases worth more than a specified dollar value.

TILMA and NWPTA set these thresholds extremely low. For goods purchased by government ministries, the threshold is just $10,000. If it costs $500 to run an open tendering process, that would add 5% to the cost of a $10,000 purchase.

Complying with such requirements is also a bureaucratic nightmare. On a recent trip to Edmonton, I met up with a couple of friends who are lawyers and Conservative Party supporters. Both were cursing TILMA. Apparently, complying with it has made public procurement extremely cumbersome and created a huge volume of paperwork for even routine purchases."