Owls and Roosters: TILMA: Conference Board of Canada impact assessment for Saskatchewan shows flaws similar to BC report; private sector cites just three “barriers”

“According to the comments provided by the respondents, the most cited existing trade impediment was lack of inter-provincial harmonization of government standards and regulations. Most commonly, this barrier takes the form of occupational certification requirements, registration fees and standards and different inter-provincial freight load and dimension requirements.”
– Assessing the Impact of Saskatchewan joining the BC-Alberta Trade, Investment and Labour Mobility Agreement (Conference Board of Canada, Dec. 2006)

“It is generally accepted that internal trade barriers provide a drag on economic growth; however, it is extremely difficult to determine their full impact given the number of barriers and the difficulty of quantifying these non-tariff trade barriers that dot the Canadian landscape.”
– Assessing the Impact of Saskatchewan joining the BC-Alberta Trade, Investment and Labour Mobility Agreement (Conference Board of Canada, Dec. 2006)

The recent Conference Board of Canada (CBoC) impact assessment for Saskatchewan Government Relations concerning the Trade, Investment and Labour Mobility Agreement (TILMA) may be destined for the same dustbin as its earlier report for the British Columbia Ministry of Economic Development.

On April 25, 2007, Saskatchewan Government Relations released a series of TILMA-related reports it commissioned over the past year. Among them is the CBoC study Assessing the Impact of Saskatchewan joining the BC-Alberta Trade, Investment and Labour Mobility Agreement (Dec. 2006).

The format and methodology used in the report is nearly identical to that of the CBoC’s work for the BC Government An Impact Assessment of the BC/Alberta Trade, Investment and Labour Mobility Agreement (Sept. 2005). That report estimated the TILMA would increase BC GDP by 3.8 per cent or $4.8-billion and create 78,000 jobs.

Those results were found to be deeply flawed in two independent analyses: The Myth of Interprovincial Trade Barriers and TILMA’s Alleged Economic Benefits (Feb. 2007) by Marc Lee & Erin Weir for the Canadian Centre for Policy Alternatives and; The Conference Board of Canada’s $4.8 Billion Estimate of the Impact of the BC-Alberta TILMA is not Credible (Apr. 2007) by Patrick Grady, a former senior official in the federal Department of Finance.

Both reports questioned the methodology used by the CBoC to arrive at its conclusions while also noting a lack evidence to support its findings.

The CBoC made “no attempt to list, or estimate the cost of, trade barriers between provinces,” and “Rather than using standard economic techniques, the Conference Board infers huge benefits from a tiny survey of business organizations and government ministries,” Lee-Weir said.

Grady said the small number of responses the CBoC received from its survey “undermines the reliability of the information collected,” and that “no list of barriers was provided and no empirical studies of the impact of barriers were cited to justify the scoring.”

In his analysis Grady went on to say “[I]t’s not clear from the documentation that the [survey] respondents were actually informed of the intended relationship between the ranking and the numerical score later assigned by the Conference Board.”

The CBoC’s impact assessment for the Government of Saskatchewan appears to suffer from similar problems. The methodology used by the CBoC is nearly identical to the one used for its BC study.

In both cases the CBoC used a “bottom-up methodology” to assess the potential impacts of TILMA. The analysis was conducted through the CBoC’s assessment of the impact of TILMA on seven regions and 11 industry sectors within the regions.

A ranking system was used to determine how each industry within each region would be affected by six potential impact areas, (or domains) which include: business establishment, procurement, labour mobility, energy, transportation and investment. Based on an analysis of the changes that would occur as a result of TILMA and information collected through the consultation process, each potential impact area, by industry in each region, was assigned a score, based on a scale of -3 to +3. A -3 indicates that TILMA would pose a significant challenge to a particular industry in a given region, whereas a +3 would indicate a significant benefit.

In both impact assessments it appears that in order to determine the relative importance of each industry with the regions, the CBoC collected employment data by industry for the seven economic regions from Statistics Canada’s Labour Force Survey. For each industry the five year average employment as a share of total employment was “used as a proxy” for that industry’s weight in the regional economy. According to both assessments: “Then, the overall impact rating for the region was derived by weighting the industry impact scores by their relative importance.” The overall provincial impact was then assessed by a weighted sum of the overall regional scores using employment as the weighting factor.

In both the BC and Saskatchewan assessments the CBoC was provided with a list of key stakeholders in the private sector and in the government by the respective provincial departments commissioning the work.

For the BC assessment “24 organizations were consulted, 11 from government ministries and 13 from industry organizations.” Of these a total of 10 responses were obtained, “6 from government ministries and 4 from the private sector.”

The low response rate from the private sector (30.7%) led Lee-Weir to note “The fact that two-thirds of recipients could not be bothered to respond suggests that alleged interprovincial trade barriers are not a particularly important issue for BC business.”

As it turned out the private sector response rate to the CBoC’s Saskatchewan survey was worse. The report also appears to be the victim of some sloppy arithmetic.

According to the CBoC its Saskatchewan survey “was sent to a total of 118 persons: 17 representing the public sector and 111 from the private sector.” Unfortunately, this appears to be a typo since the numbers add up to 128, not 118. Appendix A of the report provides a list of the 118 parties that were consulted. The 17 representing the public sector are easily identifiable leaving 101 private sector names left.

On Page 5 the CBoC reported that “Overall, we received a total of 34 responses, 9 from the public sector and 23 from the private sector.” Unfortunately, this adds up to 32, not 34.

Then, on Page 31 the CBoC said “As a result of the external consultation, we received a total of 34 responses to the survey with 31 respondents providing scores for the industries, economic regions and/or the overall potential impact of the TILMA on Saskatchewan. Of the 31 responses, 9 came from the public sector (including crown corporations) and 22 came from the private sector.”

According to the CBoC the results of the survey depicted in an accompanying table were only “from the respondents that provided scores in the survey.”

In the absence of further clarification it is assumed that 22 of the 101 private sector participants that responded to the survey provided scores. This is a response rate of about 21.7% which is quite a bit lower than the survey conducted in BC (30.7%).

As was the case with the BC assessment the identities of the Saskatchewan respondents and copies of their completed survey forms were not provided.

While the 22 private sector responses in Saskatchewan are higher than the 4 that were received in BC the percentage of returns is considerably lower.

It’s reasonable to assume the concerns expressed by Marc Lee, Erin Weir and Patrick Grady in their respective analyses regarding the survey and low sampling results in the BC assessment might apply to the one for Saskatchewan as well.

According to the CBoC “The information obtained from the survey was then combined with CBoC in-house analysis of interprovincial trade barriers and knowledge of Saskatchewan economy to determine the impact of Saskatchewan’s participation in the TILMA.”

In their BC analysis Lee-Weir noted that “The scoring of estimated benefits is completely arbitrary; no literature, data, interviews with companies, or lists of alleged barriers are presented.”

The same appears true for the CBoC’s Saskatchewan impact assessment.

The survey that was sent to Saskatchewan participants is virtually identical to the one used by the CBoC for its BC assessment with the exception of one additional question. Respondents in Saskatchewan were asked: “In your opinion, what are the most relevant impediments to interprovincial trade facing your company/industry or region?”

In relation to this the CBoC states on Page 34: “According to the comments provided by the respondents, the most cited existing trade impediment was lack of inter-provincial harmonization of government standards and regulations. Most commonly, this barrier takes the form of occupational certification requirements, registration fees and standards and different inter-provincial freight load and dimension requirements.”

After all the hysterical, over-the-top rhetoric from the Saskatchewan Party, Canadian Federation of Independent Business, Saskatchewan Chamber of Commerce, Canada West Foundation and countless others about the existence of bone crushing “trade barriers” too numerous to count the private sector organizations consulted by the CBoC were only able to identify three “barriers” to interprovincial trade.

It should be noted that progress is being made on several fronts showing that a heavy-handed instrument such as TILMA is not warranted.

One example is a September 7, 2006, announcement by the Committee of Federal-Provincial-Territorial Ministers responsible for Internal Trade (the Committee) that “by April 1, 2009, Canadians will be able to work anywhere in Canada without restrictions on labour mobility.”

Even the CBoC in its Saskatchewan impact assessment admits “With respect to the weights and dimensions of heavy vehicles, the Council of Ministers continues to work towards further harmonization of the rules and regulations, based on the ground work of national standards for heavy vehicle weights and dimensions.”

It is interesting to also note that on April 3, 2007, the Edmonton Journal editorial board said there is “little in the way of genuine trade barriers remaining between the two westernmost provinces,” and Saskatchewan Party Leader Brad Wall in a news release said Saskatchewan has “fewer trade barriers and restrictions than either B.C. or Alberta.”

That the private sector respondents to the Saskatchewan survey could cite just three interprovincial trade barriers validates the work done by organizations like the Canadian Centre for Policy Alternatives (CCPA) that have been saying for some time that genuine trade barriers are simply few and far between.

In their report for the CCPA, Lee-Weir point out “Even the Conference Board concedes that there is scant evidence of interprovincial barriers, but feebly claims that such barriers are too numerous to measure:

“There has been little research to date on the many interprovincial barriers to competition in Canada. These barriers are found in all sectors of the economy and affect trade in both goods and services. No comprehensive listing of these barriers seems to exist – indeed, their sheer numbers present a daunting obstacle to any attempt to compile a full list or estimate the cost of each barrier to the Canadian consumer.” (Death by a Thousand Paper Cuts: The Effect of Barriers to Competition on Canadian Productivity (May 2006))

On Page 8 of its Saskatchewan assessment the CBoC provides another similarly feeble statement:

“It is generally accepted that internal trade barriers provide a drag on economic growth; however, it is extremely difficult to determine their full impact given the number of barriers and the difficulty of quantifying these non-tariff trade barriers that dot the Canadian landscape.”

Not surprising either is the limited attention the CBoC pays to TILMA’s dark side. In its Saskatchewan assessment the CBoC states “Comments regarding potential negative impacts of the TILMA on Saskatchewan generally focused on potential loss of regulatory and legislative independence of the local government bodies, less procurement opportunities for local firms and potential aggravation of the labour shortage…However, these impacts tend to be outweighed by the benefits form the agreement such as freer movement of goods, resources, equipment and people, which leads to lower costs, as well as broader access to the booming western markets and a larger customer and supplier base.” Apparently it doesn’t matter that these things are already occurring.

Like the various business lobby groups and conservative think tanks the CBoC misleads people when it omits important information when talking about some of the TILMA provisions, like business subsidies for example:

“[T]he TILMA contains a specific section dealing with business subsidies. The provisions prohibit both Parties from using business subsidies to provide an advantage to an enterprise that results in material injury to a competing enterprise of the other Party…The exceptional circumstances were listed clearly in the Agreement, such as the compensation to persons for losses resulting from calamities, assistance for book and magazine publishers, sound recording, film development, production and distribution, recreation, academic research or non-profit organizations.”

What the CBoC neglects to say is that these exceptions are subject to Article 17 of the Agreement that requires these items to be reviewed annually “with a view to reducing their scope,” which means they could eventually be left unprotected. The CBoC also neglects to mention that the list of “exceptions” in TILMA also include, among other things, labour standards and codes, minimum wages, employment insurance, social assistance benefits and worker’s compensation. These too may eventually be exposed and put at risk.

The one area where the BC and Saskatchewan assessments appear to deviate away from each other occurs in the provincial analysis portion of the report immediately preceding the conclusion.

The methodology that is outlined for both is the same: “The overall provincial impact was then assessed by a weighted sum of the overall regional scores using employment as the weighting factor.”

With respect to its BC assessment the CBoC states: “When assigning a score based on our scale of -3 to +3, we considered a small impact to be between 0 and 5 per cent, a moderate impact to be between five to 10 per cent and a significant impact as greater than 10 per cent.”

In comparison the CBoC in its Saskatchewan assessment does not provide the numerical estimate for the impact on each industry and region that it used when assigning a score based on its scale of -3 to +3.

In its BC assessment the CBoC goes on to say: “After weighting the regional scores by their relative contribution to total B.C. employment, the overall score for B.C. rounds to 0.76, which is a small positive impact. A score of 0.76 does not translate into a full five per cent impact, but 76 per cent of five percent, or an impact of 3.8 per cent on real GDP. Real GDP (at basic prices) in 2004 in B.C. was $127.9 billion; so the total impact of the agreement is estimated to be 3.8 per cent of total GDP, which equals $4.8 billion.”

The Saskatchewan assessment on the other hand does not go into this kind of detailed explanation. It simply states: “Regional employment shares were applied as weights to the individual regional scores that were estimated by the CBoC to calculate the overall provincial score, which rounded to 0.92. Please, note that this is an estimate of the potential impact based largely on the years of experience that the CBoC staff have analyzing provincial economies, combined with the input from the external consultations…”

Rather than commit to anything more specific it appears the CBoC instead expects the reader to simply trust the “years of experience” the staff have in analyzing provincial economies. This would presumably be the same staff that prepared the BC impact assessment that has been thoroughly discredited.

In the end the Conference Board of Canada determined that:

“Based on the research and analysis of the Saskatchewan economy, the CBoC estimated an approximate dollar amount of the impact of Saskatchewan joining the TILMA. Real GDP (at basic 1997 prices) in Saskatchewan in 2005 was equal to $31,720 million. The overall impact on real GDP is estimated to be an additional $291 million for the Saskatchewan economy. Furthermore, dividing the impact on the real GDP by productivity (as measured by output per worker), we can estimate an approximate number of jobs that this agreement would create if adopted by the province. In 2005, Saskatchewan workers productivity was equal to $65,602 worth of goods and services. Thus, joining the BC-Alberta trade agreement has a potential to generate 4,400 jobs in the economy.”

Again, without explaining in more detail how the provincial score was assigned one could be left with the feeling that the $291 million was pulled out of thin air. It seems the CBoC simply expects people to accept its conclusions without question based solely on its “years of experience” in analyzing these types of things. It’s doubtful this will go unnoticed as more qualified analysis of the Saskatchewan impact assessment emerges in the months ahead.