The Supreme Court of Canada’s Re-Examination of Internal Trade: The Case of Beer

(Disponible en français : Affaire Gérard Comeau : Le commerce intérieur bientôt dans la mire de la Cour suprême du Canada)

About 150 years ago, Canada’s Fathers of Confederation contemplated trade across provincial boundaries when drafting section 121 of the British North America Act, 1867, now the Constitution Act, 1867. According to section 121, “[a]ll Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

Since then, there has been much debate about whether “admitted free” should mean an absence of all trade barriers among the provinces. However, beginning with a 1921 decision, the Supreme Court of Canada has maintained that section 121 should not be interpreted as supporting barrier-free trade.

In December 2017, the Supreme Court is expected to re-examine the meaning of “admitted free.” The outcome of this re-examination – resulting from a Canadian who transported alcohol from Quebec to New Brunswick – could have significant and wide-ranging consequences for Canada’s economy, especially if section 121 is interpreted in a manner that supports barrier-free trade.

Predictions about the economic impact of barrier-free trade vary. The Bank of Canada, for example, estimates that a 10% reduction in internal trade barriers that begins in 2018 could result in a 6% increase in the potential output of the country’s economy by 2020.

The 1921 Supreme Court decision

In 1921, the Supreme Court of Canada examined section 121 of the Constitution in the case of Gold Seal Ltd. v. Alberta, and decided the meaning of “admitted free” in the context of internal trade.

Gold Seal Ltd., an importer/exporter of alcohol, argued – through section 121 – that the Fathers of Confederation intended for trade among the provinces to be free from all trade barriers, provided the goods being traded were produced within the provinces.

The Supreme Court disagreed with Gold Seal Ltd. It decided that section 121 only prohibited federal and provincial legislatures from enacting internal trade barriers that are “custom duties or other charges of a like nature.” Consequently, federal and provincial legislatures have been constitutionally empowered to enact legislation that creates other types of internal trade barriers.

An example of a “customs duty or charge of a like nature” that would be a prohibited internal trade barrier is a 5% surcharge imposed on the value of alcohol produced in one province when it is imported into another province. Thus, alcohol produced in Quebec could not have such a surcharge applied when it is imported into New Brunswick.

On the other hand, section 121 permits – for example – an internal trade barrier that restricts the possession of alcohol in one province if it was purchased in another province. As described below, with certain limitations, this restriction is imposed by section 134(b) of New Brunswick’s Liquor Control Act.

R. v. Comeau

In 2012, the Royal Canadian Mounted Police charged Gerard Comeau under section 134(b) of New Brunswick’s Liquor Control Act. At that time, he possessed 354 bottles or cans of beer and three bottles of spirits in New Brunswick that he had purchased in Quebec. In contesting his fine of $292.50 before the Provincial Court of New Brunswick, Mr. Comeau asked the court to reconsider the Supreme Court of Canada’s decision in Gold Seal Ltd. v. Alberta.

Because of Canada’s judicial framework, it is extremely rare for a provincial court to determine that a Supreme Court decision is wrong. Nevertheless, New Brunswick’s Provincial Court held that Gold Seal Ltd. v. Alberta had been “wrongly decided.”

Furthermore, according to the Provincial Court, the wording of section 121 and its historical context suggest that the section should be interpreted in a manner that supports barrier-free trade among the provinces. Consequently, the charges against Mr. Comeau were dismissed.

For reasons that include the national importance of the decision in R. v. Comeau, New Brunswick’s public prosecutions services applied to the Supreme Court to have the decision reviewed. The Supreme Court granted the application on 4 May 2017.

The reinterpretation of Section 121

A number of considerations would arise if the Supreme Court of Canada upholds the decision of New Brunswick’s Provincial Court in R. v. Comeau.

Certain Canadian sectors would be affected if section 121 is interpreted in a way that prohibits all internal trade barriers. Current internal trade barriers include production and sale quotas, inspection requirements and licensing schemes, each of which may differ from province to province. These barriers affect, for example, Canadians’ purchases of milk, eggs, poultry, alcohol and pharmaceutical products.

Furthermore, the Supreme Court would have to consider the interaction between constitutionally mandated barrier-free trade and the powers of economic regulation granted to federal and provincial legislatures under the Constitution. For example, such trade would encroach on the federal and provincial constitutional powers over trade and commerce, and property and civil rights, respectively.

Additionally, certain of Canada’s international trade agreements – for example, the Canada–European Union Comprehensive Economic and Trade Agreement – stipulate that foreign competitors must be treated in a manner that is no less favourable than the treatment given to domestic businesses under internal trade arrangements.

Barrier-free trade between provinces could affect the operation of Canada’s international trade agreements, as well as Canadian businesses, by possibly providing foreign competitors with more favourable treatment than is currently given by those agreements.

Existing internal trade agreements

Canada has a number of domestic agreements that are designed to improve internal trade, including the Canadian Free Trade Agreement that replaces the 1995 Agreement on Internal Trade.

Other internal trade agreements include the New West Partnership Agreement, the Ontario–Québec Trade and Cooperation Agreement, the New Brunswick–Nova Scotia Partnership Agreement on Regulation and the Economy, and the Atlantic Procurement Agreement.

These agreements allow internal trade barriers to exist because they are consistent with the 1921 Supreme Court of Canada’s interpretation of section 121. If all internal trade barriers become unconstitutional as a result of the reinterpretation of this section, the purpose of these agreements could be substantially undermined.

Further Reading:

Asher Honickman, A Marriage Made in Britain: Section 121 and the Division of Powers, CanliiConects, 24 October 2016.

Malcolm Lavoie, R. v. Comeau and Section 121 of the Constitution Act, 1867: Freeing the Beer and Fortifying the Economic Union, 16 October 2016.

Christian Whalen, “R. v. Comeau and Judicial Activism,” Canadian Bar Association, 2 December 2016.

Author: Brett Capstick, Library of Parliament