OF TRADE AND BEER: NAFTA, THE COMEAU CASE AND REGULATORY COOPERATION.

• Author: Irish, Maureen
• Position: Proceedings of the 41st Annual Canada-United States Law Institute Conference on the State of Our Nations; The Canada-United States Relationship: Canada-United States Perspectives on Law, Policy and Politics in Tumultuous Times

TABLE OF CONTENTS I. Introduction II. Trade model--NAFTA III. Common market model--European Union IV. Regulatory model--Canadian Free Trade Agreement V. International Regulatory Cooperation A. Regulatory Cooperation Council 1. Comprehensive Economic and Trade Agreement (Canada-European Union) 2. Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) VI. Borders I. INTRODUCTION

The Comeau case before the Supreme Court of Canada (1) raises many questions about the nature of the internal market in Canada. At the time of writing, pleadings have been filed and arguments have been presented. Legal analysis has focused on constitutional law doctrine governing the powers of the provincial and federal governments. This paper takes a different approach. Based in international trade law, it discusses several ways in which trade treaties and similar agreements respond to cross-border regulatory differences. Assuming governments with appropriate regulatory authority have arrived at rules that differ from each other, can commerce take place across borders? If so, in what circumstances and with what qualifications?

In the fall of 2012, Gerard Comeau, a resident of New Brunswick, bought 15 cases of beer, 2 bottles of whiskey and 1 bottle of liqueur in the province of Quebec. The prices he paid were lower than the prices from the New Brunswick provincial monopoly, the New Brunswick Liquor Corporation. When he drove back to New Brunswick, his vehicle was intercepted and the goods were seized. He was charged with possession of liquor not purchased from the Liquor Corporation, in a quantity beyond the permitted limit. The amount of the fine was $292.50 (Canadian dollars). Mr. Comeau contested the charge, arguing that it was contrary to section 121 of the Constitution Act, 1867. The trial judge decided in his favour. The New Brunswick Court of Appeal declined to hear an appeal. Leave to appeal was granted by the Supreme Court of Canada.

The New Brunswick Liquor Corporation has a monopoly on importing liquor into the province, pursuant to section 3(1) of the federal Importation of Intoxicating Liquors Act, (2) which was originally adopted in 1928. That legislation provides that liquor may be imported into a province only by the provincial monopolies, with some exceptions, none of which applied in this case. The Gold Seal decision of the Supreme Court of Canada in 1921 affirmed that the federal government has the power to prohibit the importing of liquor into a province pursuant to section 91 of the Constitution Act, exercising its jurisdiction over trade and commerce as well as over the peace, order and good government of Canada. (3)

Section 121 of the Constitution Act, 1867 provides as follows:

All 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. (4) In his decision in Comeau, LeBlanc J. of the New Brunswick Provincial Court heard evidence on the understanding of the phrase "admitted free" in 1867. Some dicta in the Gold Seal decision (5) interpreted that phrase as referring only to customs duties or charges, which would be prohibited in trade between provinces in the new Dominion. LeBlanc J. determined that, at the time, "admitted free" had a wider meaning than merely "admitted free of duty." (6) Part of the impetus for Confederation had been a reaction to the abrogation of the Elgin-Marcy Reciprocity Treaty (1854-1866), (7) under which free trade had taken place between the British North American colonies and the United States. The British colonies had experienced unfettered trade in natural products pursuant to the treaty, which the United States first undermined by search and seizure procedures and other border impediments, before finally abrogating the treaty in 1866. LeBlanc J. concluded that the colonies wanted unfettered trade within the new Union without non-tariff barriers:

I have been convinced that their intent was to replace the loss of the free trade American market with a free trade Canadian market. The strong and harmonious economic union envisaged by our Fathers of Confederation had to have been based on free trade, not on punishing internal non-tariff barriers, such as had been put in place by the Americans. (8) LeBlanc J. found that the New Brunswick provision violated section 121 of the Constitution Act and dismissed the charge against Mr. Comeau.

In the appeal before the Supreme Court of Canada, those opposed to LeBlanc J.'s conclusion have presented constitutional arguments in support of provincial regulatory power, using case law since Gold Seal (9) In contrast, the focus of a trade law analysis is not on the validity of regulatory power, but rather on whether goods can cross a border and gain market entry in the territory of import. If there are regulatory differences between the home jurisdiction and the intended market, are goods nevertheless admissible? Must they meet all regulations in the host market, or is compliance with the law of the home jurisdiction sufficient? If market access is available, what conditions can be imposed and how will a decision be made?

The paper examines this issue of admissibility of goods in several contexts. The first section discusses the trade model, using the North American Free Trade Agreement as an example. (10) The second section addresses the common market of the European Union, where the free movement of goods among Member-States is one of the EU's foundational principles. The third section is the regulatory model in the Canadian Free Trade Agreement among the federal, provincial and territorial governments, which took effect on July 1, 2017. Next, the paper discusses current updates on Canada's involvement in regulatory cooperation initiatives with the United States, and Canada's more recent trade treaties.

The analysis is presented as background for debates over the interpretation of section 121 in Comeau and ongoing issues with respect to trade in the North American context. There are several ways in which regulatory differences can be addressed across provincial and international borders. The substantive goals and the relative power of the parties will influence choices made. It is also important to pay attention to the differing procedures, including burdens of proof and roles for private sector interests. Cooperation across borders can take differing forms under various legal frameworks.

2. TRADE MODEL--NAFTA

   In international law, countries control their own borders. A country is not required to admit goods that it considers harmful or in breach of domestic rules. A potential import could be unacceptable for a variety of reasons, even if it has met all of the regulations that applied in its home country. The country of import has jurisdiction to decide on matters relating to imported goods and as a result, has the discretionary power to block entry whenever it wishes.

   In trade agreements, countries limit their power to refuse imports. Typically, no Party to the trade agreement is permitted to block or put a quantitative restriction on imports except as set out in the agreement. (11) Of course, we now have more regulations than the United States or the British North American colonies had in the mid-nineteenth century. There are many regulations that a potential import could fail to meet, and differences are likely in regulatory choices made by countries. There will be differences in the history and the context for regulation, in the balance of power among interests involved in the establishment of the rules, in the usual ways of making and enforcing laws and regulations, in the views of appropriate regulatory space, in the domestic choices of levels of protection, and in the respect accorded to certain policies and objectives chosen by sovereign governments. Regulatory differences could be large. But if they are small and inconsequential, should they prevent cross-border commerce? More particularly, should they prevent trade in goods?

   In international trade law, we can approach the question of regulatory differences in one of three basic ways. For national treatment, the imported good is judged in accordance with the rules in the country of import, and those rules must not discriminate against imports. This is the obligation in Article III of GATT, one of the agreements that fall under the World Trade Organization. (12) The national treatment approach does not require cooperation with other countries, since domestic rules apply; no coordination is necessary. The domestic law in force from time to time has effect, provided that it does not discriminate. The domestic rule governs, whatever that rule may be, so long as it does not accord greater benefits to like-domestic products.

   In the second, more forceful approach at the other end of the spectrum, there might be efforts to harmonize the rules in the two countries involved, encouraging them to adopt the same provisions through standardization. If regulations are harmonized, once goods meet the rules in the home country then they also meet the rules in the host country of import. Harmonization calls for attention to and knowledge of regulatory developments in other jurisdictions.

   A third approach, recognition of equivalence, is also possible. It is this middle ground that is the focus of this paper. If equivalence is recognized, the host country decides that the rules in the home country are acceptable and the good can be imported even though it does not meet the importing country's domestic rules. For example, lumber could be sufficiently strong even though strength is measured in a slightly different way, or the nutritional label on food might not conform to every detail of the relevant regulation, but could still contain sufficient information for consumers. The domestic rules contain different requirements, but the goods are nonetheless permitted to enter and...