Abstract
Trade adjustment assistance (TAA) is government aid to those affected by trade agreements. We review the history of TAA in Canada and ask whether Canada needs to reintroduce it in response to the recent intensification of trade negotiations. In light of the compensation offered by the federal government in connection with the Canada–European Union Comprehensive Economic and Trade Agreement (CETA), we examine how TAA fits in with the evolution of Canadian federalism in the trade policy area. Based in part on interviews with provincial trade negotiators, we conclude, first, that the compensation is an outcome of Canadian federalism. Second, we argue that while there is no reason to reintroduce a federal TAA program for workers, compensation for provinces is necessary to facilitate their cooperation with the implementation of trade treaty provisions. Third, we suggest that a more transparent rationale for such compensation would be superior to the ad hoc compensation observed in CETA.
Keywords
Introduction
Canada has significantly intensified its trade policy over the last decade, negotiating free trade agreements with many other jurisdictions. In particular, trade agreements with the European Union (EU) and with 11 countries in the Asia-Pacific region, including the United States (US) and Japan, await ratification.
For countries to benefit from trade liberalization, labour and capital must move between and within sectors of the economy, implying that some firms may shut down and some workers may lose their jobs. While some of these outcomes may be temporary, some are permanent.
Trade adjustment assistance (TAA) is government-provided aid to those negatively affected by import competition—be they workers, firms, sectors, regions, or communities. 1 Historically, TAA programs were narrowly defined and aimed to address increased import competition caused by specific trade agreements. In Canada, the first TAA program was created in 1965 in response to the Auto Pact with the US. Various programs then operated in fits and starts until the late 1980s, when the last federal program was phased out. In this essay, we review Canada's experience with TAA and ask whether Canada needs to reintroduce TAA in response to the intensification of trade policy and to the evolution of Canadian federalism in the area of trade policy.
Three justifications for trade adjustment assistance programs are particularly important. First, assistance is justified as compensation for losses imposed on the few so that the majority can benefit from trade. Temporary income support can help compensate workers for earnings and jobs lost because of trade deals. The second justification refers to efficiency—to help move labour and capital from declining to expanding industries or firms. Help can include job search assistance or retraining for workers plus financial and technical assistance for firms. Third, TAA can be a way to enhance the political feasibility of trade liberalization since agreements often require the support of key domestic stakeholders such as unions, industry associations, or sub-national governments.
Why might it be of interest to ask whether Canada should reintroduce a large-scale TAA program? One reason is economic and the other political. First, both the US and the EU have TAA programs aimed at helping their workers and firms adapt to changes brought by trade agreements. Given the intensification of Canadian trade negotiations, Canadian workers and firms might benefit from similar programs. Second, the expanded scope of trade negotiations suggests that particular forms of TAA aimed at particular provinces and particular industries have become part of how Canadian federalism operates in the trade policy area, acting to enhance the possibility of the successful implementation of the new agreements. Thus, an examination of TAA is interesting and important to both economists and political scientists.
Currently, two important Canadian trade partners have TAA programs: the US and the EU. For trade-affected workers, the 50-year-old US program provides income support, wage insurance, allowances for training and relocation, job search assistance, and a health coverage tax credit. The most recently reported annual cost is US$600 million. 2 The US also has a TAA program for firms that helps to cover the costs of technical assistance. 3 The EU Globalisation Adjustment Fund program, introduced in 2007, provides assistance only to workers and has a maximum annual budget of €150 million. 4 The mix of benefits provided to workers is case-specific, with member states deciding which measures to implement.
There are also several new policy developments, particularly the Canada–European Union Comprehensive Economic and Trade Agreement (CETA) negotiations, that lead us to consider TAA as a policy option for Canada. First, the key development is that provinces have become much more important political players in trade policy. Newer trade agreements, such as CETA, deal with many issues under provincial jurisdiction, adding to the importance of provincial involvement in formulating Canadian negotiating positions.
Federal–provincial relations in the area of trade policy have been historically limited to consultations and information sharing. Authors writing on Canadian federalism have generally characterized federalism in trade policy as collaborative or at least cooperative. Building on this literature, we ask whether CETA signals a change in the way Canadian federalism operates in trade policy.
The evidence available to analyze the political and economic rationale for TAA in Canada is limited by the confidential nature of trade negotiations and of government deliberations. We draw our theoretical discussion of federalism from the previous literature on that topic as it concerns trade policy. We also conducted archival research and reviewed the existing literature on the history of Canadian TAA programs. Finally, we conducted interviews with provincial government officials who were involved in the CETA negotiations and reviewed publicly available information on those negotiations.
The next section provides a brief history of TAA in Canada. The following section reviews existing evaluations of TAA programs. In the section after this, in the context of federal–provincial relations, we explore the rationale for offering specific TAA programs in response to CETA. The final section concludes by drawing on the previous sections in order to provide an answer to the question at hand—does Canada need TAA?
A brief history of Canadian TAA programs
The Canadian government has never unreservedly embraced the idea of TAA. Throughout the archived records of Cabinet memos and discussion papers, there is a marked ambivalence about these programs. The ambivalence grew from the recognition that other industries facing the need to adjust because of government policy changes might reasonably argue for similar assistance programs. Even as specific programs were being created, it was argued that a generous unemployment insurance program was a better way to facilitate adjustment. Indeed, Robertson and Grey, writing for the Macdonald Commission in 1985, summarized the general situation by saying that, “in most cases, national policy instruments (for example, unemployment insurance and training and mobility programs) have provided sufficient assistance to deal with adjustment difficulties arising from trade.” 5
TAA for workers and the Auto Pact
The first Canadian TAA program, known as Transitional Assistance Benefits (TAB), was introduced in the context of the 1965 Auto Pact and set Canada on a path that heavily influenced future programs. The economic context created by the Auto Pact, however, was far different from that in which later programs were created. The terms of the Auto Pact, which helped to establish an integrated North American automobile industry, were quite favourable to Canada and led to a large increase in employment by the major US automobile companies and their Canadian subsidiaries. Nonetheless, the Auto Pact caused dislocation for some workers and firms. For example, Canadian firms that produced parts for Canadian subsidiaries of the three large US automakers now faced competition from US parts producers. Some survived, but others did not. The US General Accounting Office (GAO) indicated that between 150 and 200 firms in the Canadian auto sector were either purchased by other manufacturers or shut down from the time the Auto Pact took effect in 1965 to 1977. 6
The federal government was not keen to establish a program for workers displaced by the agreement. Even though the Canadian arm of the United Auto Workers had made the creation of such a program a condition of its support for the Auto Pact, it was told that “the government would not … provide safeguards against the expected initial dislocation of workers as the two industries were integrated, claiming that only a very small percentage of workers in the industry would be affected.” 7 The TAB program was created, according to Anastakis, only because of the announcement of a TAA program for displaced US autoworkers.
Like the programs that came later, the TAB program was neither particularly costly for the federal government nor particularly generous to displaced workers. Its key provision was income support for laid-off workers. But workers who were eligible for the supplementary unemployment benefits programs established by the major automakers were not covered by the program. Furthermore, to be eligible, workers had to first exhaust their unemployment insurance benefits. These requirements limited short-term government expenditures on the program so much that, “by the end of the year, with over 3,000 workers out of work because of the agreement, the government had paid out a grand total of $4,559 on the TAB.” 8
TAA for workers in the 1970s and 1980s
Canada's participation in multilateral trade negotiations in the late 1960s led to greater import competition for domestic Canadian firms. Apart from the effects of the trade negotiations, several industries—clothing, textiles, and footwear foremost among them—were under pressure from low-cost foreign producers whose more modern factories and lower labour costs enabled them to undercut domestic prices even with import tariffs in place. 9
The Adjustment Assistance Program, in place between 1971 and 1982, was a TAA program intended primarily for textile workers. 10 The program was largely compensatory in nature; provisions for training or relocation were virtually nonexistent. Workers who had been permanently laid off could apply to the Textile and Clothing Board, which determined if layoffs were related to trade. Program participants who were under 55 years of age were eligible for additional unemployment benefits and those over 55 were eligible for a pre-retirement benefit.
Targeted support for vulnerable trade-affected workers continued in the 1980s under the 1982 Labour Adjustment Benefits (LAB) program. This program covered only vulnerable older workers—those between the ages of 54 and 65 who had “no present prospect of employment” or who had accepted employment with relatively low earnings—and provided them pre-retirement benefits. 11 Whereas the programs in the 1970s had certified employees if the particular firm for which they were working was damaged by import competition, LAB expanded the scope of Canadian TAA by considering whether import competition had caused damage to industries rather than to individual firms. The only Canada-wide designations were given to the textile, clothing, footwear, and tanning industries. During the period that the program existed (1982–1990), about 23,000 claims were approved. The total expenditure of the program over that period was about $600 million ($1.4 billion in today's prices) indicating that there was a need for these programs, albeit within narrowly defined groups of workers. 12 By 1988, however, all industry designations had expired and no new ones had been made. That was the end of TAA for workers in Canada.
TAA programs for firms
In the mid-1960s, Canada introduced the Automotive Manufacturing Assistance Regulations, offering government loans to firms whose production was reduced because of the Auto Pact or who needed capital to increase their scale of production to become viable in the new environment. 13 By the program's end in 1973, it had provided considerable aid to the sector. About 92 firms had received around $100 million in loans ($750 million in today's prices). 14
A number of similar programs were created in the late 1960s and 1970s offering government loans or government insurance on private sector loans to firms adjusting to the Kennedy Round and then to the Tokyo Round of the General Agreement on Tariffs and Trade (GATT). No applications under these programs were accepted after 1983.
Two views on the TAA programs in the 1980s
Roughly speaking, Canada's TAA programs stopped operating around the time that the Canada–United States Free Trade Agreement (FTA) came into effect in 1989. Discussions of the possibility of that agreement and its subsequent negotiation in the 1980s had been accompanied by a serious national conversation about the adjustments in the Canadian economy that such an agreement would cause. The report of the Macdonald Commission, published in 1985, pushed for freer trade with the United States, along with a Transitional Adjustment Assistance Program. The program the commission suggested, however, was targeted at workers displaced for a variety of reasons, not because of freer trade in particular. Indeed, the commission held a dim view of the TAA programs for textiles, clothing, and footwear in the 1970s because they had been designed “in large measure, to postpone, rather than to facilitate, adjustment.” 15
In 1988, the federal government set up the Advisory Council on Adjustment, chaired by A. Jean de Grandpré, then chairman of Bell Canada Enterprises. The council subsequently published a report entitled “Adjusting to win,” which stated that “[it] is virtually impossible, in the Council's view, to clearly and conclusively attribute any particular economic event—such as a plant closure—solely to the effects of the FTA.” 16 If it were impossible to determine accurately whether a particular job loss should qualify for the assistance, any rule aimed at producing “rough justice” would be unfair and discriminatory. The council, like the Macdonald Commission, therefore recommended adjustment programs to help workers who had been harmed for any reason, not just for trade-related reasons.
By contrast, the US TAA program survived and continued to evolve. In Europe, a new program similar to TAA in some respects was introduced in the mid-2000s. In the next section, we discuss evaluations of those programs.
TAA programs in the United States and the European Union
The US TAA program for workers
The largest and most comprehensive evaluation of a TAA program for workers was conducted by Schochet et al., who analyzed the US TAA program as it operated under the Trade Act of 2002. 17 By 2002, the program was based on the principles of the active labour market policy. Income support—in the form of a Trade Readjustment Allowance (TRA)—was given only to workers in the manufacturing sector who had not returned to work before exhausting their unemployment insurance (UI) benefits and who were in training. The program funded up to two years' training and offered a Health Coverage Tax Credit, which refunded 65 percent of health insurance costs.
To evaluate the program, Schochet et al. compared TAA participants to a matched sample of UI recipients who were not eligible for the program. Using data from an initial and a follow-up survey, several outcome measures (such as quarterly earnings and employment) were calculated. Both groups had begun receiving UI benefits between September 2004 and November 2008, and outcome data were collected for four years afterward. The timing of workers' eligibility for the program is important to the evaluation because the recession of 2008–2009 was part of the follow-up period.
The primary mechanism through which higher employment and earnings were to be realized was enhanced education and training. The researchers expected that the employment and earnings of the participants would be lower while they were in training, but would then catch up and exceed those of the comparison group later in the follow-up period. The “dip” in employment and earnings occurred as expected, but the recovery did not—at least not during the four-year follow-up period. By the end of that period, the participants were working as much as comparison group members, but their earnings in the final follow-up year were a statistically significant and economically important US$3,300 less than those of the comparison group. A caveat to this largely discouraging result is that the recession of 2008–2009 likely had an important effect—some of those who were in training during the four-year follow-up period were re-entering the job market at a time of high unemployment, while matched comparison group members were more likely to have gone back to work before the recession.
Given this result, the effectiveness of TAA as an adjustment mechanism is questionable. Recall, however, that TAA also serves compensatory and political roles. The program included important compensatory provisions, such as income support for a period after unemployment insurance benefits were exhausted and the health insurance tax credit. On the political side, it is difficult to evaluate the program's ability to “buy” support for trade liberalization. In 2005, Kletzer and Rosen argued that political support for TAA was weak, with unions referring to the TAA program as “burial insurance” because it focused on those who lost jobs and provided them only modest assistance. 18
The US TAA program for firms
In the current US TAA program for firms, help is provided in designing customized projects that aid recovery from harm caused by import competition. Federally funded regional Trade Adjustment Assistance Centers help the firms to develop and implement a plan to adjust to the challenges they face. 19 Partial funding is provided but the funds cannot be used for capital expenditures such as purchases of machinery and equipment. Rather, the interventions funded under the program touch on various functional areas including marketing, management, engineering, information technology systems, quality improvement, and new product development. 20
The US TAA program for firms is much smaller than the program for workers. Between 2009 and 2012, program funding for firms was only US$15.8 million annually, while in 2010 alone funding for workers was US$1.8 billion. 21 According to the Economic Development Administration, only between 79 and 330 firms were certified annually over the 2009–2013 period. 22
Notwithstanding its smaller scale, the TAA program for firms appears to be effective. The most recent evaluation by the GAO, using data for firms that participated in the program from 1998 to 2010, suggests that participation in the program increased sales by 5 to 6 percent and productivity by 4 percent. 23
The European Union's Globalisation Adjustment Fund
The Globalisation Adjustment Fund (EGF) was initially aimed to help workers laid off as a result of “significant structural changes in world trade patterns.” After the financial crisis of 2008 began, the EGF's mandate was extended “to include redundancies resulting from the global financial and economic crisis.” 24
EGF funds are generally restricted to cases where at least 500 workers have been laid off. Projects typically last for two years and are managed by national or regional governments. The European Commission now provides 65 percent of the funding, with the member state providing the remainder. A key provision is that the aid is customized to the worker and to the context of the layoff, in contrast to support from “mainstream” social programs such as unemployment insurance or pension plans.
ICF International undertook an evaluation covering 73 cases that had completed their programs in 2011 or after. While the range of adjustment measures varied considerably across the 73 cases, individual case management and training were the primary interventions. Not surprisingly, the re-employment rate—measured at the end of the implementation period—varied considerably across the projects, ranging from 4 percent to 86 percent, with an average rate of 49 percent. The evaluation suggests that this average rate “can be considered to be a positive outcome overall.” 25 In only three cases, all in Ireland, was it possible for the researchers to construct a comparison group. In only one of them was the re-employment rate higher for EGF participants, a result attributed to “more significant retraining than was available through mainstream provisions.” 26 Overall, the evaluation recommended that EGF be continued, as was already planned.
The evaluations of the effectiveness of TAA in the US and EU suggest that, should TAA be reintroduced in Canada, its design should be evaluated, perhaps with a randomized trial, before its overall adoption. In the remainder of the essay, we ask whether there are political reasons for TAA to be reintroduced in Canada.
Federal–provincial relations in the CETA negotiations
The US and EU TAA programs help workers and firms adjust, after the fact, to structural changes in the economy. During trade negotiations, however, the promise of TAA is a way to defuse opposition to trade agreements that threaten to create those structural changes. In our view, the adjustment assistance offered in the context of the CETA negotiations was made necessary by the unique nature of Canadian federalism, serving as a way to induce the provinces to support the changes necessary to implement CETA.
The nature of federal–provincial relations in Canada is the subject of an extensive literature in political science. 27 Bakvis and Skogstad note two underlying principles of federalism: (1) respecting jurisdictional autonomy, meaning that each order of government acknowledges the other's sphere of control, with changes to their respective powers occurring only as a result of constitutional change or judicial interpretation; and (2) balancing national unity and sub-national diversity. 28
Maintaining the balance between national unity and sub-national diversity requires two kinds of federalism. Interstate federalism involves direct negotiations between the two orders of government; intrastate federalism allows sub-national units of government to represent their constituents in national institutions. In the US, for example, the states are represented in the US Senate. Because the Canadian Senate does not provide an analogous form of provincial representation, Canadian federalism depends more heavily on mechanisms of interstate federalism. 29
Interstate federalism can be further characterized by a continuum with independence, in which each order of government limits its negotiation and consultation with the other, at one end, and joint decision-making, in which the two orders of government must agree in order to reach decisions, at the other. Over time and across policy areas, Canadian federalism has found itself at different places along this continuum. Bakvis and Skogstad suggest that the era of cooperative federalism predominated from the 1950s to the 1960s, when the provinces and territories worked with the central government to create health care and other social programs. 30 Rand Dyck saw this period as defined by “an intense degree of intergovernmental consultation … the basic equality of the relationship, and the decentralizing nature of the results of the period.” 31 Collaborative federalism, which implies a greater degree of joint decision-making than the cooperative model, features “co-determination of broad national policies,” and its supporters “view the governance of Canada as a partnership between two equally autonomous and interdependent orders of government that jointly decide national policy.” 32 While a number of authors have applied this label to intergovernmental relations in the 1990s, Simmons and Graefe argue that, when considering policy outcomes, collaboration was weak during this period. The strengthening of the provincial negotiating position, in their view, indicated lower levels of federal commitment to national programs rather than improved intergovernmental relations. 33
Schertzer, McDougall, and Skogstad argue, however, that these labels may not capture the “different and complex approaches to intergovernmental relations” used in any given period. 34 Cooperative and collaborative federalism in some issue areas may coexist with competition among the governments in other areas (competitive federalism), in which each party seeks to claim credit for policy successes and blame the other for negative outcomes from intergovernmental negotiations. 35 The struggle over jurisdictional authority is driven by differing ideologies, economic interests, and the desire to gain credit for successful policies while avoiding blame for policy failure. Competitive federalism was most in evidence in the 1970s and 1980s, when provinces resisted the Trudeau government's national development plans, such as the National Energy Program. 36
A number of authors have analyzed the nature of federal–provincial relations in the context of international trade policy. 37 As in other policy areas, a key determinant of these relations is the constitutional division of powers, and its later judicial interpretation. Under the Constitution Act of 1867, the authority to negotiate, sign, and ratify international trade agreements belongs to the federal government. In 1937, however, the Judicial Committee of the Privy Council (JCPC) ruled that this authority did not allow the Government of Canada to implement treaty provisions that fall within the jurisdiction of the provinces. 38 The key implication is that the Canadian federal government, unlike many other federal governments (e.g., the US, Australia, and Germany) cannot implement the provisions of any trade agreement without the cooperation of the provinces. Accordingly, there is a need for cooperation and a potential for conflict.
The dynamics of federal–provincial relations in the trade policy area have therefore been largely driven by the expansion of international trade agreements into areas that are at least partially under provincial jurisdiction, including the regulation of services, provincial procurement, agricultural policies, the regulation of the sale of alcohol, health and safety standards, and labour and energy policies. 39
Brown notes that, until the Tokyo Round of GATT negotiations began in 1973, the provinces were not involved “in any systematic way” in Canadian trade policymaking. 40 The agenda of the Tokyo Round, however, covered a number of nontariff barriers—including, for example, government procurement—that involved provincial jurisdiction. Accordingly, during the six years of the round, from 1973 to 1979, several federal–provincial committees were created for consultation and information sharing. Near the end of the round, in 1977, a Canadian Coordinator for Trade Negotiations was appointed to coordinate input from industry, various government departments, and the provinces. In the mid-1980s, the Macdonald Commission deemed the procedure of federal–provincial consultations during the Tokyo Round “successful” and recommended its adoption in the upcoming bilateral negotiations for a Canada–US FTA.
During those negotiations in the late 1980s and the subsequent talks about a North American Free Trade Agreement (NAFTA), the federal government “actively sought the support of the provinces.” 41 The mechanism for provincial inclusion was the creation of a number of committees that were used as forums for federal–provincial consultations. A Continuing Committee on Trade Negotiations was established and led by Simon Reisman, Canada's chief negotiator in the Canada–US FTA talks. Although the need for provincial approval of the terms of both FTA and NAFTA was limited, the consultations that had been established evolved into one particular feature of the current system: regular meetings, now known as C–Trade meetings, between the federal and provincial governments on ongoing international trade agreements.
To explore how this issue played out in the CETA context, we interviewed five provincial negotiators who were directly involved in the negotiations. 42 We were interested in how the federal–provincial relationship was evolving at the time and in its role in the ad hoc trade adjustment assistance that came out of the negotiations.
The provinces were deeply involved in the CETA negotiations. 43 The EU had demanded from the beginning that the provinces be involved, according to one of our interviewees, partly because of the early involvement of Jean Charest, then Quebec's premier. 44 At an early stage, the provinces and the federal government agreed on a list of issues that required provincial participation at the negotiation table and those issues that were within the federal realm only. For the former, provincial negotiators were “at the table,” meaning that they were physically present but did not actually engage directly in the negotiations. Federal negotiators briefed the provincial officials on a daily basis. All of our interviewees felt that the ability to observe and to be briefed daily greatly facilitated their understanding of the issues and their ability to contribute to the quality of the eventual agreement. Throughout the process, the provinces and the federal government actively exchanged negotiating positions, consulting with each other bilaterally and multilaterally and discussing situations as they arose. Quebec alone submitted around 140 position papers, covering a wide range of issues, to the federal government. Provinces could express their positions to the federal government on any issue under negotiation, not only on those that were of direct interest to them.
Those we interviewed agreed that federal–provincial relations during the CETA negotiations were generally cooperative, with provincial concerns taken into account and addressed. As one trade negotiator told us, “The relationship between the federal government and provinces and territories in trade policy is evolving. In CETA, the federal government has sought agreement on issues of provincial jurisdiction, but there is a recognition that for all jurisdictions there will be trade-offs, and opposition to any one proposal has to be measured in the context of an overall agreement. On those occasions when a province has been clear in opposition to a position and the federal government persuaded that they would not accept the obligations in a CETA with the inclusion of that position, it has been changed.”
Newfoundland and Labrador has nonetheless been less “cooperative” than the other provinces. It initially refused to participate in the CETA negotiations and did not consent to the Council of the Federation's statement indicating the provinces' and territories' willingness to “take the necessary measures” to implement the agreement. 45 In 2013, however, the province changed its position and did participate. In general, the interactions between Newfoundland and Labrador and the federal government seem to fit the observation of Simmons and Graefe: “the observed behaviour and interaction is more one of strategic actors in competition with each other and arriving at power-laden compromises, rather than one of actors working on the basis of cooperation and equality mapping out a joint vision and program of action to achieve it.” 46
Generally, provincial governments viewed a trade agreement between Canada and the EU as a desirable development. Therefore, the focus of provincial government adjustment efforts, to the extent that they existed, was on trade facilitation and support for businesses seeking to expand their trade with the EU.
At the same time, some areas were of particular concern to the provinces, and there was a sense that some form of federal assistance would be needed to counterbalance concessions made in those areas. The number of such areas was limited, and, in the end, the federal government made commitments of assistance in only three cases—cheese imports, pharmaceutical patent rights, and the Newfoundland and Labrador fish fund. There was no sense, however, at least among those we talked to, that the desire to help affected workers or firms was the major rationale for these offers of assistance. Instead, they thought that each of the three cases was motivated by a unique set of concerns. In each case, the federal government proposed compensation in order to reach an agreement that, in turn, would allow the overall deal to be reached.
We now turn to the three cases of compensation.
Newfoundland and Labrador and the minimum processing requirements
Near the end of the CETA negotiations, the federal government committed itself to provide up to $280 million to set up a fishing industry fund in Newfoundland and Labrador. The story of this fund begins with the minimum processing requirements (MPRs) that require that fish landed in Newfoundland and Labrador be processed before export. Throughout the preceding years of negotiations, Newfoundland and Labrador consistently refused to drop its MPRs. 47 In 2013, when Canada advised the EU about the province's position, EU negotiators responded that some parts of the previously agreed package on the market access for fish would have to change. 48 This left federal negotiators in a challenging situation.
These developments are documented in a number of publicly available letters exchanged between the province's minister of innovation, business and rural development and the federal minister for international trade in late May and early June 2013. 49 According to these letters, a fund was to be established and the money spent partly on compensation for harm done by the removal of the MPRs and partly on modernizing the fishing industry. The size of the fund—up to $400 million, with up to $280 million coming from the federal government—seems disproportionate to the damage likely to be caused by eliminating the MPRs on exports to the EU. 50 In late 2014, controversy erupted when the federal government seemed to renege on its promises, asserting that the fund could be used only to compensate for “demonstrable harm” as the result of the removal of the MPRs. As of this writing, the controversy is unresolved.
The fishing industry fund is best understood as a partial breakdown of the prevailing pattern of federalism in the context of CETA. Instead of Newfoundland and Labrador making the achievement of the agreement the paramount goal, its tactic, according to one of our interviewees, was to extract every possible benefit from the federal government, and the creation of the fishing fund demonstrated its success. Indeed, Premier Kathy Dunderdale later claimed, “We have levered everything we could possibly bring to the table to maximize benefits for the people of the province and we've done that, I think, in spades.” 51
Patent drugs and CETA
CETA extends the rights of companies that manufacture patented drugs in ways that lengthen the period before generic producers of the patented drugs can enter the market. Lexchin and Gagnon delineate three ways in which CETA will further protect patented drugs: (1) providing extended patent protection; (2) lengthening the period before generic manufacturers can use data generated by the patented drugmakers to seek approval for generic equivalents; and (3) expanding the rights of patented drugmakers to appeal a decision by Health Canada to allow the entry of a generic equivalent. 52 As a result, the cost to provinces of patented drugs will likely increase, as will the cost to patients whose drug needs are not paid by a provincial health plan.
According to our interviewees, the provinces requested compensation for these increased costs during the CETA negotiations, with some provinces, including Quebec, writing formal letters. The federal government agreed to provide compensation, and informed the provinces of the decision in a letter from then minister of health Rona Ambrose. Because the changes apply only to new drugs, it is not expected that the price increases will occur in the near future.
Note that patent rights are an area of federal rather than provincial jurisdiction. The compensation provided to the provinces in this case thus illustrates that the push for compensation extends to provisions that affect the provinces even when there is no need for the provinces to be involved in the implementation of those provisions. Compensation in this case is an example of all provinces working together to induce the federal government to redistribute some of the potential benefits of the trade agreement to provincial governments (and, indirectly, to the residents of those provinces). Although details of the deal are not yet publicly known, the case is important because it shows a very different type of decision making on compensation than that observed in the fish fund case. The federal government made the decision on compensation in a cooperative spirit, demonstrating its recognition of the concerns of its provincial counterparts.
Cheese and CETA
CETA raises the import quota on cheese from the EU from roughly 13,500 tonnes to roughly 31,000 tonnes. According to the agreement, this will occur gradually, over the course of six years. The increase in imports will be small compared to Canada's 414,000 tonnes of domestic cheese production, but one fear related to this provision is that the increased inflow of EU cheese will threaten the burgeoning group of artisanal Canadian cheesemakers. 53
A greater fear is that the longstanding Canadian supply management system that regulates the production of milk, eggs, and poultry might be “traded away” in future negotiations. Indeed, in the TPP negotiations concluded in October 2015, Canada took another step in this direction by giving its TPP partners greater market access to supply-managed products.
Concluding remarks on federal–provincial relations in the CETA negotiations
Our interviewees thought that the three cases of compensation had emerged in very different ways. Compensation to provinces for higher drug costs was discussed at the outset of the CETA negotiations because increasing health costs were a key provincial challenge. The federal–provincial discussions were open and transparent, with all provinces being present and involved. In contrast, compensation for the dairy sector emerged only in the last days of the negotiations, even though a strong dairy lobby had been present throughout. The negotiators we interviewed saw the compensation as a deal between the federal government and the industry, not between the federal and provincial governments. The Newfoundland and Labrador fish fund, however, seems to have been the result of that province's aggressive negotiating strategy, complete with threats that the province would abandon negotiations.
In all three cases, the federal government committed to assistance primarily for political reasons; when it needed support and could not find another solution, it offered compensation. Our interviewees felt that the key reason assistance was offered was that, in CETA, it was imperative that the federal government enlist the cooperation of the provinces, and compensation was the appropriate tool to use in some cases. Whether the assistance made economic sense was not a major consideration. In other words, TAA programs in the form that emerged in 1960s (and still exist in the United States) are not in the cards. The limited nature of the programs announced in the wake of the TPP agreement provides further support for this conclusion.
What type of federalism did CETA and the three cases represent? There is no clear answer to this—we can observe features of different modalities of federalism. Cooperative federalism was evident in the institutionalization of frequent C–Trade consultations and was pushed forward by the unprecedented extent of information sharing and consultations during the CETA negotiations. The ability of the provinces to influence decisions taken in areas of provincial and even federal jurisdiction is a feature of collaborative federalism and is roughly in line with Skogstad's argument that by the time of the CETA negotiations, intergovernmental relations can best be “described … as de facto shared jurisdiction.” 56 “Shared jurisdiction” may be an overstatement, however, because intergovernmental relations were still hierarchical, with the federal government initiating and leading the negotiations, deciding how to reach consensus, and taking on the responsibility for ensuring provincial implementation.
However cooperative and collaborative federalism are defined, the story of the Newfoundland fish fund is an example of their absence. Essentially, the case shows that any province can easily move away from cooperation if it has the political will to do so. It seems that federalism itself can easily move away from the cooperative/collaborative model, with provinces competing in trade negotiations and demanding compensation from the federal government. Moreover, the competition can be quite narrow in scope; after all, Newfoundland was in agreement with the other provinces on the need for compensation for the increase in drug prices. The likelihood of competition may increase over time if the bureaucratic capacity of provinces grows through greater participation in trade negotiations.
We conclude that the aspect of federalism that is most important in this context is that the federal government is forced to acknowledge and reward the very real power that the provinces have by dint of their control of the implementation of treaty provisions. The ad hoc compensation that we see in CETA may be sufficient to buy the support of the provinces for now. Without an institutionalization of the federal and provincial roles–for example, by a federal promise to compensate the provinces for demonstrable harm–the balance of federal and provincial relations may not be stable.
Does Canada need trade adjustment assistance?
In trade negotiations, we believe, as do others, that we are seeing the slow movement from a federalism in which the federal government acted largely on its own, consulting only on the margins with the provinces, to a more cooperative model in which the provinces have real influence on the final outcomes. The motive force here is the increasing need to involve the provinces in the implementation of treaty provisions. If the federal government wants to move further toward trade liberalization, it will have to negotiate the lowering of non-tariff barriers, many of which fall within provincial jurisdiction and will require provincial cooperation.
The experience with CETA demonstrates, on the one hand, that provinces can play a meaningful and positive role, bringing subject matter expertise to the table and cooperating toward the common goal of freer trade. On the other hand, the stance of Newfoundland and Labrador illustrates the potential for provinces to try to extract as much from the federal government as possible in return for going along with particular treaty provisions. Certain industries seem able to do the same.
In the coming decades, federal–provincial cooperation in trade negotiations will almost certainly expand. Provincial requests for compensation will likely expand as well. Nonetheless, the ad hoc compensation seen in CETA should not be the model for how provincial cooperation is obtained. Instead, we suggest that the federal government establish rules for providing compensation to firms, sectors, or provincial budgets; in effect, it should establish a TAA program for those stakeholders. The determination by a third party of the demonstrable harm likely to be caused by the adoption of a provision should be the basis for any compensation offered. This ultimately would contribute to a more transparent and fair way of achieving political consensus about trade agreements.
While it might be effective for trade policymaking, the “political” TAA program would not be an effective tool for helping workers adjust to international trade. It would likely cover only a subset of the workers directly affected by international trade. Generally, it would be extremely difficult to determine who should be eligible for assistance, resulting in arbitrary and uneven support for specific groups of displaced workers.
In terms of what might work for workers, we think that the adjustment challenge should be understood comprehensively as an adjustment to a set of interwoven international forces of which international trade agreements are just one element. In other words, because the Canadian economy has become more firmly integrated into the global economy, we think there is a need for an improved approach to aid workers permanently damaged by structural changes, whether those changes are caused by trade agreements, technological change, or strong economic growth in emerging economies.
We do not believe that the current set of Canadian labour market programs provides adequate assistance to Canadian workers in dealing with these adjustment challenges. The major Canadian unemployment insurance program, called Employment Insurance (EI), has become weaker over time, as discussed, for example, by the Mowat Centre Employment Insurance Task Force. 57 The most important mismatch between the program and the realities of the Canadian labour market is that EI benefits are designed to help workers to adjust to brief recessionary periods. Canadian workers permanently damaged by structural changes in the world economy are not well served. 58
Thus, we think that in addition to a “political” TAA, Canada needs a stronger set of labour adjustment programs that can help all workers adjust to structural changes caused by any factor. Because, in most cases, factors that cause structural changes in Canada are not entirely domestic, this set of programs can be thought of as globalization adjustment assistance. 59
The exact design of “political” TAA and of globalization adjustment assistance for workers remains an important issue for policymakers and a promising avenue for future research.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.
Author Biographies
Dmitry Lysenko is senior policy analyst with the Government of Nova Scotia, Department of Education and Early Childhood Development.
Lisa Mills is an associate professor in the School of Public Policy and Administration at Carleton University.
Saul Schwartz is a professor in the School of Public Policy and Administration at Carleton University.
1
Joseph Francois, Marion Jansen, and Ralf Peters, “Trade adjustment costs and assistance: The labour force dynamics,” in Marion Jansen, Ralf Peters, and José Manuel Salazar-Xirinachs, eds., Trade and Employment: From Myth to Facts (Geneva: International Labour Office, 2011); World Trade Organization, World Trade Report: Trade in a Globalizing World (Geneva: World Trade Organization, 2008).
2
3
4
European Commission, Employment, Social Affairs & Inclusion, “European Globalisation Adjustment Fund,” 
(accessed 26 January 2017); Tina Weber, Inga Pavlovaite, Richard Smith, and Meagen Andrews, “Ex-post evaluation of the European Globalisation Adjustment Fund (EGF)” (Luxembourg: Publications Office of the European Union, 2015).
5
Matthew Robertson and Alex Grey, “Trade-related worker adjustment policies: The Canadian experience,” in John Whalley, ed., Domestic Policies and the International Economic Environment (Toronto: University of Toronto Press, 1985), 187.
6
US General Accounting Office, “Considerations for Adjustment Assistance under the 1974 Trade Act: A Summary of Techniques used in Other Countries: Profiles of Adjustment Programs in Eight Countries,” (accessed 20 March 2016). “General Accounting Office” is the former name of what is now the Government Accountability Office; the name was changed in 2004. We use the abbreviation GAO to refer both to the previous name and the new one.
7
Dimitry Anastakis, Auto Pact: Creating a Borderless North American Auto Industry 1960–1971 (Toronto: University of Toronto Press, 2005), 102.
8
Ibid., 116. Apparently, TAB expenditures grew over time. According to the US GAO, $3 million had been paid to 3,100 laid off auto parts workers by 1975. See US General Accounting Office, “Considerations for adjustment assistance under the 1974 Trade Act,” 40.
9
Rianne Mahon, The Politics of Industrial Restructuring: Canadian Textiles (Toronto: University of Toronto Press, 1984); Caroline Pestieau, The Canadian Textile Policy: A Sectoral Trade Adjustment Strategy? (Montreal: C.D. Howe Research Institute, 1976).
10
Pestieau, The Canadian Textile Policy, 37.
11
Labour Canada, “Report on the administration of the Labour Adjustment Benefits Act” (Ottawa, 1990), 4.
12
Ibid. Our adjustment for inflation depends on whether we adjust for a difference in prices between today and the beginning of the program or today and the end of the program. We adjust from the beginning of the program throughout this essay.
13
Canada, “Automotive Manufacturing Assistance Regulations,” http://laws-lois.justice.gc.ca/PDF/C.R.C.,_c._966.pdf (accessed 16 March 2016); General Agreement on Tariffs and Trade, “Information Submitted by Governments,” 21 January 1966, (accessed 16 March 2016).
14
US General Accounting Office, “Considerations for adjustment assistance under the 1974 Trade Act,” 40.
15
Royal Commission on the Economic Union and Development Prospects for Canada, “Report—Royal Commission on the Economic Union and Development Prospects for Canada” (Supply and Services Canada, 1985), 241.
16
Advisory Council on Adjustment, “Adjusting to win: Report of the Advisory Council on Adjustment” (Ottawa, 1989), xvii.
17
18
Lori G. Kletzer and Howard Rosen, “Easing the adjustment burden on US workers,” in Fred C. Bergsten and Institute for International Economics, ed., The United States and the World Economy: Foreign Economic Policy for the Next Decade (Washington, DC: Institute for International Economics, 2005), 318.
19
20
21
United States Government Accountability Office, “Trade Adjustment Assistance: Commerce Program Has Helped Manufacturing and Services Firms, But Measures, Data and Funding Formula Could Improve,” http://www.gao.gov/assets/650/648213.pdf, 1 (accessed 16 March 2016); US Government Accountability Office, “Trade Adjustment Assistance: Changes to the Workers Program Benefited Participants, but Little is Known About Outcomes,” 2, (accessed 16 March 2016).
22
23
US Government Accountability Office, “Trade Adjustment Assistance: Commerce Program.”
24
Weber, Pavlovaite, Smith, and Andrews, “Ex-post evaluation of the European Globalisation Adjustment Fund (EGF),” 14–15.
25
Ibid., 5.
26
Ibid., 8.
27
K.C. Wheare, Federal Government (London and New York: Oxford University Press, 1946); Ronald Watts, Comparing Federalism in the 1990s (Kingston, ON: Institute of Intergovernmental Relations, 1996); David Cameron and Richard Simeon, “Intergovernmental relations in Canada: The emergence of collaborative federalism,” Publius: The Journal of Federalism 32, no. 2 (2002): 49–71; Herman Bakvis and Grace Skogstad, “Canadian federalism: Performance, effectiveness, and legitimacy,” in Herman Bakvis and Grace Skogstad, eds., Canadian Federalism: Performance, Effectiveness, and Legitimacy (Don Mills, ON: Oxford University Press, 2012), 2–19.
28
Bakvis and Skogstad, “Canadian federalism,” 3–4.
29
Ibid., 4; Patrick Fafard and Patrick Leblond, “Twenty-first century trade agreements: Challenges for Canadian federalism,” The Federal Idea, 2012, 18.
30
Bakvis and Skogstad, “Canadian federalism,” 6.
31
Rand Dyck, “The Canada Assistance Plan: The ultimate in cooperative federalism,” Canadian Public Administration 19, no. 4 (1976): 588.
32
Cameron and Simeon, “Intergovernmental relations in Canada,” 49.
33
Julie Simmons and Peter Graefe, “Assessing the collaboration that was ‘collaborative federalism’ 1996–2006,” Canadian Political Science Review 7, no. 1 (2013): 25–36.
34
Robert Schertzer, Andrew MacDougall, and Grace Skogstad, “Collaboration and unilateralism: Explaining recent intergovernmental relations in Canada” (paper delivered at the Annual Conference of the Canadian Political Science Association 2016, Calgary, 2016), 3.
35
André Lecours and Daniel Béland, “Federalism and fiscal policy: The politics of equalization in Canada,” Publius: The Journal of Federalism 40, no. 4 (2 October 2010): 582.
36
Bavkis and Skogstad, “Canadian federalism,” 6.
37
Grace Skogstad, “International trade policy and Canadian federalism: A constructive tension?,” in Bakvis and Skogstad, Canadian Federalism: Performance, Effectiveness, and Legitimacy, 159–177; Grace Skogstad, “Canadian agricultural programs and paradigms: The influence of international trade agreements and domestic factors,” Canadian Journal of Agricultural Economics 56 (2008): 493–507; Christopher J. Kukucha, The Provinces and Canadian Foreign Trade Policy (Vancouver and Toronto: UBC Press, 2008); Christopher J. Kukucha, “Provincial pitfalls: Canadian provinces and the Canada–EU trade negotiations” (paper delivered at the Annual Conference of the Canadian Political Science Association, Montreal, 2010), (accessed 13 December 2016); Christopher J. Kukucha, “Canadian sub-federal governments and CETA: Overarching themes and future trends,” International Journal 68, no. 4 (December 2013): 528–535, doi:10.1177/0020702013509321; Fafard and Leblond, “Twenty-first century trade agreements”; Stéphane Paquin, “Federalism and the governance of international trade negotiations in Canada: Comparing CUSFTA with CETA,” International Journal 68, no. 4 (December 2013): 545–552, doi:10.1177/0020702013509318.
38
Hugo Cyr, Canadian Federalism and Treaty Powers: Organic Constitutionalism at Work (Bern, Switzerland: Peter Lang, 2009).
39
Kukucha, “Canadian sub-federal governments and CETA”; Paquin, “Federalism and the governance of international trade negotiations in Canada.”
40
Douglas Brown, “The evolving role of the provinces in Canada–U.S. trade relations,” in Douglas Brown and Earl Fry, eds., States and Provinces in the International Economy, (Berkeley, CA: Institute of Governmental Studies, 1993), 107.
41
Paquin, “Federalism and the governance of international trade negotiations in Canada,” 548.
42
The five interviews covered the provinces that were most involved in the CETA negotiations, with the exception of Newfoundland. We were unable to arrange an interview with the Newfoundland team.
43
Kukucha, “Canadian sub-federal governments and CETA”; Paquin, “Federalism and the governance of international trade negotiations in Canada.”
44
Kukucha also notes Charest's influence; see Kukucha, “Provincial pitfalls,” 2. Paquin, in “Federalism and the governance of international trade negotiations in Canada,” however, does not attribute a significant role to Charest.
45
Skogstad, “International trade policy and Canadian federalism,” 209.
46
Simmons and Graefe, “Assessing the collaboration that was ‘collaborative federalism’ 1996–2006,” 33. Interestingly, a 2003 paper by Denis Stairs lays out a number of options for how Newfoundland and Labrador might act strategically to influence federal actions in international affairs. See (accessed 12 December 2016).
47
The request was not that the MPRs be eliminated entirely, only that they be waived for exports to the EU.
48
From an economic point of view, it is not clear why the MPRs would harm the EU, since the EU could buy raw fish and seafood in any other Atlantic province, a point made by the president of the Fish, Food and Allied Workers union of Newfoundland.
49
50
51
52
Joel Lexchin and Marc-André Gagnon, “CETA and pharmaceuticals: Impact of the trade agreement between Europe and Canada on the costs of prescription drugs,” Globalization and Health 10, no. 1 (6 May 2014): 30.
53
54
55
56
Skogstad, “International trade policy and Canadian federalism,” 203.
58
Our points here echo the views of several American authors. For example, Richardson calls to reshape traditional US trade adjustment assistance into structural adjustment assistance that would not isolate impacts of trade from impacts of other forms of integration such as technology and business models. See David J. Richardson, “Notes on American adjustment policies for global-integration pressures,” in Guido Porto and Bernard M. Hoekman, eds., Trade Adjustment Costs in Developing Countries: Impacts, Determinants and Policy Responses (Washington, DC: The International Bank for Reconstruction and Development/The World Bank, 2010), 345.
59
It is worth noting that the negative adjustment costs caused by new trade agreements are likely to be relatively modest for the Canadian economy, even in supply-managed sectors, if the liberalization of those sectors is only partial and gradual. One reason for this is that Canada has already experienced substantial trade liberalization through a series of previous FTAs—notably the Canada–US FTA and NAFTA—and multilateral trade agreements within GATT and the World Trade Organization. Adjustments costs resulting from other international economic forces such as exchange rate fluctuations or technological change taken together may be more substantial. For a more extended discussion of this point, see Lysenko, Dmitry and Saul Schwartz, “Does Canada Need Trade Adjustment Assistance,” Institute for Research on Public Policy Study No. 57 (2015), (accessed 26 January 2017)