Review by Rainer Knopff
Trade And Commerce: Canada’s Economic Constitution. Malcolm Lavoie. McGill-Queen’s University Press, 2023.
AS COMPARED TO the 1982 Charter of Rights and Freedoms, the Constitution Act, 1867 — still affectionately called the British North America (BNA) Act by some of us — is “likely to strike a contemporary Canadian as odd or obscure.” How to explain, for example, the “almost humorous assortment of the general and specific” that gives Ottawa power over not only “trade and commerce” but also Nova Scotia’s tiny Sable Island, or that authorizes provinces to issue saloon licenses in addition to regulating “property and civil rights”? And “what is it about money votes that explains the presence of detailed and specific procedures in a constitution that otherwise deals with legislative power in more general terms?”
These and a host of related questions, argues Malcolm Lavoie in this excellent new book, are answered by the “economic vision” underpinning much of the constitution. Dedicated to market exchange, economic integration, and internal free trade — all within a decentralized parliamentary regime — this animating constitutional vision is no longer well understood. Lavoie’s mission is to rescue and revive it.
It must be rescued especially from the view — expressed in recent Supreme Court jurisprudence — that the constitution is economically neutral and should be kept out of the way of policymaking. This view, insists Lavoie, ignores obvious constitutional text and logic. “For instance, the provincial power to make laws about ‘property and civil rights’ and the federal power over ‘trade and commerce’ are only really intelligible in reference to a market economy of some kind.”
Viewing the BNA Act as economically neutral has weakened its “foundational commitment” to the property rights a market economy needs. Canada famously lacks direct protection of property rights in its Charter of Rights and Freedoms, but the 1867 Act secures these rights indirectly by giving elected legislatures constitutionally decisive power over their inhibition. As Lavoie demonstrates at length, parliamentary supremacy evolved in large measure to prevent executive interference with property rights.
Thus, the executive cannot, outside emergency situations, expropriate property without just compensation. Only an elected legislature can do that, and only if it employs statutory language clear enough to overcome established judicial presumptions in favour of property rights. Similarly, the aforementioned “money vote” procedures require the taking and spending of revenue, which obviously affect property, to be authorized by the relevant elected assembly. Legislative supremacy, to be sure, will not always protect property rights, but it makes their infringement less likely. The need for express authorization will sometimes give pause even to assemblies as executive-dominated as Canada’s.
Viewing the BNA Act as economically neutral has weakened its ‘foundational commitment’ to the property rights a market economy needs.
Lavoie recounts several ways in which the Supreme Court has undermined this indirect protection of property rights. Perhaps most egregiously, it allows governments to levy “compulsory payments’’ that “have not been expressly authorized by the elected representatives of the people.” Legislative authorization, contends the Court, is needed only for taxes, not for government-imposed regulatory charges and user fees. Such charges can be taxingly onerous, however, and the money they raise sometimes goes, in a tax-like manner, into general revenues to be spent on matters unrelated to the regulatory purpose.* The distinction between taxes and charges, in other words, is anything but obvious. But never mind, even if the distinction made sense, it is utterly irrelevant because the constitution expressly requires legislative authorization for “any tax or impost.” Lavoie demonstrates that far from being a redundant add-on, the term “impost” was intended to secure a very broad scope for the legislative control of fiscal matters. If regulatory charges aren’t taxes, they are certainly imposts, and only by reading this well-understood and strategically used term out of the constitution could the Court liberate charges from legislative authorization.
THE COURT HAS done similar damage to the federal dimension of Canada’s economic constitution. Despite Sir John A. Macdonald’s preference for legislative union, the constitution established a federal system with strong provinces. Especially important was the provincial power over “property and civil rights,” which was in 1867 a well-understood term of art encompassing such matters as property rights, contracts, and torts. The provinces, in other words, were given broad power over economic relations. So broad, in fact, that provincial authority would have extended to most of the federal government’s economic powers had the latter not been “carved out” as “specific exceptions.” The underlying logic was one of “subsidiarity,” in which “authority is presumptively held at the local level unless centralization is necessary for effective governance.” The BNA Act’s centralizing carve-outs were necessary to protect national integration and free trade from local parochialism. The resulting federal powers — trade and commerce, currency, banking, and many others — were assigned “exclusively” to Ottawa. As limited, subsidiary carve-outs, moreover, they left the provinces with plenty of their own economic power, also exclusive.
Provincial economies responding effectively to local knowledge and concerns within a nationally integrated market — that’s what the mutual exclusivity of federal and provincial powers was designed to achieve, and what Lavoie believes it generally did achieve until recently. Unfortunately, the idea of exclusivity, repeated in the constitutional text to the “point of redundancy,” has “fallen deeply out of favour.” At the hands of the Supreme Court, it has suffered the same fate as the term “impost” in the “money votes” provision.
Lavoie concedes that exclusivity does not entail the completely “watertight compartments” once declared by the Judicial Committee of the Privy Council. Some degree of overlap is unavoidable because otherwise constitutional laws can have secondary effects on the other order of government. But these incidental incursions should be upheld only when they are reasonably “necessary” to achieve the law’s valid purpose. To permit more overlap than this is to ignore the textual insistence on exclusivity, which is precisely what the Supreme Court has done. The Court’s relatively new doctrine of “flexible federalism” — the “dominant tide” of its modern division-of-powers jurisprudence — allows jurisdictional incursions that are not “necessary” but merely “rationally connected” to a law’s purpose. This radically expands jurisdictional overlap and makes a mockery of jurisdictional exclusivity. Because federal laws are paramount when they conflict with provincial laws, moreover, flexible federalism makes provinces vulnerable to a dominant federal government. Reasonable exclusivity, argues Lavoie, must be revived.
One of the benefits of exclusivity is that what is given to one order of government is denied to the other. Thus, federal authority over inter-jurisdictional trade and commerce used to mean that provinces acting alone could not establish monopolistic trade barriers, such as provincial liquor monopolies. In this way, jurisdictional exclusivity fostered free internal trade. It didn’t guarantee free trade, however, any more than legislative supremacy guarantees property rights. Just as determined legislatures can infringe property rights, so the two orders of government can contribute their exclusive powers to cooperative trade barriers. Provincial liquor monopolies were established, after all, but only because the federal Importation of Intoxicating Liquors Act (IILA) allowed only provincial governments or their agencies to “import” alcoholic beverages from other jurisdictions. The demise of exclusivity, however, has loosened traditional constitutional constraints enough that provincial liquor monopolies no longer need federal help. This is why the Trudeau government’s otherwise welcome evisceration of the IILA in 2019 did not “free the beer.”*
Octoberfest (detail) by Greg Schechter
But if pulling the IILA rug out from under provincial liquor monopolies failed to free the beer, why didn’t section 121 of the 1867 constitution do the job? That section states that “all articles of the growth, produce, or manufacture of any one of the provinces shall…be admitted free into each of the other provinces.” With jurisdictional exclusivity no longer providing much protection for free trade, it was hoped by many (including Lavoie*) that section 121 would step into the breach. Instead, as might have been expected from judges prepared to ignore such clear constitutional concepts as “impost” and “exclusivity,” the Court gutted the phrase “admitted free” in section 121. It did so, moreover, by using the interpretive approach of flexible federalism. A trade restriction will not infringe section 121, declared the Court in Comeau, if it is “rationally connected” to a “primary purpose” within provincial jurisdiction. This reasoning justified what the Court admitted was an “extreme” trade restriction: New Brunswick’s law outlawing the possession of all but minor quantities of alcohol not purchased from the provincial liquor agency. It helped that the “primary purpose” to which monopolistic control of alcohol had to be rationally connected was — wait for it — monopolistic control of alcohol.
The rational-connection test is a central villain in this drama. It makes it too easy for the federal and provincial governments to intrude on each other’s turf, and it undermines the constitution’s free-trade provision. Lavoie wants to allow only reasonably “necessary” incursions. This would give jurisdictional exclusivity and the free-trade provision their due and help restore Canada’s economic constitution.
LAVOIE DISCERNS Canada’s economic constitution in the BNA Act’s text “as it would have been understood by a contemporary audience.” Viewing “original public meaning” as just a “starting point,” however, he shows convincingly that the “economic vision” is compatible with modern sensibilities, values, and understandings. Indeed, far from “allowing the dead hand of the framers to reach into the present and impose their values,” this vision has important contributions to make to pressing current issues. Its “commitment to local autonomy and subsidiarity,” for example, “should be extended to accommodate the self-government interests of Indigenous nations.” Similarly, “Indigenous property rights can be developed in a manner that gives Indigenous owners a degree of local control comparable to what is enjoyed by non-Indigenous property owners.”
To make these and other valuable contributions, however, the economic constitution must first be rescued from the misunderstandings of Canada’s current judiciary. Green shoots can still be found in the jurisprudence; Lavoie seeks to nurture and extend them. Let’s wish him good luck!
Originally published in print in the 25th edition of The Dorchester Review, Vol. 13, No. 1, Spring-Summer 2023, pp. 94-97.
* "...regulatory purpose..." A regulatory charge designed to alter behaviour must be set at whatever level will do the job and need not be spent “to further the purposes of the regulatory scheme.” References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 216.
* "... Free the beer ..." Rainer Knopff, “Why Killing the IILA Didn’t Free the Beer,” C2C Journal, Aug. 25, 2020, online.
* "...including Lavoie..." Malcolm Lavoie acted as counsel for Artisan Ales, an intervener in Comeau at the Supreme Court.