Today, the Canadian Supreme Court decided the Comeau case, involving provincial barriers on trade in beer. This decision could have created a Canadian "single market" (to borrow a phrase), but the justices decided on a narrower approach. For anyone who follows WTO jurisprudence or debates about policy space/sovereignty, the reasoning here is likely to be of interest. Maybe calling it a "fun read" goes too far, but I enjoyed it!
The court sets out the issue, and the relevant constitutional provision, as follows:
I. Introduction
[1] In 1867, The British North America Act, 1867 (U.K.), 30 & 31 Vict., c. 3, united individual British colonies into one new country, the Dominion of Canada. Prior to this, each colony had its own power to impose tariffs at its borders. Part VIII of that Act (now the Constitution Act, 1867) contains provisions for the transfer of this power to levy tariffs to the Dominion government. At the heart of Part VIII is s. 121, the provision at issue in this appeal:
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.
[2] The respondent, Mr. Gerard Comeau, contends that s. 121 is essentially a free trade provision — in his view, no barriers can be erected to impede the passage of goods across provincial boundaries. On the other side of the debate, the appellant, Her Majesty the Queen in Right of New Brunswick (“the Crown”), argues that s. 121 was only intended to dismantle the power to impose tariffs or tariff-like charges at provincial boundaries. The trial judge agreed with Mr. Comeau. The question before us is whether he erred in doing so. What does it mean for articles to be “admitted free” as stated in s. 121? How does that requirement constrain state action? Fundamentally, does s. 121 constitutionalize some particular form of economic union? These questions lie at the core of this appeal.
It then establishes the following standard for internal Canadian free trade under Section 121:
[107] It follows that a party alleging that a law violates s. 121 must establish that the law in essence and purpose restricts trade across a provincial border. “Essence” refers to the nature of the measure — “‘what a thing is’; . . . [its] character”: TheOxford English Dictionary (2nd ed. 1989), at p. 400. “Purpose” focuses on the object, or primary purpose, of the measure.
[108] The first question is whether the essence or character of the law is to restrict or prohibit trade across a provincial border, like a tariff. Tariffs, broadly defined, are “customs duties and charges of any kind imposed on or in connection with importation or exportation”: General Agreement on Tariffs and Trade (World Trade Organization), Can. T.S. 1948 No. 31, Part I, Article I. The claimant must therefore establish that the law imposes an additional cost on goods by virtue of them coming in from outside the province. Put another way, a claimant must establish that the law distinguishes goods in a manner “related to a provincial boundary” that subjects goods from outside the province to additional costs: Murphy, at p. 642, per Rand J. A prohibition on goods crossing the border is an extreme example of such a distinction.
[109] The additional cost need not be a charge physically levied at the border, nor must it take the form of an actual surcharge; all that is required is that the law impose a cost burden on goods crossing a provincial border. A law that provides that “rum produced in the Maritime provinces will be subject to a 50% surcharge upon entering Newfoundland” has the same effect, in principle, as a law that states that “any person who brings rum produced in the Maritime provinces into Newfoundland is guilty of an offence and liable to a fine”. Both laws impose a burden on the cost of goods that cross a provincial boundary.
[110] In some cases, evidence may be required to determine if an impugned law imposes a charge on the basis of a provincial border. Consider a fictional law that requires Alberta distillers to get a special licence to import rye. It is not plain on the face of the law whether the law (1) imposes any sort of charge on the movement of rye or (2) whether any such charge is linked to a distinction between goods related to a provincial boundary. If the cost of the licence is substantial or if it is very difficult to acquire, the measure may impede cross-border trade in rye. Similarly, if the only rye available to Alberta distillers is from Saskatchewan, the licence requirement may function like a tariff against a Saskatchewan good. On the other hand, if the licence is not burdensome to acquire or if the licensing requirement applies equally where Alberta enterprises have access to rye from within Alberta, the law may not impose a burden or charge based on a provincial border and s. 121 is not violated.
[111] If the law does not in essence restrict the trade of goods across a provincial border, the inquiry is over and s. 121 is not engaged. If it does, the claimant must also establish that the primary purpose of the law is to restrict trade. A law may have more than one purpose. But impeding trade must be its primary purpose to engage s. 121. The inquiry is objective, based on the wording of the law, the legislative context in which it was enacted (i.e. if it is one element of a broader regulatory scheme), and all of the law’s discernable effects (which can include much more than its trade-impeding effect). If the purpose of the law aligns with purposes traditionally served by tariffs, such as exploiting the passage of goods across a border solely as a way to collect funds, protecting local industry or punishing another province, this may, depending on other factors, support the contention that the primary purpose of the law is to restrict trade: see, e.g., Murphy, at pp. 638-39, per Rand J.; Reference re Agricultural Products Marketing Act, at p. 1268, per Laskin C.J.; National Trade and Tariff Service (loose-leaf), at §. 1.3; Black’s Law Dictionary (9th ed. 2009), at pp. 1593-94.
[112] Stand-alone laws that have the effect of restricting trade across provincial boundaries will not violate s. 121 if their primary purpose is not to impede trade, but some other purpose. Thus a law that prohibits liquor crossing a provincial boundary for the primary purpose of protecting the health and welfare of the people in the province would not violate s. 121. More commonly, however, the primary purpose requirement of s. 121 fails because the law’s restriction on trade is merely an incidental effect of its role in a scheme with a different purpose. The primary purpose of such a law is not to restrict trade across a provincial boundary, but to achieve the goals of the regulatory scheme.
[113] However, a law that in essence and purpose impedes cross-border trade cannot be rendered constitutional under s. 121 solely by inserting it into a broader regulatory scheme. If the primary purpose of the broader scheme is to impede trade, or if the impugned law is not connected in a rational way to the scheme’s objective, the law will violate s. 121. A rational connection between the impugned measure and the broader objective of the regulatory scheme exists where, as a matter of reason or logic, the former can be said to serve the latter: see, e.g., RJR-MacDonald Inc. v. Canada (Attorney General), [1995] 3 S.C.R. 199, at para. 153, per McLachlin J. (as she then was), and at para. 184, per Iacobucci J. The scheme may be purely provincial, or a mixed federal-provincial scheme: Gold Seal; see also Reference re Agricultural Products Marketing Act.
[114] In summary, two things are required for s. 121 to be violated. The law must impact the interprovincial movement of goods like a tariff, which, in the extreme, could be an outright prohibition. And, restriction of cross-border trade must be the primary purpose of the law, thereby excluding laws enacted for other purposes, such as laws that form rational parts of broader legislative schemes with purposes unrelated to impeding interprovincial trade.
It seems to me that this standard is very deferential to provincial governments. It will catch protectionist measures other than tariffs, but only if they are blatantly and obviously protectionist. The court could have gone with a slightly broader standard than "primary purpose" and still not interfered too much with provincial power, but it went with a narrow vision instead. Only a small number of measures are likely to be at risk of violating Section 121.
Finally, it applies this standard to the provincial measure at issue here as follows:
VI. Application
[117] Does s. 134(b) of the Liquor Control Act contravene s. 121? We conclude that it does not. To reiterate, s. 134(b) provides:
134 Except as provided by this Act or the regulations, no person, within the Province, by himself, his clerk, employee, servant or agent shall
. . .
(b) have or keep liquor, not purchased from the Corporation.
[118] Our task is to determine if the essence and purpose of s. 134(b) is to restrict trade in liquor across New Brunswick’s border.
[119] The first question is whether s. 134(b), in its essence or character, functions like a tariff by impeding cross-border trade. Section 134(b), in conjunction with other provisions, makes it an offence to stock excessive amounts of liquor obtained from anywhere other than the New Brunswick Liquor Corporation. Liquor from the Corporation can be stocked for free, while liquor from elsewhere cannot, without running the risk of incurring a fine and having the alcohol confiscated. These penalties act to burden the cost of such liquor both directly and indirectly. First, the penalties imposed for stocking liquor purchased from outside the Corporation function to directly increase the cost of acquiring such liquor. Second, the risk of fine and confiscation indirectly acts as a general disincentive for New Brunswickers who would otherwise seek lower-priced liquor than that available through the Corporation, where it exists.
[120] By making people who stock liquor acquired from outside the provincial Corporation pay fines and thus more generally depriving them of cheaper goods, the law burdens the cost of the targeted liquor. If the authorities seize any liquor identified when a charge is laid under s. 134(b) — as occurred in Mr. Comeau’s case — the law, in practical terms, prohibits, and therefore completely bars access to, non-Corporation liquor. This prohibition functions like a tariff at the extreme end of the spectrum. With respect to out-of-province liquor, the liquor is not just prevented from being “admitted free”; it cannot be admitted at all.
[121] This restriction is related to a provincial boundary. Section 134(b) impedes liquor purchases originating outside of the provincial Corporation above a certain threshold. The law thus has two effects. The first effect is to restrict access to liquor from other provinces. The other effect is to restrict access to liquor within the province that is not controlled by the Corporation. But although the fine functions to restrict purchases of liquor from the black market within New Brunswick, this does not negate the fact that it also imposes a burden on bringing liquor across a provincial boundary. The presence of the first effect — restricting access to liquor from other provinces — is sufficient to establish that s. 134(b), in essence, functions like a tariff, even though it may have other purely internal effects.
[122] The next question is whether this restriction on trade is the primary purpose of s. 134(b). As discussed, the text, the effects and the legislative context assist in identifying the primary purpose of s. 134(b). Here, the text and effects are aligned and suggest the primary purpose of s. 134(b) is not to impede trade. Section 134(b) prohibits “hav[ing] or keep[ing]” liquor above a certain threshold “not purchased from the Corporation”. In effect, it restricts holding liquor obtained from non-Corporation sources within New Brunswick and restricts holding liquor from non-Corporation sources coming into New Brunswick. The text and effects of s. 134(b) indicate that its primary purpose is to restrict access to any non-Corporation liquor, not just liquor brought in from another province like Quebec. This is reinforced when one reads s. 134(b) in conjunction with s. 43(c), the provision that sets the maximum amount of allowable non-Corporation liquor that can be kept by someone within New Brunswick. The existence of a statutory threshold, as opposed to an absolute prohibition, suggests that the purpose of s. 134(b) is not to specifically target out-of-province liquor, but to more generally prevent defined quantities of non-Corporation liquor from entering the liquor supply within New Brunswick’s borders.
[123] This conclusion is confirmed when one considers the broader scheme of which s. 134(b) forms part — a scheme that governs New Brunswick’s capacity to regulate how liquor is managed within the province. The Liquor Control Act sets out diverse and extensive rules and prohibitions aimed at controlling access to liquor in New Brunswick. A companion statute, the New Brunswick Liquor Corporation Act, S.N.B. 1974, c. N-6.1 (now R.S.N.B. 2016, c. 105), establishes the province’s public liquor supply management monopoly. Together, these statutes set out a comprehensive and technical scheme to ensure that the liquor trade within the province is monitored. Section 3 of the federal Importation of Intoxicating Liquors Act, R.S.C. 1985, c. I-3, endorses provinces’ capacity to enact such schemes.
[124] The objective of the New Brunswick scheme is not to restrict trade across a provincial boundary, but to enable public supervision of the production, movement, sale, and use of alcohol within New Brunswick. It is common ground that provinces are able to enact schemes to manage the supply of and demand for liquor within their borders: Air Canada v. Ontario (Liquor Control Board), [1997] 2 S.C.R. 581, at para. 55, citing R. v. Gautreau (1978), 21 N.B.R. (2d) 701 (S.C. (App. Div.)). Governments manage liquor prices, storage and distribution with a view to diverse internal policy objectives. Although the Crown conceded that New Brunswick generates revenue from its legislative scheme, this is not the primary purpose of the scheme, but an offshoot of it. Finally, s. 134(b) is not divorced from the objective of the larger scheme. It plainly serves New Brunswick’s choice to control the supply and use of liquor within the province.
[125] We conclude that the primary purpose of s. 134(b) is to prohibit holding excessive quantities of liquor from supplies not managed by the province. New Brunswick’s ability to exercise oversight over liquor supplies in the province would be undermined if non-Corporation liquor could flow freely across borders and out of the garages of bootleggers and home brewers. The prohibition imposed in s. 134(b) addresses both. While one effect of s. 134(b) is to impede interprovincial trade, this effect is only incidental in light of the objective of the provincial scheme in general. Therefore, while s. 134(b) in essence impedes cross-border trade, this is not its primary purpose.
So this particular claim failed, but with the detailed reasoning now on the table, perhaps people will come up with creative ways to challenge other Canadian provincial regulatory barriers as being protectionist in a way that violates Section 121.