Canada needs to adopt more flexible monetary, trade and labour policies to remain competitive in the global marketplace, says the senior deputy governor of the Bank of Canada.

Paul Jenkins is calling for the removal of "internal barriers" that restrict the flow of goods, capital, services and labour between provinces.

"This is an area that is rightly attracting renewed attention, as differences in regional economic performance and shortages of skilled labour are becoming more pronounced, and as demographic challenges begin to intensify," Jenkins told the Vancouver Board of Trade in a recent speech.

He notes Canada needs more deals like the B.C.-Alberta and Ontario-Quebec trade and labour-policy agreements, signed earlier this year, in order to cope with economic shocks such as the 1997-98 Asian financial crisis - which reduced the country's dependence on manufacturing but increased its reliance on commodities like oil and gas - and the 9/11 terrorist attacks in the U.S., SARS and mad-cow disease.

Paul Jenkins

B.C.'s and Alberta's trade, investment and labour mobility agreement (TILMA), signed in April, is designed to strengthen enforcement and dispute resolution, and harmonize labour credentials and business regulations and standards by 2009.

"It's too early to say it's had an effect, since it's just been recently announced," Jenkins told reporters. "But it's an important step to take in terms of adding to that flexibility that I've talked about.

"The standardization of business regulations, the steps to enhance labour mobility - these will all be very beneficial to both provinces going forward."

Jenkins noted controversial "foreign-worker units" - strongly opposed by B.C. Federation of Labour president Jim Sinclair and other labour leaders - have already started operating in Vancouver and Calgary to facilitate the entry of foreign workers into Canada.

B.C. Business Council executive vice-president Jock Finlayson believes TILMA's biggest benefit will be greater mobility for architects, engineers, nurses, mechanics and other workers in B.C. or Alberta employed in regulated professions. In a written review of the deal, he said it is also the first interprovincial deal to include the energy sector in dispute-resolution rules.

"The B.C.-Alberta trade investment and labour mobility agreement is a welcome initiative that should strengthen economic and business linkages between the two provinces and stimulate the formation of a more integrated market consisting of Canada's two most dynamic economies," said Finlayson.

Citing Conference Board of Canada figures, Finlayson said TILMA could produce a $4.8- billion increase in real GDP and generate 78,000 new jobs in B.C.

The Ontario-Quebec pact allows "further, albeit limited" movement of construction workers between the two provinces, said Jenkins.

Recently, federal and provincial trade ministers agreed on an internal-trade action plan that addresses a range of issues.

According to a 2004 Canadian Chamber of Commerce survey, one-third of responding companies faced internal trade barriers, and more than half have decided not to proceed with plans to operate in another jurisdiction within the country.

Over the years, several efforts to remove internal barriers have met with "mixed and generally modest results," said Jenkins. He cited the construction industry's 45-year-old Red Seal program, which aims to standardize and recognize skilled-trades workers' credentials so they can work in different provinces.

Real estate developers, construction industry associations and other groups across the country have complained about provincial governments' refusal to recognize certifications from rival domestic and international jurisdictions - at a time when demand for skilled labour is increasing because of Canada's strong economy, a hot housing market, a shortage of younger workers entering the workforce, and a rise in Baby Boomer retirements.

The Vancouver Regional Construction Association has recruited workers on behalf of its members in Germany and the United Kingdom.

The Kelowna chapter of the Canadian Home Builders Association and its counterparts across the country are also calling on the federal Tories to adjust GST rebates to make housing more affordable for first-time homebuyers, implement a national human resources action plan for the residential construction sector, and "vigorously tackle" the underground economy through effective enforcement tactics.

Jenkins also singled out the 1994 federal-provincial internal trade agreement, designed to reduce barriers to the movement of goods, services, investment and labour, as an initiative that has failed to meet expectations.

"Despite considerable progress in Canada and elsewhere in maintaining macroeconomic stability, the growing integration of the world economy has made it clear that this is not enough," said Jenkins. "To enhance flexibility, raise the economy's growth potential and increase resilience to shocks, we also need structural reforms."

Such structural reforms include liberalized trade and labour policies and an "innovative, efficient and sound financial system that can provide specialized financing services competitively."

Export prices have risen sharply while import prices have dropped, creating a "major positive impact in terms of trade.”

But Jenkins warned the national economy will operate at near capacity through 2008, and the inflation rate will return to its former two-per-cent level in the second half of 2007.

Jenkins indicated the Bank of Canada decided Sept. 6 to keep its overnight interest rate - which commercial banks use as the guide when setting their prime rates - at 4.25 per cent because the global economy has continued to expand solidly despite some moderation in U.S. growth and Canadian economic activity in the second quarter was "somewhat below the bank's expectations, primarily because of weaker exports."

But on the same day he called for more economic flexibility, Statistics Canada reported Canadian labour productivity fell in the spring - for the first time in two years - and the International Monetary Fund (IMF) warned of a U.S. economic slowdown in tandem with a rising Canuck buck.

But the IMF has also predicted the Canadian economy will continue to grow at a rate of almost three per cent in the next two years. (Jenkins made a similar prediction during his speech.)

Meanwhile, economists are watching to see whether the central bank will tweak the 4.25-per-cent overnight interest rate during its next review in October.

Some observers have predicted a downturn in the U.S. economy will have a negative impact on Canada, its largest trading partner, now that Prime Minister Stephen Harper has agreed to sign the controversial softwood lumber deal.

But Jenkins said Canada has to consider the global economy as a whole.

"For Canada, when you think about commodity prices for example, you've got to really do the global add-up, you can't look at just what's happening in the United States," he said.

Although the U.S. economy is expected to slow down, Asia and Europe will pick up, he added.

Canada has done a better job of preparing for unforeseen disruptions to its economy than it did in previous decades, and the country is well positioned to handle future calamities given its public-sector savings program and individuals' savings levels, he said.

But reducing the debt-to-GDP ratio further will free up more funds to pay for government programs for aging Baby Boomers.

"Flexibility is important at all times and that flexibility is important to reacting to economic shocks of any sort," said Jenkins. "We're certainly not projecting a U.S. recession."

(Monte Stewart can be reached at monte@businessedge.ca)