(Sub)national Economic Union: Institutions, Ideas, and Internal Trade Policy in Canada

Canadian internal trade policy illustrates the challenges that federalism can pose to economic union goals. Although the federal government played a critical role in bringing internal trade to the policy agenda, provincial and territorial governments have driven policy reform over the past decade. Drawing on both historical institutional and ideational approaches, this article argues that the political development of internal trade policy reflects the interplay between institutional real-ities and politically influential ideational elements. The decentralized nature of Canadian federalism led subnational governments both to establish policy that limited the role of the federal govern-ment and then, in the face of dominant beliefs about economic liberalization, to use the newly formed Council of the Federation to take a more active role on internal trade policy. One of the purposes of federal states is the establishment of economic unions, which are united by a common currency and the free movement of goods, services, and labor. Economic union goals are often constitutionally enshrined; indeed, as Bakvis, Baier, and Brown assert, ‘‘All federal constitutions provide for an economic union, with varying degrees of precision’ ’ (2009, 187). Yet while economic union may be central to the goals of federal systems, federalism itself can pose a challenge to the functioning of this union. Subnational governments (provinces, states, and/or territories) enjoy some degree of autonomy with respect to the functioning of their economies. This autonomy can lead subnational governments to act as economic competitors, vying against each other for assets such as financial capital, foreign investment, and skilled labor. Consequently, subnational governments may choose to enact economic develop-ment and other policies that benefit their own economies, even if such policies do not benefit the federation as a whole (Ontario 1981, 10; Craig and Sailors 1987). Federal governments may also pursue policy options that impede broader economic union objectives, such as regional development policies designed to address horizontal fiscal imbalance. In short, ‘‘the tension between politica