Rules, Rules, Rules, Rules: Multi-Level Regulatory Governance 9781442679504

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RULES, RULES, RULES, RULES: MULTILEVEL REGULATORY GOVERNANCE

Studies in Comparative Political Economy and Public Policy Editors: MICHAEL HOWLETT, DAVID LAYCOCK, STEPHEN MCBRIDE, Simon Fraser University. Studies in Comparative Political Economy and Public Policy is designed to showcase innovative approaches to political economy and public policy from a comparative perspective. While originating in Canada, the series will provide attractive offerings to a wide international audience, featuring studies with local, subnational, cross-national, and international empirical bases and theoretical frameworks. Editorial Advisory Board JEFFREY AYKES, St Michael's College, Vermont NEIL BRADFORD, University of Western Ontario JANINE BRODIE, University of Alberta WILLIAM CARROLL, University of Victoria WILLIAM COLEMAN, McMaster University RODNEY HADDOW, University of Toronto JANE JENSON, Universite de Montreal LAURA MACDONALD, Carleton University RIANE MAHON, Carleton University MICHAEL MINTROM, University of Auckland GRACE SKOGSTAD, University of Toronto LEAH VOSKO, York University KENT WEAVER, Brookings Institute LINDA WHITE, University of Toronto ROBERT YOUNG, University of Western Ontario For a list of books published in the series, see page 373

EDITED BY G. BRUCE DOERN AND ROBERT JOHNSON

Rules, Rules, Rules, Rules Multilevel Regulatory Governance

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

www.utppublishing.com University of Toronto Press Incorporated 2006 Toronto Buffalo London Printed in Canada ISBN-13:978-0-8020-3858-6 ISBN-10:0-8020-3858-1

Printed on acid-free paper

Library and Archives Canada Cataloguing in Publication Rules, rules, rules, rules : multilevel regulatory governance / edited by G. Bruce Doern and Robert Johnson. Includes bibliographical references. ISBN-13:978-0-8020-3858-6 ISBN-10:0-8020-3858-1 I. Canada - Politics and government. 2. Federal government - Canada. 3. Intergovernmental fiscal relations - Canada. I. Doern, G. Bruce, 1942II. Johnson, Robert, 1968JL75.R842006

320.971

C2005-907522-8

University of Toronto Press acknowledges the financial assistance to its publishing program of the Canada Council for the Arts and the Ontario Arts Council. University of Toronto Press acknowledges the financial support for its publishing activities of the Government of Canada through the Book Publishing Industry Development Program (BPIDP).

Contents

Preface

vii

Abbreviations ix 1 Multilevel Regulatory Governance: Concepts, Context, and Key Issues 3 G. BRUCE DOERN AND ROBERT JOHNSON

Part One: Macro and Framework Regulatory Dimensions 2 Risks and Rewards: The Case for Accelerating Canada-U.S. Regulatory Cooperation 29 MICHAEL HART

3 Regulatory Policy: The Potential for Common Federal-ProvincialTerritorial-Policies on Regulation 52 ROBERT JOHNSON

4 Federal 'Related Science Activities' and Multilevel Regulation 80 G. BRUCE DOERN

5 Still between a Rock and a Hard Place: Local Government Autonomy and Regulation 101 CHRISTOPHER STONEY

6 Balancing Acts: Multilevel Regulation of Canada's Voluntary Sector 124 SUSAN D. PHILLIPS

vi Contents Part Two: Sectoral Regulatory Realms and Dynamics 7 Multilevel Regulatory Governance of Food Safety: A Work in Progress 157 GRACE SKOGSTAD

8 Investment, Trade, and Growth: Multilevel Regulatory Regimes in Canada 180 GEOFFREY HALE AND CHRISTOPHER KUKUCHA

9 Forest-Sector Regulation and Communities 209 KARINE LEVASSEUR AND STEPHANIE PATERSON

10 Intergovernmental Regulation and Municipal Drinking Water 234 CAREY HILL AND KATHRYN HARRISON

11 Municipal Wastewater Effluent and Multilevel Regulatory Governance 259 JEN SULKERS

12 The Alberta Oilpatch: Multilevel Regulation Transformed 283 KEITH BROWNSEY

13 Multilevel Regulatory Governance in the Health Sector 305 JOAN MURPHY

14 Regulating Risk: An Assessment of Canada's Multilevel Emergency Management Framework 325 PHIL GRAHAM AND CHRISTOPHER STONEY

15 Conclusions

348

G. BRUCE DOERN AND ROBERT JOHNSON

Contributors

369

Preface

This book is the product of a collaborative effort by the editors and the contributing authors initiated through the work of the Carleton Research Unit on Innovation, Science and Environment (CRUISE) in the School of Public Policy and Administration at Carleton University. It builds on other regulatory governance publications based on research at CRUISE and in the School (Doern and Wilks, 1998; Doern, Hill, Prince, and Schultz, 1999; Doern and Reed, 2000; and Doern and Gattinger, 2003). Initial drafts of the chapters, along with other commentaries, were presented at the CRUISE Conference on Multi-level Regulatory Governance in Canada held in Ottawa on 27 and 28 October 2004. In addition to the authors represented in this book, we were fortunate in securing the involvement of leading regulatory governance practitioners and academics, including Scott Jacobs of Jacobs and Associates (formerly with the OECD); Jayson Myers of the Canadian Manufacturers and Exporters; Dr Michael McConkey of the Institute of Public Administration of Canada; Denis Gertler of the Ontario Ministry of Labour; Ken Ogilvie of Pollution Probe; Professor Caroline Andrew, University of Ottawa; Dr Mark MacDonald of KPMG LLP in Toronto; Professor Douglas MacDonald, University of Toronto; T. Duncan Ellison of the Canadian Water and Wastewater Association; Daniel Schwanen of the Institute for Research for Public Policy in Montreal; and Professor Monica Gattinger, University of Ottawa. There was also insightful input from many others who attended the conference or who commented on draft chapters afterwards. Many thanks are due to all these individuals who gave unstintingly of their time and helped to make the book a better product. So also did

viii Preface

two anonymous assessors of our manuscript, who made extremely valuable and constructive comments. The research funding for this book and related regulatory policy research has come from a variety of sources, including the Social Science and Humanities Research Council of Canada; the Carleton Research Unit on Innovation, Science and Environment at the School of Public Policy and Administration; the Politics Department, University of Exeter; Natural Resources Canada; Environment Canada; Health Canada; and the Privy Council Office. We offer our thanks to all these institutions. G. Bruce Doern and Robert Johnson Ottawa, February 2006

Abbreviations

AIT APEC BSE CADRIS CAPP CAPSA CASA CBM CCIR CCME CEAA CEPA CFIA CFIS CITT CODEX CPHA CSA CSA CWWA DND EACSR EU EPA EUB FCM FDA

Agreement on Internal Trade Asia-Pacific Economic Cooperation Bovine Spongiform Encephalopathy (Mad Cow Disease) Canadian Adverse Drug Reaction Information System Canadian Association of Petroleum Producers Canadian Association of Pension Supervisory Authorities Clean Air Strategy Alliance Coalbed Methane Canadian Council of Insurance Regulators Canadian Council of Ministers of the Environment Canadian Environmental Assessment Agency Canadian Environmental Protection Act Canadian Food Inspection Agency Canadian Food Inspection System Canadian International Trade Tribunal Codex Alimentarius Commission Canadian Public Health Association Canadian Securities Administrators Canadian Standards Association Canadian Water and Wastewater Association Department of National Defence External Advisory Committee on Smart Regulation European Union Environmental Protection Agency (U.S.) Energy and Utilities Board (of Alberta) Federation of Canadian Munipalities Food and Drug Administration (U.S.)

x Abbreviations

FDI FSC FTAA GATS GATT GHGs GM GVWD HACIP IEC IOSCO IPO ISO ITAC KBE MFA MWWE NAFTA NAPPO NEB NEP NGOs NSB OCIPEP

OECD OIE OPEC OSFI PCO PMO PSEPC PSL R&D RIA RIAS RPMS RSA SAGIT SARS

Foreign Direct Investment Forest Stewardship Council Free Trade Agreement of the Americas GeneralAgreement on Trade in Services General Agreement on Tariffs and Trade Greenhouse Gases Genetically Modified Greater Vancouver Water District Hazard Analysis and Critical Control Point International Electrotechnical Commission International Organization of Securities Commissions Initial Public Offering International Standards Organization International Trade Advisory Committee Knowledge-Based Economy Multi-fibre Agreement Municipal Waste Water Effluents North American Free Trade Agreement North American Plant Protection Organization National Energy Board National Energy Policy (of 1980) Non-Governmental Organizations New Substances Branch (of Environment Canada) Office of Critical Infrastructure Protection and Emergency Preparation Organization for Economic Cooperation and Development International Organization of Epszootics Organization of Petroleum Exporting Export Countries Office of the Superintendent of Financial Institutions Privy Council Office Prime Minister's Office Public Safety and Emergency Preparedness Canada Priority Substance List Research and Experimental Development Regulatory Impact Analysis Regulatory Impact Analysis System Regulatory Process Management Standards Related Science Activities Sector Advisory Group on International Trade Severe Acute Respiratory Syndrome

Abbreviations xi SIMA SLDF SPS SROs TBT TPP TRIMS TRIPS TSA VDD WHO WTO

Special Import Measures Act Sierra Legal Defence Fund Sanitary and Phyto-Sanitary Measures Self-Regulation Organizations Technical Barriers to Trade Therapeutic Products Program Trade Related Investment Measures Trade Related Intellectual Property Rights Timber Supply Areas Veterinary Drugs Directorate World Health Organization World Trade Organization

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RULES, RULES, RULES, RULES: MULTILEVEL REGULATORY GOVERNANCE

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1 Multilevel Regulatory Governance: Concepts, Context, and Key Issues G. BRUCE DOERN AND ROBERT JOHNSON

This book examines, in a North American and global context, the broadening and changing nature of multilevel regulatory governance in Canada. The title's focus on 'rules, rules, rules, rules' means that the first purpose of the analysis is to clarify conceptually the nature, causes, and dynamics of levels of regulatory governance in, or affecting, Canada. Multilevel regulation involves interacting, reinforcing, and colliding rule making and governance at the international, federal, provincial, and city/local community levels. The second purpose of the book is to contribute practically to the debate on what kinds of principles and institutional approaches and changes can resolve or lessen the problems of multilevel regulatory governance. This is a task that necessarily consists of assessing changes and choices in relation to democratic values such as accountability, transparency, and legitimacy as well as economic and social factors such as efficiency, innovation, competitiveness, and health and environmental safety. Building on earlier literature on Canadian and comparative regulation, our book is the first to provide an integrated discussion of these key political-institutional issues in Canada through a broad but structured study of the multilevel regulatory interactions that Canada must manage and function within* This introductory chapter sets out the editors' view of the contextual and conceptual basis for examining multilevel regulatory governance. The book is then divided into two parts. Part I involves analysis at an overall, macro regulatory governance level and Part II consists of case studies of several regulatory sectors. The first six chapters cover various linked macro perspectives and issues. Chapters 2,3, and 4, respectively, examine international regulatory cooperation (particularly regarding the United States), federal-provincial-territorial regulatory policies and

4 G. Bruce Doern and Robert Johnson

potential convergence, and the role of federal science in multilevel regulation. Chapters 5 and 6 complete the macro picture through analyses of local government in multilevel regulation and also the regulation of the extensive voluntary sector of Canadian society. Chapters 7 to 14 in Part II of the book shift the focus to various sectoral realms where rule making spans and involves all or most of the four levels of jurisdiction. The regulatory governance case studies in the book were chosen because they cover areas of both economic and social regulatory governance and because they contain rule making that extends both upwards to international levels and downwards to provincial and city/community levels. Thus, chapters are devoted to food safety, investment and trade, forestry (with a focus on communities), drinking water, wastewater effluents, oil and gas, health-sector product regulation, and emergency management. While sectoral developments are driven by many of the larger macro forces, they also contain dynamics of their own which can in turn influence the way the macro context is seen and changed. Chapter 15 then offers the editors' conclusions about the analysis in the book as a whole and about multilevel regulatory governance in practice. We advance conclusions on five overall issues, choices, and trade-offs inherent in the new economic, social, and democratic realities of multilevel regulatory governance. First, we elaborate on the question of whether Canada should adopt a more active approach to regulatory cooperation with the United States. This is the key argument advanced by Michael Hart in chapter 2, and, within the context of current debates about a possible 'NAFTA plus' - that is, an expanded North American Free Trade Agreement - it is one of the main issues before the federal government and other governments in Canada as well. Second, we deal with the theme of smart regulation, the key features of which are set out below in this introductory chapter. In particular, we examine whether smart regulation is a seamless paradigm under which governments can pursue a host of public interest purposes (innovation and product access and health and safety simultaneously), or, rather, whether it is naively optimistic about the complex realities of multilevel governance. Third, we analyse the related issue of the norms, principles, and mechanisms involved in multilevel regulation, a subject introduced below and explored further in both the macro and sector-focused chapters. This subject includes principles such as harmonization and mutual regulation and mechanisms such as formal agreements for cooperation and memoranda of understanding. Finally, we reflect on the conceptual

Concepts, Context, and Key Issues 5

basis of multilevel regulatory governance as a framework. We consider how 'levels' emerge not only from normal legal/constitutional levels of government but how they come to the foreground as a result of pressures, advocacy, and new governance architecture, as well as through specific political controversies and their diverse interpretations. We also focus on four further kinds of levels: spatial levels from the urban to the global; levels of rule making versus levels of compliance; types of rules, in short, levels of 'hard' versus 'soft' laws; and levels and networks. Finally, we look at the horizontal versus sectoral realities and determinants of multilevel regulatory governance. The central theme in the book is that the pressure to merge, collapse, or rationalize levels of regulation is driven mainly by business interests, ideas of efficiency and liberalized trade, and related technological changes including the Internet. It is also closely tied to long-standing concerns about Canada's declining productivity compared to the United States and about the costs of regulation, as well as to newer concerns about the so-called cumulative regulatory burden. In a post 9/11 era, issues of security and terrorism and thus border issues are interwoven with these core business and economic concerns. This overall pressure often manifests itself in the call by commercial interests and other advocates to end the 'tyranny of small differences' (between countries, provinces, and so on). But this analytical theme must be juxtaposed against other interpretations which focus on the pressures and values of democratic governance at each of the levels of regulation. The growing pressure of non-governmental organizations (NGOs), civil society, and Aboriginal communities operating at all levels of regulatory governance are also central to the analysis in the book as a whole, as are the inevitable issues of inherent institutional inertia and failures to learn and adapt to new fast moving political-economic circumstances. To set the context and analytical base for the more detailed chapters to come, the remainder of this introductory chapter is organized into three sections. The first section sets out some key definitions and contextual starting points. The second looks at the federal smart regulation agenda as the dominant recent discourse and approach on regulation in Canada, but it does so in terms of other ways in which regulation has been studied and debated in the past. As a key context for later chapters, we pose a basic question: If smart regulation is the latest paradigm, what ideas is it replacing or building upon? This question needs to be asked to show why a formal multilevel regulatory governance frame-

6 G. Bruce Doern and Robert Johnson

work is necessary but also how it still builds on and includes some of these earlier cumulative views. The third section examines the more immediate context for changes in multilevel regulation, including issues such as growing business concerns about regulatory costs and competitiveness; the debate about the productivity gap between Canada and the United States; the pressure of NGOs and civil society and related concerns about trust and transparency in regulatory governance; and the extended advocacy of key principles and mechanisms to address multilevel governance challenges and problems. Core Definitions and Contextual Starting Points One basic definition of regulation is that regulations are rules of behaviour backed up by the sanctions of the state (Doern, Hill, Prince, and Schultz, 1999). However, such rules are variously expressed through laws, delegated legislation (or the 'regs]), guidelines, codes, and standards and thus there are levels and many types of rule making even in the core definitions of regulation. Guidelines and codes, for example, are often seen as realms of 'soft law' or rule making in the shadow of the law. The chapters in this book, such as those that deal with local government (see chapter 5 in particular), show that multilevel regulation includes rules that are imbedded in the transfer of funds from one level of government to another, so-called conditional grants or levered-partnered funding. Regulation is a key instrument of policy making but it is, in the above ways, increasingly linked to the use of complex mixes of instruments including spending, taxation (rules about revenue collection from individuals and corporations), and persuasion (Eliadis, Hill, and Hewlett, 2005). The book also deals with the governance of regulation and the various institutional forms it takes. Such governance regimes increasingly involve a series of joint actions between the public and private sectors, including various kinds of self-regulation by the professions (Jordana and Levi-Faur, 2004; Moran, 2003). A focus on regulatory governance recognizes that regulation has to be conceived as rule-making processes, outputs, and outcomes that can emerge from varied top-down, bottom-up, and negotiated processes within the state, among states, among provinces and cities, and among economic and social interests. Rooted mainly in the disciplinary context of political science and public policy, the book is premised on a recognition that multilevel regulatory governance has in one sense always been an issue in any

Concepts, Context, and Key Issues 7 kind of political system (Ayres and Braithwaite, 1992; Majone, 1994, 2002). It has certainly always been a central feature of Canadian and comparative federalism where challenges regarding both regulatory competition and cooperation among national and provincial governments are well documented (Harrison, 1996; Bakvis and Skogstad, 2002; Burgess, 2000; Doern and MacDonald, 1999). Whereas it was once common to think of regulatory levels mainly in terms of federal and provincial jurisdictions, it is now essential to take account of the international levels of regulation and dispute settlement both in trade and in various sectoral realms (Radaelli, 2004). It is also essential, as in this book, to examine local or city-metropolitan rule making where front-line and spatial/regional competences and jurisdiction are crucial and increasingly linked to all the other senior levels of regulation (Bradford, 2004; Bourne and Simmons, 2002; Andrew, Graham, and Phillips, 2003). To this can be added new realms of Aboriginal governance and rule making as well as the levels' that arise from shared public and private regulation, self-regulation, and new definitions of space and territory (such as ecosystems) that produce rules and levels which do not obey conventional national, provincial or international, and local boundaries and jurisdictions. Regulatory coordination problems among departments and agencies of a single government such as the federal government are not technically an issue of 'levels' of government, but most citizens may see such problems in this light simply because they do not always know that they are dealing with a single level of government. Multiple levels of rule making and the potential and actual challenges and problems of coordination and congestion that they create are viewed by many economic interests as an inhibitor of economic growth, efficiency, and innovation both in global markets and in 'internal markets' (Doern and Macdonald, 1999). But such levels are also arenas and avenues to experiment with new solutions and to pursue health, safety, environmental, and fairness-related public interest purposes (Palast, et al. 2003). In addition, they have the potential both to strengthen and to weaken democratic accountability/trust, transparency, and legitimacy (Flinders, 2002; Doern and Gattinger, 2003). Multilevel regulatory governance is a part of the larger study of multilevel governance. Multilevel governance has emerged as a distinct subject largely because the conventional approaches to understanding politics - national politics, comparative politics, and international relations among states - simply do not capture adequately the kinds of

8 G. Bruce Doern and Robert Johnson

politics and governance extant in the early-twenty-first-century world (Bache and Flinders, 2004). The formation and extension of the European Union (EU) has been the critical catalyst in making us think about multilevel governance on its own terms rather than as national politics, comparative politics, and international relations (Heritier, 2002). NAFTA has had some similar effects in North America but obviously not on the same scale or involving the same depth of change (Hoberg, 2002). The Smart Regulation Agenda and the Changing Nature of Regulation and Regulatory Analysis With these initial features of multilevel regulation as a foundation, we now turn to key issues in how the study and practice of regulation has changed in the last two decades. The current conceptual focal point for discourse and analysis is the federal government's 'smart regulation' agenda and paradigm. We need to understand what this paradigm is and what earlier or related paradigms it is seeking to replace or complement. Accordingly, we first set out the origins and nature of the smart regulation agenda and then compare and contrast it with earlier diagnoses of regulatory issues. Both tasks are necessary to appreciate multilevel regulation in the book as a whole. We argue here (and in chapter 15's conclusions to the book) that, while smart regulation legitimately attempts to reconcile its core logic with the values of economic efficiency, innovation, democratic accountability, and other public interest purposes (health, environment, safety), it overlooks the inherent tensions and potential trade-offs that these entail in multilevel regulatory governance. The Smart Regulation Agenda

The federal Liberal smart regulation agenda was announced in the 30 September 2002 Speech from the Throne and work on the initiative was then guided and advised by a multi-stakeholder External Advisory Committee on Smart Regulation (EACSR), composed of business, environmental, consumer, and Aboriginal representatives, which reported in the fall of 2004. The rationale for the initiative was initially stated by the Chretien government as follows: The knowledge economy requires new approaches to how we regulate. We need new regulation to achieve the public good, and we need to regulate in a way that enhances the

Concepts, Context, and Key Issues 9

climate for investment and trust in the markets. The government will move forward with a smart regulation strategy to accelerate reforms in key areas to promote health and sustainability, to contribute to innovation and economic growth, and to reduce the administrative burden on business/1 The Throne Speech statement then went on to refer to a number of regulatory realms that would be a part of the reform initiative. These included intellectual property rules, rules regarding the human genome and cloning, copyright rules, drug approvals, research involving humans, the Canadian Environmental Assessment Act, a single window for projects such as the northern pipeline, the Agricultural Policy Framework, Canada-United States 'smart border' needs, and capital market and securities regulation. The smart regulation initiative found its way into the Throne Speech and thus into a recognized high-priority status as a result of several pressures. One was certainly the federal innovation strategy paper that had emerged earlier in 2002 and whose consultation processes had generated numerous areas in which current kinds of regulation were seen as obstacles to innovation (Canada, 2002). There were also some areas where, it was thought, insufficient regulation could be a bar to progress. So the notion that regulation had to be 'smart' or 'smarter' than in the past certainly emerged from the innovation debate. But, of course, there were also separate pressures emerging from the departments and stakeholder groups concerned with all the more specific areas of regulation cited above. Interestingly, the EACSR report of 2004 begins by defining what smart regulation is not. It 'is not deregulation' because 'smart regulation does not diminish protection, as some may fear. It strengthens the system of regulation so that Canadians can continue to enjoy a high quality of life in the 21st century. The committee believes regulation should support both social and economic achievement' (EACSR, 2004: 9). When raising the question of what are the consequences of nonaction in smart regulatory reform, the EACSR argues that an absence of change will limit Canadian's access, for example, to new medications, cleaner fuels and better jobs. An outdated system is an impediment to innovation and a drag on the economy because it can inhibit competitiveness, productivity, investment and the growth of key sectors' (EACSR, 2004,10). With respect to the forces driving the need for regulatory change, the EACSR stresses three factors:

10 G. Bruce Doern and Robert Johnson 'First, the speed of modern society has resulted in an explosion of new technologies ...' 'Second, policy issues are increasingly complex. Boundaries between once distinct areas and disciplines have become blurred ...' "Third, public expectations of government have risen ...' (EACSR, 2004,10) Then and only then does the EACSR go on to define smart regulation in terms of its three characteristics: 'Smart Regulation is both protecting and enabling ...' 'Smart Regulation is more responsive regulation [and] must be selfrenewing and keep-up with developments in science, technology and global markets...' 'Smart Regulation is governing cooperatively for the public interest ...' (Ibid., 12-13) With this smart regulation strategy at its centre, the EACSR examines key features of Canada's regulatory system and also five case study sectors or realms of regulation and then makes seventy-three recommendations. Some are cast as immediate actions and others as longer term in nature. A central thrust of the recommendations is for greater regulatory cooperation with the United States, especially in situations where there are only small differences in regulations and approaches. The EACSR report is also careful to emphasize that the public interest in regulatory matters involves both social/health/environment and economic matters. Hence the smart regulation concept embraces both 'protecting and enabling' - 'enabling' being the code word for commercialization and new, innovative products - and 'responsiveness' to the needs of business and the competitive situations they face. And, in turn, governing 'cooperatively' connotes the new modus operand! to achieve public purposes through various governance arrangements (as opposed to command and control regulation - see below). Earlier Historic Ways of Debating and Assessing Regulation

If this is the essence of the smart regulation paradigm and agenda, what was it seeking to replace or complement? Space does not permit a full account of past debates and diagnoses of regulation but a summary view of other earlier or related key ways of viewing and critiquing

Concepts, Context, and Key Issues 11 regulation is important both to appreciate where smart regulation may be different and where it is complementary. Thus, we briefly survey regulatory reform, deregulation, and reregulation; the issue of so-called command and control versus 'incentive-based' and 'flexible' regulation; and risk-benefit assessment and management concepts and related issues centred on the precautionary principle. The chief links between each issue and development are noted as well. Regulatory reform refers to various past initiatives to reform overall regulation on a periodic basis every decade or so. The last major reform in the 1980s was combined with various particular actions leading to deregulation in specific sectors such as telecommunications and transportation but also rergegulation in such sectors (Hill, 1999; Stanbury, 1992,2000). Focused reform efforts occurred in the mid-1980s under the Mulroney Conservative government and, in milder forms, in the late Conservative and early Liberal governments of the 1992-3 period. Both of these sought to reform regulatory decision processes and deregulate to some extent, and both urged a search for non-regulatory alternatives before pursuing regulation as a policy choice (see chapter 3). Economic values and ideas were certainly a part of these reform exercises but it is fair to say that neither was driven by the full-blown innovation-new economy paradigm per se that has marked the 'smart regulation' agenda described above. Command and control versus flexible, incentive-based, and performancebased regulation involved the general effort in the 1980s and 1990s to move from command and control regulation, the approach said to be dominant in the previous four or five decades as a whole, to more flexible incentive-based and performance-based forms of regulation, including guidelines, codes, and standards (Ayres and Braithwaite, 1992). Command and control regulation implied too many and too detailed input or process-oriented kinds of rule making, a sort of 'one size fits all' approach, even though industries, firms, communities, and individuals faced numerous diverse situations and contexts. There were and still are many reasons for this effort to change the approach to regulation (for example, business pressure and budget cutbacks) but there is also a sense that the new approach must be an inherent part of the logic of practical situations. Incentive-based regulation recognizes explicitly the complex cost and production situations that different firms and industries (and consumers) face. The growing presence and importance of trade rules has also resulted in rule making that is premised on regulating outputs and performance rather than under pre-

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scriptive detailed command and control rules (Vogel, 1998; Sparrow, 2000). In the last decade, governments have been leading or encouraging initiatives which, by their very nature, rely on non-regulatory and non-statutory processes and which seek to work patiently through diverse marketplace stakeholders. Several initiatives of this type have been launched and followed through on. One has been a process for examining and promoting the greater use of voluntary codes as a complementary instrument of consumer and marketplace reform (Webb, 2004). Voluntary codes are non-legislatively required commitments developed by state and non-state actors. In some cases, firms, industry associations, and NGOs devise their own codes of behaviour on products and production processes and then ensure their public monitoring. In other cases, government agencies are involved in both the drafting and the monitoring of activities. The need for codes as a preferred or complementary tool of rule making was also becoming more evident under the impetus of 'e-commerce' and the general development of the Internet. This was because codes were often a faster way to respond to marketplace change involving global or cross-national commerce. Normal international lawmaking and regulation simply took too long and hence progress could be made through codes and related approaches. The federal government also had to respond to, take part in, or monitor initiatives that were emerging from other stakeholders, including environmental and consumer NGOs. These groups were increasingly launching their own standard-setting and code-development processes in competition with official state-sponsored processes and then using market forces to generate support for their preferred code or market outcome (Stanbury 2000). In the 1990s regulation also came to be debated more explicitly in terms of concepts of risk assessment and risk management, especially in the broad realm of health, safety, and environmental rule making. This refers to a large set of regulators and their regulatory clientele whose activities are dependent on science-based regulation or on sound science and also on ideas centred on the precautionary principle (Doern and Reed, 2000; External Advisory Committee on Smart Regulation, 2004). Federal science-based departments engaged in regulating health, safety, and environmental regulation all have basic versions of a decision framework for identifying, assessing, and managing risks. For example, Health Canada's framework consists of stages /cycles of decision making which include identifying the issue and its context; assessing risks and benefits, identifying and analysing options; selecting a strategy (a

Concepts, Context, and Key Issues 13

risk management plan); implementing the strategy; and monitoring and evaluating results. At all or most of these stages, the need to engage in risk communication is essential since each stage involves two-way and interactive communication with interested and affected parties and the media. The entire process is to be science-based or, as often expressed in trade agreements, based on sound or objective science. The emphasis on sound science in trade regimes and other decision processes was also increased when the concepts of the precautionary approach and /or the precautionary principle were advanced in various ways through environmental regime pressures and initiatives. Precautionary concepts were often suspect in trade circles because they could easily amount to a relaxation of the norm of sound science or indeed would become the proverbial 'mack truck' clause that would drive right through trade agreements. Precaution implied that some decisions could be made even in the absence of such science where there were reasonable concerns that observed hazards might produce irreversible effects unless some preventative action was taken. The precautionary principle gradually appeared in many international protocols and in several federal statutes such as the Oceans Act, the Canadian Environmental Protection Act, and commitments regarding biodiversity. While each of the above features of regulatory study and practice have been presented in historical terms, few if any of these issues and debates have left the scene. Thus, when one implies that the smart regulation agenda is now the dominant paradigm and discourse, it is not clear exactly what it is replacing. Smart regulation is different from deregulation and earlier reform agendas in that, as we have seen, it is much more informed by innovation agendas and notions about the knowledge-based economy and rapid technological change. But smart regulation does sweep into its conceptual arms many of the basic notions of incentive-based, flexible, and risk-benefit regulation. In this sense it is not replacing earlier concepts but rather is complementing them and /or layering itself on top of them. The Immediate Context of Multilevel Regulation Several of the chapters in the book relate their analyses of multilevel regulation both to the smart regulation agenda and to some of the predecessor and complementary aspects of regulatory analysis. But even these analytical features do not convey fully what is driving the

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concerns about multilevel regulation per se. Accordingly, the aim of this final section of the chapter is to draw out some other related and more immediate forces pertaining to multilevel regulatory governance in the present period. These centre on: growing business concerns about regulatory costs and competitiveness; the debate about the productivity gap between Canada and the United States; trust and transparency in regulatory governance; and the extended advocacy of key principles and mechanisms to address multilevel governance challenges and problems. Growing Business Concerns about Regulatory Costs and Competitiveness

Concerns about the effects of regulation on the economy have been an impetus for reform for some time but two powerful ideas have become an ever larger part of mainstream thinking. One is that, while regulation confers benefits, it also results in (compliance) costs to citizens and businesses which ultimately may have negative effects on the economy (Doern et al. 1999). Second, and as a logical consequence, the effects of these costs - or regulatory burdens - should be minimized as much as possible with the search for, and use of, alternative, less intrusive instruments such as self-regulation, voluntary standards, market-based incentives, and so on. As our review of regulatory analysis showed, these have been advocated for some time and are now well-established best practices in many countries of the Organization for Economic Cooperation and Development (OECD) (OECD, 1995). Indeed, as the OECD notes, one of the successes in Canada vis-a-vis many other OECD countries is the reduction in 'regulatory inflation' since the late 1970s (OECD, 2002b: 13). The link between the benefits and costs of regulation and national competitiveness and innovation comes out of these core concerns. Over a decade ago, a report of the subcommittee of the House of Commons Standing Committee of Finance, entitled Regulation and Competitiveness, prominently featured concerns about regulation and Canadian competitiveness and, to a lesser extent, innovation within a global marketplace (House of Commons, 1993). If there is a difference in perspective in the current smart regulation agenda compared to previous regulatory reform efforts, it lies in the much stronger emphasis on the United States as a reference point for Canadian competitiveness and prosperity

Concepts, Context, and Key Issues 15

after a decade of NAFTA and much greater continental integration. The rapid increase in Canada-U.S. trade is an obvious driving factor. While debates over the relative decline of east-west versus north-south trade linkages are still ongoing (Helliwell et al., 2001; Courchene, 2001), the fact that 80 per cent of exports are destined for the United States looms large in considerations of 'made in Canada' regulatory solutions. Anew argument about the costs of 'made in Canada' regulation is that even small regulatory differences will inhibit the cross-border movement of goods and services and therefore hamper Canadian economic growth (see Michael Hart's analysis in chapter 2). In addition, security, health, and environmental concerns have obvious links to cross-border movement of people, goods, and services as well, in ways that were scarcely on the radar screen a decade ago. The Smart Border Declaration is a crucial post-9/11 example of attempting to reconcile economic and security imperatives by effectively tiering border traffic into different levels based on assessments of risk. In this regard, the EACSR smart regulation agenda can be seen as a direct extension of this approach. Since the EACSR report, Prime Minister Paul Martin has also signed on to Security and Prosperity Partnership of North America (SPP), announced in Waco Texas in March 2005 by the three leaders of the United States, Mexico, and Canada. Dealing with both security and trade, this agreement contains a number of provisions for enhanced integration and planned regulatory cooperation in fields such as energy, borders, security, agriculture, and food safety (Prime Minister's Office, 2005). The Canada-United States Productivity Gap The second immediate economic driving factor is the greater open discussion of the long-standing issue of the productivity gap between Canada and the United States (Conference Board of Canada, 2004; Canada, 2002). Here, regulation is seen in terms of traditional regulatory burdens (administrative costs, compliance costs, and so on), with the potential to accumulate with levels of government. Thus, the 2002 OECD country report on regulatory reform in Canada states that 'Canada [needs] to continue its vigilance to ensure that regulation does not hamper innovation and productivity growth' (OECD, 2002a: 15). The report follows with a caution that federal-provincial-territorial regulatory coordination remains a key issue, especially in the area of interprovincial barriers to trade. The most recent OECD report (2004) echoes these conclusions, noting that the GDP per person is 18 per cent lower in Canada than in the

16 G. Bruce Doern and Robert Johnson

United States. However, the report also points out that, in areas like income inequality, child poverty, crime, and life expectancy, Canada's record is much better than that of the United States. Similarly, the Conference Board of Canada's latest Performance and Potential report (2004) is able to break down productivity gaps by sector to an average of 18 per cent, but it also highlights the undesirable consequences that efficiency gains may produce in certain sectors like retail sales. What the report terms the 'Wai-mart' effect (a decrease in wages and benefits, job insecurity, urban sprawl, and loss of small business) illustrates 'the productivity dilemma ... [which] is to balance policies that foster a competitive climate - known to drive the productivity growth - with policies that promote social, environmental and fair labour practices that respect people and community life' (quoted in Globe and Mail, 5 October). Such unintended consequences may not adequately be taken into account in traditional considerations of regulatory impediments and losses in economic efficiency, since these reflect the simple fact that we 'do not have prices for many of the unpriced social or environmental impacts of decisions taken within the economic sphere that have broader effects' (Prince, 1999: 204). Still, the Conference Board of Canada report (2004: 15) stresses the negative effect of excessive regulation on foreign investors' perceptions of Canada, noting 'the time it takes to work through the regulatory process, especially when there are different levels of government involved/ In the same spirit, the EACSR (2004: 26) identifies federalprovincial-territorial cooperation as one of the main areas for regulatory improvement, stating that '[n]on-cooperation increases costs and limits opportunities for both consumers and businesses. Industry representatives underscored that Canadian firms need a national regulatory system that is more predictable, timely and efficient if they are to succeed in a competitive international market.' The impetus for domestic harmonization or simple coordination of rules, then, is seen to be a result of extant continental and global economic pressures as well as supranational levels of rule-making authority that can challenge domestic rule making. According to the EACSR, a decrease in Canadian regulatory requirements is necessary since these are increasingly ineffective in global markets. Trust and Democratic Choices

Growing concerns about trust and regulatory choices being made in the public interest matter too. As our authors' general and case study

Concepts, Context, and Key Issues 17

chapters show, much of the concern for these core values sterns from NGOs, the voluntary sector, civil society, and Aboriginal peoples, but, in addition, local interests have also played an important role in their focus on issues such as forestry, drinking water, and wastewater. This is a significant change compared to regulatory reforms undertaken just a decade ago, when the strengthening of accountability 'upwards' to politicians was still a major point of contention (Hill, 1999). The accumulation of very real political, economic, and environmental failures is one important driver of concerns about public institutions and regulatory systems (Orsini, 2003; Doern and Reed, 2000) as well as about sovereignty (vis-a-vis foreign governments but also among governments within Canadian federalism). Disasters like hepatitis C, the collapse of the Newfoundland cod stocks, Walkerton, SARS, BSE, and the August 2003 cross-border electricity blackout come to mind, but so do politically elevated issues like the gun registry and Liberal advertising controversies. Meeting public expectations is difficult. While regulatory success is usually ignored, regulatory failure is a news story (Mendelsohn, 2003). The importance of these issues can be shown with a discussion of the EACSR agenda, since trust and legitimacy are the sine qua non for compliance with regulatory solutions to public problems. The EACSR notes that cooperation and collaboration between governments is necessary because, as with SARS and other public health emergencies, many issues can be effectively dealt with only through collaboration. If the EACSR agenda is set within an innovation-cum-competitivenesscum-public trust paradigm to a greater extent than previous regulatory reforms in the early 1990s, and this within an era of deepening market integration, it is fair to ask, whether these goals are easily reconcilable with sovereignty, democracy, and constitutional concerns, on the one hand, and efficiency and democracy, on the other. In this respect, four observations need to be made. First, sovereignty, democracy, and constitutional concerns continue to figure large in relations between multiple levels of government, especially in a federation, necessitating the coordination of divided and overlapping constitutionally designated areas for regulation making (for example, environment, agriculture, fisheries) whether or not one level of government has paramountcy. This also includes new 'grey' areas (e.g., labour markets, the Internet). It is not surprising that domestic harmonization initiatives between the two levels of government over the last decade have been very slow in a number of areas, despite a number of institutional multilevel mechanisms (OECD, 2002a: 16; EACSR, 2004). In Canada,

18 G. Bruce Doern and Robert Johnson

broad-scale efforts to harmonize have been pursued through the traditional institution of first ministers' meetings, as in the case of the multilateral Agreement on Internal Trade and the Social Union Framework Agreement (Doern, 1999; Biggs, 1996; Mclntosh, 2002). Efforts have also been pursued sectorally through federal-provincial ministerial councils, leading to the Accord on Environmental Harmonization. Partial harmonization efforts can be pursued sectorally as well through bilateral agreements between the federal government and provinces and territories, whether of a performance-based nature like the Labour Market Development Agreement or the more cooperative efficiencies sought in Agreements on Environmental Assessments (Klassen, 2000). Of course, there are a host of less formal mechanisms between levels of government (e.g., federal-provincial-territorial advisory councils), voluntary codes, and capacity-building initiatives (see below). Second, multilevel regulatory governance can imply, at a minimum, twelve or thirteen jurisdictions of government regulation. The recent compromise on a mutual recognition agreement ('passport system') for securities regulation between provinces and territories in Canada, with the exception of Ontario, is a good example of this, capturing the tensions between efficiency and sovereignty. While the creation of a single regulator and therefore a single set of securities regulations encompassing all the provinces and territories was the preferred, 'efficient' option for business in its efforts to achieve a level playing field to attract investment, giving up sovereignty was not an option for any of the provinces apart from Ontario. The Globe and Mail paraphrased the Quebec minister of finance, who 'bluntly stated that any attempt to create a single regulator is likely doomed to fail... Quebec is opposed to giving up its authority over securities markets and a majority of his colleagues in other provinces feel the same way' (Globe and Mail, 1 October 2004:1). Third, these constitutional and sovereignty concerns are intricately linked with the principles of bottom-up accountability in parliamentary democracy. It is instructive to remember that the federal and provincial governments are formally accountable not to each other but to separate if overlapping electorates. The effects of supranational levels of rule making and adjudication can conflict or confuse accountability structures within Canada. This is one reason why the EACSR calls for the inclusion of provinces and territories in international negotiations that may affect their regulation-making powers, as well as to ensure that they adhere to international obligations (EACSR, 2004, 27).

Concepts, Context, and Key Issues 19

From a broader perspective, this implies that there are tensions and trade-offs between global market and internal market efficiency and democratic legitimacy and accountability. Skogstad (2002: 4) captures these trade-offs and tensions well with reference to the regulation of genetically modified foods in the EU: 'Market integration goals can only be promoted by risk regulation policies that meet democratic standards of public accountability. At the same time, initiatives towards 'democratizing' EU GMO regulatory policies have the possibility to frustrate the very goals of economic competitiveness and integration that reforms are intended to promote. The second conundrum is the difficulty of simultaneously meeting standards of internal and external legitimacy. This legitimation challenge arises because of the need to secure compatibility of regulatory frameworks across countries and regions if market integration goals are to be advanced globally/ Finally, there remains the ultimate question of who will be accountable when things do go wrong. The EACSR's vision for the new Canadian regulatory strategy is based on a vision of trust, innovation, and protection, but it also demonstrates a fragile yet necessary relationship among these three elements. As Pal and Maxwell (2003: 2) argue, for example, 'as markets become more global and more competitive, and as technology makes the product cycle shorter and shorter, regulatory authorities around the world and in Canada are asking themselves what the appropriate balance should be between bona fide regulatory objectives such as protecting the public from harm and encouraging (or at the very least, not unduly impeding) innovation and productivity (which also benefits the public)/2 To be fair, the issue of reconciling trade-offs is not wholly ignored in the EACSR report when it comes to managing the regulatory system. As in all systems, a key issue in improving the regulatory system will be balance. It is inevitable that the design and execution of the regulatory process will reflect competing objectives and interests. Timely decisions and an affordable process are valued, but so is consultation and improved analysis. More public and parliamentary involvement is desirable, but the process should avoid gridlock and delays in dealing with important public policy issues. Flexibility is another desirable attribute, but so is predictability and equitable treatment' (EACSR, 2004, 29). Besides a much greater emphasis on reconciling competitiveness, innovation, and public trust in the new environment compared to previous major regulatory reform initiatives, the smart regulation vision embodied in the EACSR report has much greater resonance with the

20 G. Bruce Doern and Robert Johnson

'new governance' paradigm. This is logical and is reflected in the concept of governing 'cooperatively' outlined above, since the opportunities and risks from greater market integration and increased public expectations outlined in the report are complex and multifaceted, with the consequence that government is unable to deal with them alone (Rentier, 2002). From a normative perspective, the new governance also 'reflect[s] the need to move beyond the ideologies of the small state toward a more positive and proactive view of the state in cooperation with society' (Jacobs, 1999: 10). In turn, it also implies the use of less coercive instruments (Pierre and Peters, 2000:12). Finally, the influence of the new public management is visible in performance measurement and reporting as new forms of accountability not only 'up' to political authority but also outwards to the general public and to firms, NGOs, and interest groups. The Advocacy of Multilevel Governance Reform Principles and Mechanisms

As a result of these recent forces and pressures and also the earlier regulatory issues surveyed in the previous section, governments in Canada and abroad have begun to enunciate and evolve principles and utilize mechanisms whose broad purpose is to improve multilevel regulation. These principles include: harmonization; mutual recognition; subsidiarity; uniformity or tacit cooperation and capacity building; and competitive regulation and best practice benchmarking. The varied mechanisms employed include: integration and capacity-building incentives to conform; memoranda of understanding, joint formal agreements, contracts or licences; voluntary codes, private action by citizens to trigger enforcement or compliance; and performance reporting requirements and 'report card' federalism. As already indicated, such principles and mechanisms relate both to the efficiency of regulation in modern economies and to their demo-

Concepts, Context, and Key Issues 21

cratic efficacy in achieving public purposes in diverse and increasingly linked substantive areas such as health, safety and environment, and security and borders. The realities of multilevel regulation have also been propelled by general political-philosophical concepts of governing in complex settings such as the principle of subsidiarity in the case of the European Union and its member countries. Some economic and trade imperatives drive the search for strategies for dealing with multilevel complexity in a centralizing direction. The concept of subsidiarity seeks solutions that favour decentralized regulation and governance. Formal federations have long articulated concepts of 'cooperative federalism' which seek joint discussion and action but whose resultant individual agreements may be centralizing or decentralizing. Federations in different policy fields also achieve satisfactory multilevel regulatory governance by having the senior jurisdiction make regulations while other state or provincial governments implement and enforce regulations. Given the diversity of situations for different OECD countries and jurisdictions including Canada, it necessarily follows that the approaches to multilevel regulation principles and mechanisms (Doern, 2003; Braithwaite and Drahos, 2000) will depend on the starting point status quo in a given country or jurisdiction and on the nature of the problems emerging in a given policy or regulatory field (Bermann et al., 2000; Doern, 2005). It must also be stressed that choices from or among these principles and mechanisms are often made in the context of complex and high-pressure international negotiations and time-frames. Accordingly, they are contested principles and mechanisms not just because they are negotiated by different levels of authority but also because they are quite general and abstract concepts and thus have to be matched to the devils of much detail in many policy/regulatory fields. With respect to these principles and mechanisms, it is also crucial to take special note of the fact that while regulation is the entry point and focus for many of them, it is not the exit point. This is because, ultimately, they can also encompass the larger realms of governance, including the use of other policy instruments such as taxation, spending, and persuasion. Conclusions Multilevel regulation involves interacting, reinforcing, and colliding rule making and governance at the international, federal, provincial,

22 G. Bruce Doern and Robert Johnson

and city/local community levels. It emerges from varied top-down, bottom-up, and negotiated processes within the state, among states, among provinces and cities, and among economic and social interests. We have shown that multilevel regulatory governance has always been an issue especially in a federation such as Canada, but that the scale and nature of it as a problem and challenge has increased greatly in the last twenty years. This Introduction has set out core definitions and key concepts and has set the scene for the book as a whole by looking closely at the federal smart regulation paradigm and agenda and by relating this current regulatory reform discourse to the past ways in which regulation has been studied and debated and which continue to be factors today. It has also analysed the more immediate context for change and debate, including issues such as regulatory cost; productivity; trust, transparency, and democracy in the context of North American and international economic integration more generally; and experience with key multilevel regulatory principles and mechanisms. The principles and mechanisms previewed in the chapter are important in their own right, but we have shown also that such principles and mechanisms meld into larger realms of governance in general, including the use of other policy instruments such as taxation, spending, and persuasion. With these initial concepts, contexts, and key issues established, we can now proceed to the more in-depth analyses provided by our contributing authors as they probe the various interacting levels of regulatory governance both through the macro realms examined in chapters 2 to 7 and through sectoral dynamics analysed in chapters 8 to 14. Each chapter maps regulatory levels in basic ways and interpret changes which are seen by the authors as important and which flow from the themes in this Introduction. The editors' further assessment of these chapters-continues in chapter 15. NOTES 1 Canada, Speech from the Throne, 30 September 2002, 2. 2 Two recent examples put this tension in perspective. The recent recall of Merck's Vioxx, the arthritis drug, raises questions about whether increased timeliness for regulatory drug approval comes at a trade-off of increased risk, while issues of public accountability are raised when approval is done jointly or accepted from another jurisdiction. The second example relates to

Concepts, Context, and Key Issues 23 the British Columbia Fast Track Approvals process. The EACSR (2004: 24) terms this process a best practice for other Canadian jurisdictions, yet the B.C. government's recent tentative approval of the development of a ski resort in the East Kootenay region despite public opposition raises questions about how fast tracking can affect public perceptions of transparency, fairness, and, ultimately, trust in the legitimacy of the decision-making process (Globe and Mail, 15 October 2004).

REFERENCES Andrew, C., Katherine Graham, and Susan Phillips, eds. (2003). Urban Affairs: Back on the Policy Agenda. Montreal and Kingston: McGill-Queen's University Press. Ayres, Ian, and John Braithwaite (1992). Responsive Regulation: Transcending the Deregulation Debate. Oxford: Oxford University Press. Bache, Ian, and M. Flinders (2004). Multi-level Governance. Oxford: Oxford University Press. Bakvis, H., and G. Skogstad, eds. (2002). Canadian Federalism: Performance, Effectiveness and Legitimacy. Oxford: Oxford University Press. Bermann, G., M. Herdegen, and P. Lindseth, eds. (2000). Transatlantic Regulatory Cooperation. Oxford: Oxford University Press. Biggs, M. (1996). Building Blocks for Canada's Social Union. Ottawa: Canadian Policy Research Network. Bourne, L.S., and J. Simmons (2002). 'New Fault Lines? Recent Trends in the Canadian Urban System and Their Implications for Planning and Public Policy.' Canadian Journal of Urban Research 12, no. 1: 22-47. Bradford, Neil (2004). 'Global Flows and Local Places.' In Bruce Doern, ed., How Ottawa Spends, 2004-2005: Mandate Change in the Paul Martin Era, 70-88. Montreal and Kingston: McGill-Queen's University Press. Braithwaite, John, and Peter Drahos (2000). Global Business Regulation. Cambridge: Cambridge University Press. Burgess, Michael (2000). Federalism and European Union: The Building of Europe, 1950- 2000. London: Routledge. Canada (2002). Achieving Excellence. Ottawa: Public Works and Government Services Canada. Conference Board of Canada (2004). Performance and Potential, 2004-05: How Can Canada Prosper in Tomorrow's World? Ottawa: Conference Board of Canada. Courchene, T. (2001). 'Ontario as a North American Region-State: Toronto as a

24 G. Bruce Doern and Robert Johnson Global City-Region: Responding to the NAFTA Challenge.' In Allen J. Scott, ed., Global City-Regions, 122-38. Oxford: Oxford University Press. Doern, G. Bruce (2003). 'Improving Regulatory Relations in Multi-level Governance: Principles and Mechanisms.' Paper presented to the OECD Expert Meeting on Regulatory Cooperation between Levels of Government, Paris, 30 June-1 July. (2005). 'Best Practices in the Effective Governance of International Regulatory Cooperation.' Paper prepared for the Policy Research Initiative, Privy Council Office, Ottawa. Doern, G. Bruce, and Monica Gattinger (2003). Power Switch: Energy Regulatory Governance in the Twenty-first Century. Toronto: University of Toronto Press. Doern, G. Bruce, Margaret Hill, Michael Prince, and Richard Schultz, eds. (1999). Changing the Rules: Canada's Changing Regulatory Regimes and Institutions. Toronto: University of Toronto Press. Doern, G. Bruce, and Mark MacDonald (1999). free Trade Federalism: Negotiating the Canadian Agreement on Internal Trade. Toronto: University of Toronto Press. Doern, G. Bruce, and Ted Reed, eds. (2000). Risky Business. Toronto: University of Toronto Press. Eliadis, P., Margaret Hill, and Michael Howlett, eds. (2005). Designing Government: from Instruments to Governance. Montreal and Kingston: McGillQueen's University Press. External Advisory Committee on Smart Regulation (EACSR) (2004). Smart Regulation: A Regulatory Strategy for Canada. Report to the Government of Canada. September Flinders, Matthew (2002). The Politics of Accountability in the Modern State. London: Ashgate. Globe and Mail (2004a). 'B.C. Backs Resort in Pristine Area.' 15 October. (2004b). 'Productivity Must Rise: Report.' 5 October. (2004c). 'Business Rips Provincial Passport Plan.' 1 October. Harrison, Kathryn (1996). Passing the Buck: Federalism and Canadian Environmental Policy. Vancouver: UBC Press. Helliwell, J., Lee, E, and H. Messinger (2001). 'Effects of the FTA on Interprovincial Trade.' In George Hoberg, ed., Capacity for Choice: Canada in a New North America, 96-121. Toronto: University of Toronto Press Heritier, Adrienne, ed. (2002). Common Goods: Reinventing European and International Governance. London: Rowman and Littlefield. Hill, M. (1999). 'Managing the Regulatory State: From "Up," to "In and Down," to "Out and Across." In Bruce Doern et al., eds., Changing the Rules:

Concepts, Context, and Key Issues 25 Canada's Changing Regulatory Regimes and Institutions, 259-76. Toronto: University of Toronto Press. Hoberg, G., ed. (2002). Capacity for Choice: Canada in a 'New North America. Toronto: University of Toronto Press House of Commons (1993). Regulations and Competitiveness: Seventeenth Report of the Standing Committee on Finance. Jacobs, S. (1999). The Second Generation of Regulatory Reforms.' Paper prepared for the International Monetary Fund Conference on Second Generation Reforms. 8-9 November. Jordana,}., and David Levi-Faur (2004). The Politics of Regulation: Institutions and Regulatory Reforms for the Age of Governance. London: Edward Elgar. Klassen, T. (2000). The Federal-Provincial Labour Market Development Agreements: Brave New Model of Collaboration?' In Thomas Mclntosh, ed., federalism, Democracy and Labour Market Policy in Canada, 224-41. Montreal and Kingston: McGill-Queen's University Press. Mclntosh, T, ed. (2002). Building the Social Union: Perspectives, Directions and Challenges. Regina: Canadian Research Plains Center, University of Regina. Majone, Giandomenico (1994). 'Mutual Recognition in Federal-type Systems/ In Anne Mullins and Cheryl Saunders, eds., Economic Union in federal Systems, 69-84. Sydney: Federation Press. - ed. (2002). 'Delegation of Regulatory Powers in a Mixed Polity.' European Law Journal 8, no. 3: 319-39. Mendelsohn, M. (2003). 'A Public Opinion Perspective on Regulation.' Paper prepared for the External Advisory Committee on Smart Regulation. December. Moran, M. (2003). The British Regulatory State. Oxford: Oxford University Press. Organization for Economic Cooperation and Development (OECD) (1995). OECD Council Recommendation on Improving the Quality of Government Regulation. Paris: OECD. (2000). Reducing the Risk of Policy Failure: Challenges for Regulatory Compliance. Paris: OECD. (2002a). 'Governance Issues in Multi-Level Governments.' Preliminary Draft Paper. Paris: OECD, September. (2002b). Government Capacity to Assure High Quality Regulation. Paris: OECD. (2004). Multi-Level Regulatory Governance. Paris: OECD. Orsini, M. (2003). 'Blood, Blame, and Belonging: HIV, Hepatitis C, and the Emergence of "Tainted-Blood Activism" in Canada, 1985-2000.' PhD diss., Carleton University. Pal, L., and J. Maxwell (2003). 'Assessing the Public Interest in the 21st Cen-

26 G. Bruce Doern and Robert Johnson tury: A Framework.' Paper prepared for the External Advisory Committee on Smart Regulation, Ottawa. Palast, Greg, Jerrold Oppenheim, and Theo MacGregor (2003). Democracy and Regulation: How the Public Can Govern Essential Services. London: Pluto Press. Pierre,}., and B.C. Peters (2000). Debating Governance: Authority, Steering and Democracy. Oxford: Oxford University Press. Prime Minister's Office (2005). 'Security and Prosperity Partnership of North America Established.' News Release. 23 March. Prince, Michael (1999). 'Civic Regulation: Regulating Citizenship, Morality, Social Order, and the Welfare State.' In Bruce Doern et al., eds., Changing the Rules: Canada's Changing Regulatory Regimes and Institutions, 201-27. Toronto: University of Toronto Press. Radaelli, Claudio (2004). 'The Puzzle of Regulatory Competition.' Journal of Public Policy 24, pt 1:1-24. Schmidt, Susanne K. (2002). The Impact of Mutual Recognition: Inbuilt Limits and Domestic Responses to the Single Market.' Journal of European Public Policy 9, no. 6: 935-53. Skogstad, G. (2002). 'Legitimacy, Democracy and Multi-Level Regulatory Governance: The Case of Agricultural Biotechnology.' Paper prepared for the conference 'Globalization, Multilevel Governance and Democracy: Continental, Comparative and Global Perspectives. 3-4 May. Solomon, Lester M., eds. (2002). The Tools of Government: A Guide to the New Govemnce. Oxford: Oxford University Press. Sparrow, Malcolm K. (2000). The Regulatory Craft. Washington, Brookings Institution. Stanbury, William T. (1992). 'Reforming the Federal Regulatory Process in Canada, 1971-1992' House of Commons Standing Committee on Finance, Appendix SREC-2 to Regulations and Competitiveness - (2000). Environmental Groups and International Conflict over the Forests of British Columbia 1990 to 2000. Vancouver: SFU-UBC Centre for the Study of Government and Business. Vogel, David (1998). "The Globalization of Pharmaceutical Regulation.' Governance 11, no. 1:1-22. Webb, Kernaghan, ed. (2004). Voluntary Codes: Private Governance, the Public Interest and Innovation. Ottawa: Carleton Research Unit on Innovation, Science and Environment.

PART ONE Macro and Framework Regulatory Dimensions

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2 Risks and Rewards: The Case for Accelerating Canada-U.S. Regulatory Cooperation MICHAEL HART

Proximity, technology, opportunity, and policy have combined to create an inexorable but asymmetrical interdependence between the Canadian and U.S. economies. Despite occasional bursts of anti-American sentiment, Canadians, in their daily choices of what to buy and consume, prefer goods and services produced in North America and look to the United States for the yardstick by which to measure what they like and do not like about any number of private and public policies and programs. This market judgment is further reinforced by the extent to which Canadians and Americans expect their governments to pursue largely similar goals and objectives in their regulation of the market. Canadians may insist that they want to remain a distinct entity north of the U.S. border, but they also want many of the things that Americans want and they look to government to ensure that they get them. Not surprisingly, therefore, in addition to deepening and accelerating integration of the two economies, the two societies are also experiencing deepening and accelerating convergence in their respective regulatory regimes. Nevertheless, regulatory differences persist and new - often small - differences continue to emerge in regulatory design, objectives, implementation, and compliance, imposing costs and maintaining distortions that prevent the realization of the full potential of the Canadian economy. As the two economies become ever more closely connected and interdependent, it is a key matter for consideration whether the two governments can do more to ensure that their national systems of regulations serve not only to protect the safety, well-being, and security of their citizens but also to limit incompatibilities as much as possible in order to increase efficiency and productivity, reduce unnecessary costs and duplication, and enhance the global competitiveness of North American producers.1

30 Michael Hart

This chapter reviews the extent of regulatory difference and cooperation that already exists between Canada and the United States, considers the impact of both the differences and the convergence, and concludes that the two countries have much to gain and little to lose from an aggressive program of further regulatory cooperation. Such a program would build on and operate within the broader framework of cooperation that exists both internationally and bilaterally and that already provides a solid foundation of formal and informal cooperation. Extent of Regulatory Differences Despite rhetorical commitments to freer trade, deregulation, and privatization, markets continue to be governed by - and require for their effective operation - a detailed framework of rules and regulations. Governments of the Organization for Economic Cooperation and Development (OECD), in particular, may have reduced their efforts to effect specific economic outcomes, but they have increased their roles in addressing risk and enhancing the quality of life. Rising living standards have amplified demand for such social priorities as higher levels of health, safety, reliability, environmental protection, human rights, and access to information, all of which rely on regulations. Like earlier economic regulation, much of this regulatory activity can have profound effects on international trade and investment, underlining the need for cooperative approaches aimed at reducing the trade-distorting impact of differential regulation. In most OECD countries, legislatures and officials, at national and subnational levels, are engaged in a continuing process of rule making and adaptation. The vast majority of rules created by this constant process of amendment reflect similar policy objectives but different regulatory styles, histories, legislative practices, institutional assignments, and implementation experiences. In the final analysis, many of these differences are marginal in their regulatory outcomes, particularly between Canada and the United States, but annoying and even dysfunctional in their economic impact. The need to produce multiple versions of the same good, for example, can increase design and production costs and prevent firms from enjoying the economies of scale that would flow from producing to satisfy a single globally accepted standard. For companies exporting to multiple markets, the promise of 'one standard, one test, accepted everywhere' has become increasingly more attractive.

Canada-U.S. Regulatory Cooperation

31

Despite progress in the development of international norms and in the negotiation of multilateral and regional disciplines on the application of standards and related regulations, regulatory barriers to trade in goods and similar barriers to trade in services remain a serious potential impediment to international exchange. An ever-growing range of industrial products - from aircraft, cars, and machinery to chemicals, drugs, and electrical equipment - have to be tested and certified to exacting standards and regulatory requirements before they can be sold. An equally exploding range of services can be supplied by providers from around the world but may face continuing limitations as a result of onerous and often repetitive qualification and certification requirements. Compliance with different national rules, together with the repetition of redundant testing and certification of products and providers for different markets, raises costs for manufacturers and providers operating in a global marketplace. Additionally, complex and lengthy product- or provider-approval procedures can slow down innovation, frustrate new product launches, operate to protect domestic producers and providers from foreign competitors, and thus create a drag on competitiveness, productivity, investment, and growth.2 For suppliers of goods, the proliferation of different standards and regulatory requirements has been accompanied by a growing demand by governments that, as a precondition of sale, compliance with standards be demonstrated through independent inspection, testing, or certification procedures. Such procedures are carried out either by the regulatory authority of the country importing the product or, increasingly, by quasi-public or private bodies operating on their behalf. For service providers, the need to demonstrate competence and reliability to a myriad of national and subnational regulatory bodies can severely limit their mobility and capacity to specialize and develop innovative products. In some sectors, such as the forestry industry, wholly private agencies have succeeded in developing and enforcing standards on a basis that raises serious questions about legitimacy and accountability (Chaitoo and Hart, 1998). Lack of acceptance of conformity assessments creates a number of potential barriers to international trade. It may necessitate costly and largely redundant repetition of testing and certification for different national markets. Even to export to a single overseas market, a producer may typically need to carry out extensive domestic tests in order to assess the likelihood of a product complying with the requirements of the country or customer of destination. Moreover, the need to submit

32 Michael Hart

products for assessment by regulators in often distant overseas markets may mean delays in obtaining approvals which, particularly with respect to innovative technologies, products with a short life cycle, or time-sensitive services, can severely hamper their marketability. Increased transportation costs may also be incurred if the product is rejected for not complying with the importing country's regulatory requirements. Approaches to conformity assessment may also vary from market to market, sector to sector, and product to product. In some instances, a manufacturer's declaration of conformity may be sufficient, subject to periodic verification. In others it may require either government or third-party testing and /or verification. Where government regulations depend on third-party assessment and certification, a testing and certification industry may emerge with its own standards and regulations also subject to assessment and certification. The complexity and expense of the required infrastructure for a sophisticated regulatory regime creates, of course, a panoply of vested interests that may complicate any efforts to simplify or harmonize cross-border regulatory requirements or reduce the costs and burdens of compliance. In those cases where regulatory approval is granted on the basis of inspection and certification of the manufacturer's or provider's quality system rather than simply the product (an increasingly common regulatory approach), such approval necessitates costly and time-consuming inspection visits by the importing country's authorities. In many cases, difficulties in understanding the regulatory regime in a particular foreign market - owing to distance, language, or cultural differences can operate as a de facto discriminatory barrier against imports. Economic and Trade Impacts Little systematic research has been done on the economic costs and harmful trade effects of differing regulations nor is there prima facie evidence that regulations are necessarily economically harmful or trade distorting. Indeed, there is much evidence that well-conceived regulations can be trade promoting and facilitating.3 There is also no evidence to suggest that regulatory competition is necessarily harmful, although the costs of duplicative efforts may render such competition less helpful than some of its advocates assert. Unlike efforts to reduce and even eliminate tariffs and quotas, whose harmful effects are well documented, governments' international approach to regulatory-related issues has

Canada-U.S. Regulatory Cooperation 33

been to isolate the problems they may raise and address these with measures to reduce or eliminate their trade-distorting effect. Problems of trade-inhibiting differences in product standards related to compatibility, for example, are generally well disposed of, either as a result of market forces or of the work of international standardizing bodies such as the International Standards Organization (ISO), the International Electrotechnical Commission (IEC), or the Codex Alimentarius.4 U.S. analyst Alan Sykes notes that 'both theory and experience suggests that market incentives to eliminate undesirable incompatibilities are often powerful and that much will be accomplished when the private sector is left to its own devices. Collective action problems and competitive imperfections, however, are a source of potentially important market failures' (Sykes, 1995: 36). Those that do distort trade tend to fall into two broad categories: those that predate efforts to create international standards (e.g., left- versus right-handdrive vehicles) and those that were deliberately established to promote proprietary technologies (e.g., VHS versus Beta videotape technologies or Apple versus Microsoft computer operating systems). Neither of these is easily susceptible to efforts to eliminate differences. Problems of trade-inhibiting differences in standards related to quality are a different matter. These often involve matters of social and other preferences, embedded either in law or in national practice. Here it is important to distinguish between differences that are critical and those that can be met on the basis of achieving similar objectives. Three principles can be used to mitigate differences: using the least restrictive means available, applying the standard on a non-discriminatory basis, and promoting use of equivalence and mutual recognition provisions for differing standards or assessment procedures that meet similar or equivalent objectives.5 The Word Trade Organization (WTO) Agreements on Technical Barriers to Trade (TBT) and Sanitary and Phyto-Sanitary Measures (SPS) have already made significant progress in enshrining these principles into enforceable rules governing trade in goods, but they could be refined further and extended to subnational authorities and private standards-setting bodies. In the services area, the WTO General Agreement on Trade in Services (GATS) and its annexes provide a good start in creating a framework within which to address problems created by regulatory differences affecting trade in services. The WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) provides rules and procedures to promote convergence in the administration of

34 Michael Hart

intellectual property rights. Similar provisions in regional agreements seek the same objectives among more limited contracting partners, often with greater effect. The European Union (EU) has gone farthest down the route of creating and enforcing procedures to promote regulatory convergence, but other agreements are likely to pursue similar strategies as the pressures of deepening and accelerating integration mount. The further evolution of the trade regime - multilaterally, regionally, and bilaterally - should provide additional opportunities to expand and strengthen the rules and deepen liberalization commitments. With the exception of agriculture, there is little left of the traditional liberalization agenda, pointing to the utility of a final push to eliminate industrial tariffs and other traditional methods of segmenting markets. Canada would also benefit from further commitments in the services area and from development of multilateral regimes to govern investment and competition disciplines. Much of this activity, however, is on a slow track and unlikely to yield significant results for many years to come. As the issues have become more complex and the players more numerous, the process has become slower and the results of less immediate interest to Canada's trade and economic circumstances. In the immediate future, therefore, as discussed further below, Canada has the most to gain from cooperative strategies with the United States. From the firm's perspective, the impact of similar but differentiated regulatory regimes can influence investment decisions. These impacts can be divided into two broad categories: those intended to discriminate in favour of local producers, and those that are the incidental result of regulations aimed at other objectives. The first represents the residual elements of traditional trade liberalization negotiations and includes such measures as remaining tariffs, government procurement restrictions, trade remedy laws, and similar measures. The second involves a wide range of measures that reflect the increasing complexity of modern economies and the response of governments to demands ranging from consumer protection to environmental stewardship and human rights. The trade and investment effects of the first should continue to be addressed with the traditional approach embedded in trade and investment liberalization agreements; the second requires higher levels of cooperation to identify those regulations that no longer serve any useful public purpose, those that can be implemented and administered on a basis that limits or eliminates the impact of differences, and those where differences are profound and important. Only

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the latter may need to continue to create any substantive barriers to trade, but on a much more limited basis than is often the case today. For small- or medium-sized firms, which lack subsidiaries or an established presence in foreign markets, the cost of acquiring knowledge of, and access to, another country's regulatory regime can effectively dissuade them from attempting to develop that market altogether. Furthermore, the imposition of arcane and burdensome standards, testing, and certification requirements can be used effectively to frustrate imports and shelter domestic companies from competition. Evidence of increasing trade friction arising from discriminatory technical barriers is reflected in the growth of formal disputes brought under the WTO Dispute Settlement Mechanism. Research by the OECD and other institutions indicates that differing standards and technical regulations in different national markets, coupled with the costs of testing and certifying compliance with those requirements, can constitute between 2 and 10 per cent of the overall production costs (OECD, 1996). Similarly, industry surveys and other studies almost unfailingly document conformity testing and certification requirements as a significant, and growing, obstacle to international trade (EACSR, 2004). Not surprisingly, conformity assessment has become an important service industry in its own right, as seen in the rapid growth in the number and size of testing laboratories, certification and quality assurance bodies, auditors, and accreditation organizations in industrialized and developing countries alike. Canadian Involvement in International Regulatory Cooperation

Given the importance of foreign trade and investment to Canada's economic well-being, it is not surprising that Canadian individuals, firms, associations, institutions, and governments are among the most active in promoting regulatory cooperation at the international level, from standardization to rule making. In addition to active efforts to use trade agreements to reduce barriers to international commerce, Canada also pursues a myriad of complementary strategies and in doing so it is very much influenced by the nature and size of the domestic economy, which is dwarfed by those of the United States, the EU, and Japan. Canada trades extensively with all three, relies on substantial levels of foreign direct investment from investors in these countries, and is highly dependent on their larger economies for the technology and standards that they have developed. Norms developed internationally and in

36 Michael Hart

other countries are thus critical to Canadian regulatory activity as well as to Canada's ability to compete in foreign markets. Within this universe/ the role of the United States is central, particularly for Canada. While Canada is, on balance, a rule- and price-taker in international trade and investment, the Canadian economy is large enough and Canadian contributions important enough to place Canada at the forefront of those committed to ensuring a well-functioning international regime. The Canadian economy is also large enough, and Canadians are prosperous enough, to afford to go their own way on many issues. The delicate choice often facing Canadian regulators, therefore, is whether to adopt a made-in-Canada approach or a cooperative international one. Canadians are joiners of virtually every international activity going and Canadian governments have often found it difficult, formally, to decide among competing priorities. At a more practical level, however, priorities show up routinely in the day-to-day decisions of most Canadian institutions, associations, and government bodies, and these priorities usually involve the United States. They reflect the overwhelming choice of Canadian consumers for North American products and the high level of integration among Canadian and U.S. producers, including in their adoption of standards and norms. Broadly speaking, Canadians support efforts by their governments, federal and provincial, to reduce regulatory burdens and to cooperate with other governments in order to reduce duplication, overlap, costs, and more. To that end, governments have pursued such efforts on the basis of four basic goals: ensuring high levels of regulatory integrity; reducing domestic costs and international conflict; enhancing trade and investment opportunities; and adopting best international regulatory practices. All four goals underpin a broad spectrum of ongoing international cooperative efforts, from the many multilateral channels to various bilateral and regional ones (see EACSR, 2004 for detail). Because of the interconnected natures of the Canadian and American economies, Canadian and U.S. officials work closely together to manage and implement a vast array of similar but not identical regulatory regimes from food safety to refugee determinations. In effect, they have developed a dense network of informal cooperative arrangements to

Canada-U.S. Regulatory Cooperation 37

share information, experience, data, and expertise with a view to improving regulatory outcomes, reducing costs, solving cross-border problems, implementing mutual recognition arrangements, establishing joint testing protocols, and more. On any given day, dozens of U.S. and Canadian officials at federal, provincial, and state levels are working together, visiting, meeting, sharing e-mails, taking phone calls, and so on. Virtually all of this activity takes place below the political radar screen. Little of it is coordinated or subject to a coherent overall view of priorities or strategic goals. Some of it is mandated by formal agreements ranging from the North American Free Trade Agreement (NAFTA) to less formal memorandums of understanding. More important, much of this activity is the natural result of officials with similar responsibilities and shared outlooks seeking support and relationships to pursue them. This activity also reinforces, subtly and indirectly, the deepening integration of the two economies. In North America, unlike in Europe, integration has been largely 'silent/ that is, flowing from market forces and proximity rather than from government direction. NAFTA and similar arrangements mark efforts by governments to catch up with these forces of silent integration and provide appropriate and governance to facilitate the process. Similarly, private industry, in setting and adopting standards, indicates an overwhelming preference for U.S. standards, certification, and conformity assessment procedures. Individual firms and industries may occasionally opt for non-U.S. standards on account of specific market opportunities, but government and industry alike operate increasingly within the reality of an integrated North American economy. While these informal, cross-border Canada-U.S. activities probably occupy more of the time and energy of officials, particularly of officials in domestic departments and agencies responsible for the bulk of Canadian regulatory activity, they do not enjoy the same political and public profile as various 'dialogues' on regulatory cooperation with selected trading partners. Various such dialogues are currently in play, including with the EU, with Japan, and as part of the Asia-Pacific Economic Cooperation (APEC) forum. Similar activity forms part of the negotiations for a Free Trade Area of the Americas and figures on the agenda of a number of smaller bilateral free trade negotiations. None of these, however, has the same impact as the largely unseen but vast cooperative networks among Canadian and U.S. officials and among Canadian and U.S. private sector actors. We return to this point below.

38 Michael Hart

Approaches to Further Regulatory Cooperation The debate about policy responses to regulatory barriers to trade is often couched in terms of regulatory heterogeneity versus harmonization. The issue, of course, is not whether governments should regulate but how they can do so more efficiently and effectively and at lower cost. Redundant testing for conformity, for example, can add tremendously to costs without meeting any useful regulatory objective. Denying the prospect of equivalence or mutual recognition may prove unnecessarily duplicative, again without increasing benefits to the regulating society. Where there are genuine and defensible different national values and objectives reflected in distinct standards or regulations, it is much more difficult to resolve trade-inhibiting problems. In many instances, this challenge revolves around the highly emotive issue of risk, about which various societies may make different assessments. Regulatory diversity is often rooted in varying social traditions, values and preferences, geography and climate, and economic conditions. Such diversity may not be well served by harmonization or recognition of rules based in different traditions (Sykes, 1996), since this approach might increase social or economic costs. Some societies, for example, are more riskaverse than others and want to protect their consumers from products which other societies may not necessarily consider problematic. However, these values can and have been used to impede trade, suggesting the desirability of cooperative solutions. In some instances, differences can be pro-competitive, providing consumers with greater choice. In others, efforts to harmonize or establish common, internationally agreed-on goals and principles may be necessary but difficult to achieve. Mutual recognition agreements, for example, offer a technique that falls short of the tyranny of harmonization to big-economy standards while meeting the political requirement of democratic governance of the market. Deregulation, allowing market forces to resolve differences, may also be helpful, whether as a result of unilateral action or of international agreements, to deregulate a discrete sector. Adoption of best international practice is another technique that, over time, can result in both high levels of regulatory integrity and international compatibility. More formal information sharing and preadoption discussion of regulatory changes with principal trade and economic partners can also facilitate the reduction and elimination of unnecessary or inadvertent differences and prevent new or emerging

Canada-U.S. Regulatory Cooperation

39

national differences from becoming impediments to trade. Finally, formal joint regulatory activity can eliminate costly duplication and difference.6 In order to arrive at cooperative relationships among different regulatory jurisdictions, it is clear that more understanding is needed of the costs and benefits of the various strategies that link regulations across legal and political borders. One broad approach is 'regulatory rapprochement/ which concentrates on reducing practical differences between regulations in different jurisdictions so that regulations gradually come to resemble each other or have similar effects and a more unified regulatory system evolves. Three particular strategies of regulatory rapprochement operate in OECD countries. The most rigorous strategy is harmonization or the standardization of regulations in identical form. This was intended in the original Treaty of Rome establishing the European common market but proved too difficult to implement. It was also tried in the sanitary and phytosanitary area in the Canada-United States Free Trade Agreement (FTA) (Article 708 and Annex 708.1) but abandoned in NAFTA following several years of limited success in implementing its requirements. A less structured approach is mutual recognition or the acceptance of regulatory diversity in meeting common goals. It is also sometimes referred to as 'reciprocity' or 'equivalence/ As a result of the implementation of the Single European Act, the EU has had significant success in implementing this approach. It is also the basis of the WTO approach. The softest option is coordination or the gradual reduction of differences between regulatory systems, often based on voluntary international codes of practice, such as the ISO, IEC, and similar bodies. It is also useful in this context to distinguish between regulatory requirements per se and the procedures established to determine equivalence and conformity assessment, for which there may be greater scope for cooperation. If regulatory diversity is accepted as desirable, the question becomes to what extent greater cooperation can and should be introduced. This is an issue that can be addressed at a number of levels: globally, within regional trade areas, bilaterally, and within a federal state. California, for example, sets product and environmental regulations and standards that are usually higher than most other American states and would strongly oppose harmonization of its standards with those of less rigorous jurisdictions across the United States. Similarly, regulations and standards vary across Canadian provinces, reflecting different histori-

40 Michael Hart

cal or current priorities, preferences, or biases in different jurisdictions. The question then becomes one of determining appropriate mechanisms for facilitating the movement of goods and services across the common economic space while taking into account the idiosyncrasies of the different jurisdictions involved. Risks and Rewards Against this background, a trading nation like Canada can ill afford to isolate itself from cooperative international efforts to address regulatory differences. Not surprisingly, Canadians have consistently placed themselves at the forefront of such efforts, and this policy stance is unlikely to change in the foreseeable future. The issue facing Canadians today, however, is whether they are prepared to take a major step forward in regulatory convergence, moving from cooperation to joint decision making and even adopting standards, regulations, and regulatory decisions made in other jurisdictions, and, if so, which jurisdictions. The direct reward of such an approach can be three fold: 1) higher levels of regulatory performance as a result of adopting best international practice; 2) potential major cost savings for both governments and private actors in devising, implementing, and complying with various regulatory regimes; and 3) depending on the partner, significantly enhanced trade and investment opportunities. More generally, as discussed below, even greater and more formal regulatory convergence with our principal trade, investment, and regulatory partner, the United States, can have major collateral benefits in contributing to a new accommodation with that country consistent with the depth and extent of cross-border integration and responsive to growing common interests (Hart, 2004). The risk of losing control, which may seem inherent in such an approach, can be ameliorated by ensuring that Canada is able to exercise sufficient influence in the development and deployment of joint regulatory regimes and can retain safeguards and procedures allowing Canadian officials to remain capable of addressing Canadian liabilities and responsibilities. For a small country such as Costa Rica, for example, the cost of maintaining its own drug approval regime is prohibitive; reliance on the U.S. or EU regime for the preponderance of drugs approved for use in Costa Rica, therefore, is an accepted, 'smart' form of regulation. It is for consideration whether Canada could profit from a similar approach, particularly one that includes ways to ensure Cana-

Canada-U.S. Regulatory Cooperation 41

dian input into U.S. regulatory decisions and procedures and provides continued scope for Canadian officials to address Canadian political responsibilities. The combined impact of accelerating globalization, deepening crossborder integration, growing interest in international cooperation, and increasing Canada-U.S. regulatory convergence all point to the desirability of examining the pros and cons of a more active and deliberative program of regulatory cooperation with the United States. The technical requirements of such an approach will require some careful data gathering, analysis, and discussion to consider potential sectoral candidates and work out the details. Useful work can also be done in analysing the costs and benefits of various regulatory cooperation strategies. The more difficult challenge, however, will be to think through whether such an approach is politically feasible, particularly in light of three specific political concerns: fear of a race to the bottom, erosion of sovereignty, and loss of control. 'Races to the Bottom' and Similar Concerns

A frequently voiced criticism of globalization and of international regulatory cooperation is that it encourages and facilitates a 'race to the bottom/ that is, to a relentless effort by governments to attract foreign investors and retain domestic investors by reducing regulatory norms and expectations. There is little evidence to support this charge. Indeed, as the above discussion indicates, there is a preponderance of evidence pointing in exactly the opposite direction. As societies become more prosperous - one of the most important impacts of globalization - the demand for regulations to enhance the quality of life increases. The explosion of government regulatory activity to address environmental, human rights, safety, and other issues provides compelling evidence of the gap between rhetoric and reality. In the other direction, the impact of regulatory convergence and regulatory cooperation has been repeatedly to raise the bar by establishing international benchmarks of minimal performance and best international practice. Should Canada embark on a much enhanced program of regulatory cooperation with the United States, it will be important that the public is assured that the object and purpose of such cooperation is to enhance and strengthen norms and outcomes. Despite populist notions to the contrary, U.S. regulatory requirements are often more stringent than those in Canada. More to the point, bilateral regulatory convergence is

42 Michael Hart

more likely to involve adoption of best practices than reliance on the most common denominator. Furthermore, as noted earlier, differences between Canada and the United States are less a matter of goals and objectives than of ways and means. The challenge is less a matter of agreeing on goals and desirable outcomes than of finding mutually acceptable ways of achieving such outcomes. 'Erosion' of Sovereignty

In considering the pros and cons of various forms of regulatory cooperation, some Canadians will inevitably assert that relying on nonCanadian regulators entails unacceptable sacrifices of Canadian sovereignty. Over the past six decades, Canada has been a pre-eminent leader in promoting, negotiating, and accepting a rules-based system for the conduct of international relations. The driving forces behind Canadian rule making and institution building are not hard to detect. While some observers might argue that Canadian dependence on international trade accounts for Canadian commitment to a rule- and regime-based international system, the primary motivations are more profound, owing their force to Canada's perception of itself as a country whose most intimate foreign relations are with powerful countries that, unrestrained, will take little account of, or even damage, Canadian interests. Hence, the instinct to resolve problems through international rules and regimes has been a constant factor throughout the whole range of Canadian foreign policy endeavours. An integral component of this activist diplomacy has been a readiness to accept increasingly more stringent limits on the scope for autonomous decision making, particularly in relations with the United States, in return for increased discipline on our foreign partners. The pursuit of more demanding forms of regulatory cooperation flows logically from earlier efforts. Deepening bilateral integration with the United States, in particular, challenges the two governments to take further steps down the mutually beneficial road of exercising their sovereignty to achieve important economic and other objectives. Liabilities and Responsibilities

The security and well-being of its citizens stand at the very pinnacle of any government's responsibilities, and regulations affecting everything from food safety to the quality of the environment are central to fulfill-

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ing these responsibilities. Governments must think carefully, therefore, about any initiatives that may compromise their ability to discharge their responsibilities. Canadian experience in negotiating international rules and pursuing regulatory cooperation, both multilaterally and bilaterally, suggests that there is no inherent conflict between these responsibilities and such rule making and cooperation. Nevertheless, vested interests can mount emotional campaigns questioning the extent to which regulations made jointly with others can respond to Canadian responsibilities. Fortunately, it is not difficult to refute such claims. Canadians, for example, routinely travel in the United States, comfortable in the reliability of U.S. safety regulations. They eat and drink in the United States on the same basis as they do at home. If they are sick, they often can and do rely, at considerable expense, on U.S. medical advice and U.S.-approved drugs. From almost any perspective, Canadians have few if any qualms about the goals and efficacy of U.S. regulations when in the United States. The reason is simple: as noted earlier, Canadian and U.S. regulatory regimes are, in almost all respects, closely aligned. The differences are matters of detail that may matter to individual regulators but have little impact on goals and outcomes. Concrete Steps towards Deeper Cross-Border Regulatory Cooperation As noted above, within the Canada-U.S. context, there already exists a high level of regulatory convergence, at least at the level of goals and objectives. The differences that do exist are more matters of detail and implementation than of fundamental design.7 Nevertheless, these differences impose costs and affect investment decisions. Much, therefore, can be gained by exploring ways and means in which such differences can be bridged or their impact ameliorated. The extent of regulations in both countries at all levels of jurisdiction suggests that this is a task that needs to be broken down along sectoral and functional lines and that takes into account the procedural and institutional capacity to address the dynamic character of most regulatory regimes. Canadian and U.S. experience in forging cooperative regulatory strategies has generally been positive and much more active than is generally recognized. The North American food safety system, for example, in recognition of the highly integrated nature of food production in the two countries, is deeply dependent on cooperative strategies among

44 Michael Hart

officials on both sides of the border.8 It is also not difficult to find examples of sectors and functions where there is room for more cooperation. Regulatory divergence in financial services, transportation, telecommunications, securities, competition, professional accreditation, and similar sectors would all appear to be candidates for exploratory discussions within an appropriate institutional setting and a shared set of goals. As a first objective, therefore, the goal should be to establish such an institutional setting and shared goals, rather than insist on a joint regulatory regime from the start. A good place to begin is to involve existing institutions or invest officials in agencies on both sides of the border with new responsibilities. There is no reason, for example, why an appropriate understanding could not be reached requiring the Canadian Department of Transport and the U.S. Department of Transportation to coordinate their efforts to ensure highway safety; before enacting any new rules and regulations, mandatory coordination efforts would focus on ensuring compatible outcomes and mutual recognition of each other's approaches to the same problem. A good basis for this kind of cooperation already exists in both the informal networks among officials and in the relatively minor differences in regulatory approach. What is missing is a shared mandate to resolve differences and a more formal institutional framework with authority to ensure mutually beneficial outcomes. Establishing a bilateral commission to supervise efforts to establish a more coordinated and convergent set of regulations governing all transportation modes could prove critical to providing the necessary momentum and political will. Similarly, both governments maintain separate but similar therapeutic drug approval procedures reaching almost identical conclusions, albeit within different time-frames. Adapting these existing procedures so as to have them operate to the benefit of both countries could involve commitments to more sharing and mutual recognition strategies, reducing duplication and overlap but maintaining the capacity to address unique circumstances that may arise in one country or the other. Adopting a first-to-approve rule as a default position, for example, would lead to constructive regulatory competition, particularly if it includes a safeguard provision for sensitive issues. Establishing a joint commission to supervise the transition to a more integrated regime, and to provide continuing oversight thereafter, would ensure that both governments maintain a voice in the therapeutic drug approval process.9 Food safety is another area already invested with a high degree of

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cooperation. The Canadian Food Inspection Agency (CFIA) and Health Canada and the U.S. Animal and Plant Health Inspection Service (APHIS), Food Safety Inspection Service (FSIS), and Food and Drug Administration (FDA) work closely together on the basis of hundreds of agreed protocols and understandings. Much of this, however, lacks the status of domestic law or international treaties, and any problems need to be resolved at the level of ministers. Enshrining current levels of cooperation into a bilateral treaty and assigning supervisory responsibility for the continued adaptation of its implementation to a joint commission would greatly enhance both consumer and producer confidence in the two governments' commitment to governing what is, de facto, an integrated market. In some cases, more formal and independent coordination mechanisms might be required, in certain areas on a permanent basis, in others as transitional measures. As discussions proceed on the establishment of better ways to address the governance of deepening crossborder integration, officials would identify areas where it would be appropriate to create bilateral joint commissions charged with responsibility for coordinating and supervising the regulatory activities of the two governments and addressing any conflict arising out of the regulatory activities of the states and provinces, as well as the two federal governments. Establishment of such joint commissions could be phased in over time as progress is made in implementing the new commitments and as confidence develops in the efficacy of such joint decision making. As with the existing International Joint Commission on Boundary Waters, ultimate political authority would continue to rest with the two governments, but, by appointing high-quality commissioners and pledging to maintain an arms-length relationship with each commission, the two governments would seek to foster a similar, respected status for such new commissions. Regulatory Cooperation with the EU, Japan, and Others The opportunities for pursuing similar strategies with other trading partners are much more limited. Much of current non-U.S. cooperative activity contributes to providing early warning on emerging problems, fostering better trade and investment relations, contributing to technical assistance, and more. None of it, however, has the same impact, now and potentially, as existing and potential cooperative activity with the

46 Michael Hart United States. Given the economic and political weight of the EU and, to a lesser extent, Japan, and their complex and frequently contentious economic relations with the United States, any tilt towards greater Canada-EU or Canada-Japan regulatory cooperation would carry major strategic implications. These implications would go well beyond the possibility of enhanced commercial opportunities for Canadian exporters in EU or Japanese markets and would constitute a reversal of the choice Canada made in the 1980s and 1990s to see its future as part of the North American economy. Such efforts would be incompatible with the broad move towards cross-border regulatory convergence with the United States evident for more than two generations. The principal Canadian trade objective for more than seventy years has been to remove obstacles to Canadian exports to the United States. Any CanadaEU, Canada-Japan, or other initiatives that undermined U.S. confidence in the readiness of Canada to devise new cooperative arrangements to achieve even higher levels of convergence and cross-border openness should be weighed with great care. The entry into force of the Canada-US FTA, and subsequently NAFTA, amounted to a strategic Canadian decision to accept the American acquis10 in the governance of bilateral trade and related domestic economic regulation. Across a broad range of commercial policy, for example, tariffs and related programs, including rules of origin, product standards, trade remedies, investment, and intellectual property rights, Canadian policies, practices, and procedures are aligned with those of the United States. For the most part, the future challenge in addressing the governance of the North American economy lies less in effecting major policy changes and more in making administrative adjustments in the implementation and administration of broadly similar regulatory regimes. Serious regulatory cooperation with the EU or Japan, on the other hand, would constitute, to all practical purposes, the acceptance by Canada of the acquis communautaire, or an acquis japonais. The more that Canada refused to align with either of these two regulatory regimes, the fewer would be the commercial benefits arising from regulatory cooperation. The more that Canada accepted either the European or Japanese acquis, the greater would be the differences between Canadian and U.S. policies, practices, and procedures, with severe consequences for Canadian access to the U.S. market. It is hard to see why any society would contemplate initiatives that would place 80 per cent or more of its export trade at risk in order to enhance prospects for trade with the

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EU (which now accounts for a mere 5 per cent of Canadian exports) or Japan (which accounts for even less). At first blush, if may seem attractive to explore the possibility of regulatory rapprochement with more than one partner, for example, the United States and the EU. Canada could indicate that its mandatory requirements could be satisfied on the basis of either an EU or a U.S. standard. Such an approach is possible but would compromise any effort to build a better integrated Canada-U.S. regime, one that ultimately creates the basis for a single North American market no longer divided by an actively administered border as far as trade is concerned. It is a matter of choice, of course, whether regulatory heterogeneity or deeper Canada-U.S. regulatory convergence better serves Canada's broader trade and economic interests. Nevertheless, cooperative efforts to understand better and even influence regulatory developments in Europe, Japan, and elsewhere do serve a useful purpose and should continue. Much beneficial information can be gleaned from such exercises; they can even contribute to the critical task of working with the United States. Indeed, joint CanadaU.S. efforts to mount regulatory cooperation exercises across the Pacific and the Atlantic can pay additional dividends. The EU-U.S. Transatlantic Dialogue, for example, has paid larger dividends than similar discussions between the EU and Canada. Similarly, Canada should continue to be an active player in multilateral efforts. As outlined above, both the rules of the world trade regime and the voluntary work of many standardization organizations and associations are critical to informing Canadian regulatory practice and raising the quality of Canadian regulatory outcomes. Again, working closely with the United States, as is already common practice, should enhance the effectiveness of Canada's voice in these forums. Conclusions Canada has much to gain, and little to lose, from an aggressive program of regulatory cooperation. The principal focus of such a program should be the United States because of already high levels of trade and investment integration, high levels of compatibility and similarity in goals and approach, and high levels of existing networks of cooperation. Working closely with the United States can also provide a direct route to piggy-backing on U.S. programs of regulatory cooperation, such as the EU-U.S. Transatlantic Dialogue.

48 Michael Hart

The operating goal of such a program should be to seek greater compatibility and complementarity in goals, design, and outcomes rather than detail, through sharing of information, strengthened networks, agreed on safety valves, greater use of mutual recognition agreements and analogous instruments, development of appropriate machinery and institutions to enhance mutual confidence and facilitate information sharing, and, ultimately, joint decision making. Such a program is best pursued within the broader framework of reaching a new bilateral accommodation with the United States across the full range of crossborder interaction. More generally, continued improvement in the disciplines and procedures of the WTO's 'standards-setting' agreements is an important part of the Doha agenda. In addition to the review provisions built into the TBT, SPS, GATS, TRIPS, and other agreements, many of the issues related to making markets more contestable and more fair revolve around establishing international norms or standards and the necessary procedures for their implementation and enforcement. In pursuing this agenda, the fundamental issue will be to find common ground between two competing sets of social values and priorities: those espoused by the trade culture that are premised on the benefits of liberalism and open competition and that involve open markets and freedom of choice, and those advanced in the regulatory culture that are premised on the benefits of order and that involve constraints on competition, efforts to promote social responsibility, and steps to mitigate the potentially harmful effects of the market. The challenge is to find a balance between these competing values. NOTES An earlier version of this paper, containing fuller references, was originally prepared for the Department of Foreign Affairs and International Trade and the EACSR, and builds on earlier projects on regulatory reform and international cooperation pursued for the Department of Industry and the Standards Council of Canada. I am grateful to these organizations for their assistance in researching the themes explored here. 1 I should make clear at the outset that I do not share the assessment of Michael Adams that Canadians and Americans are drifting farther apart in their values and preferences (Adams, 2003). Adams's analysis of polling

Canada-U.S. Regulatory Cooperation 49

2

3

4

5

6

7

data is interesting but captures little more than the range of values and preferences that exists in both Canada and the United States. As the 2004 Canadian and U.S. elections demonstrated, neither Canadians nor Americans are of one view on a wide range of issues. It is important to keep in mind that the issues raised here are at their most acute in trade among OECD countries. It takes a sophisticated and welldeveloped economy to afford the expensive and complex array of institutions and procedures needed to maintain high, exacting regulatory requirements. It is even more expensive to maintain differential standards and regulations. For smaller countries, therefore, the most sensible strategy may well be to align much of their regulatory regime with the regime in place in the United States or EU and let U.S. and EU institutions assume the costs of maintaining the system. As has been frequently pointed out by analysts of market economics, the successful operation of markets is critically dependent on the presence of supporting laws and institutions. Proponents of market-based reforms of economic regulation do not seek a retreat of the state but a refocusing of the state's activities on matters that ensure the efficient and beneficial operation of markets. The extent and benefit of the activities of these three principal international standardization bodies are well illustrated by the broad adoption of their standards. Based on their websites, ISO, for example, has published over 13,700 standards, ranging from individual, one-off standards for an individual product to whole systems for quality management, such as ISO 9000. The EU has made the greatest progress in implementing these principles into law. In the EU, uniform minimal requirements for products were first established across borders, followed by mutual recognition agreements (MRAs) to deal with product standards that deviated from these uniform criteria. Elsewhere, MRAs tend to focus more on conformity assessment. The United States and the EU have made substantial progress in considering the parameters of fruitful regulatory cooperation. The Guidelines for Increased Regulatory Cooperation, issued in April 2002, provide useful insight into ways and means to pursue 'soft' regulatory cooperation. As explained further below, however, their impact is likely to be marginal owing to different approaches, values, and decision-making styles. Trying to ride herd on Congress and the EU member states will sap the energies of officials on both sides of the Atlantic. A good overview of the extent of convergence and difference can be found by mining the OECD program on regulatory reform, particularly the two-

50 Michael Hart country studies on Canada and the United States, available at wwwl.oecd.org/publications/e-book/4202091E.PDF (Canada) and www.oecd.org/dataoecd/48/19/2478900.pdf (USA). Both are also available in book format. 8 The system was on full display to address the BSE scare raised by the impact of two instances of 'mad' cows found in Alberta and Washington. Misguided attempts by Japan to require segregation of Canadian and U.S. meat products indicated the extent to which the industry is integrated and the authorities have developed an integrated regulatory regime. 9 Such an approach would not, however, address the issue of price differentials and the thriving grey market in pharmaceuticals operated by socalled Internet pharmacies. This is not a matter of safety or approval procedures but of the intersection of intellectual property and competition laws. 10 The term is borrowed from the vocabulary of the EU and refers to the full panoply of rules, regulations, and institutions that give practical effect to the European ideal of a single European market. While the ideal and political motives in North America may be different, the practical reality is that a similar system operates to give effect to the emerging North American single market.

REFERENCES Adams, Michael (2003). Fire and Ice. Toronto: Penguin. Chaitoo, Ramesh, and Michael Hart (1998). The Forest Stewardship Council and Sustainable forestry Management Standards: Issues and Challenges for the Canadian Forestry Industry. Ottawa: Centre for Trade Policy and Law. External Advisory Committee on Smart Regulation (EACSR) (2004). Smart Regulation: A Regulatory Strategy for Canada. Ottawa, 26 September. Available at www.smartregulation.gc.ca/en/04/pr-03.asp Hart, Michael (2004). 'A New Accommodation with the United States: The Trade and Economic Dimension.' ID. Art of the State II: Thinking North America: Prospects and Pathways. Montreal: Institute for Research on Public Policy, March. Hart, Michael, with Laura Ritchie Dawson (1999). Developing a Strategy for the Negotiation of Standards Issues in Global Trade. Report prepared for the Provincial-Territorial Committee to the Standards Council of Canada. December. Organization for Economic Cooperation and Development (OECD) (1996).

Canada-U.S. Regulatory Cooperation Conference on Consumer Product Safety Standards and Conformity Assessment: Their Effect on International Trade Proceedings. Paris: OECD. - (2002). Canada: Maintaining Leadership through Innovation. OECD Reviews of Regulatory Reform. Available at http://wwwl.oecd.org/publications/ e-book/4202091E.PDF Sykes, Alan O. (1995). Product Standards for Internationally Integrated Goods Markets. Washington: Brookings Institution. Sykes, Alan 0.1996. 'Strategies for Increasing Market Access under Regulatory Heterogeneity.' Paper prepared for OECD Trade Committee meeting, 15 February 1996 (TD/TC(96)8).

51

3 Regulatory Policy: Th£ Potential for Common Federal-Provincial-Territorial Policies on Regulation ROBERT JOHNSON

Policies on regulation are overarching policy frameworks that guide, streamline, and standardize regulation-making processes. Unlike the regulation of the private sector, this regulatory function is aimed at assuring compliance with rules and standards inside government. More attention is now being devoted to this aspect of the regulatory state, particularly since there is a growing international consensus - with the dissemination of Organization for Economic Cooperation and Development (OECD) best practices - that adopting regulations without due consideration of (procedural) criteria such as alternatives to regulation, consultation with affected parties, costs for the private sector and citizens, and compliance and enforcement considerations may mean that the regulatory intervention will be more harmful than beneficial. It appears that the medical profession's old adage is seeping in: First, do no harm. Rhetorically, new terms like 'better regulation' (European Union [EU] and United Kingdom), 'quality regulation' (OECD), and 'smart regulation' (Canada) bear witness to the attention regulatory governance is receiving in post-industrialized countries (Radaelli, 2003; James, 2000; OECD, 1997). In this chapter, the focus is on comparing how the two1 levels of government in Canada govern their regulatory process, as outlined in the respective policies/guidelines on regulation. The implication is that, if there is greater commonality of approaches, then some aspects of multilevel regulation may be improved. Specifically, the analysis deals with the criteria used for regulatory impact assessments (RIAs); new institutions (e.g., administrative oversight offices); and the attention given to implementation, compliance and enforcement, and evaluation and review.

The Potential for Common Policies on Regulation 53

We will see that about half of the provinces-territories have formal government-wide policies or guidelines on regulation, a doubling since the mid-1990s. However, when regulatory impact assessment is taken into account, almost all of the jurisdictions surveyed have basic requirements in place, such as identifying the problem or risk, considering alternatives to regulation, conducting an impact analysis of the benefits and costs of the regulatory proposal, and consulting with affected parties. The analysis also shows that the weight accorded to economic criteria is not (yet) matched with public transparency and accountability criteria that are associated rhetorically with the new governance, at least when it comes to the public availability of policies on regulation, pre-publication of RIAs, or public interest rationales for regulation in most provinces/territories. I argue that there is a convergence in economic values and ideas about the cumulative (negative) economic impacts of regulation,2 which is leading to a haphazard institutionalization of efficiency-oriented criteria in the regulatory development process across Canada.3 Competitive benchmarking is a principle at work as provinces, especially the large provinces Quebec and British Columbia, require comparisons for new proposals with competing provinces and states. But the proliferation of levels of rule making is also giving weight to the dissemination of 'best regulatory practices' via transnational organizations like the OECD. Finally, the shift to governance at the provincial-territorial level is also evident with the prominent involvement of business on task forces to pursue regulatory reform in almost all provinces over the last two decades.4 The remainder of this chapter proceeds as follows. The first part takes stock of the elements of the federal regulatory policy, followed with an analysis of the degree of convergence/divergence of various aspects of federal and provincial-territorial policies/guidelines on regulation and RIA. The final section lays out broad trends and developments and three options for pursuing common approaches, in reference to the recent recommendations made by the External Advisory Committee on Smart Regulation (EACSR).5 Federal Regulatory Policy Federal regulatory reforms over the last two decades have been well documented, both descriptively and more critically, in recent years.6 The federal regulatory decision-making process has received greater

54 Robert Johnson

attention as well, particularly in light of the proposed next round of reforms by the EACSR.7 My aim in this section is to provide a selective description of key facets of federal regulatory policy, the regulationmaking process, and evaluation and assessment. I will then use this as a basis of comparison with policies on regulation in provinces-territories in the next section. The principle of public transparency has been pursued with the publication of the federal regulatory policy, along with background information and other related documentation, in a comprehensive and accessible way on the Privy Council Office website. The 1999 Government of Canada Regulatory Policy offers an overarching policy statement that regulation will 'result in the greatest net benefit to Canadian society/ which is followed with specific policy statements that are in effect principles about the public interest as the overriding rationale for regulation, to be achieved in the most cost-effective way possible and in a manner conducive to participatory governance. Participatory governance, with the promise of an 'open and transparent process,' is reiterated in the section outlining the various responsibilities by departments and agencies. The scope of the federal regulatory policy is limited to subordinate legislation only, meaning that primary legislation is excluded, as are the 'softer' compliance-based alternatives to regulation (Eliadis, 2002). The successive editions of the federal regulatory policy can be seen as an evolution from 1986 requirements of consultation with affected parties and the public, RIA, and pre-publication of the regulatory proposal to additions such as the decision-criterion of ensuring net benefits to Canadian society (1992), minimization of regulatory burdens (1995), intergovernmental coordination and cooperation (1995), the Regulatory Process Management Standards (1995), and conformity with Cabinet directives (1999). The current edition requires: 1. Consultation and participation of Canadians in the regulationmaking process 2. Identification of a problem or risk, and justification that regulation is the best alternative 3. Proof that benefits outweigh costs, with requirement to show costeffectiveness 4. Minimization of regulatory burdens on economy, including • minimization of information and administrative requirements • special attention to small business

The Potential for Common Policies on Regulation 55

positive consideration to parties proposing equivalent alternatives to regulation 5. Adherence to international and intergovernmental agreements and coordination across government and between governments 6. Effective management of regulatory resources with regulatory process management standards a compliance and enforcement strategy provision of adequate resources for enforcement responsibilities 7. Adherence to Cabinet directives The number of changes to the federal regulatory policy in 1995 is noteworthy in several respects. On the one hand, the concerns about competitiveness in the context of a deficit-cutting climate and the crosscutting issues identified in the Jobs and Growth agenda in early 1990s are visible in the adoption of requirements targeting business and the economy (no. 4) and providing a Business Impact Test, as well as the vertical coordination between governments to reduce overlapping, requirements, and the commitment that 'full advantage' will be taken of opportunities with other governments and agencies' (no. 5) to reduce compliance costs associated with regulatory overlap and duplication. The latter requirement comes out of recommendations in the House of Commons Standing Committee on Finance's Regulations and Competitiveness report (1993: chapter 8). At the same time, the obligation to take account of agreements under the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA), the Agreement on Internal Trade (AIT), and a host of other multilateral, regional, and bilateral agreements is formally included (amended) in the federal regulatory policy (appendix A). On the other hand, there has also been a focus on internal management and accountability measures associated with 'New Public Management' principles. First, the adoption of the Regulatory Process Management Standards (RPMS) represents a shift to a performancebased approach, seeking to standardize the quality of regulatory proposals and compliance with the regulatory submission criteria across departments and agencies. The RPMS guidelines for policy development and analysis are comprehensive, in part reiterating and expanding other requirements in the regulatory policy itself but also adding a complaint- and resolution-system requirement to implementation, communications, training, and documentation. The RPMS seeks also to ensure interdepartmental coordination (horizontal management) to re-

56 Robert Johnson

duce duplication and overlap. Similarly, the Regulatory Impact Analysis System (RIAS) specifically needs to incorporate a problem-definition approach, alternatives to regulation, benefit-cost analysis (benefits outweigh costs), consultations, intergovernmental coordination and adherence to intergovernmental agreements, and a compliance and enforcement strategy. Commitment to the RPMS is evident with a comprehensive review in 2000, as well as a separate one of the RIA process that same year (KPMG, 2000; Delphi Group, 2000). Central administrative oversight and the 'challenge' function for regulatory proposals and advice to the Treasury Board resides with the Privy Council Office (PCO). Once approved, the policy of pre-publication of the draft regulation to allow for additional feedback has been in place since 1986. While the communication of forward regulatory planning and evaluation/assessment has been included in departmental 'Reports on Plans and Priorities' and 'Departmental Performance Reports' that have been tabled annually since 1997, there is no automatic review date or sunset clause of existing and new regulations and programs to trigger an evaluation. Nor is an ex post review of the RIA automatically carried out. However, the response to the author's survey for the purposes of the present article indicates that PCO is in the early stages of developing evaluative and assessment tools for regulatory programs through an interdepartmental process. The lack of an evaluative mechanism has been identified by the EACSR and could be rectified with annual departmental and agency evaluation plans. The most significant impact of the inclusion of Cabinet directives in the 1999 Regulatory Policy has been a reinforcement of the requirement that environmental concerns be addressed in the regulatory proposal. In effect, the RIA has been indirectly broadened with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals to give due consideration to environmental (and sustainable development) impacts with a strategic environmental assessment in addition to social and economic ones. Expanding the scope of the criteria for the RIA is an international phenomenon (EACSR, 2003). The Treasury Board 'Integrated Risk Management Framework' guide for departments has the potential to affect regulatory proposals indirectly as well, and in a much more prominent fashion, should the federal government act on the EACSR's recommendation to use risk-based analysis as the primary basis to prioritize all policy development, implementation, and evaluation of regulations and regulatory programs. At present, though, risk profiling appears to be embedded only in a super-

The Potential for Common Policies on Regulation 57 ficial way in federal departments and agencies (Auditor General, 2003: ch. 1). Similarly, Bennett's analysis (1999: 303) documents a good deal of departmental laxity in the application of federal privacy legislation, finding that this legislation is often treated as a last-minute add-on. The recent passage of the User Fees Act in April 2004 also has an indirect effect on the development of user fees as regulations, since it requires an explicit comparison internationally with the fees levied in the jurisdictions of major trading partners. Moreover, the Act expands consultation requirements to include 'an independent dispute resolution process to address a complaint or grievance submitted by a client regarding the user fee or change' (s.4(l)e). Finally, while not mentioned in the federal regulatory policy, the Charter of Rights and Freedoms is taken into account when regulation or non-regulatory alternatives in the policy development process are considered. The point here is that all these laws, policies, and guidelines may not only have varying direct effects on federal regulatory policy but may equally have effects that can support, confuse, or inhibit intergovernmental cooperation and coordination. Overall, the federal regulatory management process can be described as both 'tightly' coupled and outward oriented. Significant efforts have been made to inject rigour and consistency into the regulatory decisionmaking process over the last decade, which has been followed with substantive assessment of impact assessment and performance standards. At the same time, the accessibility of the policy, processes, procedures, and publications, coupled with comprehensive consultations, pre-publication, and annual tabling, serve outward-orientation ends. A Comparative Analysis of Federal-Provincial-Territorial Policies/ Guidelines on Regulation In its report on regulatory reform in Canada, the OECD (2002: 29) notes that 'in 1996, the Treasury Board published Managing Regulation in Canada: Regulatory Reform and Regulatory Process which indicated that many provinces had made little progress on regulatory reform and had, in some cases, only rudimentary reform policies in place. Since that time, several of the Provinces and Territories have made considerable efforts to reform their regulatory processes.' The purpose of this section is to assess the degree to which this is the case, and moreover, whether there is evidence of a trend towards convergence in the criteria found in policies/guidelines on regulation, RIA, evaluation and assessment, and

58 Robert Johnson

forward planning. For the purposes of assessing the potential for common approaches, it is also key to consider specifically whether the formal criteria in place in provincial-territorial jurisdictions direct regulators and departments to consider other levels of government and/or direct them to collaborate and cooperate in various ways with other governments. Formal Policies on Regulation

Following the federal government's adoption of the Regulatory Policy in 1986, a number of provinces and one territory followed with regulatory policies or guidelines for regulation making. Saskatchewan (1993, 1999), Quebec (1994,1996,1999,2002), Alberta (1996), British Columbia (1998,2002), and Yukon (1998) have put in place formal policies/codes on regulation.8 This is shown in table 3.1. The policies are generally more comprehensive than codes and, in the case of British Columbia and Quebec, publicly accessible, on-line, with clearly defined guidelines as to the objectives of the policy, the exemptions, and the process development and criteria to be followed (RIAS), as well as some of the relevant related documentation. Alberta, Yukon, and Saskatchewan policies are not publicly accessible on-line. Only the federal government, Quebec, Yukon, and Alberta make reference to the public interest. The federal government, Yukon, and Quebec specify net benefit to society (benefit-cost analysis), while Alberta's policy states that regulation must be shown to be 'necessary' for the protection of the public interest/ having to meet one or more of the following criteria: that it is necessary for the maintenance and/or enhancement of public health, education, order, or safety; that it is necessary for the maintenance and/or enhancement of the environment; that it contributes significantly to goals of sustainable development; and that it contributes significantly and positively to the competitiveness of the private sector in the province, including the promotion of innovation and efficiency in the conduct of business. Because of regulatory reform, there has been a trend to extend the scope of the regulatory (reform) policies from the review of existing regula-

Table 3.1. Regulatory governance in Canadian jurisdictions with formal policies on regulation

Legal basis

Formal policy on regulation

Scope

Purpose(s)

Impact assessment

Compliance and enforcement

Prepublication requirement

Evaluation and assessment

Forward planning

Yukon

Regulations Act

Code of Regulatory Conduct

Subordinate legislation

Public and business access and input Reduce red tape Guidance to departments

Code of Regulatory Conduct Fact Sheet

Executive Council Office

N/A

Review of statutes and regulations departmentally determined

N/A

British Columbia

No statute

Regulatory Reform Policy

All proposed legislation

Meet regulatory criteria Carry out deregulation agenda

Regulatory Criteria Checklist

N/A

N/A

Review triggered by sunset clause or review date of regulation

Ministries identify annually regulatory initiatives in three-year service plans

Regulatory Impact Report

Regulatory Review Secretariat issues Certificate of Compliance

N/A

Automatic review every ten years (changed from every five years)

N/A

and regulation

Alberta

Regulations Act

Regulatory review

All statutory Retain/adopt regulation, only subordinate regulations legislation, necessary and all for public associated interest administrative and operation processes

Deregulation Office receives copy of regulatory criteria checklist

Table 3.1. (concluded)

Legal basis

Formal policy on regulation

Scope

Purpose(s)

Code of Regulatory Conduct Regulatory Review Guide

Subordinate legislation

Guidance to departments for regulatory proposals and review of regulations

Saskatchewan

Regulations

Quebec

La Loi sur les Reglements

Rules for reform of legislative or regulatory standards

Statutory Instruments Act and Statutory Instruments Regulations

Regulatory Policy

Canada

Act, 1995

Impact assessment

Compliance and enforcement

Pre-

publication requirement

Evaluation and assessment

Forward planning

Code of Regulatory Conduct Fact Sheet

Executive Council Office

N/A

Departmental ly determined, but under current governmental review

Part of the ten-year review of all regulations starting in

Proposed Ensure net and existing benefit legislation and regulation regulations

Impact Assessment

Secretariat de I'allegement

Pre-

Regulations affecting business re-evaluated every seven years

Departmental multi-year regulatory review plans tabled

Subordinate legislation

Regulatory Impact Assessment

Privy Council Office (Regulatory Affairs Division)

Pre-

No review date of regulations set in policy regulatory process evaluated (RPMS;RIA)

Annual Report on Plans and Priorities submitted by departments

Ensure net benefit to society

publication of draft regulation

publication of draft regulation

1996

The Potential for Common Policies on Regulation 61

tions and the development of new ones to primary legislation. This is the case in Quebec and British Columbia. In effect, this means that any legislation with regulatory effects becomes subject to RIA as part of process development. At present, the federal government is an exception (but it has Good Governance guidelines in place for primary legislation), although the EACSR has made a recommendation that regulatory policy be applied to both primary and subordinate legislation. Impact assessments are a consideration in all formal policies, but the approach to application differs between jurisdictions. This reflects tight or loose coupling of the regulatory system. Yukon and Saskatchewan seek to provide guidance but leave departments flexibility. This is well captured in the Yukon Code of Regulatory Conduct: The requirements of the Code are not intended to overburden departments and agencies in their pursuit of fair and equitable legislation and regulations. The intention is to encourage government to think about the impacts of proposed regulatory measures, such as direct and indirect costs and the paper burden, and to look for possible alternatives. If a preliminary analysis of these factors indicates that the negative impact on the affected public is minimal, or that the regulatory measure confers a public benefit, consultation may not be necessary; a detailed cost/benefit analysis may not be indicated. All that may be necessary is for the information presented to the decision-makers to include a rationale for the action that was or was not taken.

The degree to which administrative oversight units have a 'challenge' or 'support' function for compliance and enforcement is different from jurisdiction to jurisdiction. Quebec's Secretariat de 1'allegement reviews and can 'challenge' all submissions, and, in the case of a proposal with significant impacts on business (assessed as greater than $1 million), approval must be given before public consultations or drafting takes place. Similarly, Alberta's Regulatory Review Secretariat issues a 'certificate of compliance' before the regulatory proposal can be submitted for political approval. To date, however, no provincial jurisdiction appears to have adopted performance standards similar to those of the federal government's RPMS or to have carried out similar substantive assessments of the regulatory decision-making process. Pre-publication of the regulatory proposal in order to seek broader input is required only by the federal and Quebec governments, although the British Columbia policy requires that the department makes

62 Robert Johnson

the regulatory-criteria checklist available to the public when the regulation or legislation is enacted. Some provinces, such as Alberta and Quebec, now set automatic reviews. Alberta has pushed the timeline back from every five to ten years, which gives an indication of the large resource demands these exercises require. Forward planning is part of the broader regulatory reduction targets in Saskatchewan, British Columbia, and Quebec. The absence of formal policies on regulation in other jurisdictions is somewhat artificial and potentially misleading. Nova Scotia, for example, has detailed requirements for any regulatory or legislative proposal that has significant policy implications, including consultation, an assessment of alternatives and the benefits and liabilities (based on the evaluation), and consideration of a vast range of possible implications (economic, rural, social, trade, legal, environment, human resource, information technology) and impacts (financial, government-wide, efficiency/productivity, intergovernmental, municipal). The picture is further complicated because RIA requirements overlap with and in some cases are the same as those stipulated in a policy (e.g., the consideration of alternatives, consultation). Manitoba's Regulation Impact Statement, Ontario's Regulatory Approval Form, and Nova Scotia's Regulation (Red Tape) Criteria Checklist all include the questions asked in Saskatchewan's Code. This is captured in table 3.2, which contains criteria similar to those in table 3.1 except for policies on regulation (substituted with guiding principles on regulation). Impact Assessment Criteria

RIAs have become a standard tool in Canada, as shown in table 3.3. Generally, there are no formal criteria to determine how thorough the impact statement should be, beyond providing a more or less detailed list of questions (from as few as five questions in Manitoba and Yukon to as many as thirty-five in Prince Edward Island). A further caveat is that not all criteria formally listed may be necessary to obtain approval. In Ontario, for example, costs and benefits must be assessed to make an informed decision, but consultation is not a mandatory requirement - even though both are part of the Regulatory Approval Form. Thus, it is not always clear whether the proposal will go forward to the relevant Cabinet committee if, for example, certain steps are not followed. Some jurisdictions, like British Columbia, therefore require an explanation if a particular step has not been followed in

Table 3.2. Regulatory governance in Canadian jurisdictions with no formal policy

Manitoba

Prepublication requirement

Evaluation and assessment

Legal basis

Guiding principles

Purpose(s)

Regulations

N/A

N/A

Regulation Impact Statement

N/A

No

Regulations: departmental

Departmental

b

Act

Impact assessment

Compliance and Enforcement (of impact assessment)

Forward planning

Ontario

Regulations Act

(Red Tape Secretariat) Regulatory Principles

Develop good regulation

Regulatory Approval Form3

N/A

No

Regulations: departmental

Departmental

New

Regulations

N/A

N/A

Business Impact Test

Drafting can begin only after review of impact assessment, legality, and financial implications

No

Regulations: on an ongoing basis

Departmental

N/A

N/A

Regulatory (Red Tape Reduction) Criteria Checklist

Treasury and Policy Board staff

No

Regulations: departmental Annual roundtable with business and labour to review regulatory performance

Departmental Regulatory review schedule based on Red Tape Task Force report

Brunswick

Nova Scotia

Act, 1983

Regulations Act, 1989

Table 3.2. (concluded)

Legal basis

Guiding principles

Purpose(s)

Impact assessment

Compliance and Enforcement (of impact assessment)

Prepublication requirement

Evaluation and assessment

Forward planning

Newfoundland and Labrador

N/A (enabling statutes)

N/A

N/A

N/A

N/A

No

Regulatory review recommended every five years

N/A

Prince Edward Island

N/A

Guiding Principles of Quality Assurance Quality Assurance/ Regulatory Review Framework

To promote greater economic

Regulations Development Checklist

Executive Council Office

No

Departmental

N/A

a

and administrative efficiency while protecting the public

Former requirement included 'Regulatory Impact and Competitiveness Test' The Red Tape Secretariat/Commission reviewed 'ministries' policy, legislative and regulatory proposals for red tape implications' (Ontario Red Tape Secretariat website). The commission has been converted to an agency aimed at reducing administrative burdens on small business. b

Table 3.3. Impact assessment criteria3 (as directed in policy and/or QC impact assessment) YK

BC

AB

SK

MB

ON

QB

CDA

NB

NS

NF

PEI

1 . Action justified?

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

N/A

Y

2. Alternative instruments considered?

Y

Y

Y

Y

Y

N

Y

Y

Y

Y

N/A

Y

3. Consultation with affected parties?

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

N/A

Y

4. Impacts of regulation considered?

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

N/A

Y

5. Other jurisdictions considered?

Y

Y

Y

Y

Y

Y

Y

Y

N/A

Y

N/A

Y

6. Interdepartmental overlap/conflict/duplication considered?

Y

N

Y

Y

Y

Y

N

Y

N/A

Y

N/A

Y

7. Clear and unambiguous language?

Y

Y

N

Y

N

N

N

Y

N/A

Y

Y

Y

8. Government resources considered?

N

N

Y

Y

N

Y

N

Y

N/A

Y

N/A

Y

9. Compliance and enforcement strategy considered?

N

N

Y

Y

N

Y

N

Y

N/A

Y

N/A

Y

10. Appeals procedures considered?

N

Nb

N

Y

N

N

N

N/A

N/A

N

N/A

N

11 . Review or sunset clause for regulation considered?

N

Y

Y

N

Y

Y

Y

N

N/A

Y

N/A

Y

12. Review of impact assessment ex post considered?

N

N

N

N

N

N

N

N

N/A

N

N/A

N

a

These are in part based on OECD 'best practice' criteria (1995; 1997) However, the regulatory criteria checklist asks whether those who administer the regulatory requirements will respond in a timely manner to affected parties.

b

66 Robert Johnson

the checklist. Nevertheless, table 3.3 shows provincial/territorial convergence in basic impact-assessment criteria (1-6), while there is less convergence in compliance, enforcement, and evaluation considerations.9 The first five criteria are discussed in more detail below. JUSTIFICATION

All jurisdictions require a justification for regulation, usually setting up two or three benchmarks for doing so. The first is for the department or agency to present a basic rationale for regulation, as in the identification of the problem or pressure. Second, the reverse onus for regulation to address a public problem is now almost universally applied, with an implicit or explicit normative assumption for the alternative as the preferred instrument. In Yukon's regulatory policy, for example, this is put as 'regulations where necessary, but not necessarily regulations.' In some jurisdictions, notably Quebec and British Columbia, preference has to be given to results-based approaches. CONSULTATION

Consultation can be done narrowly, broadly, and 'deeply' (with the danger of consultation fatigue), but it is always difficult to assess. Some assessments identify a broader range of criteria than others. Certain jurisdictions have institutionalized private sector participation (business/labour or business-only representation) in the form of advisory committees. As at the federal level, consultation with affected parties and the consideration of alternative solutions go hand in hand in a number of jurisdictions. In Quebec, Nova Scotia, and Yukon, such language is in place in the regulatory policy. Alberta requires that opposing views be noted in the final submission. Most jurisdictions identify internal and external consultations for the regulatory proposal. ASSESSING IMPACTS OF PROPOSED REGULATION

Formal criteria are outlined in table 3.4. The scope of the impact assessments is sharply focused on economic efficiency considerations at the provincial-territorial level. Currently, only the federal government's impact assessment has evolved to take formal account of environmental consequences through the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals.10 Cost-benefit analyses are common requirements, while the decisioncriteria differ from jurisdiction to jurisdiction. The Yukon regulatory

Table 3.4. Formal impact assessment criteria in Canada Impact Assessment

Scope

Decision criteria

Communication tool

Inform decisions (net benefit)

Proportionality

No

Type of Analysis

Distribution effects

Purpose

Benefit-cost

On business and public

Yukon

Code of Regulatory Conduct Fact Sheet

British Columbia

Regulatory Economic Criteria Checklist costs and benefits

Cost-benefit, if not, then general impact analysis Competitive analysis: impact on BC competitiveness and comparison with relevant jurisdictions

List groups affected

Inform decisions

Cost-benefit analysis if 'significant compliance burden'

No

Alberta

Regulatory Impact Report

Economic costs (compliance and enforcement)

Impact analysis: compliance and enforcement costs

List groups affected

Inform decisions

N/A

No

Saskatchewan

Code of Regulatory Conduct Fact Sheet (Regulatory Review Guide)

Economic costs, Cost-benefit, savings, benefits if required to governments, Impact analysis business, individuals

List groups affected

Inform decisions

N/A

No

Manitoba

Regulation Impact Statement

Economic impacts

General impact List groups analysis - small- or parties business focus affected

Inform decisions

N/A

No

Economic costs and benefits to affected parties and government

Table 3.4. (concluded) Decision criteria

Communication tool

Inform decisions

N/A

No

List groups affected

Inform decisions (net benefit)

If impacts > $1 million on business

Yes

Business Impact Test

List groups affected

Inform decisions

N/A

No

Regulations Economic (Red Tape) impacts Criteria Checklist

Cost-benefit analysis

List groups affected

Inform decisions

N/A

No

Prince Edward Island

Quality assurance review

Economic impacts

General impact analysis

List groups affected

Inform decisions

N/A

No

Newfoundland and Labrador

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Canada

Regulatory Impact Assessment

Economic impacts Environmental impacts

Benefit-cost analysis Costeffectiveness analysis (Environmental Impact Assessment)

List groups affected

Inform decisions (net benefit)

Proportionality principle

Yes

Impact Assessment

Scope

Type of Analysis

Distribution effects

Purpose

Ontario

Regulatory Approval Form

Economic impacts

General impact analysis

List groups affected

Quebec

Impact Assessment

Economic impacts

Cost-benefit

New Brunswick

N/A

Economic impacts

Nova Scotia

The Potential for Common Policies on Regulation 69

policy explicitly refers to the proportionality principle to determine whether or not a formal benefit-cost analysis is necessary, using the federal government's benefit-cost guide as a tool. British Columbia also stipulates a cost-benefit analysis for proposed regulation or legislation with a 'significant compliance burden/ but it has no quantitative benchmark to determine 'significance/11 Only Quebec has such a threshold in place: proposals with an estimated cost of more than $1 million to businesses in Quebec must undergo a comprehensive impact study. Business impact tests or 'red tape' reduction criteria are becoming a standard consideration at the provincial/territorial level. Such tests are geared to assessing and minimizing the costs of paperwork and procedures for business and some require specific attention to small business. Some provinces posit these requirements as competitiveness criteria. British Columbia has introduced a 'competitive analysis' as part of its regulatory criteria checklist, whereby regulatory requirements are compared with 'equivalent regimes in other relevant jurisdictions (e.g., Alberta, Ontario, Washington State). Quebec's policy is more stringent, stressing not only that 'the requirements must not create a competitive disadvantage, especially within the North American market' but also that businesses 'should not incur higher costs than those of Quebec's main trading partners, notably Ontario and American border states.' Questions of a similar nature are found in Nova Scotia's regulatory impact checklist and, until recently, Ontario's 'Regulatory Impact and Competitiveness Test.' Manitoba's impact assessment form indicates that attention be paid to businesses that operate both within and outside the province. The impact assessment is used only in a very limited way as a communication tool at the provincial/territorial level. Quebec's prepublication of the proposal must include a definition of the problem, the impacts on citizens and large and small businesses, a contact person, and whether an impact study has been conducted. Subject to access-to-information and privacy legislation, impact assessments are available to the public. In British Columbia, the regulatory criteria checklist is made public when the regulation or legislation is enacted. OTHER JURISDICTIONS

CONSIDERED

When it comes to considering other jurisdictions, there are a variety of criteria that may be the basis for doing so. All jurisdictions require a legal review, and this would include possible Charter implications. Table 3.5 outlines all of the other criteria and language found in policies,

70 Robert Johnson Table 3.5. Criteria and language for interjurisdictional impacts/considerations on regulation Other jurisdictions considered Yukon

Jurisdictional overlap Conflicting regulations and legislation exist both within the government of Yukon and with other levels of government. In part, these differences can be explained by differences in regulatory and legislative objectives. However, there is a need to identify conflicts, overlaps, and duplication with a view to minimizing them.

British Columbia

Avoid or eliminate duplication with other jurisdictions (Do the regulatory requirements avoid or eliminate duplication or overlap with requirements imposed by the federal and local governments?). Have the regulatory requirements been compared with equivalent regimes in other jurisdictions (e.g., Alberta, Ontario, Washington State)?

Alberta

Overlap and duplication within the government and among agencies and various levels of government shall be eliminated wherever possible (policy objective).

Saskatchewan

Code: Conflict with other jurisdictions (Are there similar regulations in other jurisdictions (federal, other provinces, municipal) that may conflict with these regulations?). Review Guide: How does this regulatory approach compare to that used in other jurisdictions?

Manitoba

None

Ontario

How do other jurisdictions address this issue?

Canada

International and intergovernmental agreements are respected and full advantage is taken of opportunities for collaboration (regulatory policy).

Quebec

The requirements must not create a competitive disadvantage, especially within the North American market, and should not incur higher costs than those of Quebec's main trading partners, notably Ontario and American border states (regulatory policy).

New Brunswick

N/A

Nova Scotia

How do other jurisdictions deal with the problem? Are Nova Scotia's requirements and standards similar to or more demanding than those of other jurisdictions?

Prince Edward Island

Is there Jurisdictional overlap with other levels of government

Newfoundland and Labrador

N/A

The Potential for Common Policies on Regulation 71

guidelines, and impact assessments. It shows that most provincial/ territorial governments have some language or questions in place to consider other jurisdictions. Addressing conflict, duplication, or overlap of regulations between levels of government is becoming a more prevalent feature of impact assessments. British Columbia, Saskatchewan, Nova Scotia, Yukon, and Prince Edward Island all have language to that effect. Ontario gives consideration as to how other jurisdictions deal with the issue or problem. As noted above, provinces like British Columbia, Quebec, and Nova Scotia pay attention to competitive impacts of the proposed regulations. However, at the provincial-territorial level, there is no requirement in any of the policies or guidelines to consult with regulators in other jurisdictions - or a statement to the effect that 'every opportunity will be taken advantage of to do so/ Absent as well at the provincialterritorial level, though not at the federal level, is the need to adhere to international treaties and intergovernmental agreements. It is, of course, possible that this is a well-entrenched practice in any case through mandatory legal review. Conclusions: Evaluating the Potential for Common Approaches Broad Trends and Developments

There has been a kind of domino effect in regulatory reform and governance over the last decade. The principle of competitive benchmarking and tacit cooperation (and resulting principles of competitive regulation) are at play and seem to be leading to a basic convergence in policies/guidelines/principles on regulation. This is even more evident when RIA requirements are taken into account. The federal government has been a trendsetter domestically in this regard, as well as internationally with its early implementation of recommendations from the 1994 OECD Jobs Study, with the early adoption of a business impact test, and the focus on small and medium enterprises in the 1995 regulatory policy and the Jobs and Growth agenda. The reduction of red tape for small business and citizens, made possible with technological advances, is certainly one area where greater efficiencies are being sought through convergence. Task forces, led or participated in by the business community, have also been vehicles for reform - in various provinces, these task forces have been institutional-

72 Robert Johnson

ized as advisory committees for regulatory reform and/or the decisionmaking process. As a result, one important impact is increased attention to eliminating the duplication and overlap of regulation not only within different areas of government but also between levels of government. There are other factors at play as well. The OECD best practices (criteria for problem definition, alternative solutions, consultation, and cost-benefit analysis) are virtually in place in every RIA across the country. There is also some evidence of explicit policy transfer between provinces: Yukon adopted Saskatchewan's Code form (but added its own comprehensive guide) and uses the federal government's Treasury Board cost-benefit guide. Prince Edward Island has borrowed a number of questions from Saskatchewan as well, and its 'smarter regulation' Quality Assurance Framework contains elements from the federal government's regulatory reform initiative in the mid-1990s. When a jurisdiction considers a business impact test, it naturally looks to other jurisdictions, as is the case in Nova Scotia. Convergence and Divergence

When compared to the mid-1990s, there certainly is evidence of a slow, if not haphazard convergence in ideas about the cumulative impacts of regulation across levels of government and a greater sensitivity to injecting more rigorous analysis into the regulatory decision-making process. This is an important aspect of collaborative multi-level regulatory governance and can contribute to the creation of common approaches to regulation and ex ante and ex post methodologies for review. Some progress is being made on the sectoral front, as in agreements between the federal government with a number of provinces for joint environmental impact assessments, and this could translate into the adoption of common methodologies. However, even the superficial survey of the RIA criteria conducted here exposes different approaches to the way the regulatory system is 'coupled' and regulatory governance is conducted. This likely reflects differences in provincial-territorial capacity and cultures and means that standardization within levels of government, let alone between levels of government, will be difficult. Only the federal government has conducted a relatively comprehensive review across departments and agencies to assess the difference that RIA makes in the decision-making process.

The Potential for Common Policies on Regulation

73

Moreover, there are difficult trade-offs to be made when pursuing the efficiencies found in common methodologies for review. Some of these are democratic in nature; others are of a more technical kind but can also have political implications. For example, while it is widely recognized that distributional impacts of costs are difficult to measure, but how does one reconcile the trade-offs between regional impacts that would occur in one province as opposed to another if a common RIA is used?12 Pursuing Collaborative Regulatory Governance?

As of yet, there is little indication that a requirement to collaborate, cooperate, and seek common solutions, to advance either efficiency or public interest goals, is becoming part of policies on regulation or RIAs. Some progress has been made sectorally in an ad hoc fashion, such as bilateral agreements on environmental assessments, efforts at harmonizing standards in jointly regulated sectors (e.g., transport), and various 'one window' type services to small business or citizens. But, overall progress has been frustratingly slow. While the federal government has made intergovernmental collaboration a component of the regulatory policy almost a decade ago, the analysis conducted here shows that it has not been taken up by most provinces-territories in regulatory policies/guidelines or RIAs. Why not? One reason is simply that sector-by-sector approaches may be easier roads to success. They may facilitate for clearer problem definition and pragmatic solutions, and, at the same time, they may allow participants to see the realization of their own interests. This is partly so, because such collaborations and negotiations avoid some of the pitfalls of sovereignty as played out at the highest level where public visibility raises the stakes. Moreover, the regulatory decisionmaking process in a number of provinces is still largely an internal, technically oriented affair shielded from public scrutiny or participation. Will the EACSR report provide the impetus to advance collaborative multilevel regulatory governance? The report posits that the pressures of the new environment can only lead to the conclusion that it really is time to 'get the [regulatory] national house in order.' Certainly, the EACSR recommendations give recognition to provinces and territories in ways that federal regulatory reform efforts in the mid-1980s and early 1990s did not. In terms of timing, given that a new deal on health

74 Robert Johnson

funding was reached, and transfer payments were dealt with, at the first ministers' meeting in October 2004, the government's response to the EACSR report could create the momentum to bring these issues to a meeting in 2005 or 2006. On the other hand, the ambitious nature of the committee's over seventy recommendations makes its report appear like a long wish list. Some of the recommendations, such as closer regulatory cooperation with the United States, certainly have the potential to be political dynamite for a minority government faced with public opinion that is ambivalent about American foreign policy (the war in Iraq) and defence policy (weapons in space). Still, there are three types of options commonly available: the ambitious, political approach to regulatory governance; the sectoral approach; and the 'bottom-up' capacity-building approach. Each of these options can be pursued either alone or in tandem with one of the others or both. And each is reflected in the recommendations by the EACSR. The EACSR advocates the use of the first ministers' forum to advance a 'smart' regulation agenda. Its specific recommendations include pursuing a joint framework to guide regulation making in Canada, regular reporting on the state of regulation in Canada, making further progress on environmental assessments, and continuing the sectoral approach in key strategic Canadian sectors. A commitment to a joint framework on regulation making would be a necessary first step. This is particularly important since, if some of the EACSR's more important recommendations - including a risk-analysis framework - were implemented, this would change the federal government's regulatory decision-making process away from the currently practised cost-benefit analysis, making it diverge in significant ways from what are currently broadly similar procedures in place at the provincial-territorial level. It could also have implications for bilateral agreements, such as environmental impact assessments. But democratic aspects warrant consideration too. There is a need to define the public interest (Pal and Maxwell, 2003). Joint public reporting is a recommendation that dates back to at least the 1993 Finance subcommittee report and is revived in the EACSR report. Making provincial-territorial regulations available on-line via a national database, such as on the Standards Council of Canada's 'Regwatch,' could facilitate annual reporting. In practice, though, finding consensus among ten provinces and two territories could be a lengthy, drawn-out, and frustrating process. The federal government could, should it act on the EACSR recommenda-

The Potential for Common Policies on Regulation 75

tions in the area of federal-provincial-territorial collaboration, provide an 'opt-in' opportunity for those provinces and territories that wish to be involved in creating a joint framework to regulation making which would take into account related legislation, policies, and so on (such as risk management, access-to-information legislation, and sustainable development policies). Further, while moving regulatory governance up the political agenda is a necessity, the lack of a permanent institutional locus for different levels of government to meet is a recipe for failure. One way to address this problem is for the federal government to play a leadership role. Given the great disparity in regulatory management capacities across Canada, it is essential that forums for capacity building, lesson sharing, best practices, training, and research and analysis of aspects of the various regulatory management systems be available across the country. The main purpose of policies on regulation, as stated at the beginning of this chapter, is to seek compliance with regulation-making rules inside the state. While we have described the complexities of multilevel regulatory governance with reference to the nature, causes, trends, and potential improvement of policies on regulation in Canada, it is worth returning to this basic starting point. In other words, do policies on regulation and, more important, their application through regulatory impact assessments actually matter? There is little knowledge on this important question of rule outputs. The studies commissioned at the federal level at the end of the 1990s concluded that regulatory-process management standards and the RIAs overall do have a (positive) impact on the quality of the regulatory process and, consequently, upon regulatory decision making (Delphi, 2000; KPMG, 2000). On the other hand, Mihlar's study points to high non-compliance with policy requirements, particularly in the area of RIAs (Mihlar, 1999). At the federal-provincial level, this issue remains a wide-open question. In turn, one may ask whether the principles of competitive benchmarking and efficiency-oriented criteria contained in policies on regulation will lead to convergence. The evidence at federal and provincialterritorial levels indicates that they will not. Rather than a converging 'race to the bottom' in social regulation (Harrison, 2005), Canada retains significant capacity for choice (Hoberg, 2002) while the evidence of cross-border provincial-state convergence is limited at best (van Nijnatten and Boychuk, forthcoming). Economic global pressures and continentalization do not speak for themselves, and the direction of regulatory change will depend on fluid political and institutional factors.

76 Robert Johnson NOTES 1 Cities and municipalities are excluded from the analysis even though they are clearly an important other 'level' of regulatory governance to consider. Provinces delegate certain regulatory powers to municipalities, such as small business regulation, while the big five cities are - and demand to be - seen as the engines of growth in the economy. At the same time, they also attest to the continuation and intensification of a wide range of social problems (see Stoney chapter in this volume). Finally, Aboriginal communities enter into formal self-governing arrangements with the territories and the federal government, arrangements that include regulatory responsibilities over a number of policy areas (such as kindergarten to Grade 12), but these are not considered here. 2 These are evocatively termed 'regulatory burden/ 'red tape/ and the 'tyranny of minor differences/ but measurement problems mean that their empirical accuracy remains elusive and contested (for an overview of this literature, see IPAC, 2003). At present, there is no accounting of the cumulative costs and benefits of regulation within or among levels of government, let alone a simple accounting and reporting of the total regulatory stock in Canada (Doern et al., 1999). 3 At the federal level, this is reflected in the government's response to the EACSR report in the 5 October 2004 Speech from the Throne: 'Providing 'smart government'... aims to make it easier for businesses to do business in Canada. [It] includes a transparent and predictable regulatory system that accomplishes public policy objectives efficiently while eliminating unintended impacts. This can be a key competitive advantage for Canada.' (Canada, 2004). 4 While not the focus of this chapter, it should be noted that political parties of all stripes have pursued regulatory reform exercises over the last decade at the provincial-territorial level: for example, the Parti Quebecois government in Quebec in 1994 and more recently the provincial Liberal government; the NDP governments in British Columbia and Manitoba.(1998 and 1996 respectively); and the Progressive Conservative governments in Ontario (1995), Alberta (1995), Nova Scotia (2001), New Brunswick (2001), and Newfoundland (pending). 5 For an overview of the EACSR's recommendations, see chapter 1. 6 See Hill (1999); OECD (2002). 7 EACSR (2003) and EACSR (2004). 8 The years in brackets indicate revisions. This gives an idea of whether or not the policy is seen as a continuously evolving document and, hence, of

The Potential for Common Policies on Regulation 77

9 10

11

12

its comprehensiveness. This is indeed the case in Quebec, British Columbia, and, to a lesser degree, Saskatchewan. In Saskatchewan, the code fact sheet (limited impact assessment) has to be submitted with each regulatory proposal, but the 1999 Regulatory Review Guide is not necessarily enforced. The Northwest Territories does not have a policy on regulation or formal impact assessment. In this way, Canada's RIA is moving closer to the EU's integrated RIA on economic, health, gender, and environmental implications. The latter is meant to consider more systematically the trade-offs involved in making regulatory decisions with regard to social, economic, and environmental consequences, an addition to the now well-established practice of considering a variety of instruments. Significant compliance burden 'means that members of an industry or economic sector have demonstrated that compliance with the proposed regulatory requirements or the proposed change in regulatory requirements would have a significant adverse effect on the province-wide productivity or competitiveness of that industry or economic sector' (Regulatory Reform Policy, August 2002). Drawn on Radaelli (2003: 30); see also Harrington and Morgenstern (2004), and Radaelli (2004).

REFERENCES Auditor General (2003). April 2003 Report. Available at http://www.oagbvg.gc.ca/domino/reports.nsf/html/20030400ce.html Bennett, C. (1999). 'Where the Regulated Are the Regulators: Privacy Protection within the Contemporary State.' In Bruce Doern et al., eds., Changing the Rules: Canada's Changing Regulatory Regimes and Institutions, 293-315. Toronto: University of Toronto Press. Canada (2004). Speech from the Throne. 5 October. Delphi Group (2000). Assessing the Contribution of Regulatory Impact Analysis on Decision Making and the Development of Regulations. Toronto: Regulatory Consulting Group Inc. Doern, G.B., M.M. Hill, M.J. Prince, and R.J. Schultz, eds. (1999). Changing the Rules: Canada's Changing Regulatory Regimes and Institutions. Toronto: University of Toronto Press. Eliadis, P. (2002). Instrument Choice in Global Democracies. Foundation Paper, Policy Research Initiative, Government of Canada.

78 Robert Johnson External Advisory Committee on Smart Regulation (EACSR) 2003. 'The Regulatory Process: Enabling Smart Regulation.' September. (2004). Smart Regulation: A Regulatory Strategy for Canada. Report to the Government of Canada. September. Harrington, W., and R. Morgenstern (2004). 'Evaluating Regulatory Impact Analyses.' Paper prepared for Organization for Economic Cooperation and Development. Harrison, K., ed. (2005) Racing to the Bottom: Provincial Interdependence in the Canadian Federation. Vancouver: UBC Press. Hill, M. (1999). 'Managing the Regulatory State: From "Up," to "In and Down," to "Out and Across." In Bruce Doern et al., eds., Changing the Rules: Canada's Changing Regulatory Regimes and Institutions, 259-76. Toronto: University of Toronto Press. Hoberg, G., ed. (2002). Capacity for Choice: Canada in a New North America. Toronto: University of Toronto Press. House of Commons. Regulations and Competitiveness. Seventeenth Report of the Standing Committee on Finance. Institute of Public Administration in Canada (IPAC) (2003). Thinking Regulation: A Roadmap to the Recent Periodical Literature. Toronto: IPAC. James, O. 2000. 'Regulation inside Government: Public Interest Justifications and Regulatory Failures.' Public Administration, 78, no. 2: 327-44. KPMG. 2000. Review of the Regulatory Process Management Standards. Toronto: KPMG. Mihlar, Fazil (1999). 'The Federal Government and the RIAS Process/ In G. Bruce Doern, Margaret M. Hill, Michael J. Prince, and Richard J. Schultz, eds., Changing the Rules: Canadian Regulatory Regimes and Institutions, 277-92. Toronto: University of Toronto Press. Organization for Economic Cooperation and Development (OECD) (1994). The Jobs Study. Paris: OECD. - (1995). OECD Council Recommendation on Improving the Quality of Government Regulation. Paris: OECD. - 1997. The OECD Report on Regulatory Reform. Paris: OECD. - 2002. Government Capacity to Assure High Quality Regulation. Paris: OECD. Pal, L., and J. Maxwell. 2003. 'Assessing the Public Interest in the 21st Century: A Framework.' Paper prepared for the External Advisory Committee on Smart Regulation, Ottawa. Radaelli, C. (2003). 'Impact Assessment in the European Union: Innovations, Quality, and Good Regulatory Governance.' Conference background report, Brussels, 3 December.

The Potential for Common Policies on Regulation 79 - (2004). "The Diffusion of Regulatory Impact Analysis: Best Practice or Lesson-Drawing?' European Journal of Political Research 43:5, 723-47. Stanbury, W. (1992). 'Reforming the Federal Regulatory Process in Canada, 1971-1992.' House of Commons Standing Committee on Finance, appendix SREC-2 to Regulations and Competitiveness. Van Nijnatten, D., and Boychuk, G. (forthcoming). 'Economic Integration and Cross-Border Policy Convergence: Social and Environmental Policy in Canadian Provinces and American States.' Borderland Studies.

4 Federal 'Related Science Activities7 and Multilevel Regulation G. BRUCE DOERN

The purpose of this chapter to examine the nature of, and key issues surrounding, federal Related Scientific Activities (RSA) in a multilevel regulation context. Not all regulation is science-based, but virtually all of the regulation in the realms of health, safety, and environment is. In these realms of risk regulation, the normal presumption in the Canadian federation is that the federal government supplies most of the science and technology (S&T) base most of the time, in part because it has more funding and greater overall capacities. This presumption of unilevel dominance of the S&T in science-based regulation is partly a valid one but the actual nature of science-based regulation in a multilevel context needs a closer look. Federal S&T data categorizes the government's S&T into two categories, research and experimental development (R&D) and RSA (see basic definitions below). In this chapter the focus is on RSA, the crucial area of federal S&T for regulatory governance but also an area that the federal government's S&T policy statements consistently underplay and, at times, even ignore. A key argument in this chapter is that federal RSA needs to be more clearly understood and supported as being crucial to multilevel regulatory governance as well as to federal regulation. As chapter 1 has indicated, multilevel regulation first implies processes whereby different levels of government (federal, provincial, international, local) have shared or overlapping rule-making and compliance jurisdictions and roles. In short, 'levels' initially mean governmental levels. But 'levels' may also include other players or interests which are not themselves governmental. These include corporations, business associations, unions, and various non-governmental organiza-

Federal 'Related Science Activities' 81

tions (NGOs) which are effected by rule making or which, in the modern context of governance, are literally partners, and co-governors, with state authorities. But these players can also include universities and hospitals and knowledge professions such as the medical profession. As the chapter shows, RSA involves regulatory and service tasks such as the direct assessment of product proposals and applications; the enforcement of rules; the drafting of science-based guideline documents for any number of Canadian client groups and users of products; the post-market monitoring of products and effects once products are on the market; the general and targeted monitoring of activities, volumes, and impacts of environmental and health hazzards and risks at numerous discrete sites and locations, many remote and dangerous; the tendering of advice to professional groups; and the exchange of knowledge, information, and advice with international bodies and fellow RSA practitioners in other countries and jurisdictions. The chapter is organized into two main sections. The first section explores science-based regulation in terms of core definitions, relationships, and boundary problems as well as locating it in the context of federal S&T policy and innovation and the 'smart regulation' agenda. It also maps the potential ways in which RSA might interact with multilevel regulation both directly, in realms where product approvals are involved, and indirectly, where the RSA consists of federal science and technology-based monitoring activity but where such monitoring can feed into provincial, local, and international regulatory activity. The second section is more empirical. It looks at two case studies of federal regulatory bodies with product/substance approval roles in an effort to understand both the notion of levels (governmental and governancebased) and what RSA involves in these complex governance contexts and flows of decision making and mutual knowledge-sharing and exchange. It begins with a brief description of the two case study agencies, the Veterinary Drugs Directorate (VDD) in Health Canada, and the New Substances Branch (NSB) of Environment Canada. Then it probes three issues or elements of the case study agencies as they effect and involve RSA: 1) the core decision and/or risk assessment and risk management cycles and the core volumes of decision making; 2) the nature of external partnerships, levels, and dependencies; and 3) personnel issues and competences. Conclusions then follow both on what RSA in regulation actually involves, why it is important but often unrecognized in multilevel regulatory contexts, and what levels actually mean in concrete situations and contexts.

82 G. Bruce Doern

RSA and Levels of Science-Based Regulation To conceptualize RSA and levels of science-based regulation, we need to discuss its core definition, relationships, and boundary problems, where it fits in with federal S&T and innovation policy and the smart regulation initiative, and how to map it with regard to levels of regulation. RSA: Definition, Relationships, and Boundaries

The federal government defines RSA as ' those activities that complement and extend R&D by contributing to the generation, dissemination, and application of scientific and technological knowledge' (Canada, 2002b: 26). It then goes on to define the subgroupings of RSA by field of science, namely, 'natural sciences: scientific data collection, information services, special services and studies, and education support: and social sciences: general purpose data collection, information, services, special services and studies, education support' (Canada, 2002b: 26). Yet these categories do not relate exactly to the way RSA is grouped in departments or for reporting to Statistics Canada. The same report cited above indicated that in 2000-1 the Government of Canada employed almost 32,000 personnel who were engaged in S&T activities and that, of these, nearly 13,000 were classified as scientific and professional, of whom more than 6,000 were engaged in conducting R&D (Canada, 2002b: 26). The inference to be drawn is that the remaining and larger number of scientific and professional employees (7,000) were engaged in RSA. Those working in R&D (scientific research and experimental development) are defined to be those engaged in 'creative work undertaken on a systematic basis to increase the stock of knowledge including the knowledge of humans, their culture and society, and the use of this knowledge to devise new applications' (Canada, 2002b: 26). The federal R&D definitions are drawn from the main global reference, the OECD Frascati Manual, which was published initially in 1963 but which has since had several revisions of the original text following various assessments of it set against the changing evolution of S&T and S&T outputs (OECD, 1963,1970,1976,1990,1993,1994,1995,1997). The Oslo Manual of 1970 brought more focus to technological innovation and the 1995 Canberra Manual dealt with the human resource dimensions of S&T. The 1994 Patents Manual focused on patents and the 1990 Technical Barriers to Trade (TBP) Manual was concerned with technology balance of payments.

Federal 'Related Science Activities' 83

A recent paper by Benoit Godin notes that the initial Frascati manual recognized the importance of RSA for a country and thus all countries were encouraged to collect data on RSA. But he stresses that, internationally 'numbers on RSA are almost completely unavailable because so few countries collect data on them. Besides Canada and Ireland among OECD countries - and some developing countries - mainly in Latin America - no country measures RSA today' (Godin, 2004: 4). Godin goes on to argue that the lack of overall interest in measuring RSA is a classic case of' boundary-work: erecting boundaries in order to exclude things considered outside the field' (Godin, 2004: 5). He concedes that there are measurement difficulties involved but more basically he argues that there are two factors that explain the non-interest in RSA: ideology and politics. Thus, on the ideological front, he claims that 'R&D was perceived as a higher order of research. No argument was needed to convince people of this hierarchy. It was taken for granted by almost everybody that "soft" activities like market studies or design, for example were not R&D' (Godin, 2004: 5). On the political front, Godin argues that the non-interest was due to the 'need for presenting misleadingly high science and technology performance' (Godin, 2004:5). In the context of this kind of argument, Canada deserves credit for actually assembling RSA data but the analysis in this chapter will show that there are some political and presentational reasons why the federal government does not draw attention to RSA in its overall public S&T policy storyline nor to its underlying importance in multilevel regulation. The authors of another recent review article have observed that,' on a theoretical level it is generally agreed that these internal and external enhancements of the Frascati Manual reflect the gradual replacement of the linear concept of innovation with an interactive concept ... Thus R&D is now envisaged as an activity that can take place at any stage of a given innovation process and not just at the beginning. It can also take place independently of any clearly identified innovation process' (Djellal et al, 2003: 416). Djellal et al. go on to stress that the criterion of novelty in the Frascati Manual definition of R&D is the core basis for distinguishing R&D from 'related activities/ Paragraph 70 states that the 'presence in R&D of an appreciable element of novelty and the resolution of scientific and/or technological uncertainty... is when the solution is not readily apparent to someone familiar with the basic stock of commonly used knowledge and techniques in the area concerned' (OECD, 1993). But notions of novelty are not an easy guide and hence boundary problems arise. To

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appreciate and distinguish 'related' activities (including RSA) from R&D, the Frascati Manual (OECD, 1993) suggests other possible ways of differentiation such as by looking at the nature of project objectives, the methods used, and the type of personnel involved in the project. RSA in the Federal S&T and Innovation Policy Debate

RSA must also be linked to the basic nature of federal S&T and innovation policy. These policy debates are well examined in other sources and thus no detailed discussion is presented here (Doern and Levesque, 2002; de la Mothe, 2003; Canada, 2001, 2002as, 2002b). What is stressed instead is that, in the larger scheme of things, this debate tends to ignore or seriously underplay the pivotal role of RSA. The larger evolving federal policy has been characterized by four key themes and decisions. First, federal S&T absorbed significant cuts in the mid-1990s under the impetus of federal Program Review. Many federal science-based departments were especially hard hit and, despite some selected infusions of catch-up money in recent budgets, they have still not been fully restored to previous levels, let alone to meet what are undoubtedly regulatory and monitoring mandates expanded in the meantime (Environment Canada, 2000a, 2000b). Second, federal infusion of S&T funding increases since the succession of federal surplus budgets began in 1997 has largely gone to universities via the Canada Foundation for Innovation and the granting councils, and to support industrial research (Kinder, 2003). This burst of considerable new funding continued the longer trajectory of federal science policy over twenty years or more, which had always stated that the federal preference was to get more and more R&D and S&T out of government and into industry and universities. Third, federal policy has increasingly supported the concept of innovation policy per se. Underlying this was a desire to foster a Canadian economy that could compete in the global knowledge-based economy and that had to commercialize knowledge. Innovation policies were also explicit admissions that the old linear model of R&D or S&T was no longer a valid basis on which to anchor policy. This linear view had held that basic research leads to applied research and development and that this in turn leads to innovative new products. It was now recognized that innovation could occur, as noted in our discussion of R&D definitions above, in non-linear, interactive linkages at any point in the nominal continuum. National and local systems of innovation and the

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notion of clusters became central to how S&T innovation policy was discussed and fostered (Wolfe and Lucas, 2003). A fourth feature of federal S&T policy was the emergence of more explicit concern for the nature of science advice in overall federal decision making. New governance institutions were formed and discussions were fostered about how to ensure that federal S&T advice was better linked to policy and was also transparent and independent and that it engaged Canadians in direct and continuous ways (Canada, 2002b; Doern and Reed, 2000). None of these policies was, in its time and context, wrong or inappropriate. But what is important about all of them in the context of this chapter is that they were crafted without much import being given to the key role that RSA plays or even to what it actually is. The federal government's report on federal science and technology for 2002 is an example of this status of RSA as an element that functions under the radar screen of federal S&T policy (Canada, 2002b). The report deals with all four of the above summarized and important aspects of S&T innovation policy but leaves RSA to a bare mention. As we have already quoted above, the basic statistical chapter in the 2002 report on federal S&T mentions RSA and defines it. It shows or infers that the larger part of the federal S&T staff is engaged in RSA activities. Thus, in two pages of an eighty-one-page report on federal S&T, RSA gets a direct and an inferred mention but then is not dealt with in any other way. At one level, this is simply because the federal government wishes to draw attention to its larger S&T policy storyline. But as a full treatment or understanding of what RSA actually involves, and how crucial it is, it is woefully inadequate. RSA in the Smart Regulation Agenda In many crucial respects, RSA is about science and technology in support of public interest regulation. Yet the word "regulation" does not even arise in the core definitions of RSA. Accordingly, thinking about it requires putting RSA into the context of debates about regulation and regulatory governance and in the knowledge that regulation involves both service-like relationships (see next section) and those of compulsion and compliance (Sparrow, 2000; Solomon, 2002). As chapter 1 has shown, the policy debate about regulation has been increasingly cast within the rubric of smart regulation. Like the debate about the policy on federal S&T and innovation, the

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debate about smart regulation underplays RSA per se. The final report of the External Advisory Committee on Smart Regulation (EACSR) has little to say about RSA. It stresses that smart regulation implies an increase in capacities to regulate in innovative but still public interestoriented ways but then, as a concept, it often ignores what might be crucial to make such a development a reality: the S&T-based pre- and post-market regulatory science and monitoring capacities of the federal science-based departments and agencies, in short, their RSA. Mapping RSA in Multilevel Regulation The previous sections have indicated that RSA falls below the federal policy radar screens in definitional terms, in S&T policy documents, in the innovation agenda, and in the smart regulation strategy. The same is true in multilevel regulatory contexts where it is seriously unexplored. The previously cited work of Djellal et al. is useful again in this RSA mapping context. Djella et al. are ultimately concerned with the need to revise the definitions of R&D in the light of the specificities of services (Djellal et al. 2003). Their view of services refers mainly to services in the private sector, where they draw attention to problems of the relational and triad nature of service innovation. According to this view, a service is composed of three triad elements: the customer; the service provider, and the service medium. Service mediums can include tangible goods, codified information, and knowledge, as well as individuals themselves (Djellal et al. 2003: 418). The overall purpose of this analysis is to argue that the definitions inherent in the Frascati and related manuals continue to have an 'industrialist and technologist' concept of R&D and that they are unable to take into account the systematic creation of new knowledge in services. The authors maintain that they do not seek a fundamental redefinition but rather a greater recognition of 'the importance of the social sciences and humanities and of design and development or organizational engineering, the composite nature of projects and so on. Our objective is to attain a certain "psychological" threshold that would mark our emancipation from the still dominant industrialist and technological approaches' (Djellal et al., 2003: 415) I sight this particular argument and commentary here because its invocation of services is of some importance for RSA in government S&T. It is not my intention to explore services in the private sector as the

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Djellal et al. analysis does. But it is of analytical interest for government RSA to take up their point that services are relational and triad-like in nature. If RSA is to be more fully understood and supported as a key part of the role of multilevel regulation, then the notion of service relationships and various mediums are important. This does not mean that the notion of services covers the full domain of action. Government RSA in the form of monitoring activity is service-like but RSA is also very much a part of regulation and regulation in turn implies notions of sanctions, compliance, and compulsion. Services, on the other hand, tend to evoke the notion of some voluntarily chosen benefit. But both service-style activities and regulatory ones are relational and increasingly triad-like in terms of relations and interactions. And in governmental settings RSA involves service mediums which include tangible goods, codified information and knowledge, and individuals themselves, including the brains, analytical judgement, and regulatory and monitoring experience of RSA staff. At this point, we simply re-emphasize the notion that official definitions of RSA define it as related, residually, to R&D and not to what it actually is, namely, a crucial aspect of science and technology-based monitoring activity and regulatory activity which in turn embodies both service-like and compliance-centred activity (Doern and Reed, 2000). Service-like activity includes any number of monitoring roles and activities carried out by several federal laboratories and sciencebased agencies (and some provincial and local ones as well). Table 4.1 represents an initial approach to mapping RSA in the light of these kinds of varied relations as they play out in the context of multilevel regulation. As indicated, RSA has two major dimensions: a) in rule making, product approvals, and compliance and enforcement relations and activities; and b) in monitoring activities of a more service-oriented nature but which often feed into regulatory activities by other levels of government (provincial, local, and international). As indicated, in the first dimension, RSA involves the direct assessment by RSA staff of product approvals or the conduct of various actions regarding compliance and enforcement in numerous discrete cases, situations, and contexts. This can often also involve the drafting of numerous guideline documents for use by client groups and users of products in the general public and by employees (professional, technical, and general) at other levels of government. It also involves fre-

88 G. Bruce Doern Table 4.1. Core RSA relations in multilevel regulation RSA for regulation and product approvals

direct assessment by RSA staff of products for approval/use in markets direct assessments/actions in compliance and enforcement drafting of guidelines and guideline documents for use by client groups, users of products in the general public, and employees of other levels of government continuous exchange of RSA knowledge with international and foreign regulators

RSA for general and postmarket monitoring

general and continuous surveys and monitoring specific or targeted monitoring and reporting not regulatory in the first instance but can tie into or lead to other regulations by other governments or selfregulation by stakeholders can produce guidelines and actions that citizens perceive as regulatory in some overall sense of the state as protector of health and safety involves numerous exchanges of RSA knowledge among staff in other core federal, provincial, and international agencies as well as professional knowledge groups.

quent, often daily, exchanges of RSA knowledge and expertise with their counterparts in other country's regulatory bodies, especially U.S. regulators such as the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA) but also international bodies such as the World Health Organization (WHO) and any number of others. In its second dimension of general and post-market monitoring, RSA consists of activities that do not at first glance appear to be regulatory. It involves general and continuous surveys and technical monitoring such as the work carried out by the Water Survey of Canada (Water Survey Program, 2003). It can also involve other kinds of specific or targeted kinds of monitoring such as those involved in growing programs of pharmacovigilence. While these activities are often not defined as regulatory per se, Canadian citizens may well see them as regulatory in that they are a part of their broad view that government agencies are protecting them in some overall regulatory sense. Moreover, federal RSA monitoring activity may well lead to later rule making, guideline setting, or compliance activity by other levels of

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government, including, provincial, local, and international levels. As with the first dimension of RSA, monitoring-focused RSA involves numerous exchanges of RSA knowledge between and among RSA staff in core federal agencies and provincial, local, and international knowledge groups and professionals. The Two Case Study Agencies, RSA, and Multilevel Regulation The core purpose of the chapter is not to study two case study agencies per se but rather to utilize them illustratively as a vehicle to understand more completely the nature of RSA and its relationships to levels of rule making. Accordingly, in this section we provide initial accounts of each agency's mandate, structure, and RSA versus R&D mix of activities, along with an initial sense of their core operating realities. Then we examine three more detailed features of the agencies mentioned in the introduction to the chapter and in the mapping section above. RSA in Health Canada and Environment Canada

The two case study agencies examined in the chapter are located within Health Canada and Environment Canada and must function within their parent department's mandate, statutes, and organizational and business-line structures. We do not go into these departmental features in any detail, referring to them only insofar as they are needed to elaborate on the case studies. However, it is important to note the two department's relative compositions as between R&D and RSA. Health Canada's own breakdown shows that 75 per cent of total S&T employees do RSA, with about 55 per cent doing risk assessment of products and environmental risks.1 R&D constitutes about 25 per cent of the total. For its part, Environment Canada's total S&T expenditures are 72 per cent on RSA and 28 per cent on R&D (Environment Canada, 2000b: summary). Its percentage of S&T employees is 75 per cent on RSA and 25 per cent on R&D. In both expenditure and personnel terms, Health Canada and Environment Canada have by far the largest percentage of RSA focus compared to other federal science-based departments. While these data are important and useful, it must again be stressed that department reports all stress that there are overlaps with R&D that are difficult to sort out and differentiate. It is also of some importance to

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note that these reports' further definitions and examples of RSA seem not to refer to the notion of regulation as such even though that is a fundamental part of what their RSA is related to and centred on. Core Mandates THE VETERINARY DRUGS DIRECTORATE (VDD)

The Veterinary Drugs Directorate is a new directorate in Health Canada. Established in 2001, it is a part of the Health Products and Food Branch of Health Canada (it had been a bureau within the Food Directorate prior to becoming a directorate itself in 2001). The VDD's mandate is to ensure 'the safety of food such as milk, meat, eggs, fish, and honey from animals treated with veterinary drugs ... [and] also ensure that veterinary drugs sold in Canada are safe and effective for animals' (Veterinary Drugs Directorate, 2004:3). Functioning under the Canadian Food and Drugs Act and Regulations, the VDD assesses and approves veterinary drugs which manufacturers submit for possible sale in Canada. The VDD also establishes the maximum residue limits (MRLs) for veterinary drugs used in food-producing animals. Manufacturers are required to submit data to 'demonstrate/establish the safety of any residues in food from treated animals, as well as the safety and efficacy of the products for the treated animals' (VDD, 2004: 5). The VDD is extensively involved in the evaluation of industry submissions and in the establishment of MRLs. However, its RSA activity also involves monitoring through its pharmacovigilance program as well as related activities including health risk assessments (HRAs), research and surveillance, science-based policy and regulatory development, issues management, international cooperation/harmonization, and public involvement and outreach. The VDD provides HRAs at the request of the Canadian Food Inspection Agency (CFIA) when violative residues are found in food derived from animals. The CFIA then undertakes the appropriate compliance measures. The growing international role is centred on the Veterinary International Cooperation on Harmonization of Technical Requirements for the Registration of Veterinary Medical Products (VICH), a trilateral (European Union-Japan-United States) program. The VDD leads Canada's 'observer' role in the VICH process and also heads Canada's delegation to the Codex Committee on Residues of Veterinary Drugs in Food (CCRVDF) (Veterinary Drugs Directorate, 2004: 8). Based in Ottawa, the VDD is composed of a multidisciplinary staff of

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about eighty people of whom approximately fifty are engaged in RSA. Its budgetary allocations are approximately 80 per cent for RSA and 20 per cent for R&D. The research is purchased from other Health Canada and university research centres. The VDD's policy and regulatory development roles are based on evidence-based decision making and a smart regulations approach 'which emphasizes appropriate instrument choice in order to protect Canadians, the public interest, and enable innovation' (Veterinary Drugs Directorate, 2004: 7). It is anchored within Health Canada's Decision Making Framework for risk assessment and risk management (Health Canada, 2003), already referred to it a previous section of this chapter. THE NEW SUBSTANCES BRANCH ( E N V I R O N M E N T CANADA)

The New Substances Branch (NSB) of Environment Canada coadministers, with Health Canada, the new substances provisions of the Canadian Environmental Protection Act (CEPA), including the New Substances Notification Regulations (NSNR). CEPA was originally promulgated in 1988 but then replaced by CEPA 1999. It has always had provisions whose key purpose is to ensure that' no new substance is imported into or manufactured in Canada without a formal review, prior to market introduction, of its potential risks to human health and to the environment' (Health Canada and Environment Canada, 2002: 3). New substances include chemicals, polymers, biochemicals, and biopolymers as well as animate products of biotechnology. The case study of NSB in this chapter refers only to Environment Canada's role but in all of our discussion it must be kept firmly in mind that the program depends on Health Canada's RSA capacity as well. The CEPA provisions referred to above prohibit the import or manufacture of new substances unless importers and manufacturers notify Environment Canada in accordance with the requirements of the NSNR. The notification information 'typically includes test data relating to physicochemical properties, environmental fate and behaviour and/or toxicity' (Health Canada and Environment Canada, 2002: 3). Crucial to the regime is the determination of what is new and therefore notifiable. CEPA relies on the Domestic Substances List (DSL): if a substance is not present on this list, then it is considered new. There are also other factors in determining the need to notify, including whether importation/manufacture quantities equal or exceed prescribed regulatory triggers or whether they comply with stated exemptions and exclusions in CEPA 1999. Substances that do not require notification include those

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listed on the DSL, substances regulated by other federal acts that appear in CEPA schedules, and substances meeting a number of other tests or characteristics. There is also a Non-domestic Substances List (NDSL) which is a compilation of substances other than animate products of biotechnology that are not on the DSL but are believed to be in international commerce. These are still subject to notification but the information requirements are reduced because of previous U.S. experience. It is the U.S. list that was chosen as the basis for determining that the substances were in use in international commerce because that country has had a notification regime in place since the late 1970s and therefore could be a source of expertise. Notifiers are responsible for providing the information packages and any associated costs. The New Substances Program costs are mainly taxpayer-funded through the budgets of Environment Canada and Health Canada but also through a lesser contribution via fees prescribed under the New Substances Fee Regulations. The assessment process is a joint one with Health Canada and must be completed within a limit of from five to ninety days depending upon the extent of introduction into Canadian commerce. The process can have one of three results: a determination that the substance is not suspected of being 'toxic' or capable of becoming 'toxic/ a suspicion that the substance is 'toxic' or capable of being 'toxic/ or a suspicion that a significant new activity (SNAc) may result in the substance becoming toxic if there was adequate information available to assess it. If the substance is suspected of being toxic, then the risk may be managed through measures on import and manufacture, its outright prohibition, or prohibition pending submission and assessment of additional information. There are also post-notification responsibilities imposed upon notifiers, including correction of information, notices of excess quantity, and submission of any new information available to the notifier that reasonably supports the conclusion that the substance is toxic or is capable of becoming toxic. It must be stressed, therefore, that the NSB does not 'approve' substances. It cannot formally be described as pre-market approval agency the way the Veterinary Drugs Directorate can. It can, however, be called a pre-market regulator. It also has some post-market monitoring and compliance activities because of the post-notification features of CEPA. The New Substances Branch consists of several divisions for the various risk assessment and regulatory compliance phases of CEPA and the NSNR. These divisions provide strategic planning and program coordi-

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nation; processing of notifications and risk management measures; delivery of client services; new chemicals evaluation; and biotechnology evaluation and policy development. Of Environment Canada's fortyfive-person professional staff, 50 per cent are engaged in RSA and the other 50 per cent in other regulatory/policy work. The branch receives over 800 submissions per year, about 20 of which result in some form of risk management measures. Core Decision and/or Risk Assessment and Management Cycles and Volumes

The first issue regarding the nature of RSA is that of appreciating the core cycles of decision making and risk assessment/management and the volume of activity inherent in those cycles. In a sense, the very notion of cycles or rhythms of business for the case study agencies is bound to be an inexact designation, though it is probably a clearer concept for the agency with pre-market product/substance regulatory roles. The nature of RSA emerges from the very fact that RSA staff interact mainly with firms and commercial organizations and their S&T staff as information and applications are submitted to be assessed. RSA staff draw on their own knowledge and training and also seek out research and related studies to make decision and judgments about the product, substance, or activity in question. For an agency that is mainly a monitoring body, the notions of cycles of decision making are less easily detectable to the outsider. There are certainly notions of regularity in monitoring to obtain consistent data but there are also more complex types of behaviour in answering queries from the public and dealing with clientele and service users who include other governments, employees/workers, community groups, and site-specific towns and cities. The NSB has a high-volume business to contend with, about 800 submissions per year in the main chemicals assessment process, although considerably fewer (about 10 to 12) for biotechnology substances. It broadly functions under Environment Canada's framework for environmental risk assessment and management and its volume of assessments must be coordinated with Health Canada, whose RSA personnel look at the health effects of new substances. Like all premarket regulators, its staff must also apply its RSA in the context of rules regarding the protection of a firm's proprietary interests. Thus, as it assesses and regulates, it cannot reveal information or data that might publically disclose such interests.

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For its part, the VDD's notion of core cycles for RSA practice is somewhat less straightforward than that of the NSB. The notion of volume is somewhat more varied because an approval can involve a change of dose, the addition of a new species, or a new veterinary drug per se. But truly novel veterinary drugs are quite rare. As previously mentioned in our initial profile of the VDD, the agency does conduct its assessment work in the context of Health Canada's decision-making framework for risk assessment and management. But the VDD also has a growing role in post-market monitoring under the concepts and processes of pharmacovigilance. For this aspect of its work, RSA involves elaborate networks of information and reporting from numerous groups and individuals, including farmers, veterinarians, doctors, and milk, poultry, and other food producers. Overall, the VDD's RSA is brought to bear in risk assessment, in devising risk management options and decisions, in labelling, in setting residue limits in food, and in suggesting non-regulatory options and approaches. The Nature of External RSA Partnerships and Dependencies

In our discussion above of the core cycles, it is almost impossible not to have to discuss RSA in relation to an agency's external (non-agency) RSA, R&D relations, partnerships, and dependencies. This is where our earlier reference to regulatory and service triads becomes important in understanding RSA from a realistic agency or 'bottom-up perspective' rather than the top-down definitional views of R&D and RSA. When thought of, as it should be, as 'regulatory science,' RSA is almost always relational and networked. RSA is embedded in the brains, education, training, and experience of RSA staff but they constantly have to reach out on a daily basis to other points, people, and sources of R&D, other people's RSA, and other kinds of organized knowledge. We saw this in the previous section where the pre-market regulatory case study agency has primary relations with the R&D and technical staff of applicant companies. But it is equally true that these other sites and sources also need and relate to the RSA of the agencies' front-line staff. Beyond these core relations that lie at the heart of RSA in action, the two case studies show the larger wide array of partnered relations and dependencies to achieve the day-to-day needs of regulatory and monitoring science. The VDD has links with external RSA and R&D sources beyond their core dealings with experts in the applicant firms. It engages regularly with its core stakeholders to get a regular updated

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sense of the different risk situations and practices. It works with the veterinary colleges, which are, of course, educating the new veterinarians and are also engaged in updating professional practice. In its recent/current work on antimicrobial resistance (AMR), where new risk management strategies have to be developed against a serious health threat, the VDD has operated through an advisory multi-stakeholder committee which reviewed national and international scientific reports on AMR (Health Canada, 2002). It has also built its AMR evidence base through collaboration with the Health Canada National Microbiology Laboratory in Winnipeg, the Canadian Institutes of Health Research, the provinces and territories, and a formal Canadian Committee on Antibiotic Resistance (CCAR). Internationally, the VDD, on the AMR issue and more generally, is closely tied in with the work of the CODEX Committee on Residues of Veterinary Drugs in Food, the WHO, and other international regulatory agencies. For its part, the New Substances Branch (NSB) also has key RSA and R&D connections with many players outside the boundaries of its own organization. Links to the U.S. Environmental Protection Agency are virtually daily in nature. A growing issue in the nature of RSA in the field of new substances is the EPA's encouragement of the use of modelling approaches as an alternative to direct scientific data as evidence. Designed to speed up the regulatory process, the use of modelling not only raises key concerns about efficacy but also places potential new demands on the training and equipment needed for RSA personnel should the practice be adopted in Canada's regulatory regime. Domestically, of course, the NSB has links with other parts of Environment Canada, Health Canada, and some universities with relevant research expertise. Given its core relationship with applicant firms, it also has regular meetings with core stakeholder groups in the chemical industries and now, increasingly, the biotechnology industries as well. RSA Personnel Backgrounds and Competences

The third aspect of RSA and regulation that warrants illustrative comment regarding the two case study agencies is the core backgrounds of RSA personnel and the changing competences needed to meet the changing regulatory and monitoring challenges they face. As previously noted, RSA is not just research-related activity. It is also something that crucially depends upon the stock of brain power and experience of front-line assessors and monitoring personnel. They bring

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their knowledge and skills to bear and they also have capacities to obtain other kinds of research and information. In the case of the Veterinary Drugs Directorate, the traditional core RSA staff come with backgrounds in chemistry, biology, and veterinary medicine. The VDD has grown quickly from thirty to eighty staff in the last three years and continues to attract qualified persons. Indeed, the relative newness of the agency and its staff, has also meant that it has been able to forge its own culture consistent with its mandate rather than being bound by a long history of previous program practice. The VDD is in a realm of changing challenges and thus does need new competences to deal with such issues as growth hormones and also the previously mentioned antimicrobial resistance. The competences needed are already there in the university graduate and private marketplace for personnel, though it is often hard to get an exact match for the regulatory or monitoring task at hand. For the New Substances Branch, core RSA expertise centres on staff with backgrounds in chemistry and biology. But the expertise must also increasingly involve more detailed regulatory knowledge of particular classes of compounds. As mentioned earlier, there are also greater needs for computer-based modelling skills and competences. It is often difficult for the NSB to find the particular expertise it needs, in part because universities and colleges do not necessarily produce them 'ready made' but also because experience and training must be acquired on the job and government salaries may not be competitive in attracting the right people. In the NSB's biotechnology mandate, the core competences are more complex, as is the information and analysis the assessor has to deal with and interpret. Accordingly, in this growing realm, RSA expertise is harder to attract and retain, given fast-moving R&D changes and opportunities in the private sector. The two case studies illustrate more clearly what RSA is and why it is crucial to multilevel regulation both directly and indirectly. The complex set of service-oriented and regulatory tasks set out in table 4.1 emerge quite clearly. RSA involves the direct assessment of product proposals and applications; the enforcement of rules; the drafting of guideline documents for any number of Canadian client groups and users of products; post-market monitoring of products once they are on the market; the monitoring of activities, volumes, and impacts of environmental and health hazzards and risks at numerous discrete sites and locations, many remote and dangerous; the tendering of advice to professional groups; and the exchange of knowledge and information with

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international bodies and fellow RSA practitioners in other countries and jurisdictions. Conclusions The central argument of this chapter has been that federal RSA needs to be more clearly understood and supported as something crucial to multilevel regulatory governance as well as to federal regulation. For Health Canada and Environment Canada, the home departments of our two case study agencies, RSA accounts for about 75 per cent of their S&T. Despite this, in terms of official federal definitions, RSA seems at times to be a residual leftover category, not R and not D but somehow still involving science. Moreover, as we have argued, the designation RSA means that the question as to what it is and what it is related to is not automatically answered. I conclude overall that RSA is the quintessential core of government S&T necessary to enable the state to regulate and monitor and manage risks in the public interest in the context of complex levels of regulation. In pure definitional terms, the current definition of RSA is misleading in conveying what is actually involved. RSA is without doubt related to R&D. But it is also at the heart of regulatory and monitoring activity and hence to the core public interest tasks of the role of government. The analysis has shown that the case study agencies vary as to the precise mix of pre-market regulatory and monitoring tasks and mandates they must fulfil and their varied workloads. Regulation as a task is one that involves both the enforcement and the sanctioning authority and power of the state but it also involves numerous service relationships as well. The varied RSA tasks need to be cast in ways similar to the manner that services and service relationships and innovation are being viewed in the private knowledge-based economy, namely, as varied triads of service relations including the service provider, the service client, and the service medium. The case study agencies operate very much in this kind of complex relational multilevel world, with RSA emerging out of the education, training, knowledge, and experience of front-line assessors and monitoring personnel but also out of their ability and the agencies' ability to obtain timely R&D inputs as well as other kinds of knowledge from many sources, national, provincial, and international. RSA also depends on capital equipment and technologies which are constantly changing. The federal government is certainly not unaware of the importance of

98 G. Bruce Doern RSA; indeed, on a yearly basis, the government makes and more and more legal and policy-regulatory commitments requiring more of RSA. But in public debates, in funding, and in its core publications about federal S&T and innovation policies, the federal government basically obscures RSA and deliberately and seriously underplays it in its official policy statements. RSA is simply not central to its larger S&T and innovation policy storyline, which favours overwhelmingly academic and private sector S&T and innovation rather than the S&T needed to underpin the monitoring and regulatory tasks in the public interest that regulators at multiple levels must carry out. NOTES This chapter draws on, and extends, another paper written by the author. See Bruce Doern, 'Related Science Activities (RSA): The Other Half of the Federal S&T Story' (paper prepared for Health Canada and Environment Canada, Carleton Research Unit on Innovation, Science and Environment (CRUISE), September 2004). It examines four case study agencies in the two departments but did not deal at all with the multilevel regulatory dimensions of RSA. 1 Data provided by Health Canada REFERENCES Canada (2001). Investing in Excellence, 1996-2001: A Report on Federal Science and Technology, 2001. Ottawa: Industry Canada. Canada (2002a). Achieving Excellence. Ottawa: Industry Canada. Canada (2002b). Science and Technology Advice: A Framework to Build On: A Report on Federal Science and Technology, 2002. Ottawa: Industry Canada, de la Mothe, John (2003). 'Ottawa's Imaginary Innovation Strategy: Progress or Drift?' In Bruce Doern, ed., How Ottawa Spends, 2003-2004: Regime Change and Policy Shift. 172-86. Oxford: Oxford University Press. Djellal, E, D. Francoz, Carnal Gallouj, E Gallouj, and Yves Jacquin (2003). 'Revising the Definition of Research and Development in the Light of the Specificities of Services.' Science and Public Policy 30, no. 6: 415-30. Doern, G. Bruce, and Richard Levesque. 2002. The NRC in the Innovation Policy Era: Changing Hierarchies, Networks and Markets. Toronto: University of Toronto Press.

Federal 'Related Science Activities' 99 Doern, G. Bruce, and Ted Reed, eds. (2000). Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime. Toronto: University of Toronto Press. Environment Canada. (2000a). 'Research and Development and Related Scientific Activities in Environment Canada.' Science Policy Branch, Environment Canada, Working Paper no. 7. March. (2000b). 'Environment Canada's S&T Expenditures.' Science Policy Branch, Environment Canada, Working Paper no. 13. December. External Advisory Committee on Smart Regulation (EACSR) 2004. Smart Regulation: A Regulatory Strategy for Canada. Report to the Government of Canada. Ottawa: External Advisory Committee on Smart Regulation, September. Godin, Benoit. (2004). 'Neglected Scientific Activities: The (Non) Measurement of Related Scientific Activities.' Project on the History and Sociology of S&T Statistics. Universite de Quebec at Montreal. Health Canada. (2002). 'Uses of Antimicrobials in Food Animals in Canada: Impact on Human Health' Ottawa: Health Canada. Health Canada and Environment Canada. (2001). Consultations on the CEPA New Substances Notification Regulations and New Substances Program: Final Report of the Multistakeholder Consultations. Ottawa: Health Canada and Environment Canada. (2002). Consultations on the CEPA New Substances Notification Regulations and New Substances Program: Environment Canada/Health Canada Response to the Consultation Recommendations. Ottawa: Health Canada and Environment Canada. Kinder, Jeff (2003). 'Fifteenth to Fifth? The Role of Government Labs in Canada's New Science Policy.' In Bruce Doern, ed., How Ottawa Spends, 2003-2004: Regime Change and Policy Shift. Oxford: Oxford University Press. Organization for Economic Cooperation and Development (OECD) (1963). Proposed Standards Practice for Surveys of Research and Experimental Development: Frascati Manual. Paris: OECD. (1970). Proposed Guidelines for Collecting and Interpreting Technological Innovation Data: Oslo Manual. Paris: OECD. (1976). Proposed Standard Practice for Surveys of Research and Experimental Development: Frascati Manual, 3rd ed. Paris: OECD. (1990). Proposed Standard Method of Compiling and Interpreting Technology Balance of Payments Data: TBP Manual. Paris: OECD. (1993). Proposed Standard Practice for Surveys of Research and Experimental Development: Frascati Manual, 5th ed. Paris: OECD. (1994). Using Patent Data as Science and Technology Indicators: Patent Manual. Paris: OECD.

100 G. Bruce Doern (1995). The Measurement of Human Resources Devoted to S&T: Canberra Manual. Paris: OECD. (1997). Proposed Guidelines for Collecting and Interpreting Technological Innovation Data: Oslo Manual, 2nd ed. Paris: OECD. Solomon, Lester Mv eds. (2002). The Tools of Government: A Guide to the New Goverance. Oxford: Oxford University Press. Sparrow, Malcolm K. (2000). The Regulatory Craft. Washington: Brookings Institution. Veterinary Drugs Directorate (2004). 'Strategic Plan: April 2004-March 2007.' Veterinary Drugs Directorate, Health Canada. Water Survey Program (2003). Investment Strategy and Plan: Building a Sustainable Hydrometric Program, 2001-2002 to 2005-2006. Ottawa: Environment Canada. Wolfe, David, and Matthew Lucas (2003). Clusters in a Cold Climate. Montreal and Kingston: McGill-Queen's University Press.

5 Still between a Rock and a Hard Place: Local Government Autonomy and Regulation CHRISTOPHER

STONEY

As globalization, immigration, and urbanization continue to place inexorable pressure on Canada's cities, a growing sense of crisis has catapulted urban affairs to the top of the political agenda. Concerns about a crumbling infrastructure, under-investment, declining competitiveness, urban sprawl, sustainability, and inadequate public services have produced a widespread consensus that something needs to be done to address these challenging issues. Given the enormity of the problems, a strategic and well-coordinated policy framework is required if Canada's major cities are to be rebuilt and revitalized. However, the fiscal, social, and demographic pressures facing Canadian cities have brought into sharp focus the complex multilevel framework that regulates their development and exposed the intergovernmental tensions and the ad hoc, often contradictory, policy making that continue to undermine an effective and coordinated political response. Under the current system, responsibility and accountability for the regulation and development of Canada's cities are blurred while funding is patchy, unpredictable, and eclectic. Consequently, obfuscation is institutionalized, with each tier of government instinctively blaming the others for the deterioration of the cities, and overall responsibility for their renewal is by no means clear. The primary aim of this chapter is to examine the seemingly inadequate multilevel regulatory framework responsible for Canada's cities and to highlight the problems and confusion created by diffuse powers and accountability. In particular, the chapter examines the Paul Martin government's much-heralded 'New Deal for Cities and Communities' in the context of an evolving yet still uneasy relationship between Canada's three principle levels of government.

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Clearly, such analysis requires a broader and altogether different conceptualization of regulation than the standard reference to expressed rules, sanctions, and effective state enforcement would allow. Certainly, regulation is about defining and enforcing 'rules of behaviour,' but the chapter's second aim is to expand the concept of regulation beyond its traditionally narrow focus on the enactment of formal rules. Regulation, it is argued, needs to include consideration of the political, fiscal, and ideological 'architecture' that binds actors together and helps establish the 'rules of the game' from which regulation emerges (Benson, 1977). Consequently, this broader framework is used to question the power-neutral manner in which the literature treats the process of regulation and reflects the belief that, like all social and political activities, the process and outcomes of regulatory efforts are skewed by the social, economic, and political power of participants. Thus, if the regulation of Canada's cities is to be significantly changed by the New Deal, then, changes in the broader framework and balance of state power will also be required. Canada's current multilevel arrangements for managing cities are increasingly seen as outdated and dysfunctional and have been labelled 'hourglass federalism': 'The federal government is the top half of the glass with resources, the provinces are the choke point in the middle, because their resources have all been sucked into providing medicare. The cities are in the bottom with many problems but few resources' (Globe and Mail, 3 May 2004). Therefore, in the broader context of local government autonomy, how the Canadian state regulates itself, ascribing and circumscribing powers between its various levels and jurisdictions, becomes central to the analysis of how Canada's cities are regulated and governed. I argue that, while initiatives such as the New Deal provide local governments with some much needed funding to halt the decline in urban infrastructure, they fail to address these broader questions of local autonomy and accountability and may in fact increase the likelihood of obfuscation and failure. At a practical level, Canada's big city mayors continue to express their growing frustration that levels of municipal funding, local priorities, and even minor administrative issues continue to be tightly regulated by provincial and federal governments. Ironically, at a time when devolution, subsidiarity, and 'enabling' have become the sine qua non of 'good' governance, the role of local government in Canada appears anachronistic and suboptimal in the face of the emerging urban crisis. Certainly, a valid case can be made for a strong provincial and federal

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presence in the drive to rebuild and renew Canada's urban centres. However, I contend that the current balance in intergovernmental relations remains overly state-centred and top-down, with little capacity for community engagement and representation on local issues. By centralizing federal direction over local priorities, the New Deal, like most urban initiatives, neglects the broader civic and democratic functions of local government and shifts Canada further away from the pluralistic ideal of democratic and accountable local government. In this broader context, a basic criterion for the effectiveness of regulation and regulatory regimes is that those subject to the regulation perceive them as legitimate. In the case of the New Deal, I examine the extent to which the federal government's use of levered funding, to determine and direct local priorities from Ottawa, will undermine legitimacy by eroding further the value of local politics and decision making. More specifically, I assess the New Deal in terms of its potential to simplify accountability, increase transparency and strategic choice, reflect local interests, encourage local participation, and increase local control over funding. Although the detail and substance of the New Deal is still emerging, all the early signs are that the federal government intends to keep tight regulatory control over what the transferred funds are used for. In spite of some rhetorical recognition of the need for greater municipal autonomy, there are few signs to suggest that it will empower municipalities in the way that municipal acts have done so in other areas. For example, cascading regulation has been used to devolve greater regulatory powers to the municipalities in areas such as housing and rent control rules, water and effluents, immigration, aspects of food regulation, and anti-smoking laws. In order to try and account for the absence of devolved powers in the New Deal, I distinguish between the state's often contradictory functions in promoting conditions for capital accumulation while maintaining political legitimacy (O'Connor, 1973; Offe, 1984). By attempting to discharge the former role, I argue that the federal government is likely to exacerbate rather than ameliorate its other major concern, the so-called democratic deficit. The chapter begins by setting out the context for the current urban crisis in Canada and considers the political reaction to it. It then illustrates the predominantly economic and business rationale underpinning the New Deal. Third, a case is made for reforming local government based on a broader political agenda. Fourth, the key financial, political, and institutional architecture used to constrain local government au-

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tonomy is discussed. Finally, the options for reform are outlined, and their potential efficacy assessed, before final conclusions are drawn. The Martin Agenda for Cities and Communities: Why Now? Evidence of the growing sense of crisis within our cities and municipalities is not difficult to detect in the current political climate. The Martin government announced in July 2004 its intent to make the urban agenda a priority by creating Infrastructure Canada and the new position of minister of state for infrastructure and communities. In addition, the federal government has promised the New Deal for Cities and Communities, which will see a transfer of a share of gas tax revenues to the municipalities of up to $2 billion by 2006; and, if only at a rhetorical level, Martin has acknowledged that cities need control over their sources of revenue and suggests that this is in part an issue of self determination: 'it isn't just a question of funding ... it's that municipalities need to plan their own futures' (Globe and Mail, 2 February 2004). In this context, Martin's stated goal to find 'long-term, sustainable, predictable funding' for cities and towns (Globe and Mail, 23 November 2004) is, in part, an admission of the years of neglect and ad hoc municipal funding that have contributed to the current problems. Lack of consistent and predictable funding is particularly significant in respect of the large investments required to tackle urban problems such as a crumbling and outdated infrastructure, public transit systems, and city planning and development. Equally important, the lack of such funding also restricts the scope for long-term, forward-looking policy making which is so central to the notions of strategic choice and local autonomy. As the president of the Federation of Canadian Municipalities (FCM) stated recently, 'it robs councils of their ability to budget and plan, and leaves them dependent on funding that varies with the political winds in Ottawa and provincial capitals' (Globe and Mail, 31 August 2004). Provincial governments, constitutionally the masters of municipalities, have also acknowledged the problems of municipal governments and of cities in particular. For example, in Ontario, Premier Dalton McGuinty has also promised a 'New Deal' for cities (Ottawa Citizen, 6 March 2004). At the municipal level, growing demands by the big city mayors for increased local autonomy and funding has helped to put urban issues back on the federal and provincial agenda. Buoyed by a generally supportive local electorate and national media, they have

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developed a vocal and well-publicized case for an empowered municipal tier of government with greater freedom and resources to take decisions locally. This broad mandate for reform has in turn been given coherence and expression by the FCM, which has articulated the municipal cause forcefully in recent years and added research evidence and data to support its claims of looming urban crisis. Together with academics and policy think-tanks, the FCM has identified a number of pressing issues facing Canada's urban major cities: The roles and responsibilities of cities have changed substantially owing to urbanization, cultural diversity, the concentration of economic production, the ageing population, the resurgence of social problems and growing income inequalities' (FCM, 2004a: 1). Add to this the growing responsibility for immigration, sustainability, and infrastructure renewal and it is clear that local government faces some enormous demographic, social, and economic challenges. In addition to the fiscal considerations raised by these urban-centred pressures, issues such as the control of urban sprawl, downloading of services, forced amalgamations, and coordination of emergency planning have brought into sharp focus the issue of multilevel regulation and raised serious questions about Canada's cities, such as who decides, who is responsible, who pays, and who is accountable. Despite sustained calls from municipalities for more control over local funding and spending decisions, vested interests, a reluctance to cede power, and the political benefits of ambiguous accountability have helped maintain the status quo. Consequently, after years of provincial and federal inertia, the New Deals promised by Premier McGuinty and Prime Minister Martin could be construed as panic in the face of an urban crisis that threatens to implicate provincial and federal governments in the mismanagement of our cities. While there may be some truth in this interpretation of events, the next section argues that economic factors, and the implications for business in particular, have been the primary catalysts for the emergence of a cities agenda and the announcement of a New Deal. The Business Case for Urban Renewal and Regulatory Reform There is no doubting the enormous and growing importance of cities in the context of Canada's overall wealth creation and growth. As urbanization has continued apace, it is estimated that Canada's city regions

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now generate 60 per cent of the country's GDP (FCM, 2004b), and their central role was described in a Government of Canada (GoC) strategy report in terms of economic competitiveness: 'A paradox of the global, knowledge-based economy is that sources of competitive advantage tend to be localized. Communities and regions across Canada use their knowledge resources to create economic value, and it is in communities that the elements of the national innovation system come together' (GoC, 2001: 7). The economic and commercial justification for urban renewal in Canadian cities appears to have gained momentum in recent years with the recasting of cities and communities as urban spaces through which information, capital, knowledge, and ideas flow. In a paradoxical process described as 'glocalization/ cities are now seen as the economic hubs or strategic centres of competitiveness and growth and it is this capacity to serve as the catalysts of accumulation that has been loudly trumpeted by a growing network of academics, policy think-tanks, and institutions such as the TD Bank and the Organization for Economic Cooperation and Development (OECD). Collectively, they have set out a persuasive business case for urban renewal and it is this economic-based rationale, rather than political, civic, or social criteria, that appears to be dominating government thinking at all levels on municipal reform and the development of city regions in particular. For example, E. Slack concludes that city regions are the 'the best places to meet the requirements of the new competitive economy and the places where businesses will want to locate because of access to highly qualified "knowledge workers" and business services such as transportation and communication networks' (Slack, 2002:322). Significantly, she believes that local government's role in this is to provide the 'hard' (e.g., infrastructure) and 'soft' (e.g., cultural amenities) services that economies require to remain competitive and attract and retain businesses and knowledge workers. Similarly, J. Knight refers to Canadian cities as the 'building blocks of competitiveness' and as 'incubators for innovation and magnets for skilled workers.' As a result, he believes that the role of government at all levels is to ensure that cities retain their competitive edge: 'It is a matter of the highest national interest that Canada's urban economic engines retain their competitive edge through adequate investments in transportation, environmental infrastructure, skills development, housing and other building blocks of the economy' (Knight, 2003: 2). The function of local government, then, is increasingly construed as teleological, with the overarching goal or raison d'etre of municipal adminis-

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tration being to nurture and enhance local competitiveness and facilitate capital accumulation. Even where social urban problems are recognized, such as poverty, inequality, and housing shortages, these are subjected to a process of economic reductionism which recasts them, not as problems in and of themselves, but as problems because they impede city competitiveness and further accumulation. Lapointe, for example, discusses the eroding quality of life in Canadian cities and the breakdown of social cohesion and concludes that 'these are considered important for attracting and retaining skilled labour' (Lapointe, 2004: 10). In its extreme form, this approach casts local government in the role of handmaiden to commercial enterprise and local business interests. For example, in highlighting the fact that private capital benefits heavily from this relationship, Lapointe (2004) argues that the 'level and quality of infrastructure are an important factor of attractiveness since they support the activities of the private sector, complement private capital and help reduce costs' (2004: 6). Furthermore, Lapointe suggests that the importance of Canadian cities in the wealth-creation process has recently been brought into sharper focus by their relative decline in competitiveness compared to U.S. and European cities. He argues that their poor competitive position results from an inadequate infrastructure, a deteriorating quality of life, and the burden of facing increasing responsibilities with limited fiscal means (2004: 4). Moreover, he believes that this relative decline in competitiveness must lead to a deliberate strategy aimed at making Canadian cities more competitive: 'In the United States and Europe, the renewed importance of city regions has led to concrete policies and programs to raise the competitiveness of city regions. Canada must not fall behind. A clear strategy and partnership have to be put in place in order to lead this competitive battle' (2004:5) In order to pursue a more competitive strategy, Lapointe contends that cities need the 'decision-making power and tools to address the particular problems of their communities' (2004:8). Lapointe's motives for advocating increased local power over decision making are clearly economic- and business-orientated and his views are typical of the increasingly influential view that increased local autonomy will be necessary for improving the competitiveness of cities. As N. Bradford suggests, the so-called local autonomy approach to reform is based in part on the view that, in the global marketplace, region-wide governments based on megacities 'can help local actors present a unified message to the world, and in turn to simplify entry for

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incoming investment and talent' (Bradford, 2004: 14). Journalist H. Kitchen also supports increased local autonomy on the grounds that a more independent and self-sufficient local government, with access to new financing instruments, will improve competititiveness and lead to a more optimal level of municipal services and an enhanced quality of life for Canadians (Globe and Mail, 21 September 2004). The economic-based rationale is also informed by the enabling model of local government that has been so influential in the United kingdom and New Zealand and by the principles of 'New Public Management.' In both cases, there is a central role for empowered local managers with the capacity and authority to make strategic decisions, fund local infrastructure initiatives, and enter into partnerships with the private and voluntary sectors. From a regulatory perspective, this model is consistent with the federal government's stated aim to develop and implement its socalled smart regulations, which are intended to enhance the competitiveness of Canadian business. According to G. Bruce Doern, smart regulation is seen by governments as a much needed process of deregulation, or at least simplification, in many aspects and sectors of the Canadian economy. In many ways, the emergence of the smart regulation agenda mirrors the rationale underpinning the business agenda for urban renewal. In particular, the smart regulation program can be seen as an attempt to develop new regulatory modalities or principles that are better adapted to the demands of global competition and the putative paradigmatic shift towards a knowledge economy (Doern, 2004). At the program's launch in 2002, the then prime minister, Jean Chretien, justified smart regulation on the grounds that it would contribute to innovation and economic growth, enhance the climate for investment, and help achieve the public good (Canada, 2002). Consequently, given the federal government's commitment to simplifying regulatory frameworks and enhancing the competitiveness of business, it is surprising that the New Deal has as yet made no attempt to reform and rationalize the complex and confusing multiregulatory framework that is currently undermining the competitiveness and development of Canada's cities. Clearly, there is a strong case to be made for increased investment in urban infrastructure and for local government to play an increased role in creating conditions for further capital accumulation and competitiveness at the local level. However, the federal government's use of levered funding, allied to its reluctance to

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promote devolved regulatory powers and autonomy, will severely limit the development of coherent local strategies and undermine the longterm impact of the New Deal. Furthermore, the New Deal is predicated on a business-driven agenda that fails to recognize that economic arguments are not the only, or arguably the main, reasons for extending autonomy and regulatory powers to local government. Political, democratic, and civic arguments are also part of the broader agenda for reform that appears to have been overlooked in the current debate. A Broader Agenda for Reform In considering whether or not local autonomy, or 'municipal leeway/ has increased since the 1980s, P. Hamel poses the following question concerning local government reform: 'Does the issue of local democracy remain a pertinent issue when we review the prevailing institutional innovations elaborated by cities in order to encourage the involvement of citizens in urban development and planning?' (Hamel, 2002: 221). In the clamour for economic growth and increased funding, it appears that a political question of this nature has been effectively sidelined. V. Preston and M. Wong arrive at the same conclusion, stating that current debates have 'mainly concentrated on the economic aspects of city-states, overlooking their social and political significance' (Preston and Wong, 2002: 223). This is consistent with the classical administrative role, with relatively little political power and autonomy, traditionally afforded local government in Canada. From a broader pluralist perspective of public administration, however, the limited role for local government presents some key problems. First, weak local autonomy prevents local government from providing important checks and balances to an otherwise centralized state. Consequently, the central criticism of local government in Canada is that it fails to 'add value' to the political and democratic process, though it contributes significantly to administration, service delivery, regulation, and the local economy. The historical development of multilevel government in Canada means that its cities are not well equipped to respond to the challenges of pluralism. As Bradford reminds us, cities were marginalized in the drive towards nation building and municipalities were effectively ignored in policy-making circles as Canadian federalism institutionalized a two-level mode of intergovernmental relations. Yet, as Canada be-

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comes increasingly urbanized and its cities become larger and more powerful, Andrew et al. suggest that municipal government's traditionally limited role of service provider may no longer be sufficient in the modern context: 'Municipalities are increasingly understood to be not just service providers but democratic governments. Thus reconceptualization highlights the imperative of operating in a democratic, accountable and transparent manner and brings with it expectations that governments engage citizens and communities in meaningful ways in the policy process' (Andrew et al., 2002: 12). Pluralists also consider it important that local government not be captured by dominant interests, such as local business, and that it remain an inclusive and representative institution: 'With a focus on governing rather than mere service provision comes concern for equity: that urban governments are representative of and responsive to the needs of the diversity of the communities' (Andrew et al., 2002: 12). However, Canada's historically weak municipal government has long been regarded, by a disillusioned and disinterested electorate, as an inaccessible and highly administrative institution dominated by commercial interests. In this context, by appearing to favour business interests and circumvent local politics, the New Deal does little to counter perceptions that commercial and economic interests are at the fore of the federal government's urban agenda. If the New Deal is perceived as an attempt to (re)-establish business interests at the heart of local government, then it is not without risk in the face of a purportedly growing democratic deficit. From a radical perspective, the dilemma facing governments in all capitalist democracies is that the state is responsible not only for promoting conditions for capital accumulation but also for managing the overall process of legitimation (O'Connor, 1973; Offe, 1984). This often contradictory position acts as a constraint on government action, a point illustrated by Andrew's observation that the tendency of higherorder governments to erode local autonomy is tempered by the political costs that could come from local unrest (Andrew, 1995). As local citizens and social movements become increasingly resistant to managerialism and authoritarian conceptions of democracy, Hamel (2002) believes that more open and inclusive institutional mechanisms are required in order to legitimize urban management. In this broader context, it is significant that the New Deal appears to run counter to the principles of increased local democracy and participation. In particular, municipalities will be left with little discretion to decide how the money

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is spent outside, or even within, the parameters of infrastructure renewal and capital investment. For example, in spite of suggestions that there will be 'strong input from the municipalities/ the federal government and the provinces will 'still need to discuss what projects will be eligible for funding under the [New Deal] formula' (Globe and Mail, 13 November, 2004). In effect, this process will circumvent municipal decision making and local interest groups who, given a democratic choice and the power to raise funds, might have decided to channel the money into other economic, social, civic, or cultural priorities. Despite an increasingly cynical electorate, rapidly falling voter turnout, and political concern about a democratic deficit, the New Deal thus promises little in terms of engaging the community or renewing local interest in municipal politics. However, this neglect of a broader agenda for reform is consistent with the current urban lens' relatively narrow focus on capital accumulation, an approach that skews processes and outcomes in favour of infrastructure investment and development. This emphasis comes as no surprise given the current balance of socioeconomic power within neo-liberal capitalism and the relatively limited degree of autonomy afforded to local government. The following section examines the 'architecture' by which municipal government autonomy in Canada is regulated and constrained. Local Government Autonomy Andrew et al. comment that fiscal and ideological pressures have been key in the drive to reform the way that Canadian cities are governed: 'In virtually all provinces, provincial and local governments have struggled in different ways and with different solutions, to create more effective political structures for governing city-regions. Such reform has been driven largely, but not exclusively, by fiscal pressures and the ideology of 'less government is better government."' (Andrew et al., 2000: 15) Although regulation is commonly thought of as a system of enforceable rules that direct behaviour, this section attempts to expand the concept of rules to incorporate fiscal, constitutional, and ideological frameworks that can be seen to regulate and constrain municipal decision making and capacity for action. The term 'architecture' reflects the broad and powerful nature of these frameworks and incorporates the political-institutional relationships that are used by both provincial and federal governments to limit local government autonomy.

112 Christopher Stoney Fiscal Constraints and Downloading

Fiscal constraints fall into several related categories that, when combined, provide an effective regulatory framework for circumscribing local government decision making. First, there has been a relative decrease in funding from upper level governments over the last decade and this has been combined with the downloading of under-funded services and responsibilities to the municipalities. Second, municipal government is increasingly dependent on restricted and inelastic locally based taxes. Third, the unpredictability of funding limits strategic planning and long-term investment. The FCM is clear about the current extent of the fiscal crisis facing local government and is critical of the roles played by both upper-level governments in bringing this about. At present, it estimates the fiscal infrastructure deficit to be $60 billion and growing by over $2 billion per year and resulting in a declining infrastructure across Canada. The root cause of this deficit lays in the 'outdated institutional arrangements and fiscal resources that are inadequate to meet expanding municipal responsibilities' (FCM, 2004c). The FCM suggests that these fiscal arrangements have produced an intractable squeeze on municipal funding and limited the local share of tax revenues. For example, out of every tax dollar collected, provincial governments receive forty-two cents; the government of Canada receives fifty cents; and municipal governments receive eight cents (FCM, 2004c). Anne MacLean argues that this situation is increasingly unfair as municipal revenues decline and responsibilities continue to grow; she also believes it to be unsustainable and predicts that the infrastructure gap will continue to widen (MacLean, 2004:1). It is significant that the decline in federal and provincial transfers to municipal governments, as a percentage of municipal revenues, fell by 44 per cent over the last ten years. In other words, the current crisis is not transitory or cyclical, but the result of sustained reductions in funding over a decade or more. However, in recent years, the perceived inequity in funding between the three tiers has become increasingly stark. From 1999 to 2003, the FCM estimates that, while provincial/ territorial revenues increased by 21 per cent and federal revenues increased by 16 per cent, municipal revenues increased by just 4 per cent (FCM, 2004c). It is in this fiscal climate that provincial and federal governments have downloaded programs and services to municipal authorities. Al-

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though increased responsibilities for municipal government can be considered a positive development, it has not been matched by corresponding increases in funding or local empowerment over policy. Thus, for Lapointe, the devolution to the municipalities has been an exercise in federal and provincial 'off-loading:' 'Unfortunately, in many instances, it was not accompanied by equivalent financial resources and the ability to set policy. In fact, part of the fiscal problems of these governments has been downloaded to municipalities, leaving them with numerous challenges but limited means' (Lapointe, 2004: 5). As a result of these institutional and fiscal arrangements, municipalities have had little choice but to raise funds through property taxes - an unpopular, blunt, and limited fiscal tool. The OECD reports that Canadian municipal governments' high reliance on property tax lies at the root of their growing fiscal difficulties. Among OECD federations, it finds that Canadian municipal governments are the second most dependent on property taxes, after Australia. (OECD, 2002). To be more specific, about 50 per cent of municipal finances are raised by local property taxes, 20 per cent from transfers from other levels of government, and about the same percentage from user fees, with returns on investment and other taxes making up the remainder. The FCM claims that municipal governments have been forced to seek additional revenues through ad hoc arrangements with provincial and territorial governments 'This robs them of their ability to plan with confidence and develop long-term plans for sustainable development' (FCM, 2004c). It is also a sizeable impediment to the development of strategic planning which is central to infrastructure development and repair. In short, the fiscal constraints and pressures facing municipalities can be seen to regulate the autonomy of local government in Canada. With funding decreasing, and substantial increases in local funding restricted, municipal revenues are increasingly committed to the priorities of maintaining the local infrastructure and basic services, with little scope for new services and initiatives that might reflect local concerns or demands. In this important respect, although the New Deal will provide much needed extra revenue for the cities, it comes with strings firmly attached. The federal minister for the cities, John Godfrey, has repeatedly stressed that 'it's got to go to some kind of provably sustainable infrastructure' (Globe and Mail, 29 July 2004). As a result, the impact on local autonomy is likely to be negligible, a point graphically illustrated by the comments of Ottawa mayor Bob Chiarrelli: The infusion of cash

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from the GST rebate will have no impact on the city's controversial draft budget, calling for sweeping program cuts. [He said] all the promised funds are already earmarked for capital projects' (Ottawa Citizen, 28 February 2004). Consequently, the New Deal could centralize control and place further limits on local autonomy as the federal government uses financial incentives and regulatory constraints to establish infrastructure as the key municipal priority. Constitutional and Legal Constraints

The British North American Act of 1867 firmly established municipalities as the institutions of the provinces. With formal powers shared between federal and provincial levels of government, local government exists only to the extent that the provinces delegate powers; it has no constitutional status. Historically, uses of provincial powers over the municipalities have been the subject of legal challenges, but with the courts have generally upheld the provincial case. Most recently, during the late 1990s, the contentious issue of municipal amalgamations imposed by the Ontario provincial government produced a series of legal challenges and highlighted the degree to which the provinces still maintain their legal and constitutional hold over local government. Opponents of the 'reform' argued that the amalgamations were fiscally motivated, enabling the larger city regions or megacities to rationalize the delivery of services, better withstand downloading, and increase competitiveness in the market for investment and skills. According to B.M. Milroy, the legal challenge to the amalgamations in Toronto underlined a number of concerns about the apparent lack of local autonomy and the reform's emphasis on economic as opposed to political criteria. One was the increase in the ratio of residents to elected officials and the impact that this has on what representatives are able to achieve and the degree of local control. Another was the interplay among levels of government which. Local governments, Milroy found, were roundly denounced by the province as inefficient, even though research has shown that this level of government is essential to the management of metropolitan growth (Milroy, 2002: 176). Thus, she argues, 'the case of Toronto's amalgamation starkly shows the effects of a constitutional and legal regime in which cities are tools of more senior governments to be used in their service delivery, fiscal, and economic interests without an equally strong counterweight in local citizenship rights. Balance is missing' (2002:176). Milroy concludes that the power

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of Toronto's citizens to shape their city is 'highly circumscribed' and, in Canada, citizen rights and responsibilities do not reside at the city level but only from residence in the country or province (157). In this context, Isin speaks of 'cities without citizens,' an image that captures the seemingly irrational and superficial nature of local democracy in Canada. Ideological Constraints: The Role of Agenda Setting

In recent decades, the neo-liberal restructuring of states around the world has required a concerted attempt to shift public discourse and opinion away from conceptions of Keynsian welfare-state capitalism and 'big government' towards a more 'enabling' and 'strategic' government based on 'efficiency' and 'marketization.' Put bluntly, the ideological component of changes has been to convince the electorate that private is good and public is bad. In Ontario, the Harris government, elected in 1995, used the growing deficit to launch a concerted ideological assault on government spending, public bureaucrats, and trade unions, and this included an effective use of political rhetoric to introduce far-reaching reforms. Thus, 'fiscalamity,' 'fiscal sanity cuts,' and the 'common sense revolution' were all discursive attempts to justify cuts in public sector spending, services, and jobs and to portray alternative policies as completely irrational and inconceivable. In this way, priorities were reshaped and a new agenda set to reflect the values and policies of the Conservative government. Agenda setting is defined by Andrew et al. as 'that very preliminary stage in the policy cycle in which certain questions come to the attention of government.' Thus, from the huge number of potential issues, only a limited number engage the interest of government and may depend upon public policy determinants such as the environment, power structures, ideas, political framework, and decision-making processes (Andrew et al., 2002:12-13). Some issues, such as promoting the economic competitiveness of cities, are factored in, while others, such as enhancing local democracy, are factored out of the public and political agenda. The Harris government used this ideological tool, described in sociology as the 'mobilization of bias,' to shift the policy-making agenda to issues of capital accumulation and, in so doing, pressured local interest groups into engaging with the new priorities and discourse or risk growing marginalization in the political process. From this perspective, the 'New Deal' can be conceptualized as a concerted attempt by the federal government to establish an agenda for

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action around investment and economic competitiveness. It thus represents a powerful exercise in shifting the national and local agenda and shaping priorities around which local actors, groups, and interests coalesce and engage. Together, the ideological, constitutional, and fiscal relationships discussed in this section can be thought of as the 'rules of the game' (Benson, 1977), which provide effective constraints on the autonomy of local government. To the extent that they shape power, determine resources, and influence decision making, they represent the architecture through which Canadian cities are regulated. To be effective, then, attempts to reform local government autonomy and enhance municipal discretion in urban affairs will need to bring about appropriate changes in these broader aspects of multilevel relations. Reviewing the Options Multilevel Cooperation and Collaboration?

In his consideration of the way ahead for local government reform, Bradford (2004) distinguishes between those advocating increased collaboration and cooperation between the different levels of government and those who seek constitutional changes in order to establish greater autonomy for municipalities. He believes that only the former approach will be acceptable to the federal and provincial governments and is therefore the only realistic alternative to explore. Initiatives currently on the table, allied to conciliatory rhetoric from most of the key players, suggest this is the most likely scenario in the short to medium term. Prime Minister Martin, for example, has pledged a New Deal for Canadian cities based on the principles of multilevel collaboration and has thus far talked of contributing $5 billion over the next five years (Globe and Mail, 26 August 2004). However, he has also acknowledged that, beyond this infusion of cash, cities need control over their sources of revenue. His conciliatory and progressive position appears to be supported, at least in principle, by most mayors and even a majority of premiers. In spite of the provinces' exclusive power over the cities, there seems to be growing provincial awareness that the hub cities need to have their 'chains loosened' (Globe and Mail, 2 February 2004). In Ontario's version of the New Deal, the provincial government has pledged to hand over two cents a litre of the provincial gas tax for

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public transport, which could amount to as much as $700 million in the next three years (Globe and Mail, 26 August 2004). It has also voiced its intention to work towards giving its cities and towns greater flexibility for generating revenues. For example, Municipal Affairs Minister John Garretson recently commented that 'if there isn't enough money around to deal with the ever expanding infrastructure problems, then [cities] will have to be given the authority and ability to raise funds in different ways' (Globe and Mail, 2 February 2004). In a further development, purportedly aimed at 'democratizing land development,' the Ontario government recently passed legislation to take responsibility for planning decisions away from the unelected Ontario Municipal Board and put power back in the hands municipal politicians (Ottawa Citizen, 16 September 2003). Moreover, the 'memorandum of understanding' (MOU) between Ontario and the Association of Municipalities of Ontario (AMO), which will be incorporated into legislation, commits the government to consult with municipalities on legislation, regulations, and negotiations, that affect them. Journalist Murray Campbell suggests that the MOU marks an advance for cities and towns, 'which have always been the bastard children in the federation with no real constitutional status' (Globe and Mail, 26 August 2004). Another key player, the FCM, describes this collaborative approach as a 'partnership' and sees it as the essence of the New Deal: 'At the heart of this new approach is partnership. While quality of life in our communities depends on each order of government fulfilling its jurisdictional responsibilities, it also depends on all orders of government recognizing the complex connections among themselves and the work that they do, so that they can work together to achieve common goals' (FCM, 2004c). Limitations of Cooperation and the New Deal

Despite the conciliatory rhetoric, money remains a key issue and several other factors appear set to test the collaborative route. First, in spite of the promise of increased federal and provincial funding for municipalities, the amounts required by the cities alone mean that transfer payments are unlikely ever to bridge the shortfall. Second, there are growing concerns in some quarters that, even if increased federal transfers to the cities are constitutional, they are a mistaken policy which will further dilute and obfuscate political accountability as local politicians spend monies they do not have to raise from local taxpayers (Simpson,

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2004; Kitchen, 2004). Third, there are increasingly acrimonious divisions emerging with regard to how an already inadequate pie should be divided. Big city mayors have been alarmed by Ottawa's readiness to conflate large cities with smaller communities when it comes to funding and representation. For example, Minister for Cities John Godfrey recently confirmed this changed emphasis to the AMO, stating, 'We are committed to a new deal that will benefit communities both large and small' (Globe and Mail, 26 August 2004). In Ontario, Premier McGuinty has also stated his support for all municipalities and is reluctant to single out Toronto and the other cities for special or exclusive treatment. These developments have sparked criticism from Toronto in particular, with Mayor David Miller expressing concern that Toronto's needs will be "swamped" by those of one horse towns across the province.' Miller seeks a 'true relationship among equal partners' (Globe and Mail, 26 August 2004), but this increasingly assertive position on the part of Toronto co-exists uneasily with the FCM's call for all municipalities to have 'a seat at the table' of national politics and decision making: 'A core element of a New Deal must be recognition by the government of Canada that municipal governments are essential partners in implementing the national agenda. This recognition must be complemented by new mechanisms and approaches aimed at ensuring enhanced consultation, collaboration and coordination among all orders of government. In short, Canada's communities need a seat at the table' (FCM, 2004c, 2). At some point, these key issues of power, representation, responsibilities, and funding will need to be addressed as part of a broad agenda for change since they are unlikely to be resolved under the existing framework. As Knight argues, 'the old model of the Government of Canada interacting with the provinces and territories no longer works, and it hasn't for years' (Knight, 2003: 2). To achieve effective collaboration, he believes that new intergovernmental mechanisms will have to evolve to regulate public affairs in a more complex and urbanized Canada. This is not to suggest that change will be a simple or collaborative exercise. As D. Tapscott suggests, there are strong pressures for the dispersion of economic and political power but these pressures conflict with old structures that seek to centralize economic and political power (Tapscott, 1996: 6). In other words, there are fundamental barriers to changes in the balance of state power.

Local Government Autonomy and Regulation 119 Increase Local Autonomy Not Transfer Payments The case for regulatory change was reinforced by the finding of the 2002 OECD report that Canada's over-reliance on property tax is the basis of municipal governments' current fiscal problems. The OECD also concluded that Canadian cities have relatively weak powers and resources and recommended they be given access to other forms of taxes in order to meet their increasing responsibilities. This proposal is supported by Kitchen, who draws upon international comparisons of local government to conclude that a direct relationship between revenue and expenditure is highly desirable: 'Cities that raise the money they spend are more responsible, accountable, transparent and efficient in their spending decisions than cities that spend money handed to them by federal or provincial government' (Kitchen, 2004). In advocating an expanded range of local taxes, Kitchen believes that this would give cities more flexibility and autonomy and leave them with greater potential to achieve important social and economic objectives. For Kitchen, the primary benefits of providing cities with greater autonomy to raise and spend are economic, but such a change is also consistent with political and democratic concerns for expanded local choice and the determination of priorities and policies at the community level. Such a shift would also be in keeping with broader international trends of local government reform. As W. Magnusson observes, 'governments and civil society are rethinking their conventional development approaches in favour of models that support local decision-making and that affirm local identity' (Magnusson, 2002: 343).' Conclusion As Canada's cities try to wrestle with a sustained and deepening urban crisis, this chapter's central aim has been to examine the complex multilevel framework of governance responsible for coordinating and regulating their development. As part of the analysis, I have focused on the New Deal for Cities and Communities since this purports to be the federal government's strategic response to the long-term under-investment in urban infrastructure. According to the Privy Council Office (PCO) Cities Secretariat, the New Deal represents 'an opportunity for the citizens of Canada to rethink the way that Canada and its cities and

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communities are shaped' (PCO Cities Secretariat, 2004: 3). This is exactly what is not happening. The New Deal is well intentioned but limited by a number of factors. First, in financial terms, it represents too little too late. If current estimates of a $60-billion infrastructure gap are accurate, it is clear that the federal transfers promised in the New Deal represent a fraction of what is needed to repair Canada's cities. Furthermore, transfer payments are notoriously fickle and, if the federal government eventually concludes that it is being drawn into funding a black hole with little or no political gain, priorities and support for further transfers and gas tax deals may change rapidly. Similarly, federal support for cities could wane if the current prime minister, a champion of the New Deal, is replaced, especially if this is by a Conservative government elected with strong rural support. Consequently, the unreliability of transfer payments undermines long-term strategic planning, particularly in respect of the largescale infrastructure projects that local governments will be expected to deliver. The New Deal's funding for infrastructure seeks to address, inter alia, the declining competitiveness and loss of business opportunities resulting from Canada's lack of public investment in its urban infrastructure. However, its centralized regulation of funding and spending decisions is not what the cities were seeking and is incongruous with the principles of devolution and empowerment that have enabled local governments in other countries to regenerate their cities effectively. With transfer payments between levels of government, there is real concern that they will obfuscate accountability for spending and further complicate responsibility for the overall improvement of cities and infrastructure. In addition, transfer payments may act as a disincentive to local innovation and enterprise in respect of seeking alternative funding, partnerships, and projects. In these ways, ironically, the New Deal could undermine, rather than enhance, the longer-term competitiveness of Canadian cities. By focusing on the business case for infrastructure renewal, the New Deal emphasizes the importance of economic reforms but neglects the broader political and regulatory reforms that are needed to address the underlying causes of the urban crisis. In particular, the importance of local government as a democratic and legitimizing arm of the state is being undermined by its relative lack of autonomy and power. Thus, at a time when cities are growing in importance, the New Deal reinforces their dependence on higher-level government. Moreover, by using le-

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veraged funding to ensure that federal priorities are targeted, it extends federal influence over cities and local decision making. In this respect, it is worth remembering that, while there are strong links between economic strength and political self-determination, the two should not be conflated. Tom Courchene, for example, reminds us that 'as powerful as Toronto is economically, it remains, in a formal political sense, very weak' (Courchene, 1999: 2). Therefore, in spite of the promised extra revenue, it is hardly surprising that Toronto Mayor David Miller has pleaded for more autonomy, stating that 'cities need the freedom to negotiate their own deals and decide their own priorities' (Globe and Mail, 12 May 2004). Similarly, leaders of all big urban centres recently espoused a much more ambitious definition of the New Deal 'including more local autonomy and long-term funding from local government' (Globe and Mail, 26 April 2004). City leaders have a strong case and, if complex urban issues are to be tackled, a bolder and more radical approach to reform is required. To begin with, if the economic and political roles of Canadian cities are to be strengthened, local governments will require increased regulatory powers in addition to extra funding. In this context, the federal government's plans to simplify regulatory frameworks and develop a program of 'smart regulation' is a principle that should be extended to include the complex, multilevel regulation of cities and municipalities. In particular, the program's development of new regulatory principles, better suited to the demands of competition, innovation, and economic growth, could facilitate appropriate delegation of regulatory authority to local government. In addition to empowering municipal government, the principle of subsidiarity would help to simplify the ad hoc and confusing system of rules and responsibilities that has contributed significantly to the urban crisis. However, the tight control currently exercised over municipal government by both provincial and federal governments makes consideration of a revised regulatory model premature. Conceptualized in this chapter as 'architecture,' a wide range of fiscal, legal, and ideological constraints render local government autonomy a relatively limited and problematic concept in Canada, and changes to the broader political and constitutional framework, 'the rules of the game,' could be required to accommodate a shift from local government as service provider to democratic local government. The perspectives outlined in this chapter suggest that local government needs a measure of independence and autonomy if it is to engen-

122 Christopher Stoney der political legitimacy in addition to administrative efficiency. In this respect, the analysis supports the conclusions of F. Klodawsky and C. Andrew that 'it is critical that local politics be redefined so as to make clear how the large issues of inclusion, democracy and citizenship play themselves out at this level' (Klodawsky and Andrew, 1999: 229). It is to be hoped that the current sense of urban and democratic crisis can help to concentrate minds sufficiently to overcome the significant barriers that lead many advocates of reform to predict inevitable disappointment. REFERENCES Andrew, C. (1995). 'Provincial-Municipal Relations; Or Hyper-fractionalised Quasi-subordination Revisited.' In J. Lightbody, ed., Canadian Metropolitics: Governing Our Cities, 137-60. Toronto: Copp Clark. Andrew, C., K. Graham, and S. Phillips (2002). 'Introduction.' In Andrew, Graham, and Phillips, eds., Urban Affairs: Back on the Policy Agenda, 3-23. Montreal and Kingston: McGill-Queen's University Press. Benson, J.K. (1977). 'Organisations: A Dialectical View.' Administrative Science Quarterly 18, no. 1:125-38. Bradford, N. (2004). 'Global Flows and Local Places: The Cities Agenda.' In G. Bruce Doern, ed., How Ottawa Spends, 2004-2005, 70-88. Montreal and Kingston: McGill-Queen's University Press. Canada (2002). Speech from the Throne. 30 September. Courchene, J.C. (1999). 'Responding to the NAFTA Challenge,' Presentation to Global-City Regions Conference, UCLA School of Public Policy and Social Research. Doern, G.B. (2004). '"Smart Regulation" Regulatory Congestion, and Natural Resources Regulatory Governance.' In Doern, ed., How Ottawa Spends, 20042005,245-76. Montreal and Kingston: McGill-Queen's University Press. Federation of Canadian Municipalities (FCM) (2004a). 'New Era of Cooperation between City Regions, Federal and Provincial Governments.' Available at www.fcm.ca - (2004b). The BC22 at a Glance: A Statistical Portrait of Canada's 22 Big Cities.' National Forum on Economic Growth of the Big Cities in Canada. Toronto: Federation of Canadian Muncipalities. - (2004c). 'Backgrounder: Towards a New Deal.' Available at www.fcm.ca Government of Canada (2001). Achieving Excellence in People, Knowledge and Opportunities. Canada Innovation Strategy, Human Resources Strategy.

Local Government Autonomy and Regulation 123 Hamel, P. (2002). 'Urban Issues and New Public Policy Challenges: The Example of Public Consultation Policy in Montreal.' In C. Andrew et al., eds., Urban Affairs: Back on the Policy Agenda, 190-220. Montreal and Kingston: McGill-Queen's University Press. Isin, E.R (1992). Cities without Citizens: Modernity of the City as a Corporation. Montreal: Black Rose Books. Kitchen, H. (2004). 'No More Handouts.' Globe and Mail, 21 September. Klodawsky R, and C. Andrew (1999). 'Acting Locally: What Is the Progressive Potential? Studies in Political Economy 59 (summer): 226-40. Knight, J. (2003). Speech to the Strategies for Urban Sustainability Conference, Edmonton, Alberta. 9 September. Available at www.fcm.ca Lapointe, A. (2004). 'Competitiveness and Attractiveness of Canadian Cities: A New Deal.' Background paper, Montreal, June 2004. Available at www.fcm.ca MacLean, A. (2004). Notes for a Speech by Anne MacLean, president, Federation of Canadian Municipalities, to the National Forum on Sustainable Municipal Intrastructure, Ottawa, 17 June 2004. Available at www.fcm.ca Magnusson, W. (2002). 'Hope of Democracy.' In C. Andrew et al., eds., Urban Affairs: Back on the Policy Agenda, 331-44. Montreal and Kingston: McGillQueen's University Press. Milroy, B.M. (2002). 'Toronto's Legal Challenge.' In C. Andrew et al., eds., Urban Affairs: Back on the Policy Agenda, 157-78. Montreal and Kingston: McGill-Queen's University Press. O'Connor, J. (1973). The Fiscal Crisis of the State. London: St. Martin's Press. Offe, C. (1984). Contradictions of the Welfare State. Cambridge, MA: MIT Press. Organization for Economic Cooperation and Development (OECD) (2002). Territorial Review of Canada. Paris: OECD. Privy Council Office, Cities Secretariat (2004). Presentation to the Canadian School of Public Service Conference, 5-7 May. Preston, V., and Wong, M. (2002). 'Immigration and Canadian Cities.' In C. Andrew et al., eds., Urban Affairs: Back on the Policy Agenda, 221-38. Montreal and Kingston: McGill-Queen's University Press. Simpson, J. (2004). 'The Slippery Slope of Shifting Accountability.' Globe and Mail. 21 September. Slack, E. (2002). 'Fiscal Issues.' In C. Andrew et al., ed., Urban Affairs: Back on the Policy Agenda, 239-54. Montreal and Kingston: McGill-Queen's University Press. Tapscott, D. (1996). The Digital Economy. Toronto: McGraw-Hill.

6 Balancing Acts: Multilevel Regulation of Canada's Voluntary Sector SUSAN D. PHILLIPS

The regulation of Canadian non-profit organizations (commonly known as 'non-profits') and charities has been a sleeper issue in public policy. While the voluntary sector has been actively pressuring for reform for the past decade, there has been little interest outside that sector, hi the early months of 2005, this sleeper was awakened by two quite different events. Within a month of the tsunami that devastated the rim of the Indian Ocean in late December 2004, Canadians donated more than $150 million to charities to help with relief efforts (CTV, 2005). The spontaneous outpouring of support was felt worldwide, and tsunami aid became the largest philanthropic contribution ever made to a single humanitarian cause (Economist, 2005). This response highlighted the importance of non-governmental organizations (NGOs), whose networks and local knowledge enabled them to begin relief work long before governments, especially foreign governments, could do very much at all. In addition, with the tsunami crisis shining a spotlight on the element of trust involved in philanthropic giving - that the NGOs would use the money wisely - Canadians began to ask questions about how such organizations are regulated and whether such regulation is effective. At the same time, a bill to legalize same-sex marriage, introduced into Parliament by the government of Canada in early 2005 and passed later in the year, sparked vigorous debate not only about the definition of marriage but also about the rules for public policy advocacy by charities. Leaders of the Catholic Church and other religious denominations, all registered charities, were very vocal on the issue, making use of websites and other media and encouraging parishioners to write letters to voice their opposition to the bill. The federal government told the religious institutions to 'butt out' (Thompson and Dawson, 2005:

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Al), to which Catholic church leaders responded that the government had no right to 'suggest that the Catholic Church does not have a role in public debate' (Thompson and Dawson, 2005: Al). Many Canadians might agree, but political activity by registered charities is nevertheless highly restricted. Other charities have been arguing for years that the regulations on advocacy are too stringent, which raises the question, Are we to allow certain types of charities, those that bring a moral claim perhaps, to operate under different standards than others? Suddenly, the fairness and effectiveness of the entire regulatory system for Canadian charities became a serious public policy issue. This chapter examines the inherently complex, multilevel regulatory system governing Canada's voluntary and charitable sector. Its focus is on the regulation of that sector per se, rather than on the multitude of ways that voluntary organizations are involved in the regulatory activities and co-governance of other sectors, through the design and monitoring of voluntary codes (Webb, 2004), for example, as discussed in other chapters in this volume. Regulation of this large and diverse sector, which comprises over 160,000 organizations and represents a workforce the size of the construction or the oil and gas industry (NSNVO, 2004; McMullen and Schellenberg, 2002), involves all levels of government as well as foundations and other funders, independent watchdogs, and the sector itself. Within the voluntary sector, there are enormous differentials in the capacity of organizations to comply with rules. Although compliance may be relatively easy for large non-profits, such as universities and hospitals, it can be a serious challenge for the multitude of voluntary organizations that operate with no or only one staff. The key consideration, however, is the fact that the voluntary sector depends fundamentally on the maintenance of public trust for its viability. The regulatory regime must thus facilitate a rather delicate balance: providing sufficient rigour to maintain public trust but enough flexibility to enable compliance by big and small organizations; weighing provision of support through tax expenditures against protection of the integrity of the tax system; and balancing fairness in the application of rules with the diversity of organizations and causes that might test these rules. In recent years, the regulatory regime has been off-kilter, tilting in favour of regulators, both governments and funders, in ways that diminished its legitimacy, that was heavy-handed and inconsistent in its application, and that strained the capacity of voluntary organizations to comply. The regulatory system has been under enormous pressure for

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reform, but so far the record on reform is mixed. On the one hand, the main federal regulator, the Charities Directorate of the Canada Revenue Agency (CRA), which for the past decade was so severely criticized by the voluntary sector that its demise was being actively planned and designs floated for its successor (Drache and Hunter, 2001), has reinvented itself through major changes to administrative practices. It is in the process of becoming the kind of responsive regulator advocated by the 'smart regulation' movement (External Advisory Committee, 2004). Can the CRA reform itself to the satisfaction of the sector it regulates? As this process unfolds, the CRAs key challenge will be threefold: to become less rule-based; to evolve into an educator and 'enabler' of the charitable sector while by no means abandoning its role as enforcer; and, most important, to find the right balance among these functions. On the other hand, coordination among other federal departments that have a role in regulating the voluntary sector remains problematic and attempts at establishing greater integration between levels of government have made little progress. Increasingly, the voluntary sector needs to look to self-regulation through voluntary codes, but this, too, has a long way to go as a result of the sector's under-developed infrastructure. The chapter first provides a definition and a brief overview of the voluntary sector that gives a sense of its size and diversity. The next section provides a framework for understanding multilevel, responsive regulation in this sector that is necessarily, I argue, a balance between governmental rules and self-governance and between rules and responsiveness. I then take a critical look at the three main spheres of regulation for the voluntary sector, exploring the multilevel dimensions and unfolding process of reform in each. The first is the regulation of legitimacy: the determination of which voluntary organizations are eligible for status as registered charities, the credibility that status confers, and the subsequent requirements it imposes. The second aspect concerns the limits on political activity by registered charities. The third concerns how the capacities of voluntary organizations themselves their legal status, liability, and means of raising funds - are subject to regulation. In conclusion, I consider the next steps for smart regulatory reform of this sector and what can be learned from progress to date. The Voluntary Sector: An Overview Voluntary organizations can be defined as 'organizations which are formal, nonprofit distributing, constitutionally independent of the state,

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self-governing and benefiting from voluntarism [at least for their governance]'1 (Kendall, 2003: 6). In generic terms, the voluntary sector is the aggregation of all such organizations, a large and diverse constellation of more than 160,000 groups that pursue a broad range of missions which serve Canadians quite literally from womb to tomb and in body and soul (NSNVO, 2004).2 Until recently, we knew relatively little about the voluntary sector in Canada or how it compares to that in other countries, but a major international comparative research project led by Johns Hopkins University has stimulated the collection of comparable data about the scope, structure, and financing of this sector in thirty-six countries (Salamon, Sokolowski, and List, 2003), including Canada. There are two major divisions in this sector: between non-profits and charities, and between big and small. While both non-profits and charitable organizations are exempt from paying income tax, only those organizations with charitable purposes that have been registered with the CRA, about 80,000 in number, are able to issue receipts for donations that can be claimed as tax credits.3 Independent of this legal distinction, there is an enormous bifurcation between the small slice of large organizations and the multitude of small ones. The 1 per cent of charitable and non-profit organizations with over $10 million in annual revenues, mainly universities, colleges, and hospitals, account for over 60 per cent of the entire revenues of the sector, half the staff, and a fifth of volunteers (NSNVO, 2004). By contrast, two-thirds of voluntary organizations have annual revenues of under $100,000 and half are operated solely by volunteers. This chapter focuses largely on the charitable subsector, which includes most of the large institutions as well as small ones. While recognizing the vast differences in capacities among these institutions, the discussion will devote much attention to the issue of these organizations' ability to comply with regulatory requirements. Beyond Rules: A Framework for Smarter Regulation As a policy tool, regulation involves rules, standards for compliance, sanctions for non-compliance, and an administrative apparatus to enforce the rules and administer sanctions as required (Doern, 2003; May, 2002). As the themes of this book make clear, thinking and practice related to regulation is changing in three key respects with the goal of making it 'smarter,' something that involves more than rule making. First, the multilevel nature of regulation is being recognized, and reform attempts are directed at better coordinating and harmonizing the shared and overlapping authorities of governments at all levels, from

128 Susan D. Phillips Figure 6.1. The multilevel and horizontal dimensions of regulation Governmental Many Multilevel Multiparty

Multilevel Govt dominant

3

4

Non-governmental Many

None

1

2

Private governance

Minimal regulation None

the international to the local. We might think of this intergovernmental aspect as the vertical axis of regulation. Second, our understanding of regulatory regimes is also responding to evolving modes of governance in which governments are working in more collaborative and interdependent ways with a variety of non-governmental actors (Salamon, 2002; Rhodes, 1996). In the context of a 'governance' model, regulation entails not only governmental rule making but also the involvement of non-governmental bodies and co-governors, as well as considerable scope for private governance and self-regulation (Webb, 2004). The regulation by non-state actors might be described as the horizontal dimension of a multilevel, multi-party framework. When combined, the multilevel and horizontal dimensions suggest the existence of at least four distinctive types of regulatory regimes, as illustrated in figure 6.1. Beyond multilevel considerations, the theory of regulation is increasingly concerned with designing institutions and processes that stimulate and respond to the capacities of both the regulators and the regulated

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sector (Parker, 2002; Scott, 2003). To be sure, rules still have an important place, but responsive regulation embodies an enabling function through communication, advice, and support. The push towards responsive regulation presents a new set of challenges for regulatory bodies: how to define, manage, and balance the role of enforcer of rules with that of enabler. A view of regulation as multilevel, horizontal, and responsive is compatible with contemporary views of the voluntary sector, which have evolved from a model based on charity to one based on civil society. In contrast to the view of 'cold charity' that emanated from Victorian England, in which the main role of the voluntary sector was to help the less fortunate by providing services and support, the emerging approach emphasizes empowerment, by which communities have the resources, and political voice to represent and help themselves (Phillips, 2003: 18; Deakin, 2001; Warren, 2001). One signal of this change is the fact that most voluntary organizations eschew the language of 'charity,' struggling to find labels with less baggage. A key to achieving such empowerment and community development is to promote active participation by citizens who, in the process of such voluntary participation, build social capital - the networks of trust that come from voluntary association - which in turn contributes to a health democracy (Putnam, 2000). In a civil, society-model, then, voluntary organizations are more than providers of services. They also have a legitimate role as participants in policy development. As we will see, however, the regulatory model was founded on and still remains largely rooted in a vision of charity. This legacy permeates the three main spheres of regulation discussed in this chapter: access to tax benefits (and its impact on legitimacy); political participation; and organizational capacities and conduct. Regulating Legitimacy through Access to the Tax System Although an essential attribute of the charitable sector is its autonomy and self-governance, there remains an important role for governments in regulation. The rationale for government involvement relates, in part, to the need to ensure the perceived trustworthiness of voluntary organizations, whose inherent not-for-profit constraint is seen to place them at a distinct advantage over for-profits (Hansmann, 1980). In addition, governmental regulation serves as the counterpoint to the issuing of tax expenditures for donations.

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An anomaly of government regulation of Canada's charitable sector is that, while jurisdiction is provincial under section 92 of the Canada Act, the federal government has assumed a de facto regulatory role for determining which voluntary organizations can be considered charities and thus have access to the tax system to issue deductible receipts. The determination of status as a charity is important because it enables such organizations to have potentially greater access to resources by providing incentives to giving (on both an annual basis and through estate planning), but it is also an important indicator of legitimacy. Status as a registered charity serves as a seal of approval and thus assists organizations in obtaining funding from foundations, lottery agencies, and corporations, and it promotes public trust. Provincial governments make determinations of the status of charities, but they tend to do so in a passive rather than an active manner, mainly for purposes related to the use of charitable property, wills and trusts, accounting, complaints, and fraud. Indeed, their role has been described as 'benign neglect' (PAGVS, 1999). Only Quebec, which runs its own taxation system, and Ontario, through its Office of the Public Guardian and Trustee, play an active role in the policies and regulations directly governing charitable status (Hayhoe, 2004; Law Reform Commission of Ontario, 1998). With a few exceptional cases, provincial governments, including Quebec, have tended to harmonize their determinations of charity with those of the federal government. This is extremely important to creating an efficient environment for charities because charitable giving and the activity of charities are not strictly bound by geography. Particularly in a federation in which most national voluntary organizations are also federated, it is critical that the definition of charity be harmonized: to allow a national charity headquartered in Ontario to have charitable status while one of its members based in Alberta or New Brunswick did not would pose enormous difficulties. Although the results of this multilevel process are that the policies for determination of charitable status are more or less harmonized, this occurs more by default than by active coordination. Indeed, the systems themselves are completely disconnected and any harmonization is thus potentially fragile. The lack of coordination also creates some serious ambiguities, such as fragmented jurisdiction over national organizations that operate in several jurisdictions. It also increases the compliance burden and creates public confusion over which government has responsibility for monitoring the actions of charities (JRT, 2004). A serious barrier to any real federal-provincial

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coordination, with potentially serious implications for dealing with fraud, is that the relevant federal legislation, the Income Tax Act (ITA), makes only limited exceptions for charities in its rules prohibiting the disclosure of taxpayer information. It is thus difficult for provincial authorities to know if a charity is under investigation by the federal government for non-compliance with the Act, information that might be important to any investigation for fraudulent activity under way provincially. As we will see, greater multilevel integration is on the agenda, but progress has been slow. The 'Definition' of Charity

Within the federal government, regulatory responsibility is divided between the Department of Finance, which establishes policy through the ITA, and the CRA, which administers regulations under the act, provides policy guidance through information bulletins, and enforces compliance. Nowhere in the ITA or in other legislation is the definition of charity articulated. Rather, it is established through common law interpretation (as it is for provincial governments) using an original list of charitable uses established as part of the 1601 Statute of Elizabeth and refined in a British court case in the late 1800s (Bromley and Bromley, 1999). The Pemsel case set out four main heads of charity that remain the benchmark for application of the common law: advancement of religion, advancement of education, relief of poverty, and other purposes beneficial to community. Under the Canadian system, a voluntary organization applies for registration to the CRA, which determines whether its intended purposes are compatible with the common law and with recent cases. If rejected, the organization can pursue the expensive and time-consuming option of resorting to the Federal Court of Appeal, which requires representation by counsel and where the primary onus is on the charity to defend its eligibility, not on the CRA to defend its rejection. Once registered, charities must report annually on their revenues, expenditures, and activities on a form, the T3010, that until recently has been standardized for all charities - requiring a small, strictly volunteer group to provide exactly the same information as the largest university in the country. Charities must also meet a distribution quota to ensure that they actually spend their donated revenues on charitable purposes (thereby limiting the amounts that can be spent on salaries, administra-

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tion, and fundraising), and they must adhere to certain limitations on their activities, notably that they do not engage in unrelated business or undertake political activities taking up more than specified portion of their resources. The CRA conducts audits of charities on both a complaints and a random basis, carrying out 356 in 2003. The only applicable sanction for any non-compliance has been deregistration, a veritable sledgehammer for minor offences. In most cases, deregistration has resulted not from fraud or intentional non-compliance but from procedural transgressions, directly related to the limited capacity of many organizations. In 2003, for example, the CRA deregistered six charities for cause and 1,127 because they did not file the annual report.4 Under the ITA, the CRA can provide only minimal public information, however, about its reasons for both denial and revocation of registration, and so the degree of transparency it exhibits has historically been limited. Almost all of aspects of this regulatory system have been seen to be problematic for the voluntary sector, including the process of determining charitable status, inconsistency in the application of standards, the onerous nature of the reporting requirements, and the levelling of sanctions. A key issue concerns the ability of the common law to evolve so as to keep the interpretation of charity fresh and compatible with 'the stresses typical of modern societies' (O'Halloran, 2002.). While the beauty of the common law is that it is inherently flexible, it is also limited in certain respects. It places an emphasis on the rights and duties of individuals, determined on a case-by-case basis that relies on precedent, and, because it is fact-based rather than principle-oriented, it is typified by a certain rigidity in what can be specified or argued by analogy (for instance, allowing a Freenet association to be considered charitable because the information highway is analogous to an asphalt one).5 By embodying a respect for the prevailing social order, the common law has an implicit bias towards maintenance of the status quo, requiring, as O'Halloran (2002) observes, 'an almost feudal respect for king and for country and for the institutions of the land.' By international comparisons, Canada is conservative in its determination of charitable status, in part because the tax agency as regulator is seen to be reluctant to hand out tax expenditures and, even more significant, because the appeal mechanisms are so expensive that they are seldom used. The results have been damaging for the non-profit section, since, without regular judicial review, the common law cannot remain current: groups promoting racial harmony, environmental protection, patriotism, or volunteerism are likely to qualify as charitable in

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the United Kingdom or the United States whereas they are likely to be denied such status in Canada. In the one case it has heard, the Supreme Court denied registration to the Vancouver Society of Immigrant and Visible Minority Women on the grounds that the kind of life skills and job training it provides do not qualify as advancement of education and that the group of people who benefit from its services is not sufficiently broad to be considered under the fourth head of other purposes beneficial to 'community' (see Stevens, 2000). While the Supreme Court refused to expand the common law definition significantly, it invited Parliament to expand eligibility through a legislated definition. Greater flexibility and consistency has been obtained in other common law countries in one of two ways: by extending the common law with a legislated classification of charitable purposes that is based on a more modern test of 'public benefit' rather than charity, or through an independent quasi-judicial body, such as the Charity Commission of England and Wales, that hears more cases (for instance, cases related to wills and trusts as well as taxation) on a regular basis. Although the determination of which voluntary organizations are recognized as 'charitable' is a matter for national governments (using either common or civil law or some legislated definition), there are increasing international pressures to bring a degree of consistency to such determinations across jurisdictions. As assistance with tsunami relief illustrates, a growing number of NGOs work across borders, international agencies have branches in many countries, and new organizations spring up in response to crises. The capacity of such organizations to raise funds, be seen as legitimate, and work effectively creates pressures for expansive, harmonized policies regarding their status and ability to offer tax receipts and for effective monitoring systems in all the countries of operation.6 As countries become more culturally diverse and as the process of governing becomes more intertwined with civil society, policies for recognizing different ways in which different communities help themselves and for supporting such action through tax-based incentives for giving are regarded as a sign of a tolerance, and thus direct comparisons across national regulatory systems are being made. Reforming the Rules What reform there has been in the federal regulatory regime came mainly from pressure from the regulated sector rather than from any top-down push for smart regulation, although the kinds of reforms that have been undertaken could all be seen as being smart regulation.

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Leaders from Canada's voluntary sector and charity lawyers had been pressing for some time for significant changes to how access to the tax system is determined and how it is administered. In 1999 an independent panel of experts, chaired by Ed Broadbent, was established by the voluntary sector to examine issues of accountability and governance. It strongly recommended among its top priorities that the federal government, in collaboration with the provinces and the sector, establish a task force that would help establish a legislated determination of which kinds of voluntary organizations could have access to the tax system and that the tax agency be replaced as the regulator by an independent commission. The Broadbent Panel advocated greater collaboration between the federal and provincial governments and argued that the regulatory body should assume greater responsibility for supporting and enabling charities in compliance efforts with federal regulations, thereby helping them indirectly to become more effective at self-governance. Shortly after the Broadbent Panel issued its report, the federal government initiated a collaborative process with the sector called Working Together, which provided further articulation of alternative models for a regulatory body and outlined in a background paper a new means of determining charitable status based on the concept of public benefit that is used in other countries (Broder, 2002). In June 2000 the Government of Canada launched the Voluntary Sector Initiative (VSI), a five-year undertaking that for the first two years charged a set of 'Joint Tables' (consistently formed of about fourteen members chosen equally from government and the sector) with devising programs and projects for implementing many of the Working Together recommendations, including the fleshing out of proposals for regulatory reform. The Joint Regulatory Table (JRT) worked with the CRA to develop a shorter version of the T3010 that could be used with smaller charities and made a number of concrete recommendations regarding the compliance regime - among them, that the technical, financial, and human resources of the CRA be enhanced; that intermediate sanctions be established; and that appeal for denial of registration be made easier by replacing the Federal Court of Appeal with the Tax Court. In addition to rules-based changes, the JRT stressed that the CRA had to become a more responsive regulator, providing information, education, and outreach to the sector and the public, and that it had to lead the way towards greater federal-provincial cooperation. To the frustration of the voluntary sector, however, the mandate of

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the JRT did not include a review of the definition of charity or an opportunity to make recommendations on institutional reform (it could, again, only outline alternatives). To many voluntary sector leaders, it appeared that the Department of Finance and senior public servants were highly resistant to considering issues that were fundamental to the future of the sector. Indeed, many were resigned to the idea that serious regulatory reform would not be achieved for a long time to come, even though such reform was under way in many other countries and Canada's approach to charity lagged far behind. In the 2004 budget the federal government announced, to the surprise of many, that a number of the proposals put forward by the JRT for changes to the compliance regime would be implemented. Specifically, the changes include intermediate sanctions that provide fines and suspension of tax-receipt privileges; a modification of the appeal process related to sanctions (only) that allows appeals to proceed to the less cumbersome Federal Tax Court; and increased transparency on the kind of information that can be provided by the CRA. These legislative changes do not address the definition of charity nor facilitate easier access to appeals related to the registration process. Moreover, they were announced before the requisite amendments to the ITA had been drafted and it is expected to take some time to get the legislation in place. The need to amend the ITA, a cumbersome piece of legislation controlled exclusively by the Department of Finance, points to the desirability of establishing separate legislation for the governance of charities, as has been done in the United Kingdom. This would not only make amendment easier but could give the CRA, which, unlike Finance, has an ongoing, client relationship with the charitable sector, a greater role in making government responsive to the sector and in driving change that modernizes the regulatory framework. The budget also announced a reduced and more flexible disbursement quota (the amount of money that a charitable organization has to disburse on charitable activities each year). Unlike the other changes, this one emanated solely from the Department of Finance rather than from the CRA or the voluntary sector. While not a proponent of the change to the disbursement quota, the CRA has had to deal with considerable negative reaction to the effect that the new provisions are unduly complicated and unnecessary in the first place. It is a good illustration of the need for responsive regulation built on ongoing relationships between regulator and regulated and for policy coordination within the federal government. Making the regulator more responsive

136 Susan D. Phillips

to the regulated sector, as the CRA has recently been working hard to do, is undermined if the regulations it must administer are out of its control. Reforming the Regulator

As important as these formal changes to regulations are changes to the administrative practices and service standards at the CRA that were launched in 2001 as part of the agency's Future Directions initiative and which squarely address the function of regulation as service rather than merely compliance. These changes include a vastly improved website on which all registered charities are listed; enhanced service standards in responding to information requests and applications for registration; better information sharing through the CRA's charity bulletin; creation of the position of a complaints officer; and establishment of an advisory committee on charity law. In addition, the Charities Directorate is more actively engaging with voluntary organizations across the country by hosting regular 'roadshows' that are seen to facilitate constructive, problem-solving dialogues, and it is beginning to use the information collected from consultations in more systematic ways. It has also begun floating trial ideas for more fundamental reform of the definition of charity through policy papers on ethnocultural communities and on the concept of a public benefit test - to the delight and surprise of many in the sector. In both the formal and informal changes, the primary impetus seems to have come from senior management within the CRA, a group that, through the collaborative process of the VSI, had the opportunity to work with and understand the views of the voluntary sector. The implementation of these changes has been brought about by a reduction in the internal 'silos' among policy, operations, and compliance and by a major internal culture shift that is still unfolding. In effect, the CRA appears to be attempting to reinvent itself from within, thereby quelling arguments for the creation of a new regulatory institution. Can it go far enough on administrative change alone? The answer is no, since the introduction of a public benefit test for registration would ultimately require either amendment of the ITA or separate legislation. The CRA will have to be able to bring the Department of Finance along, but it has taken important first steps by reasserting some of its lost credibility with the voluntary sector and by testing possibilities in a serious way. Major reform will also require cooperation by the provinces. Although the CRA has begun liaison with provincial/territo-

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rial governments to bring about more multilevel coordination, this is progressing slowly owing to the differences among and fragmentation of regulatory mechanisms within the provinces. Still, compared to the situation just five years ago when the CRA held little credibility as a responsible and responsive regulatory body, the picture today represents a quite remarkable turnaround. International Dimensions: Anti-Terrorism Legislation

The multilevel framework for determining the legitimacy of voluntary organizations has not only a federal-provincial dimension but an international one as well. A recent addition to the regulation of the legitimacy of charities is the Anti-Terrorism Act, complicated legislation involving changes to a number of federal statutes, including the Charities Registration (Security Information) Act, that came into force in December 2001 as part of Canada's compliance with the United Nations convention on anti-terrorism. Because the anti-terrorism law casts such a broad net in its definitions of what kinds of actions contribute to and facilitate terrorism, and because its enforcement mechanisms are so Draconian, without any need for respect of due process, it risks catching quite innocent voluntary organizations. The actions covered by the law include any use of property or collection or distribution of money that might in some way aid terrorists. These include past, present, and future actions, and facilitation of such actions does not require knowing complicity, only 'knowingly not knowing.' In addition, a charity assumes responsibility not only for its own actions but for those of affiliated organizations and third-party agents (such as fundraisers or local distributors of food aid in another country) (Carter, 2004). Indeed, a charity's involvement might be quite indirect: for instance, a Canadian hospital foundation that raises funds for the general operations of a hospital that provides medical care to antiglobalization student protestors who have blocked a road leading to an international economic summit (Carter, 2004). The legislation thus puts a strict onus on voluntary organizations to conduct due diligence and to be cautious in entering any form of partnership arrangement. Umbrella groups and international development, religious, ethnic, and environmental organizations are probably most at risk. Instead of requiring adherence to due process, the enforcement mechanisms under the law enable a federal minister (the solicitor general or minister of national revenue) to issue a certificate against a charity

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covering past, present, or future actions without warning or explanation and without affording the charity an opportunity to change its practices or to use the test of due diligence as a defence. If the certificate is upheld by the Federal Court, not only could a charity lose its registration, but it could even forfeit its property and its directors could be held personally liable, both financially and criminally. Potential effects of the law are to cast a shadow on the legitimacy of many organizations, to create greater deterrents than already exist against serving on boards of directors of such organizations, and to impose significant costs on all voluntary organizations by requiring them to ensure careful screening and due diligence of members, donors, and all with whom they collaborate or do any sort of business. Regulating Political Participation Regulation of the voluntary sector has become more complex, in part because the sector itself has become more complex. When there was a fairly clear divide between those organizations devoted to charitable activity - that is, to the provision of services - and those centred on political action, the sector could be fairly neatly divided into 'charities' and 'non-profits.' Charities received the benefits of indirect funding through the tax system while giving up most of their latitude for participation in public policy; non-profits did not receive indirect funding through the tax system but were not restricted in their political activities. As governments have off-loaded a wide variety of services over the past two decades, however, many voluntary organizations that previously had been policy-oriented became, by necessity, much more heavily invested in service delivery and contracting as a means of revenue generation. Charities and other organizations that were created primarily to provide services increasingly found that they needed to have a policy voice because their first-hand experience with programming enabled them to know, often better than governments, what was really working and what was not. Recent research indicates that a distinct advocacy chill hangs over the entire sector as a result of both funding and regulatory regimes and that this is producing significant self-restraint on the part of many voluntary organizations (Scott, 2003). The indirect regulation of advocacy comes through a funding regime that is heavily dependent on project-based funding, not only from governments but from foundations and corpo-

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rations as well. Policy advocacy is rarely supported by project funding from governments or foundations and is often specifically prohibited (Pross and Webb, 2003: 89). More than that, many voluntary organizations remember well the lessons of the 1990s, when the funding of advocacy organizations was cut suddenly and dramatically, and are fearful of putting their funding at risk by being critical of governments. So they keep their heads down. As A. Paul Pross and Kernaghan R. Webb emphatically conclude from a longitudinal study of national voluntary organizations (mainly involved in the health, 'good government/ or social justice fields), 'government funding moderates public interest advocacy' (2003: 82; see also Berry with Arons, 2003). Even when government is not funding their work, voluntary organizations may restrain how vocally and visibly they pursue certain causes if this entails criticism of governments or conservative donors or if it puts their charitable status at risk. As a 2003 study of funding practices reported (Scott, 2003), 'when organizations must cobble together projects and partners to survive, being seen as an outspoken advocate on behalf of one's client group can be regarded as too risky, despite the justice of the cause. You do not want to have your name in the media when your next funding submission comes up for approval.' More direct regulation of political activity on the part of registered charities is imposed by the rules administered by the CRA. As noted above, in order to quality for charitable registration, an organization must have charitable purposes according to the common law, thereby excluding advocacy as a primary purpose. In addition, the ITA does little to clarify the common law in the limits it places on the activities of charities. No partisan political activity is permitted, although this is not seen to be restrictive in any sense because voluntary organizations rarely ally themselves with political parties, see no benefit in being partisan, and do not expect the public to support partisan activity with the use of tax expenditures (Pross and Webb, 2003). At the other end of the spectrum, consultations invited by governments are unrestricted. There is a large swath of policy-related activity between these two extremes, however, that conceivably includes coalition building, conferences, advertising, meetings with public servants, and other conventional means of influencing public policy. Such activity must be ancilliary and incidental to the charitable purposes of the organization, which is interpreted to mean that no more than 10 per cent (recently increased to 20 per cent for small charities) of all of the financial, human, and

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physical resources of a registered charity can be spent on public policy advocacy, a ceiling that would be quickly hit by small charities with one newspaper ad. The effects of this regulation are very real.7 Pross and Webb were struck by the number of times the groups in their longitudinal study said that they restricted their participation in public policy advocacy for fear of jeopardixing their status as registered charities. Leaders from the sector have been vociferous in their criticism of the '10 percent rule': 'The law in this field is unclear, badly dated, poorly reasoned, and poorly stated. As a result its application and enforcement by the CRA are inconsistent and arbitrary. This causes uncertainty, disruption and additional administrative burden for charities. More significantly it creates undue restrictions on charities in terms of public policy debate that amount to "advocacy chill." This leaves charities to distribute band-aids rather than to speak freely on behalf of their clients and members or to participate fully in the development of long-term solutions to important problems and issues' (IMPACS, accessed 4 October 2004). The tight limitations on advocacy are also seen to be out of touch with the views of Canadians. A 2004 national survey on the roles of charities found that Canadians have a higher level of trust in charities than they do in governments and 78 per cent felt that charities should be able to speak out on policy issues, with over 90 per cent supporting charities' right to do so in fields such as social policy and health (Muttart Foundation, 2004). In 2003 the Charities Directorate introduced new guidelines that are clearer and more specific than the ones they replace in defining political activity and that allow a sliding scale of up to 20 per cent which provides more room for small charities. From the perspective of the voluntary sector, however, the new regulation does not give charities any more freedom to be involved in public policy development or debate, and the sector continues to call for greater liberalization. Yet, on this point, the federal government has been particularly entrenched. The issue of same-sex marriage cast this debate in an entirely new light, as some religious leaders feel that they should not be bound by any limitations at all, indeed, that they have a right and a responsibility to participate in public policy debate using whatever resources and means they deem necessary. The CRA has already issued a warning to the particularly vocal Roman Catholic bishop of Calgary that he should refrain from engaging in partisan rhetoric on this issue.8 If religious

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charities continue their extensive public policy advocacy, the CRA faces a dilemma. It could ignore them, which would imply that there is a hierarchy of claims and rights and would surely lead to a backlash from other types of charities that have been complying with the rules. Or it could investigate and potentially bring sanctions against religious charities, which would undoubtedly offend some Canadians. This latter course of action could also stir up significant multilevel complications in the regulatory system if certain provinces chose to assert their jurisdiction and implement countervailing measures. If the CRA choose to go even further, as some countries have done, and question whether advancement of religion should still be a head of charity at all, it will undoubtedly have a major political fight on its hands. Regulating and Supporting Organizational Capacities Regulation, either directly or indirectly, extends to a wide range of other functions of voluntary organizations in ways that shape the nature of their operations and affect their capacity as organizations. It does so through measures that structure how voluntary organizations are incorporated and how they raise revenues, that determine the liability of their directors, and that monitor their adherence to privacy laws and their observance of good-governance practices. In all of these instances, the federal and provincial roles are complexly intertwined. There are large gaps in the regulatory frameworks and enforcement, and there is a wide and increasing scope for self-regulation. Since a full discussion of the regulation of organizational capacities is beyond the scope of this chapter, we touch on two key aspects - fundraising and directors' liability. Fundraising: Beyond Rules

From a regulatory perspective, fundraising is one of the most challenging activities of voluntary organizations. Even though cases of unethical practices in the sector are extremely rare, fundraising is the area the most open to fraud and most visible to the public; it is a large and growing industry; it is not readily contained by geographic jurisdictional boundaries; and it is changing rapidly as a result of technology. The regulation of fundraising is also complex because regulation needs to be targeted at both protecting the public and protecting the voluntary organization as a consumer of for-profit fundraising services.9 Federal

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regulations covering registered charities only indirectly deal with fundraising and are at best a blunt instrument for this purpose. By establishing a distribution quota that requires a percentage of receipted income to be spent on charitable purposes, the residual that can be spent on administration and fundraising is limited.10 This is an extremely messy and inadequate means of regulation because the lack of standard accounting practices means that calculation and allocation of costs may vary considerably and because fundraising costs may legitimately vary considerably from one year to the next.11 In addition, a voluntary organization does not need to be a registered charity to raise funds from the public, and so there are necessarily large holes in federal regulatory coverage. Moreover, the federal government is unlikely to expand regulation significantly in an area that falls under provincial jurisdiction.12 For the most part, however, the provinces have not entered the field with any enthusiasm. The provincial enforcement systems for unethical or potentially fraudulent fundraising practices are mainly complaints-based and tend to focus on outcomes (the amount of money that went to charitable causes) rather than practices.13 The challenge of provincial regulation is to address practices so that questionable conduct is caught before it becomes a public scandal that damages the voluntary sector as a whole, while not micromanaging the practices of voluntary organizations, as state regulators in the United States are often accused of doing.14 Only four provinces - Alberta, Saskatchewan, Manitoba, and Prince Edward Island - have enacted legislation regulating fundraising. Largely based on the initial Alberta model, this legislation requires voluntary organizations to register before undertaking a fundraising campaign of any significance, and it also requires solicitors to disclose certain basic information about themselves and about the intended use of funds when making a request for donations. Evidence suggests that there has been some success in these provinces in promoting transparency and reducing unethical conduct, but knowledge by both voluntary organizations and the public of the requirements is limited and the take-up rate of registration has been low (Oosterhoff, 2004; PAGVS, 1999). The lack of coordination with the federal registration system also hinders effective enforcement to some extent because, under the ITA, the federal government cannot share information with the provinces as to whether a charity is under investigation, although the provinces are not so constrained in sharing information with each other (Oosterhoff, 2004). The need for greater multilevel coordination in this area is an-

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other reason to consider the enactment of separate charity legislation. In addition, the Canadian Radio-television and Telecommunications commission (CRTC) has recently entered this terrain by creating onerous new rules for telemarketers that will bear upon provincial legislation and the responsibility of charities for the conduct of their fundraisers. Moreover, new federal and provincial privacy laws require greatly increased attention to protection of information held by voluntary organizations.15 The other complicating factor is simply the increased use of technology as fundraising over the Internet is making the necessarily limited geographic scope of provincial regulation increasingly ineffectual (see Li et al., 2003). A recent recommendation to the Uniform Law Commission is that a coordinated, uniform provincial law on charitable fundraising be developed and that the CRA be able to share more information with provincial authorities. While the proposal has considerable merit, the main constraint will be institutional capacities at the provincial level since most previnces have no effective institutional base for housing the authority that would oversee such legislation. In this area, government regulation, even if coordinated, cannot stand alone. Rather, it needs to be supplemented, and indeed the primary focus needs to be on voluntary codes and on education of the public in asking the right questions when being solicited for funds. There is considerable debate, however, about the effectiveness of self-regulation in a sector as large and diverse as this. On the one hand, Webb makes a strong case for voluntary codes, noting that they are effective because they harness the energy of a different set of societal actors - in this case, the sector's infrastructure organizations and the boards of directors and senior staff of voluntary organizations as well as leaders in the fundraising industry - than are typically drawn in by the use of coercion-based regulatory instruments (Webb, 2004). Specifically in the areas of fundraising and good governance, the Broadbent Panel made a strong case for self-regulation. In contrast, Robert O. Bothwell argues that voluntary codes have failed quite miserably in the United States, noting in particular that the Donor Bill of Rights sponsored by the leading umbrella organization turned out to be an empty exercise since it is almost invisible. Where self-regulation has worked well, he suggests, is where it is accompanied by a form of accreditation within membership organizations and by strong peer pressure (Bothwell, 2002).16 In Canada, the primary professional association, the Association of Fundraising Professionals, has ethical standards for its members that

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are shared by its international affiliates, and Imagine Canada (formerly the Canadian Centre for Philanthropy) has developed a voluntary code of Ethical Fundraising and Financial Management. The effectiveness of self-regulation in Canada's voluntary sector is limited largely by the lack of capacity of the infrastructure organizations - the umbrella organizations and federations whose main job is to provide policy leadership and services to members and the sector more broadly. Canada is one of the few democratic countries that provides virtually no core funding from governments or foundations to its key infrastructure organizations. Even Imagine Canada must survive mainly on projectbased funding and, as a result, has had few resources and staff to follow through on promoting the code's use and on overseeing adherence. While voluntary codes are certainly needed as part of the overall regulatory framework in fundraising and in other matters of good governance, they cannot be separated from issues of capacity, as notions of responsive regulation emphasize. In December 2001 the federal government and the voluntary sector signed an accord that sets out principles and commitments for how they will relate to each other (see Phillips and Levasseur, 2004). While the Accord and the subsequent Codes on Policy Dialogue and on Funding provide high-level and specific agreements that would considerably affect how the government and the sector interact, these voluntary codes are having difficulty finding their way into practice. Voluntary organizations occasionally use them in discussions with federal officials to identify appropriate good practices, but they appear to be used less often by government. Whether they will prove to be effective voluntary codes that encompass a wide range of activity remains to be seen. Good Governance and Directors' Liability

In the voluntary sector as in the corporate world, sound board governance has long been a matter of concern, and it has been achieved more through good practice, transparency, and voluntary codes than through command regulation. Indeed, a considerable consulting and training industry has developed in recent years around board training for the voluntary sector. That said, the issue of directors' liability is undermining the recruitment of board members and the efforts at good governance policies that have occurred in the voluntary sector. The regulation of directors' liability is both a multilevel issue, dependent on the federal or provincial legislation under which an organization is incorporated, and a horizontal issue, dependent on regulation of

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and cooperation from insurance companies. The part of the Canada Corporations Act that deals with non-profits, unchanged since 1917, has long been regarded as woefully inadequate on major issues of corporate governance, including the articulation of appropriate standard of care provisions for directors (Pross and Webb, 2003). In addition, most provincial statutes do not adequately address liability issues. As a result, the directors of non-profit organizations are personally exposed to unlimited levels of financial and criminal liability. Moreover, its decision in Bazley v. Curry in the 1990s, the Supreme Court raised the stakes even higher by holding board members vicariously responsible for the actions of staff (and potentially volunteers) in abuse cases. Although the main protection is purchase of directors' and officers' liability insurance, the dilemma is that the cost of such insurance has risen dramatically in recent years, on average between 30 and 100 per cent a year, without any connection between premiums and claims or regard to the risk management plans in place.17 Insurance costs have exacerbated existing problems in recruiting members to boards of directors and have forced many organizations, particularly those working with children and youth and other vulnerable populations, to scale back their programs and activities.18 The issue of liability was addressed, although by no means resolved, as part of the VSI. In November 2004 Bill C-21 (a new Canada Not-forProfit Corporations Act) was introduced that, for organizations registered nationally, would have streamlined the incorporation process, improved financial accountability, clarified the responsibility of directors, and enhanced members' access to information. Unfortunately, the bill died on the order paper in parliament in 2005. There is also much work to be done in reforming tort law, working with the insurance industry to develop risk management guidelines (a common set of standards acceptable to both the voluntary sector and insurance companies), and collaborating with provincial governments in the development of consistent standards and requirements. In the post-Enron environment, the response to governance scandals in the corporate world has encouraged the development of new standards, the importation of international standards, and a wide array of training opportunities aimed at promoting sound board governance practices. Following the passage of the Sarbanes-Oxley Act in the United States, which requires reporting on financial control systems and independent financial audit, many Canadian voluntary organizations began to look seriously at their risk management control systems. Indeed, in this realm the effects of self-regulation may outpace the imposition of rules.

146 Susan D. Phillips Figure 6.2. Multilevel Involvement in regulation of the voluntary sector

Role in regulation: Large Moderate Small Nil

Multiple Levels, Multiple Regimes This overview of three key spheres of regulation of Canada's voluntary sector - charitable status and legitimacy, political participation, and organizational capacity and conduct - illustrates that regulation is indeed multilevel, with the levels including not only various governments but many non-governmental bodies as well. As illustrated in Figure 6.2, the extent of multilevel involvement varies considerably across these three spheres of regulation. What is evident from this figure is that regulation in some spheres is much more crowded, notably in shaping organizational capacities and conduct, than it is in the other spheres. As Doern (2004: 70) observes to be the case in a number of other sectors, regulation of the voluntary sector by no means involves a neat, clear relationship with one or even two principal regulators. It is not simply that some aspects of regulation of the voluntary sector are more multilevel or crowded than others, however, but that regulation constitutes quite different regimes that are not well connected. As illustrated in figure 6.3, the government-dominated regime governing charitable status has little connection with the regulation of

Canada's Voluntary Sector 147 Figure 6.3. Multiple regulatory regimes Governmental Many Multilevel Multiparty

Multilevel Govt dominant

Non-governmental None

Many

Private governance

Minimal regulation None

fundraising and liability and other organizational capacities. Not only do the regimes involve different state and non-state actors, but there is relatively little communication among them. These multiple and disjointed regimes increase the likelihood that new rules or initiatives aimed at other sectors, such as rules around privacy, telemarketing, or anti-terrorism, get enacted without consideration of the actual consequences for voluntary organizations or their capacity to comply and respond. Such fragmentation also potentially harms the credibility of an increasingly responsive federal regulator, the CRA, in its efforts to be seen as a leader toward regulatory reform. Finally, more rule makers constricts the space for self-regulation and private governance, which in some areas, such as fundraising and good governance, is likely to be more effective than another set of rules. Although it is improbable that there will ever be fully integrated, multilevel regulatory governance, given the variety of state and non-state actors involved, there is clearly more scope for communication and cooperation.

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Conclusions: Next Steps in Regulatory Reform The story that this chapter has told of multilevel regulation of the voluntary sector is one of both resistance and reform. In spite of a decade of pressure for reform, the federal government has resisted action on two of the key concerns of the voluntary sector: modernizing the definition of charity (or the appeal processes that would allow the common law to modernize itself) and liberalizing restrictions on public policy advocacy by charities. This is also a case study in how a regulatory body, the Charities Directorate of the CRA, can reinvent itself to become a more responsive regulator by working collaboratively with and listening to its constituency and by redesigning its operations and its culture. These reform initiatives are starting to pay off as the credibility and working relationships of the CRA with the voluntary sector have vastly improved in the past year or two. Only so much can be achieved by administrative reform alone, however. Several important steps lie ahead. The immediate big tests for the CRA will be how it deals with religious or other charities that choose to ignore the rules on political activity, and whether it can bring about reform that will introduce a public benefit test for determining which organizations gain access to tax system - reform that is likely to meet resistance from within the federal government. The CRA is in an anomalous position in that the legislative tools needed to advance further reform reside not with it but with the Department of Finance. It administers the policies but must convince Finance or merely hope that it has set appropriate policies in the first place; however, as recent reforms suggest, Finance does not always defer to the CRA. Reducing this divide between policy and administration, possibly through new charity legislation, would be a constructive next step. Although the federal government has assumed the dominant regulatory role among governments, it holds only a small piece of the overall regulatory puzzle. Areas such as fundraising, charitable gaming, liability, and good governance that are of growing importance to all parts of the sector, not just charities, are either shared federal-provincial jurisdiction or provincial jurisdiction alone. More effective communication and coordination among levels of government is thus imperative. Increasingly, multilevel regulatory governance will need to encompass not just domestic but international levels as more voluntary organizations operate and raise funds outside national borders and as benchmarks of good practice developed by international bodies are being

Canada's Voluntary Sector 149 adopted in Canada. Finally, after years of striving for changes in government rules, the voluntary sector now needs to focus on enhancing its own self-regulation. Given the fragility of public trust, and remembering the lessons of corporate scandals, it needs to get out in front on issues of good governance and sound risk management, and these matters depend more on voluntary codes than on rules. The challenge for self-regulation lies in the under-developed infrastructure of Canada's voluntary organizations and the inherent diversity of the sector as a whole. Balancing regulation with capacity will surely be key in the next act.

NOTES 1 The reference to voluntarism does not imply that such organizations are run strictly by volunteers, since many rely primarily on paid staff to carry out their programming; it does refer to the fact that virtually all depend on volunteer boards of directors for their governance. 2 According to the 2004 National Survey of Nonprofit and Voluntary Organizations, conducted by Statistics Canada and a consortium of voluntary sector and university partners, the largest categories in terms of numbers of organizations are (in order): sports and recreation; religion; social services; grant making, fundraising and volunteerism promotion; arts and culture; housing and development; education and research; health; environment; law, advocacy and politics; international development; hospitals; universities and colleges; and other. 3 Under the Income Tax Act, a registered charity is defined as one of three types: a charitable organization (which serves charitable purposes through the services it provides), a private foundation, or a public foundation (both of the latter provide support to charitable organizations). For an introduction to the Canadian tax treatment of voluntary organizations, see Hayhoe (2004). 4 See the CRA website, http://www.cra-arc.gc.ca 5 See Webb (2000) and Monahan with Roth (2000) for a discussion of interpretations by Canadian courts. 6 See 'Corruption a Concern with Vast Amount of Tsunami Aid/ Globe and Mail, 19 January 2005, Al. 7 The '10 per cent rule' on advocacy is reinforced by requirements to register and disclose under the Lobbyists Registration Act and by limits on spending on advertising during election campaigns. Compared to the restrictions on advocacy, neither of these has had a significant effect, however,

150 Susan D. Phillips because charities seldom hire third-party lobbyists and by choice refrain from advertising during elections. Yet Pross and Webb (2003) argue that together these requirements do constitute a single regulatory regime. 8 The warning came after Bishop Henry wrote a pastoral letter to his congregation (which was also posted on the diocese's website) during the 2004 election campaign that harshly criticized Paul Martin for claiming to be a devout Catholic given his position on same-sex marriage and abortion. He made the news again in January 2005 when he issued another pastoral letter calling on the state to use its coercive power to curtain homosexuality. See Michael Valpy and Gloria Galloway, 'Revenue Agent Threatened Tax Hit, Bishop Says/ Globe and Mail, 22 October 2004, A7; Michael Valpy, 'Bishop Blasted for Calling on the State to Target Gays/ Globe and Mail, 18 January 2005, Al. 9 As the Broadbent Panel noted, one of the concerns is that small voluntary organizations, desperate for funds, are more likely to enter into contracts with third-party fundraisers in which they get only a small percentage of the money collected (thinking that something is better than nothing) or which are structured on a commission rather than a fee-for-service basis, the former being widely regarded as unacceptable. 10 A recent American study found that non-profits significantly under report their fundraising and administrative costs because of the public and donor pressures to keep costs down. See Center on Philanthropy at Indiana University (2004). 11 For over half of Canadian charities, fundraising costs are on average about 12 per cent of their revenues, but this may vary considerably depending on whether a charity is building a new base of donors or trying out new approaches. In recognition of this, the CRA has recently allowed the disbursement quota to be averaged over several years. 12 In 2001, as part of the VSI, the federal government and the voluntary sector signed an accord in which each makes certain high-level commitments as to how they will interact with each other, and, under this very general agreement, both parties agree to a more specific Code of Good Practice for Funding (and one for Policy Dialogue). Under the Funding Code, the voluntary sector agrees to adhere to ethical fundraising practices. It is my contention that such a measure could never actually be enforced by the government of Canada since it is beyond Ottawa's jurisdiction. See Government of Canada/ Voluntary Sector, A Code of Good Practice on Funding. October 2002,12. Available at www.vsi-isbc.ca. 13 Because the scandal of fraudulent fundraising is so damaging to the voluntary sector as a whole, a complaints-based process is inadequate.

Canada's Voluntary Sector 151

14

15

16

17 18

Two major cases have been prosecuted by provincial authorities in recent years in which for-profit fundraisers, taking over 80 per cent of the monies raised, were found to be engaged in fraudulent practices. In one case, the AIDS Society for Children, the charity was accused of having chosen a name that purposefully caused confusion with a well-established, more reputable charity, and in the other the charity's principals were found to be in a conflict of interest because they were also employed by the fundraiser. A recent court case in the United States greatly limited the scope of state regulation by determining that a third-party telemarketer breached regulations only because, in the course of soliciting, it misrepresented the portion of the donation that would go to the charity, not because the contract with the fundraiser allowed it to take a large percentage of the donation in the first place. With restrictions on fundraising pitted against protection of free speech, the former was the loser. See Wendy Hulton, 'New Rules for Telemarketing,' MillerThamson Charities and Not-for-Profit Newsletter, June 2004; the new rules are posted at www.crtc.gc.ca/archive/ENG/Decisions/2004/dt2004-35.hrm.The privacy laws affect the work of voluntary organizations in a number of ways, a full discussion of which is beyond the scope of this paper. The Association of Fundraising Professionals was successful in reducing some of the tight strictures of Ontario's Bill C-31, the Health Information Privacy Act, to allow some limited transfer of basic individual contact information. Without the amendment, it would have been extremely difficult for health-related charities to use any personal information for fundraising purposes without express consent. See www.afpnet.org and Eve Munro and Rachel Blumenfeld, 'Early Privacy Law Developments for Charities/ MillerThomson Charities and Not-for-Profit Newsletter, June 2004, available at http://www.millerthomson.ca (accessed 10 October 2004). The best examples of this, according to Bothwell, are the Maryland Association of Nonprofits, where 85 percent of Marylanders say that whether or not an organization soliciting funds has the association's seal of approval is an important factor in their giving, and the Evangelical Council for Financial Accountability, which runs an effective accreditation program for its member churches. See Voluntary Sector Forum at http://www.voluntary-sector.ca In the 2004 National Survey of Nonprofit and Voluntary Organizations, recruitment of board members was one of the top three most frequently mentioned and most serious difficulties experienced by voluntary organizations (NSNVO, 2004: 44).

152 Susan D. Phillips REFERENCES Berry, Jeffrey M., with David F. Arons (2003). A Voice for Nonprofits. Washington: Brookings Institution. Bothwell, Robert O. (2002). 'Trends in Self-Regulation and Transparency of Nonprofit Organizations in the U.S.' International Journal of Not-for-Profit Law 4, no. 1. Available at www.icnl.org/JOURNAL/vol4issl/bothwelllhtm Broder, Peter (2002). "The Legal Definition of Charity and Canada Customs and Revenue Agency's Charitable Registration Process.' Philanthropist 17,3: 3-56. Bromley, Blake, and Kathryn Bromley (1999). 'John Pemsel Goes to the Supreme Court of Canada in 2001: The Historical Context in England.' Paper presented to the Place of Religion in Modern Society Conference, Organized by the Canadian Council of Christian Charities, Toronto. Carter, Terrance S. (2004). 'Charties and Compliance with Anti-Terrorism Legislation in Canada: The Shadow of the Law.' International Journal of Not-for-Profit Law 6, no. 3 Available at www.icnl.org/JOURNAI7vol6iss3/ carter.htm Center on Philanthropy, Indiana University (2004). Nonprofit Fundraising and Administrative Cost Project. Indianapolis: Center on Philanthropy, Indiana University. CTV (2005). 'Private Canadians Tsunami Donations Top $150 million.' Available at http://www.ctv.ca/servlet/ArricleNews/story/CTVNews/ 20050112/tsunamLaid_050112/Canada?s_name=&no_ads. Accessed 13 January 2005. Deakin, Nicholas (2001). In Search of Civil Society. Basingstoke, UK: Palagrave Press. Doern, G. Bruce (2003). 'Improving Regulatory Relations in Multi-Level Governance: Principles and Mechanisms.' Paper prepared for the OECD Expert Meeting on Regulatory Cooperation, Paris. - (2004). 'Institutional and Public Administrative Aspects of Voluntary Codes.' In Kernaghan R. Webb, ed., Voluntary Codes: Private Governance, the Public Interest and Innovation, 57-76. Ottawa: Carleton Research Unit for Innovation, Science and Environment, Carleton University. Drache, Arthur B.C., and W. Laird Hunter (2000). 'A Canadian Charity Tribunal: A Proposal for Implementation - Part I.' Philanthropist 15, no. 4: 2-28; 'Part 2.' Philanthropist 16, no. 1: 4-27. Economist (2005). 'Helping the Survivors.' 8. External Advisory Committee on Smart Regulation (EACSR) (2004). Smart Regulation: A Regulatory Strategy for Canada. Ottawa: Privy Council Office.

Canada's Voluntary Sector 153 Hansmann, Henry (1980). "The Role of Nonprofit Enterprise.' Yale Law Journal 89: 835-901. Hayhoe, Robert B. (2004). 'An Introduction to Canadian Tax Treatment of the Third Sector.' International Journal of Not-for-Profit Law 6, no. 2. Available at www.icnl.org/JOURNAL/vol6iss2/ar_hayhoe.htm Joint Regulatory Table (JRT), Voluntary Sector Initiative (VSI) (2004). Strengthening Canada's Charitable Sector: Regulatory Reform. Ottawa: Voluntary Sector Initiative. Kendall, Jeremy (2003). The Voluntary Sector. London: Routledge. Law Reform Commission of Ontario (1998). Review of Charitable Law in Ontario. Toronto: Law Reform Commission of Ontario. Li, Alison, Allison Kind, and Michael Johnston (2003). 'Regulating the Internet: The Impact on Charitable Fundraising Online.' In Kathy Brock, ed., The Nonprofit Sector in Interesting Times. Montreal and Kingston: McGillQueen's University Press. McMullen, Kathryn, and Grant Schellenberg (2002). Mapping the Non-Profit Sector. CPRN Research Series on Human Resources in the Non-Profit Sector, 1. December. Available at www.cprn.org May, Peter J. (2002). 'Social Regulation.' In Lester M. Salamon, ed., The Tools of Government: A Guide to the New Governance. New York: Oxford University Press. Monahan, Patrick J., with E. Roth (2000). Federal Regulation of Charities. Toronto: York University Press. Muttart Foundation (2004). Talking about Charities. Edmonton: Muttart Foundation. National Survey of Nonprofit and Voluntary Organizations (NSNVO), Statistics Canada, et al. (2004). Cornerstones of Community. Ottawa: Statistics Canada. O'Halloran, Kerry J. (2002). 'Charity Law Review in Ireland and the Challenges for the State/Third Sector Partnership/ International Journal of Notfor-Profit Law 5,1. Available at www.icnl.org/JOURNAL/vol5issl/ ar__ohalloranl .htm Oosterhoff, Albert H. (2004). 'Charitable Fundraising Research Paper.' Prepared for the Uniform Law Conference of Canada, Civil Law Section, Toronto. Panel on Accountability and Governance in the Voluntary Sector (PAGVS) (1999). Building on Strength. Ottawa: Voluntary Sector Roundtable. Parker, Christine (2002). The Open Corporation: Self-Regulation and Democracy. Melbourne: Cambridge University Press. Phillips, Susan D. (2003). 'Voluntary Sector-Government Relationship in

154 Susan D. Phillips Transition: Learning from International Experience for the Canadian Context/ In Kathy L. Brock, ed., The Voluntary Sector in Interesting Times, 17-70. Montreal and Kingston: McGill-Queen's University Press. Phillips, Susan D., and Karine Levasseur (2004). 'The Snakes and Ladders of Accountability: Contradictions between Contracting and Collaboration for Canada's Voluntary Sector.' Canadian Public Administration 47, no. 4: 451-74. Pross, A. Paul, and Kernaghan R. Webb (2003). 'Embedded Regulation: Advocacy and the Federal Regulation of Public Interest Groups.' In Kathy L. Brock and Keith G. Banting, eds., A Delicate Dance: The Nonprofit Sector and Government in Canada. Montreal and Kingston: McGill-Queen's University Press. Putnam, Robert D. (2000). Bowling Alone. New York: Simon and Schuster. Rhodes, R.A.W. (1996). "The New Governance: Governing without Government/ Political Studies 44, no. 4: 652-67. Salamon, Lester M. (2002). 'The New Governance and the Tools of Public Action: An Introduction.' In Lester M. Salamon, ed., The Tools of Government: A Guide to the New Governance, 1-47. New York: Oxford University Press. Salamon, Lester M., S. Wojciech Sokolowski, and Regina List (2003). Global Civil Society: An Overview. Baltimore: Center for Civil Society Studies, Johns Hopkins University. Scott, Colin (2003). 'Regulation in the Age of Governance: The Rise of the Post-Regulatory State.' National Europe Centre Paper no. 100. Scott, Katherine (2003). Funding Matters: The Impact of Canada's New Funding Regime on Nonprofit and Voluntary Organizations. Ottawa: CCSD in collaboration with the Coalition of National Voluntary Organizations. Stevens, David (2000). 'Vancouver Society of Immigrant and Visible Minority Women v. M.N.R.' Philanthropist 15, no. 2: 4-13. Thompson, Elizabeth, and Anne Dawson (2005). 'Church Told to Butt Out.' National Post, 28 January, Al. Warren, Mark E. (2001). Democracy and Association. Princeton, N.J.: Princeton University Press. Webb, Kernaghan R. (2002). Cinderella's Slippers? The Role of Charitable Tax Status in Financing Canadian Interest Groups. Vancouver: SFU-UBC Centre for the Study of Government and Business. - (2004). 'Voluntary Codes.' In Kernaghan R. Webb, ed., Voluntary Codes: Private Governance, the Public Interest and Innovation, 3-34. Ottawa: Carleton Research Unit for Innovation, Science and Environment, Carleton University.

PART TWO Sectoral Regulatory Realms and Dynamics

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7 Multilevel Regulatory Governance of Food Safety: A Work in Progress GRACE SKOGSTAD

On 20 May 2003 a case of bovine spongiform encephalopathy - BSE, or 'mad cow' disease - was confirmed in a Canadian cattle herd. Virtually immediately, thirty countries prohibited imports of Canadian beef products and live cattle. They justified their ban as necessary to protect the health and safety of domestic consumers. As industry and government officials in Canada and the United States debated the legality and legitimacy of the import ban, Canada's cattle sector struggled with the economic fallout. The American market accounts for almost threequarters of Canadian live cattle and beef sales; its closing proved economically devastating. Eighteen months into the crisis, lost sales were estimated to have cost the Canadian cattle sector in excess of $Cdn 2 billion. An ocean away, another story of resistance to food products has frustrated Canadian governments and Canadian food exporters alike. Between 1998 and 2004, the European Union (EU) market was virtually closed to imports of genetically modified (GM) oilseeds and foods containing GM products, a move occasioned by European consumer resistance to GM foods. Although the EU's de facto moratorium on the approval of new GM food products was not as costly to the Canadian agriculture and food products (agri-food) industry as the fallout from the BSE case, Canadian canola growers did endure lost sales. When the EU once again began licensing new GM food products in 2004, the costs of entry had risen and Canadian exporters faced stringent licensing and traceability regulations. These conditions, said EU decision makers, were necessary to overcome consumers' anxiety about the safety of genetically modified foods.

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Both the BSE and GM food cases are potent illustrations of the close links between food safety regulation and trade. They are also compelling examples of the high politics that now surround food safety measures affecting trade. In an earlier era, when most food consumed was produced locally, local jurisdictions could be entrusted with the responsibility to ensure that food posed no health or safety risks to consumers. Nor did it matter much, if at all, if these regulatory standards differed across jurisdictions. Today, however, large volumes of agricultural and food products are traded across borders and agri-food markets have become highly integrated. As imported foods increasingly appear in the domestic market, consumers and the governments responsible for their safety seek assurance of these products' safety. Local producers and processors of food have other concerns, most notably that imported products not have the economic advantage of having to meet less onerous (and less costly) safety standards. Transnational corporations that trade food products across borders, and that are a prominent feature of the contemporary food industry, have yet another concern: to lower the transaction costs that disparate cross-national food safety standards imply. The coordination of food safety measures across jurisdictions, either by harmonizing these measures on some common standard or by countries' agreeing to recognize one another's measures as equivalent, is the preferred mechanism to reconcile food safety and trade goals. Whatever method of coordination, it is equally clear that it must be around high, not low, food safety standards. To the degree - not insubstantial - that food safety measures differ across jurisdictions, rendering food safety and trade policy goals compatible thereby requires policy coordination across multiple sites of food safety regulation. The purpose of this chapter is to detail past and current efforts by state and non-state actors to secure agreement on common principles, policies, guidelines, and standards of food safety regulation, and to appraise the success of their initiatives to date. As such, the chapter is an inquiry into the extent to which there exists an integrated and coherent system of multilevel food safety regulation whose scope extends from the subnational to the national to the international arena. It highlights the significant steps that have been taken in the domestic, Canadian, arena to overcome internal jurisdictional barriers and harmonize and coordinate the setting and enforcement of food safety measures. The chapter also outlines initiatives at the multilateral level to constitute structures and principles on which to harmonize food-safety regulatory measures across nations. Trade agreements have

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provided for the upward shift of authority with respect to standard setting and enforcement to supranational bodies. Less formal mechanisms of food-safety regulatory cooperation across countries have also emerged. In both the Canadian and international arenas, the principle that food safety measures should be based on scientific risk assessments has underwritten cooperative and coordination efforts. Despite developments toward multilevel governance, an effective and coherent system of coordinating and harmonizing food safety regulation across these multiple sites remains a work in progress. Resistance comes from two quarters. One source is domestic food producers and processors who either profit from distinct and non-equivalent local food safety measures or face additional costs if local and foreign measures are harmonized or recognized as equivalent. A second source of resistance is consumers. Disparate perceptions of risk across societies lead to consumer demands for distinctive regulatory measures. In populations that are particularly risk-averse, it also leads to opposition to the harmonization of food safety measures on generic principles like 'sound science/ Instead, there is a championing of the precautionary principle, a much weaker basis for securing agreement on the substantive standards of food safety regulation. The issues of BSE and genetically modified foods illustrate resistance to cross-jurisdictional harmonization on scientific risk assessment criteria. They demonstrate the imperative for democratically elected governments to be accountable to the electorate even while ensuring their health and safety. They also show how cross-jurisdictional differences in appropriate standards and measures of food safety can be obstacles to policy coordination and multilevel governance. Yet, even so, as the BSE case demonstrates, where agricultural markets are highly integrated, the strong desire of exportdependent countries to keep markets open will intensify efforts toward multilevel governance, including, if necessary, the elevation of food safety standards. To develop this argument, the chapter proceeds as follows. The first two sections detail the institutions and principles of Canada's domestic food-safety regulatory framework, and those at the international tier, respectively. The third section examines the constraints to effective and legitimate multilevel regulatory governance in both the domestic and international arenas. It takes a close look at the BSE and GM food cases to do so. The conclusions summarize the prospects for multilevel regulation, touching on some new issues that are emerging in food safety regulation.

160 Grace Skogstad Regulating Food Safety in Canada Food-borne hazards arise during the production, processing, and distribution of food. They derive from chemical and microbial contamination of food; natural toxins; and mislabelling of allergens, additives, and preservatives. Food safety regulation entails the host of activities that are intended to minimize exposure to these food-borne hazards and to ensure that food products and additives meet acceptable standards with respect to such matters as nutrition, pesticide and veterinary drug residues, deteriorative changes, and allergenic factors. These regulatory activities include developing policies, standards, and guidelines for approval of food products or additives; conducting risk assessments of the health and safety of potential hazards; pre-market evaluation of food products; surveillance and inspection to ensure compliance with health and safety standards; and post-market monitoring of products to detect any unforeseen hazards. The Canadian constitution divides responsibility for food safety regulation across the two orders of government in Canada, making it a matter of multilevel governance.1 (See table 7.1.) The government of Canada has the paramount role in setting food safety standards and identifying the risks associated with food products. The task falls to Health Canada, whose officials use scientific data and risk assessment techniques to make these determinations (Canada, Health Canada, 2000). Health Canada also administers regulations aimed at preventing the production or sale throughout Canada of dangerous, adulterated, or misbranded products. Provincial food safety measures have to conform to the provisions of federal statutes and regulations pursuant to the Food and Drugs Act. However, provinces have more leeway when it comes to observing federal guidelines and policy recommendations, and they can impose food safety standards that surpass those set by the government of Canada. At least two, and sometimes three, orders of government are involved in the enforcement of food safety standards, recommendations, and guidelines. Enforcement is the work of inspection systems whose activities include licensing food industry establishments and thereafter auditing them to ensure compliance with safety and health standards; investigating complaints about unsafe food products and seizing and recalling such products; and establishing animal and plant health control measures. The government of Canada is responsible for enforcing these safety standards with regard to domestic products sold inter-

Food Safety 161 Table 7.1. Food-safety regulatory authority

Canada

International Arena

Developing policies, standards, and guidelines for approval of food products and additives

Health Canada - primary

Codex and committees

Provinces - secondary

OIE

Conducting scientific risk assessments

Health Canada - primary Provinces - secondary

Pre-market safety evaluation

Health Canada (CFIA support) Provinces - secondary Industry

Surveillance/inspection, enforcement, and compliance

CFIA Provinces & local governments Industry (HACCP)

Codex OIE

WTO

NAFTA

provincially and internationally, as well as for imported foods. Food safety standards within provincial and territorial borders are, however, the responsibility of subnational governments. Together with municipal governments, provincial and territorial governments regulate the activities of food processing, food service, and food retail industries that operate within their borders. Provinces and/or municipalities decide whether and how to inspect local processing and retail operations, including restaurants and grocery stores, to ensure that they are in conformity with food safety measures. This vertical fragmentation of food-safety regulatory authority has historically been accompanied by a horizontal fragmentation of responsibility. Agriculture and health departments have shared responsibility for food safety regulation, and sometimes, as well, the responsibility has been shared with other ministries like fisheries. Dispersion of regulatory authority and responsibility for food safety was an increasing concern from the 1980s onward. The worry was that gaps and inefficiencies in the food safety system, resulting from divergent regulations and disparate inspection standards across provinces and the national government, could undermine food safety objectives and trade goals (Auditor General of Canada, 1994). At the time, inspection systems to enforce standards differed markedly across national and provincial jurisdictions. Meat and dairy pro-

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cessing plants whose products were traded interprovincially or internationally were subject to federal inspection and the standard of mandatory inspection. By contrast, the inspection standards for processing plants whose products were sold exclusively within the province varied from province to province, and even within a single province (Canada, Canadian Food Inspection Agency, 1997). In some provinces, meat processing plants that produced for the local retail market were either not inspected or inspected only infrequently. Although the gaps that resulted from non-inspection or less rigorous inspection represented only a small percentage of overall production, processors subject to mandatory inspection worried that they could be a source of serious food-borne illnesses that would jeopardize domestic consumer confidence and export markets. A repeat on Canadian soil of the 'mad cow' disease fiasco that unfolded in Europe after the mid-1980s provided a powerful incentive for reform. Economic and trade competitiveness incentives also figured prominently in the desire to harmonize provincial food safety and inspection standards. The closer integration of the U.S. and Canadian markets as a result of free trade agreements left industry anxious to reduce costs impeding its competitiveness. One set of national food safety standards, rationalized to those of Canada's trading partners, would eliminate the 'unworkable administrative mess' created by disparate provincial standards (Doering, 1996: 5). It would also mitigate the possibility that Canadian food exporters would be denied access to external markets on the grounds that Canadian food safety standards and inspection systems were not equivalent to those of the importing country. In the early 1990s, shipments of ultra-high-temperature milk from Quebec to Puerto Rico were prohibited entry to the United States on the grounds that Canada's dairy standards were not equivalent to the U.S. national standard.2 At that time, Canada had no national standard for milk; all milk standards were provincial standards. The need for intergovernmental cooperation to overcome regulatory gaps that could provoke economic and food safety concerns was recognized in a regulatory review commissioned by the government of Canada in the early 1980s. The Nielsen Task Force's recommendation that food standards be harmonized across the two orders of government led the Brian Mulroney government to direct federal food inspection departments to pursue a more integrated approach with the provinces. The work of two intergovernmental committees, one on food safety and the other on food inspection, provided the basis for two major initiatives in

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the 1990s (Moore and Skogstad, 1998). The first initiative saw consolidation of food-safety regulatory systems, including inspection activities, within governments. The second was aimed at better coordination of food safety standards and inspection systems across federal and provincial/territorial governments. To these developments was added a third: the delegation of important responsibilities for food safety assurance to the food industry and its representative organizations. Consolidating Authority within Governments

Steps to consolidate authority with respect to food safety within each sphere of jurisdiction have been driven by the same factors that have fuelled intergovernmental harmonization efforts and partnerships with the private sector (discussed below). These factors are the prospect of cost savings and greater efficiency and effectiveness of food safety systems. At the provincial level, the province of Quebec was the first government to consolidate its food safety inspection system. At the national level, the Canadian Food Inspection Agency (CFIA) was created in 1997 to bring under one institutional roof inspection and related services for food safety, animal and plant health, and agricultural inputs like animal feed, seed, and fertilizer (Skogstad, 1998). Previously these tasks had been dispersed across ministries responsible for agriculture, health, and fisheries and oceans. The CFIA now has the responsibility for inspection of federally registered establishments and the enforcement of standards pertaining to food safety and animal and plant health. Intergovernmental Coordination: The Canadian Food Inspection System

The intergovernmental efforts to coordinate and harmonize food safety standards and inspection systems that began in the 1980s were formalized and given added impetus in the Blueprint for the Canadian Food Inspection System in July 1994. This document, and its accompanying Guidelines, was signed by federal/provincial/territorial agriculture ministers and subsequently by their health and fisheries counterparts. The Blueprint proposed a cost-effective inspection system: one that was more harmonized, market-driven, effective and efficient, and supportive of domestic and international industry competitiveness. The responsibility for transforming the Blueprint from vague principles to an integrated Canadian Food Inspection System (CFIS) fell to

164 Grace Skogstad

an interdepartmental and intergovernmental group called the Canadian Food Inspection System Implementation Group (CFISIG). By 1997, it had agreed to a National Dairy Regulation and Code which established a Canada-wide set of health and safety standards for the dairy industry. The dairy code (which includes the regulations and accompanying interpretive guidelines) is nonetheless voluntary; its implementation is at the discretion of individual provinces (Moore and Skogstad, 1998). Efforts to establish parallel codes for meat and poultry have foundered over provincial resistance to upward harmonization to federal standards. Some provinces, like Alberta, have large meat packing and processing plants that trade interprovincially and internationally and therefore must meet federal inspection standards. Its government, like those in other provinces with significant numbers of federally registered plants, thus supports a national meat code predicated on federal meat-processing standards. Provinces with smaller and medium-sized plants that market their products only within the province oppose harmonizing provincial standards to federal ones because the latter will likely entail significant capital investment to conform to more exacting requirements. To date, the government of Canada has required unanimity across provinces and territories on meat safety standards before it will recognize any code agreed to by provinces as equivalent to federal standards. Elsewhere, food-safety regulatory activities have been coordinated in several ways across orders of government. Intergovernmental agreements have been struck with respect to food recalls, safe-food handling practices, inspection of non-federally registered food establishments, and sharing federal and provincial inspection activities in areas of food safety. Canadian governments renewed their commitment to food safety regulation in the Agricultural Policy Framework signed in June 2001. As discussed further below, it extends cooperative efforts towards food safety regulation to include tracking and traceability systems. Delegating Responsibility to the Private Sector

The private sector, in the form of food producers and processors, has become much more important as a site of food safety regulation. Its enlarged role was signalled in the 1994 Blueprint for the Canadian Food Inspection System and its accompanying Guidelines. In addition to the goal of a harmonized and cost-effective inspection system noted above,

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the Blueprint and its Guidelines also endorsed two other principles. One was outcome-based standards for health and safety, resting on sound scientific risk assessment and management principles. The other was industry's recognition of its important responsibilities with respect to food safety, including 'the primary responsibility for safety and quality' (Canada, Joint Steering Committee of CFIS, 1995). Both objectives meant an enlarged role for the industry in food safety regulation. At the time the Blueprint was agreed to, governments were not only establishing precise outcomes/standards but also defining the means to realize these outcomes. The approach endorsed in the Blueprint altered this allocation of responsibilities. It left governments responsible for setting desired outcomes (that is, standards of food safety) but delegated producers and processors primary responsibility to decide how to achieve these outcomes (Agriculture Canada, 1992: 14-16). In keeping with developments in other countries, this change was motivated by a desire on the part of governments to shift a portion of their foodsafety regulation costs to the private sector (Prince, 2000). The private sector has been entrusted with responsibility for food safety regulation through the introduction of Hazard Analysis and Critical Control Point (HACCP) systems. HACCP systems identify the critical points in the production or processing unit where food hazards may arise, and install and monitor control mechanisms to limit these hazards and to recall hazardous products. They replace the traditional organoleptic ('sight and smell') inspection in which inspectors visibly inspect slaughter and processing plants. Owners of plants are responsible for developing and installing HACCP systems, but, in the case of nationally regulated fish, meat, dairy, and poultry processors, receive federal financial assistance to develop and implement these systems. Government's inspection costs are lowered as its role alters to focus on the provision of scientific and technical advice to industry, possibly some on-site inspection, and auditing industry records to verify compliance. Canada's endorsement of HACCP systems to ensure food safety in the production and processing sectors is consistent with international recognition of HACCP as an accepted standard for food safety inspection. It is deemed necessary to ensure access to foreign markets for Canadian products, particularly the American, where the worry is that Canadian products will be denied entry on the grounds that Canadian standards and inspection systems are not equivalent to American regulations. The decision of the United States to require HACCP programs in federally inspected meat packing plants by January 1998, and to require

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imported meat to conform to this rule as well, was a powerful catalyst to Canada also adopting HACCP. Three-fifths of Canada's agri-food imports and exports are with the United States. Canada's HACCP programs are recognized by the United States as equivalent to its own HACCP Rule. On-farm food safety systems are the final link in the domestic foodsafety regulatory chain. Producer organizations - such as Canada's national farm organization, the Canadian Federation of Agriculture contract with the government of Canada to deliver workshops to farmers on how to implement on-farm food safety programs under the Canadian Farm Safety and Quality Program (CFSQP). Producers receive government funds, distributed by the CFA, to implement HACCP on-farm systems. This extension of food safety systems to the source of food production is viewed as crucial to the goal of an integrated 'field to fork' system that allows food to be tracked and traced throughout the entire food production and processing chain.3 Traceability and tracking systems, which have become the law in the EU, are seen as the means to quicker and more effective responses to potential disease or contamination outbreaks. This need was highlighted by the 2003-4 BSE crisis; determining whether other cattle had also been infected with the contaminated feed believed to cause BSE took about three weeks. Regional and Global Food-Safety Regulatory Governance The post-Second World War increase in international trade in foodstuffs - meat, butter, cheese, and cereals - led to the establishment of the Codex Alimentarius Commission (Codex) in 1962. It was created by the United Nations World Health Organization and Food and Agriculture Organization to establish international standards for food traded internationally. Codex was backed by the U.S. government and the U.S. food industry, both of which wanted U.S. standards to become the worldwide standards for food safety. Codex standards did indeed become those on which food standards converged globally, although few countries adopted them in their entirety (Braithwaite and Drahos, 2000). An analogous organization, the International Organization of Epizootics (OIE), had been established by the League of Nations much earlier, in 1924, to establish sanitary standards for trade in animals and animal products. As with Codex, OIE represented an effort to capture the economic benefits that accrued to exporters of sanitary guarantees,

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even while assuring importers of protection from food-borne disease and contaminants. Countries had the right, under international trade law, to take measures 'necessary to protect human, animal or plant life or health' - known as sanitary and phytosanitary (SPS) measures - as long as these measures did not discriminate among countries or were a disguised barrier to trade (GATT Article XX:b). This GATT provision proved to be ineffective. The term 'necessary' was subject to political dispute, and, more important, the decisions of GATT trade dispute panels were not binding on member countries. In the 1980s the continued rapid expansion of international trade in agri-food products, coupled with intensified market competition between food exporting countries, led to international and regional trade agreements to liberalize markets and curtail government protection of domestic producers and food processors. The liberalization of agricultural markets created the possibility that SPS measures would be used as a non-tariff barrier to trade, replacing import quotas and tariffs that were being reduced and gradually eliminated. Canada and the United States became convinced that the EU was doing just that when it prohibited the production and importation of meat derived from animals treated with nontherapeutic growth hormones. The banned hormones are widely used in Canada and the United States, with the result that the import ban resulted in lost Canadian and American sales to the European Community market. Efforts by Canada and the United States to challenge the ban after it was implemented in 1989 proved futile because existing GATT agreements did not apply to processing and production methods, including the use of hormones. A multilateral SPS agreement that would require domestic food safety measures, including those relating to production and processing methods, to be based on scientific grounds and international standards was the perceived solution to end the ban and outlaw 'protectionist' food safety measures (Skogstad, 2001). The result was the Agreement on the Application of Sanitary and Phytosanitary Measures as part of the 1995 WTO Agreement. The SPS Agreement clarified and strengthened GATT articles by enabling but also limiting the right of countries to take measures to protect human, animal, and plant health or life from food or feed borne risks and from pests or disease-related risks. Chapter 7 of the North American Free Trade Agreement (NAFTA) is the counterpart of the WTO SPS Agreement. It also attempts to balance food safety and liberal trade goals. Both NAFTA's Chapter 7 and the WTO SPS Agreement allow countries to choose their own level of food

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safety and other SPS protection subject to the following restrictions. Countries are required to base their food safety (and other SPS) measures on scientific principles and a risk assessment that is supported by scientific evidence. They are also required to design these measures in a way that affects trade in the least restrictive fashion and not to discriminate between foreign and domestic goods. Countries must recognize other parties' SPS measures as equivalent providing they are demonstrated to meet the importer's appropriate level of protection. And countries are urged to base their domestic food safety standards on international standards where the latter exist. The incentive is strong; countries that adopt international standards as their own food safety standards are deemed to be in compliance with the terms of both treaties. Harmonization of SPS measures across countries is a major objective of both trade agreements. To promote identical or essentially similar food safety regulations across countries, the WTO and NAFTA created new forums, and enhanced the status of other bodies, charged with arriving at common standards and regulatory instruments. The WTO recognizes Codex as the international standard-setting body for food safety standards. The OIE is the WTO-designated standard-setting body for animal health. In addition, the SPS Agreement created a Committee on Sanitary and Phytosanitary Measures (SPS Committee) to further the agreement's objectives, including the goal of harmonized SPS measures. It is entrusted with monitoring the process of international harmonization and the adoption of international standards, guidelines, and recommendations. These WTO and NAFTA bodies are properly regarded as a new1 tier of multilevel governance for foods, feed, and animals traded internationally. Committees of Codex undertake the technical work needed for establishing international standards for food safety. Committee recommendations - for example, with regard to maximum residual levels of veterinary drugs in animals - are forwarded to Codex member states for confirmation by consensus decision making. Canada has always been deeply engaged in Codex committees, seeking to implant its own standards as Codex (international) standards or to use the latter as the basis for its own measures. In the contentious issue of regulation of the products of plant biotechnology, for example, Canada has made a significant contribution to the drafting of principles to guide the risk analysis of GM foods and guidelines for the conduct of GM food safety assessments. Yet, although international standard setting is Canada's

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preferred strategy for aligning national food safety measures, the process is often slow to yield results. Within the NAFTA framework, representatives of the Canadian, American, and Mexican governments also participate in supranational regulatory governance via a Sanitary and Phytosanitary Committee. The NAFTA SPS Committee meets annually to promote the equivalence of member states' food safety measures on the basis of science and mutual recognition agreements. The latter commit NAFTA partners to providing market access to products lawfully produced and marketed in another partner country even when that country's SPS measures differ from its own. Most of the work of coordinating and harmonizing food-safetyrelated measures in order to prevent their becoming barriers to trade takes place in technical committees or working groups. Paul Haddow describes the normal relationship among Canadian, American, and Mexican officials to be one in which 'regulators are on the phone directly, or through our embassies, on a daily basis and hundreds of issues get resolved routinely at the technical level' (Haddow, 2004: 20). The work of technical committees focuses on standards for product approval and testing, including what constitutes an acceptable risk assessment and necessary data requirements to conduct it. They also attempt to harmonize or secure mutual recognition of inspection and quarantine requirements to protect human, animal, and plant health. Progress has often been difficult, but there has been some: coordination on an Action Plan on food safety, mutual recognition of inspection systems, and harmonization of policies on BSE (Henson and Bredahl, 2002). By contrast, despite several years of negotiations, technical committees have been unable to secure equivalence agreements on fish inspection and fluid milk and dairy products. The veterinary drugs, feed and fruits, vegetables, dairy, and processed-food groups remain largely stillborn, and the animal health group has not made much progress (Haddow, 2004). Overlaying these forums of intergovernmental cooperation are the dispute-settlement bodies of the WTO and NAFTA. Conflicts over food safety issues that cannot be resolved bilaterally or in the WTO SPS Committee can eventually be settled by the WTO's binding disputesettlement mechanism. Three distinct food safety disputes have already been adjudicated by WTO panels. A fourth is currently before the WTO. NAFTA enjoys no binding dispute mechanism similar to that of the WTO and to date has not adjudicated any SPS disputes. NAFTA has an

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elaborate committee structure to negotiate an end to trade disputes over SPS measures as well as formal panels to resolve disputes. Under NAFTA, the United States has the right to insist that a SPS dispute be handled within the NAFTA and not go to the WTO (Burfisher et al., 2001). The Challenge of Effective and Legitimate Multilevel Food Safety Regulation Food safety regulation is simultaneously economic and social regulation. The substance and rigour of food safety regulations, designed to achieve social goals of protecting public health and safety, also have important economic consequences, affecting the terms of market entry and the competitiveness of private food industry actors. In their efforts to balance the social and economic goals of food safety regulation, governments, as I have already noted, face two sources of resistance that impede cross-national efforts to harmonize food safety measures on common standards and/or to recognize other countries' food safety measures as equivalent. One source is local industry groups; the other is consumers. Whereas industry resists harmonization and equivalence agreements because such agreements expose them to greater competition in their domestic or foreign markets, consumers' resistance is rooted in disparate perceptions of risk across political communities. Countries whose citizens have a lower tolerance for food safety risks often demand higher regulatory standards than the international standards recommended by scientists as consistent with scientific risk assessments. These two sources of resistance, when coupled with domestic institutional frameworks that are responsive to domestic producer and consumer lobbies, can frustrate efforts toward multilevel regulatory governance through interjurisdiction cooperation. As described below in a focus on the North American BSE crisis and the transatlantic dispute over GM foods and crops, reconciling food safety and trade goals can be difficult, if not impossible. And reconciliation through intergovernmental coordination is likely to require the ratcheting up of food safety standards. The 2003-4 BSE Crisis

The immediate ban importing countries placed on Canadian exports of live cattle and beef following the positive testing of an Alberta cow for

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BSE in May 2003 was consistent with provisions in international law (the SPS Agreement) that allow countries to restrict animal and food imports from disease-infected countries. Such import bans are allowed as a precautionary measure, and provisional to a scientific determination of the safety risk of the imported products. Consistent with international requirements, Canada immediately took steps to determine the extent of BSE in the Canadian cattle herd and, therefore, the degree to which Canadian cattle and beef posed a health risk. The Canadian Food Inspection Agency, working in concert with provincial authorities, soon determined that the incidence of BSE was an isolated one. Canadian officials sought the guidance of the OIE, the international body that defines disease status standards and provides advice on measures to mitigate the risk posed by the disease. The OIE team that investigated Canada's BSE testing and surveillance determined that Canadian beef was safe for export. It was 'unreasonable/ an OIE official concluded, for other countries to prohibit Canadian beef imports on the basis of the single BSE case (White, 2004:11). However, OIE standards are not widely followed, even by the countries like Canada and the United States who collectively establish them. U.S. regulations restrict trade from countries affected by BSE. When the BSE cow was discovered in Canada, these regulations were applied to Canada, stopping Canadian beef and cattle imports. The U.S. administration undertook to align its regulations more closely with its WTO obligations and proposed to amend them to create a category of 'minimal risk' countries. While these changes to regulations were proceeding through the normal approval process, the secretary of agriculture announced that trade in a small range of products could take place by permit authority. In April 2004, when the U.S. secretary of agriculture announced an expansion in the list of products allowed entry under permit, she was challenged by a group representing American cattlemen. R-CALF obtained a court injunction on the grounds that the rulemaking process was being circumvented and the Department of Agriculture was using its permit authority in an unintended manner. The Canadian cattle and beef sectors saw R-CALF's move as a protectionist one; American cattlemen garnered significant financial benefits from lower supplies of beef and cattle in the U.S. market. Even as the Canadian-American border remained closed, pending the approval of the rule changes initiated in 2003, Canadian and American governments worked closely to harmonize their BSE measures (USDA, 2004a).4 The BSE crisis also required and resulted in closer

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collaboration among the Canadian, provincial, and territorial governments, as well as with industry, in establishing better detection and surveillance measures. Although Canada and the United States have not harmonized all their measures to mitigate the risk of BSE and its attendant food safety risks, they have moved their regulations in a similar direction. The consequences on trade with Japan of the BSE case in Canada, and the one in Washington State discovered in December 2003, have produced other harmonization efforts. Japan's BSE testing standards are higher than those established by the OIE and those in North America. For example, it tests all cattle slaughtered for food for BSE while the OIE standard states only animals thirty months and older need be tested. Japan has pushed hard for its precautionary food safety measures, taken to assuage its consumers' concerns, to be the standard that food exporters must meet to enter the Japanese market, the largest beef market for U.S. beef (worth $1.4 billion U.S. per year). This 'trading up' of food safety standards (Vogel, 1995) entails, for example, enhanced Canadian and American surveillance to detect animals at risk for BSE, and measures to decrease the possibility of specified risk materials (linked to BSE) entering the human food supply. Canada and the United States have not, however, accepted Japanese BSE regulatory standards. The United States insists that Japanese standards are not scientifically warranted and, like Canada, has bargained hard for Japan to realign its standards with science-based risk assessment analyses (USDA, 2004b). Still, the combined result of a potential food safety crisis, and foreign (Japanese) consumer and (American) producer protectionism, is harmonization of food safety measures at a higher standard than would likely otherwise have occurred. Genetically Modified Foods

The principle that food safety measures that affect trade should rest on scientific risk assessments (found in the SPS Agreement of the WTO) is the basis for the harmonization of food safety standards across countries. This principle has met with consumer resistance in some countries when applied to genetically modified crops and food. Although the vast majority of Canadian consumers appear to have few doubts about the safety of GM foods, European consumers clearly do. They reacted negatively to GM crops and foods in the late 1990s, despite assurances from scientists and government regulators that these products posed no

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health risks to consumers. Consumers' resistance reflected a risksociety mentality (Beck, 1992) and one that owed its origins to a series of food-safety regulatory failures, including, most prominently, the BSE crisis in the United Kingdom. This risk-averse culture is reluctant to recognize science as the exclusive basis of food safety regulation, champions a precautionary approach that views scientific knowledge as contingent, and thereby provides more scope for consumer preferences to shape food-safety regulatory outcomes (Skogstad, 2005). European consumers' insistence on a precautionary approach to the regulation of GM foods led EU regulators to impose a moratorium in 1998 on their licensing, pending more rigorous licensing, labelling, and traceability standards coming into effect (in 2004). The EU moratorium threatened the future of plant biotechnology, a technology that Canada and the US had embraced in the 1980s. In 2003 the two countries challenged the EU moratorium at the WTO, arguing that it contravened GATT and WTO agreements, including the SPS Agreement.5 This trade dispute, which is rooted in disparate consumer beliefs about the appropriate principles for regulating novel foods, like GM foods, suggests limits to cross-national harmonization of food safety measures. As with the BSE case, goals of liberalizing markets have come in conflict with the imperative of democratic governments to be responsive to the preferences of their consumer citizens. These trade tensions over disparate regulatory regimes are likely to persist; the precautionary principle and the principle that scientific risk assessments should be the basis of food safety measures have both become institutionalized in international agreements. The precautionary principle is enshrined in the treaties of the EU as the standard for food safety regulation and in the Cartagena Biosafety Protocol, an international agreement that establishes rules for trade in genetically modified products. Their co-existence with the WTO SPS Agreement has embedded significant potential for international conflict in global food safety and trade issues (Winham, 2003). Conclusions Food safety regulation is guided by the assumption that its goal is not to eliminate food-borne risks completely but rather to reduce these risks to minimal, acceptable levels. On this view, zero risk is neither possible nor necessary. Science-based risk assessments thus assume a major role in food safety regulation. Their role is enhanced when the food safety

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and trade policy domains intersect, as they have increasingly since the mid-twentieth century. In recent decades, the coupling of heightened public salience of food safety issues with states' collective commitment to the liberalization of trade and the removal of non-tariff barriers to trade strengthened the authority of science as a basis for food safety regulation. Scientific risk assessments have been seen as a method by which to raise domestic food safety measures, enhance the efficiency of domestic food-safety regulatory frameworks, and promote liberal trade by ensuring that domestic food safety measures were no more rigorous than necessary to protect public health. The principle of science-based regulations has long been the foundation of the Canadian food-safety regulatory system, as it has of food safety regulation in most industrialized countries. However, what is new as a result of the intensified intersection of food safety and trade policy goals in recent decades is the added authority granted science in the international arena, as a principle for the establishment and enforcement of food safety measures that affect trade. At the same time that countries have converged on the principle of scientific risk assessments as the preferred methodology for food safety regulation, they have also delegated more responsibility to the food industry. Food producers, food processors, and even food retailers have been drawn more fully into the food-safety regulatory system and entrusted with the task of minimizing food contamination at their step in the food chain, for example, by establishing HACCP systems. In the United States, the responsibility of the food industry for consumer food safety has long been established through laws that hold U.S. food manufacturers legally liable for ensuring that the foods they market are safe and comply with safety standards. This legal-liability provision has spawned a range of personal injury lawsuits in the United States. Plaintiffs, for example, have sought compensation from food manufacturers and retailers (McDonald's restaurants), arguing that the latter have knowingly used unhealthy products (hydrogenated oils) and engaged in deceptive commercial practices that have led them as consumers to become unhealthy and/or obese. This attempt to increase the onus on private food manufacturers and restaurant owners6 for food safety knows no counterpart in Canada, where consumers hold governments overwhelmingly responsible for food safety. The plurality of public and private actors that are responsible for food safety regulation within and across jurisdictions creates strong imperatives for regulatory coordination and cooperation, particularly if

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the twin goals of a high level of food safety and liberal trade are to be realized. Such regulatory policy coordination proceeds most effectively via formal mechanisms, wherein information can be exchanged, best practices discussed, trust in other jurisdictions' regulations built up, and policies ultimately harmonized. Detailing these mechanisms of coordination - the system of multilevel regulatory governance - has been an important objective of this chapter. It has documented the significant steps taken within Canada and in the international arena to coordinate food safety rules across jurisdictions and to create a coherent and integrated system of multilevel food safety regulation. The consolidation of national food inspection activities in the Canadian Food Inspection Agency, the establishment of the intergovernmental Canadian Food Inspection System Implementation Group, and the Agricultural Policy Framework (2001) all represent endeavours to promote a coherent and Canadian food-safety regulatory system. The task of harmonizing food safety measures across all provinces and territories is not yet incomplete, as the outstanding national meat-safety code illustrates. In the international arena, new sites of food safety regulation have been created, in formal international institutions like the WTO and its committees and in NAFTA committees as well. These international bodies have been effective to varying degrees in coordinating and harmonizing food safety measures across countries and in promoting equivalence and mutual recognition agreements. Again, however, the agenda is an unfinished one, as the examples of BSE and genetically modified foods illustrate. To a much greater extent than in the domestic arena, multilevel regulation of food safety measures has been driven by market-integration developments and norms and institutions of economic liberalism. The objective has been to balance both liberal trade and food safety goals, not to sacrifice one to the other. Consumers, however, are normally much less worried about markets remaining open than they are about the safety of their food supply. In several countries - Canada is largely an exception - public interest groups representing consumers, and consumers themselves have mobilized to force governments to respond to their preferences and to render accountability on food safety issues. Consumer mobilization is greatest in risk-society cultures, like Europe, where there exists considerable apprehension about the foodstuffs produced by modern, industrialized agriculture and where regulatory failures have occurred. If many Europeans are risk-averse, North Americans are risk-tolerant, putting 'strong faith in the ability to man-

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age risk, either by technical means or through compensation' (Gaskell et alv 2001: 101). This chapter has argued that it is these distinctions between risk-averse and risk-tolerant political communities that constitute an important barrier to multilevel regulation and food-safety policy coordination beyond the territorial state. The differences in food-safety regulatory frameworks across jurisdictions thus make it difficult to achieve a coherent and effective system of multilevel food safety regulation that bridges the local, national, and international spheres. For their part, Canadian governments can best promote this goal by recognizing that science-based regulations are necessary but not sufficient elements of a legitimate food-safety regulatory system. The necessity of science-based regulations requires a strong in-house scientific capacity that ensures that agencies like Health Canada and the CFIA are not unduly reliant on the scientific resources and judgments of either industry or other governments. However, these science-based regulations normally have wide credibility with consumers - be they Canadian or foreign - when the processes by which they are created meet democratic tests of public input, transparency, and democratically accountability. The importance of food safety regulation passing these democratic tests of legitimate and effective policy making is great, given the strong likelihood that food safety issues will continue to be subject to bouts of high politics. NOTES The author acknowledges with thanks the research assistance provided by Jim Farney. 1 Federal jurisdiction arises from its 'trade and commerce' power (s. 91 [2]) and criminal law (s. 91 [27]) powers, while provincial activity flows from provinces' responsibility for 'property and civil rights' (s. 92 [13]) and 'matters of a local or private nature' (s. 92 [16]). Municipal governments have varying degrees of involvement, depending on the province. They may establish by-laws or be limited to enforcing provincially set standards. 2 In the Matter of Puerto Rico Regulations on the Import, Distribution and Sale of UHT [ultra high temperature] Milk from Quebec. Final Report of the Panel, 3 June 1993. The United States claimed that the Canadian regime was not equivalent to the U.S. system since it lacked the latter's federal oversight and verification elements. For their part, Canadians observed that many

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U.S. states allow the sale of unpasteurized milk directly to the consumer, and that the notion of one U.S. national system is thus suspect. The dispute was resolved when the plant in Quebec that was shipping UHT milk to the United States was deemed to be in compliance with the U.S. standards. A discussion of food safety initiatives under the Agricultural Policy Framework can be found by following the links at http://www.agr.gc.ca. In May 2005 the OIE replaced its five categories of risk status (BSE-free, BSE provisionally free, minimal risk, moderate risk, and high risk) with three: negligible risk, controlled risk, and undetermined risk. The OIE recommends imports from 'controlled risk' countries (Canada and the United States) when these countries meet a number of conditions. A provisional ruling of the WTO in February 2006 ruled that the EU de facto moratorium was inconsistent with WTO agreements. Several U.S. states have enacted or introduced legislation to prevent obesity-related lawsuits against restaurants and food sellers.

REFERENCES Agriculture Canada (1992). Regulatory Review: Overview. Ottawa: Agriculture Canada. Auditor General of Canada (1994). Federal Management of the Food Safety System: Report of the Auditor General of Canada. Ottawa: Auditor General of Canada. Beck, Ulrich (1992). Risk Society: Towards a New Modernity. London: Sage. Braithwaite, John, and Peter Drahos (2000). Global Business Regulation. Cambridge: Cambridge University Press. Burfisher, Mary, Terry Norman, and Renee Schwartz (2001). 'NAFTA Trade Dispute Resolution: What Are the Mechanisms?' Available at http:// pdc.tamu.edu/yellow/burfisher.pdf Bredahl, Maury E., and Erin Holleran (1997). 'Technical Regulations and Food Safety in NAFTA.' In R.M.A. Loyns, Ronald D. Knutson, Karl Meilke, and Daniel Sumner, eds., Proceedings of the Third Agricultural and Food Policy Systems Information Workshop. Harmonization/Convergence/Compatibility in Agriculture and Agri-Food Policy: Canada, United States and Mexico, 71-86. Ottawa: Agriculture and Agri-Food Canada. Canada. Canadian Food Inspection Agency (1997). CFIS Newsletter, winter 1997. Available at http://www.cfis.agr.ca/winter.htm (accessed 6 October 1997). - Health Canada. Health Products and Food Branch (2000). Identifying,

178 Grace Skogstad Assessing, and Managing Health Risks August 1, 2000. Available at http:// www.hc-sc.gc.ca/hpfb-dgpsa/hcrisk_2_e.html - Joint Steering Committee of CFIS, the Federal/Provincial Agri-Food Inspection Committee and the Federal/Provincial/Territorial Food Safety Committee (1995). A Blueprint for the Canadian Food Inspection System. Available at http://www.cfis.agr.ca/blueprint.htm (accessed 6 October 1997). Doering, Ronald L. (1996). 'Renewing the Federation by Getting Government Right: The Case of Canadian Food Inspection.' Paper for the Annual Meeting of the National Dairy Council, Deerhurst Lodge, ON. Gaskell, George, et al. (2001). Troubled Waters: The Atlantic Divide on Biotechnology Policy.' In George Gaskell and Martin W. Bauer, eds., Biotechnology, 1996-2000,96-115. London: Science Museum. Haddow, Paul (2004). 'Health, Plant and Animal Protection, and Food Safety: WTO and NAFTA.' In R.M.A. Loyns et al., eds., Proceedings of the Eighth Agricultural and Food Policy Systems Information Workshop, 8-22. Winnipeg: Canada Friesen Printers. Henson, Spencer, and Maury Bredahl (2002). 'Policy Options for Open Borders in Relation to Animal and Plant Protection and Food Safety.' Available at http://pdc.tamu.edu/flags/henson.pdf Moore, Elizabeth, and Grace Skogstad (1998). 'Food for Thought: Food Inspection and Renewed Federalism.' In Leslie A. Pal, ed., How Ottawa Spends, 1998-99,127-51. Toronto: Oxford University Press. Phillips, P.W.B. and W.A. Kerr (2000). 'Alternative Paradigms: The WTO versus the Biosafety Protocol for Tirade in Genetically Modified Organisms.' Journal of World Trade 34, no. 4: 63-75. Prince, Michael J. (2000). The Canadian Food Inspection Agency: Modernizing Science-Based Regulation.' In G. Bruce Doern and Ted Reed, eds., Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime, 208-33. Toronto: University of Toronto Press. Skogstad, Grace (1998). 'A Case Study of Program Review in Agriculture and Agri-Food Canada.' In Peter Aucoin and Donald Savoie, eds., Managing Strategic Change in Governance: Learning from Program Review, 39-69. Ottawa: Canadian Centre for Management Development. - (2001). 'Internationalization, Democracy and Food Safety Measures: The (fl)Legitimacy of Consumer Preferences?' Global Governance 7, no. 3: 293-316. - (2005). 'Contested Political Authority, Risk Society and the Transatlantic Divide in Genetic Engineering Regulation.' In Edgar Grande and Louis W. Pauly, eds., Complex Sovereignty: Reconstituting Political Authority in the Twenty-First Century. Toronto: University of Toronto Press. U.S. Department of Agriculture (USDA) (2004a). 'Explanatory Note. Risk

Food Safety 179 Analysis: BSE Risk from Importation of Designated Ruminants and Ruminant Products from Canada into the United States.' February. Available at http://www.aphis.usda.gov/lpa/issues/bse/bse_explannote.pdf - (2004b). 'Final Report: Japan-United States BSE Working Group.' 24 July. Available at http://www.aphis.usda.gov/lpa/issues/bse/ BSEWGFinal072204.pdf Vogel, David (1995). Trading Up: Consumer and Environmental Regulation in a Global Economy. Cambridge, MA: Harvard University Press. White, Ed (2004). 'Ignoring BSE Rules Exacerbates Crisis: OIE.' Western Producer, 24 June, 11. Winham, Gilbert R. (2003). 'International Regime Conflict in Trade and Environment: The Biosafety Protocol and the WTO.' World Trade Review 2, no. 2:131-55.

8 Investment, Trade, and Growth: Multilevel Regulatory Regimes in Canada GEOFFREY HALE AND CHRISTOPHER KUKUCHA

The concepts of neo-liberal institutionalism as a leading theoretical framework for analyzing globalization, the interaction of international and domestic economic policies, and the institutions that shape them are premised largely on the interaction of trade and investment policies in a world characterized by the pervasive activities of multinational corporations and the globalization of finance. However, many analysts insist that deterministic interpretations of globalization fail to provide adequate explanations either for the persistent influence of domestic and regional political institutions and interests in shaping national economic policies, or for the capacity of national (and subnational) state actors to preserve a considerable degree of autonomy in managing the 'intrusive' forces of economic globalization. This paradox - particularly in its application to Canadian policy and regulatory regimes governing trade, investment policies, and the governance of capital markets - is the primary subject of this chapter. During the past twenty years, Canadian trade and related economic policies have become steadily more integrated with regimes governing the North American and global trading systems. A significant sideeffect of these policy shifts has been the evolution of federal-provincial policy cooperation that accommodates both the ongoing integration of Canada's varied regional economies in North America and provincial participation in shaping federal trade policies and rules within an overall framework of federal leadership (Kukucha, 2003; Hale, 2004). The progressive globalization of finance has also contributed to major changes in Canada's regimes for the regulation of direct investment, financial services, and capital markets. However, unlike the horizontal policy regime governing Canada's trade policies and related issues of

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direct investment, domestic political factors - notably, their historically national (and subnational) focus and the continued fragmentation of political authority between federal and provincial governments - have played a far greater role in the regulation of Canadian financial institutions and capital markets. Federal and provincial policies to promote increased levels of business investment, supported by a dynamic financial services sector and efficient capital markets, have evolved in a piecemeal, sporadic, and largely reactive fashion - despite clear linkages between trade policies and other micro-economic policies used to promote investment, growth, and international competitiveness. Against this background, the present chapter explores a fundamental question: Why has a coherent policy regime based on federal-provincial collaboration emerged in trade policy and not in financial services or capital markets policies to promote increased levels of investment in Canada? It suggests two possible and related reasons. The first involves the institutional choices of governments in determining the extent to which the principles and institutions guiding major policy fields should be aligned with prevailing international policy regimes, or designed in ways to complement or offset their impacts on national economic policies (Ruggie, 1982). The second reason is the degree to which federal and provincial governments - and related domestic economic interests - pursue complementary policies that enable them to accommodate significant differences in regional economic interests in responding to economic change rather than pursuing a 'zero-sum' politics of dominance and dependence. Structuring Canadian Trade Policies within Regional and Global Trading Systems Regulatory frameworks related to international trade exist, at least partially, as a result of overlapping rules-based initiatives that are global, regional, and domestic in origin. These governance structures can be mutually reinforcing and interdependent, thus challenging traditional conceptions of regulation. At the 'systemic' level, these forums are created in an anarchic neo-liberal system, which states have traditionally attempted to manage with regimes and other more formal agreements, such as the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and the North American Free Trade Agreement (NAFTA). Over time, such international frameworks have increasingly intruded into areas of domestic policy space, which

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reciprocally influences 'process' relations at both levels of analysis. At the domestic level, these pressures have served as a catalyst for several internal trade regimes, including the Canadian International Trade Tribunal (CITT), the Agreement on Internal Trade (AIT), and consultative frameworks such as CTRADE and the International Trade Advisory Committee (ITAC) and Sector Advisory Groups on International Trade (SAGITs). However, an increasingly complex policy 'process' has not limited state sovereignty to the point that states lack the capacity for independent policy making. This study suggests that the emergence of effective multilevel governance structures is more likely when international regimes acknowledge and accommodate some degree of state autonomy, which in turn may influence international developments. The character of these regimes helps to explain the relatively stable system of multilevel governance that structures Canada's foreign trade policy. The Evolution of International Trade Regimes

The emergence and evolution of international trade regimes is consistent with neo-liberal institutional assumptions of global political economy. This branch of the literature first emerged in the 1940s as 'liberal institutionalism' and was a response to the creation of the Bretton Woods system, Keynesian economics, and the first stages of European integration (Mitrany, 1943; Haas, 1958). Subsequent studies exploring interdependence concentrated on expanding international linkages tied to advances in technology, communication, and transportation (Keohane and Nye, 1977). Although interdependence theory evolved to adopt realist principles of power, it placed a greater emphasis on economics and non-state variables. It also challenged the conclusion that states are unitary, rational actors. Ultimately, it was interdependence that contributed to the transformation of 'liberal institutionalism' into 'neo-liberal institutionalism.' This more contemporary approach focused specifically on the question of how to maintain cooperation among states in anarchic environments, usually through the creation of regimes and organizations. During the past two decades, the intrusiveness of systemic neoliberal forces has increased as international trade commitments have expanded into areas of domestic policy space. Gilbert Winham suggests that tensions between market forces and regulatory mechanisms can be

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addressed most effectively by stronger international trade agreements that enable governments to engage in 'multilateral management' (Winham, 1992: 113). Sylvia Ostry embraces neo-liberal institutionalist principles as a basis for extending rules-based multilateral frameworks. However, Ostry also challenges traditional conceptions of American hegemony and argues that domestic politics contributed to the success or failure of these efforts (Ostry, 1997). More recently, George Hoberg has also examined the intrusiveness of international pressures by isolating specific domestic variables to evaluate the impact of systemic developments on Canadian policy capacity (Hoberg, 2002). Based on these characteristics, it is possible to isolate several process factors at both levels of analysis that contributed to the inception and evolution of a multilevel governance framework for Canada's global trade relations. Internationally, these institutional frameworks grew from the Bretton Woods system. GATT, which was a series of binding agreements among contractual parties rather than a formal institution, became the 'compromise' mechanism for monitoring post-war trade relations (Keating, 2002: 6). Despite its 'informal' status, it evolved to include a wide range of issues beyond tariffs. The Kennedy round (1964-7) added anti-dumping provisions and the Tokyo round (1973-9) included codes for non-tariff barriers. The Uruguay round, launched in 1986, represented a significant departure from previous GATT initiatives, engaging issues such as commercial services, Trade Related Intellectual Property Rights (TRIPs), agriculture, and Trade Related Investment Measures (TRIMs). The resulting agreement (1994) also launched the World Trade Organization, which did not eliminate GATT but provided a more formalized institutional structure for both disputes and further negotiations. However, ongoing protectionism remained a reality despite GATT's expanding agenda. In the 1960s and 1970s, GATT continued to permit protectionist measures in several sectors, including agriculture, reflecting European interests following the creation of the Com on Agricultural Policy (CAP). The refusal to deal with export quotas on textiles ultimately resulted in a separate Multi-Fibre Agreement (MFA). The proliferation of non-tariff barriers such as subsidies and countervailing duties enabled states to protect domestic industries. Despite the intrusiveness of the Uruguay round, a wide range of exemptions and the WTOs non-binding dispute-resolution process also allowed states to maintain considerable discretion in domestic policies.

184 Geoffrey Hale and Christopher Kukucha Regional Trade Policies and the Persistence of Domestic Politics

Similar developments were also apparent on a regional basis, especially for Canada. In 1985 Ottawa entered negotiations for a bilateral free trade agreement with Washington, culminating with the Canada-United States Free Trade Agreement (FTA) signed in 1988. The FTA embraced an expansive agenda that focused increasingly on areas of domestic, especially provincial, jurisdiction. Most notably, provincial governments began to identify potentially relevant issues, such as resource management strategies, public insurance programs, and provincial tax breaks, grants, and other incentives available only to Canadian-owned businesses. These issues were either considered for direct negotiations or linked to national treatment provisions in return for federal discussions of other goals. In 1990 Canada belatedly entered trilateral discussions for the North American Free Trade Agreement (NAFTA). NAFTA extended the majority of the FTA's principles to include Mexico, albeit in a potentially more intrusive capacity that included services, technical standards, and dispute settlement for anti-dumping and countervailing duties. Perhaps the most intrusive aspect of NAFTA was the issue of investment, which first originated with the FTA. Specifically, NAFTA's Article 1139 substantially broadened the definition of investment to include equity and debt securities, real estate, loans, and capital commitments. Finally, 'and perhaps most importantly, the NAFTA provided a mechanism for dispute settlement and arbitration between private investors and host states in addition to the state-to-state dispute settlement provisions of the FTA' (Winham, 1994:39,497). Some of the more high-profile cases in which a NAFTA panel ruled against Canada, resulting in significant payments to foreign firms, involved S.D. Myers and Ethyl Corporation. As with multilateral regimes, regional agreements also allowed Ottawa to protect a number of domestic interests, especially those related to provincial jurisdiction. For example, Chapter 6 of the FTA exempted provinces from obligations to alter technical standards and procedures. Chapter 7 preserved provincial marketing boards, farm income stabilization, and price support programs. Chapter 12 also excluded key regional interests such as the export of logs and unprocessed east coast fish and the internal sale and distribution of beer (although preserving each state's rights under GATT). Chapter 13 excluded government procurement and Chapter 16, providing for free trade in investment, applied only to future changes in laws. Finally, financial services, cov-

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ered in Chapter 17, did not apply to any provincial measures. All three countries sought to protect domestic interests in the regulation of financial services, especially by extending the FTA's '10/25' rule (prohibiting non-residents from acquiring more than 25 per cent of any federally regulated institution). The period following the negotiation and implementation of these regimes has indicated limits to their intrusiveness, reinforcing the ongoing reality of state autonomy. On a regional level, negotiations for a Free Trade Agreement of the Americas (FTAA) have stalled, despite some ongoing bilateral initiatives, such as Canada's agreement with Chile. Internationally, the trade regime has also reached an impasse, despite the launch of the Doha round in 2001. Although a framework for further negotiation was resolved in July 2004, significant obstacles remain, especially on agriculture and services-related issues. The 1998 collapse of negotiations for the Multilateral Agreement on Investment (MAI) also reflects these trends. Domestic Governance Structures

In order to understand linkages between international and domestic trade regimes and their contribution to multilateral governance, it is necessary to examine the role of the CITT, AIT, CTRADE, and ITAC/ SAGIT forums in Canada. The CITT was created in 1988 by the Canadian International Trade Tribunal Act. The tribunal is the main domestic forum for disputes over countervailing duties and subsidies short of a formal NAFTA or WTO challenge. It is also an appeal body responsible for reviewing decisions by Revenue Canada under the Customs Act, the Excise Tax Act, and the Special Import Measures Act (SIMA). The CITT also conducts investigations regarding textile imports and government procurement. The CITT's mandate is that of an independent 'quasi-judicial' tribunal available to both domestic and international producers. As such, its decisions and enforcement mechanisms are not strictly binding and may be appealed to the Federal Court of Canada or proceed to a formal NAFTA or WTO challenge (Lemieux and Stuhec, 1999:11-81). International developments directly contributed to the creation and evolution of the CITT. Government procurement provisions outlined in NAFTA's Chapter 10 required the federal government to develop an agency, the Procurement Review Board of Canada, to review the transparency and effectiveness of applications for government contracts.

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Changes to the 1994 GATT code on procurement and the implementation of the Agreement on Internal Trade further broadened its responsibilities. Subsequently, the board has become a special unit of the CITT, known as the Procurement Review Division.1 In other cases, the relevance of international pressures is less clear, suggesting that domestic governance structures maintain a level of autonomy that can have an impact international regimes. NAFTA's Chapter 19 dispute-settlement panels have the power only to review the administrative action of domestic panels such as the CITT, and are not able to question the legality of existing legislation. More important, binational panels do not limit the ability of domestic tribunals to reconsider previous decisions, which gives the CITT considerable flexibility to review past rulings. Therefore, although international dispute panels have considerable influence, 'they are not without limits/ In disputes over 'constitutional questions, preliminary determinations, and the ability to reconsider decisions, the domestic Canadian administrative agencies and courts maintain their jurisdiction' (Lemieux and Stuhec, 1999: 13-14). The Agreement on Internal Trade is another trade regime that evolved in response to both international economic and domestic political pressures. The AIT consists of eighteen chapters divided into six different sections. Parts I, II, and III outline the basic rules and principles of the agreement to promote the freer movement of goods, services, and investment. However, Part III grants provinces the ability to violate the agreement's provisions if pursuing 'legitimate objectives.' Part IV consists of eleven chapters, including rules for investment, procurement, agriculture, alcoholic beverages, labour mobility, transportation, environmental protection, communications, natural resource processing, and consumer-related measures. The chapter on energy, however, consisted of a single sentence - as a result of the provinces' inability to reach a mutually acceptable agreement. Part V covers the institutional provisions for establishing the Committee on Internal Trade and the AIT Secretariat. It outlines the dispute-settlement process, which closely resembles existing provisions of international agreements and allows provinces and individuals to challenge internal trade practices (Doern and MacDonald, 1999: 9-13). The creation of the AIT was closely tied to Canada's decision to pursue greater liberalization at the international level. Specifically, the AIT was viewed as a 'natural extension of the previously entrenched free-trade agenda of the 1986-93 period' (Doern and MacDonald,

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1999: 7). However, domestic factors also significantly influenced the AIT negotiations, including the differing agendas of various provinces, the roles of federal and provincial officials, and the realities of existing regional economies and trade patterns. There is also evidence to suggest that the AIT has influenced Canada's approach to international trade regimes - notably in the Ethyl Corporation decision under NAFTA's Chapter 11. Ethyl challenged the federal government's Fuel Additives Tax, passed in June 1997, which prevented the interprovincial and international shipment of the fuel additive MMT. Its contention that this action violated Chapter 11's national treatment, performance requirements, and expropriation and compensation provisions was upheld by a NAFTA panel in June 1998. Ottawa subsequently repealed the act and paid the Ethyl Corporation $19 million in damages. Although critics of Chapter 11 point to the Ethyl decision as an example of international regimes intruding upon Canadian autonomy, Canada was motivated to settle the Ethyl case primarily because of a complaint against the same legislation filed by Alberta, Saskatchewan, and Quebec under the AIT (Lemieux and Stuhec, 1999: 90-3). This case demonstrates the capacity of domestic trade regimes and of domestic subnational and corporate actors - to have a direct influence on outcomes tied to international governance structures. Another domestic trade regime linked to systemic developments is the federal-provincial committee system on international trade. This consultative mechanism emerged as a direct response to the expansion of international trade regimes into areas of provincial jurisdiction. At the beginning of the Tokyo round in 1973, the only formal mechanism for provincial input was the Canadian Trade and Tariffs Committee (CTTC), which gathered briefs from business, unions, consumer groups, the provinces, and other interested parties. In August 1977 a Canadian coordinator for trade negotiations (CCTN) was appointed, with the mandate to coordinate information from the provinces, the federal bureaucracy, industry, and other non-governmental organizations. During the FTA negotiations, the CCTN served as a forum of provincial input and advice, but the federal government maintained control of the negotiations and the appointment of the chief negotiator for the government of Canada. Provincial consultation continued to remain an issue following the negotiation of the FTA. Shortly after the implementation of the agreement, the CCTN became the Committee for the Free Trade Agreement (CFTA). Each province had one official representative or contact person who sat on the

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CFTA, giving the federal government a direct link to the provinces on issues related to the agreement (Brown, 1991: 91-5). During the NAFTA negotiations, Ottawa also established the Committee for North American Free Trade Negotiations (CNAFTN). Ultimately, CNAFTN became the CTRADE committee system for international trade. The current CTRADE process involves meetings between Ottawa and the provinces that occur four times annually, in addition to regular contact between federal and provincial officials on ongoing negotiations and trade disputes. In the most contentious cases, these discussions can take place on an almost daily basis. As with the CITT, CTRADE primarily exists as a result of international pressures. However, unlike the CITT, CTRADE is a consultative regime as opposed to a quasi-judicial tribunal. It demonstrates the adaptation of Canadian federalism to global policy developments. For the most part, there are two interpretations of CTRADE. The first views the forum as an effective means of allowing subnational interests to be articulated at the international level, which is crucial given the lack of constitutional provisions for formal regional representation. A second, more critical interpretation is that CTRADE is nothing more than a forum for federal officials to update and brief the provinces on current international trade issues (Kukucha, forthcoming). On balance, CTRADE provides an example of how Ottawa can successfully respond to international pressures within the limits of Canadian federalism, allowing Canada to legitimize Alberta's concerns over energy, British Columbia's priorities on softwood lumber, and pan-Canadian issues related to agriculture and services. These subnational interests in turn influence Canada's negotiating position and in all these cases have influenced the policy outcomes of international regimes. In addition to CTRADE, the ITAC and SAGIT process has also contributed to the evolution of a domestic consultative trade regime. ITAC and fifteen existing SAGITs, which were established during the negotiations for the Canada-United States FTA, provide a formalized means of communication between government and sectoral interests. Several provinces also initiated discussion groups with business groups and in turn shared their information with ITAC and SAGITs. In general, these domestic private sector committees were considered a success by most of those involved. Not only did they assist Ottawa in drafting proposals on specific sectors during the FTA negotiations, but business and other non-governmental groups also believed that the committees allowed them to participate directly in the policy process.

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While this may be overstating the actual impact of ITAC and SAGITs, it is interesting to note the seriousness with which Ottawa viewed these committees. In comparing ITAC and SAGITs to the federal-provincial committee system that was evolving at the same time, some federal officials suggested that private sector linkages were more important. These comments might simply reflect Ottawa's desire to minimize the growing provincial aspirations, but it should be remembered that Canadian trade negotiators were faced with a broad need for consultation that produced pressure on trade policy issues from a wider range of domestic actors than ever before. ITAC and SAGITs were domestically initiated processes intended to increase state capacity in responding to international pressures. However, as with the other domestic institutions previously discussed, ITAC and SAGITs had an influence not only on Canada's negotiating position but also on international developments. As such, they illustrate theoretical approaches that perceive international trade negotiations as a two-level game involving the balancing of international and domestic policy agendas. These forums engaged a number of commercial interests with different positions on liberalized trade, facilitating the brokerage of domestic interests in ways that strengthened the federal government's domestic political position.2 Political Legitimacy, Democratic Accountability, and Deeper Integration

It is possible to conclude that international and domestic trade regimes contribute to greater political legitimacy. At the global and regional level, despite current challenges preventing the extension of these regimes, it is clear that the WTO and NAFTA have established a rulesbased trading system which allows for dispute settlement and further negotiation. Similar governance structures exist within Canada that facilitate federal-provincial cooperation, sectoral consultation, and the settlement of disputes. For the most part, Canadian citizens also grant government the legitimacy to enter into these agreements, illustrating what some observers have called the 'permissive consensus' (Mendelsohn et al., 2002). The fact that international and domestic regimes tend to be mutually reinforcing through an institutional two-level process further adds to this legitimacy. Issues of democratic accountability, on the other hand, are somewhat more controversial. International trade regimes have come under increasing scrutiny during the past decade, especially with respect to

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issues of transparency and access. There is even evidence to suggest that numerous Canadians question the very legitimacy of these regimes, as was evident during the 2001 Quebec City Summit of the Americas and the G-8 meetings in Kananaskis, British Columbia.3 In response to these concerns, the federal government has initiated extensive Web-based document sharing and forums for dialogue with nongovernmental interests. Despite the existence of a regime-based system of multilevel governance, there is little evidence to suggest that improved legitimacy and accountability has provided a foundation for deeper integration in North America. In fact, notwithstanding efforts by some groups to promote a 'grand bargain' between Canada and the United States, there appears to be little political will to pursue such a policy on either side of the border. Domestic political interests continue to predominate in disputes over softwood lumber and wheat. Deeper integration is not even an issue in the United States, where most border issues tend to focus on security in the post-9/11 era. In any case, existing regimes have always maintained some levels of state autonomy or independent policy capacity - if only to preserve a measure of flexibility and discretion in both domestic politics and international negotiations. Investment and Capital Markets Policies Canada has no formal horizontal national regime that could be said to structure 'investment policies' in the public and private sectors. Rather, historical, constitutional, and cultural factors have contributed to a highly decentralized, functionally specialized network of sectoral regimes governing specific aspects of what Lipsey describes as 'facilitating structures' - the combination of governmental and firm- or industry-specific and societal factors that shape the governance of economic activity (Lipsey, 1996: 9). Constitutional responsibility for the major policy subsystems that govern investment policies and capital markets is constitutionally divided between federal and provincial governments (see table 8.1). Both levels of government have tended to 'compartmentalize' policies related to • foreign direct investment (FDI); • strategic economic sectors subject to FDI restrictions; • portfolio investments (the issuance and trading of corporate equity and debt securities);

Investment, Trade, and Growth 191 Table 8.1. Policy subsystems shaping 'investment,' financial services, and capital markets policies

Federal

Shared

Provincial

Corporation law (large firms) 1 federal primacy Competition policy sectoral exceptions/sector specific policies Personal Income Tax investment/savings rules, incentives (except Quebec) Monetary policies (Bank of Canada) Bank Act Criminal Code

Corporate income taxation (Federal 2/3 - prov. 1/3)

Economic development • industry-specific policies Regulation of capital markets (securities law) Regulation of investment, mutual fund dealers Regulation of pension funds

Federal/provincial, interprovincial CSAa CAPSAb CCIRC

Self-regulatory organization (SROs) IDA (securities dealers), MFDA (mutual fund dealers), TSX Group, Montreal Exchange (ME), Market Regulation Systems (RS). a

Canadian Securities Administrators Canadian Association of Pension Supervisory Authorities G Canadian Council of Insurance Regulators b

fostering access to capital by small and emerging firms; and the supervision and regulation of financial sector industries, public securities markets, and pension funds. However, the interrelated character of these functions has led to the emergence of a series of formal and informal governance structures in recent years to facilitate policy coordination by both governmental and non-governmental actors. The federal division of powers assigns Ottawa exclusive responsibility for the regulation of banks and federally incorporated insurance companies. The federal Office of the Superintendent of Financial Institutions (OSFI), located in the Department of Finance, is the lead agency in this field. OSFI's historical emphasis has been on prudential regulation to minimize systemic risk, while pursuing incremental regulatory changes through periodic revisions to framework legislation governing federally regulated financial institutions. Its role is complemented by other federal agencies such as the Canada Deposit Insurance Corporation. The Bank of Canada retains a residual role in financial sector regulation through its control over monetary policy instruments and its role as a lender of last

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resort to Canadian financial institutions. The federal government may also influence corporate governance and capital markets through its regulation of company (the Canada Business Corporations Act), competition (the Competition Act), and criminal law. For example, Bill C13's recent amendment to the Criminal Code criminalized and imposed sanctions on insider trading and other financial market practices. Provincial governments have long been responsible for legislation governing the issuance, distribution, and trading of securities, the regulation of capital markets, and the distribution of investment products by insurance brokers, securities dealers, and other financial intermediaries. Intergovernmental policy coordination occurs through specialized coordinating bodies, including the Canadian Securities Administrators (CSA). The internal governance of securities exchanges and the securities industries has traditionally been conducted under private law, which has evolved through the delegation of regulatory authority through several self-regulatory organizations (SROs). Unlike the regime for trade policy, there is no formal international regime governing the regulation of national financial services sectors or the interaction of national capital markets. The evolution of an international 'soft law' regime to foster the development of comparable domestic regulatory standards will be addressed later in this chapter. Canada's progressive integration within international financial and capital markets in recent years is reflected in its emergence as a net exporter of capital during the 1990s and the cross-listing of most major, publicly traded Canadian firms in North American stock markets. These trends have resulted in an increasingly international orientation among major financial sector firms that is at some variance with Canada's decentralized regulatory regime - despite the efforts of provincial governments to update their investment and capital market policies to assist their entrepreneurial classes to obtain access to capital on favourable terms. Theoretical Perspectives A national approach to finance probably reflected not only a desire to establish a national identity, but also the need to finance the government and the prevailing development strategy. Hanson, Honahan, and Majnoni, 2003: 3

Financial sector and capital market policies and rules in Canada, as in many emerging industrial nations, have long reflected internal tensions

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between the interests of businesses and governments in the mobilization of domestic and foreign savings to pursue both private and public economic objectives, protect investors, and discipline the workings of financial markets. However, the technical objectives of financial sector regulation - generally summarized as facilitating capital accumulation, promoting economic efficiency and growth, reducing systemic and transactional risk, and regulating externalities - can often work at crosspurposes (Harris, 2002; Boissoneault, 2003: 58-67). The national orientation of policy has often been qualified by the need to accommodate significant regional economic differences and by provinces' use of their constitutional powers over property rights, contracts, and economic development to pursue distinctive economic strategies that spill over into their regulation of capital markets (Atkinson and Chandler, 1983). In recent years, the growing internationalization of finance has reinforced pressures to liberalize financial sector regulations further and, in some cases, to make them more consistent with institutional and regulatory patterns in the United States and Europe (Canada, 2003). As a result, the politics of capital market regulation in Canada have often resembled a three-level game requiring the balancing of provincial/regional, national (or interprovincial), and international imperatives to reconcile broader political, macro-economic, and sectoral policy objectives. Current debates over the regulation of capital markets and the securities industry thus involve a series of practical policy questions rooted in different theoretical contexts. At one level, they tend to focus on the processes for determining and balancing the priorities and goals associated with capital markets and securities industry policies, which levels of government should control them, and why. These questions speak directly to the principles of democratic political accountability and the capacity of governments to harmonize regional political and economic priorities in the broader context of North American economic integration. At a second level, these debates attempt to reconcile regulatory regimes capable of accommodating the different priorities of large national and international corporations ('large-cap' firms) and of smaller and emerging publicly traded businesses ('micro-cap,' 'small-cap/ and 'mid-cap' firms). They also address the question of whether the 'two tiers' should be subject to uniform rules or regulatory principles whose application may vary somewhat with the economic structures and regulatory capacities of particular jurisdictions or the size and related compliance capacities of various groups of firms (Puri and Larsen, 2004). Finally, the 'rules' versus 'principles' debate reflects the differing per-

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spectives of policy makers, on the one hand, and academics, whose outlooks are rooted in the disciplines of law and economics and whose attitudes towards regulatory institutions and policies are informed by competing public interest and public choice theories of regulation, on the other (Carpentier and Suret, 2003b; Puri and Larsen, 2004). Historical Evolution

Canada's 'four pillars' regime of functional specialization in delivering financial services led to the development of separate regulatory systems limiting market entry and regulating the operations of banks, trust companies, insurance companies, and securities dealers. Provincial regimes for capital markets have often reflected assorted 'province-building' strategies to promote economic development and diversification by fostering political and structural linkages among regionally based financial sector elites, provincial governments, and securities regulators. As a result, the securities industry evolved as a relatively tightly knit oligopoly with close linkages to provincial securities regulators. During the late 1960s, the industry succeeded in limiting market entry by foreign - mainly U.S.-based - securities firms. During the Quiet Revolution of the 1960s and 1970s, Quebec pursued a state-led model of industrial development, reflected in the active engagement of the Caisse de Depot and other government-owned financial institutions in financial markets and in the cultivation of a Quebec-based financial services industry. The progressive globalization of financial markets during the 1970s and 1980s led to a series of policy changes in other industrial countries that challenged the relatively cozy clientelistic and statist relationships underpinning financial services regulation in Canada. Unilateral actions first by Quebec and then by Ontario to open their securities markets to U.S.-based firms and to chartered bank ownership of securities dealers in 1986-7 prompted a regulatory earthquake. These actions effectively eroded the conceptual foundations for the 'four pillars' model of regulation - prompting Ottawa to liberalize its restrictions on cross-ownership of financial institutions (except for insurance companies) between 1987 and 1992. By 1992, Canada's chartered banks had taken control of most major Canadian securities dealers and trust companies, and by 2001, securities dealers controlled by the six major Canadian banks accounted for more than 70 per cent of industry revenues (S.L. Harris, 2000). These events are consistent with B. Simmons and Z. Elkins's analysis that economic liberalization and policy emula-

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tion among industrial countries are partly a function of competition for international investment, of socio-cultural emulation among the policy elites of major industrial nations, and of 'uncoordinated responses to common domestic political or economic conditions' (Simmons and Elkins's 2003: 280-5). The structural economic changes that both prompted and resulted from Canada's negotiation of the FTA and subsequent trade agreements have also prompted changes in economic and regulatory policies which have had a pervasive influence on investment, financial sector, and capital markets policies. These changes include the liberalization of rules governing foreign direct and portfolio investments, macroeconomic policy shifts that have fundamentally altered patterns of supply and demand for savings and investment, the explosion of small investors' ownership of equities through mutual funds, and the rapid growth of cross-border capital flows in both directions. The internationalization of Canadian businesses in response to the liberalization of markets for trade and investment led to the rapid expansion and internationalization of the Canadian securities sector during the 1990s. Business rationalization and consolidation also promoted a wave of business restructuring, both contributing to and resulting from record levels of mergers and acquisitions (M&As). The trend to market consolidation led, as well, to the restructuring of Canadian securities exchanges between 1999 and 2002 - with most equities trading consolidated in the TSX (formerly Toronto Stock Exchange) and TSX Venture Exchanges. The challenges facing domestic and international regulatory systems in integrating almost continuous policy- and market-driven changes since 1987 were reinforced by the Asian financial crisis, the prolonged market correction of 2000-2, and a series of high-profile market scandals that called into question the adequacy and effectiveness of existing rules and corporate governance procedures. In specifically Canadian terms, they have also reflected ongoing disputes over the most effective means of structuring regulatory institutions to balance competing policy objectives. Securities Regulation and the Structure of Canadian Capital Markets

The crumbling of the functional specialization in financial sector regulation symbolized by the metaphor of the 'four pillars' has yet to result in the emergence of the rationalized, streamlined regulatory architec-

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ture envisaged by market-oriented reformers during the 1980s. Many observers view the continued provincial regulation of securities markets as an anomaly when the industry's dominant element are subsidiaries of federally regulated financial institutions whose fastest growing markets are international, rather than domestic, in scope. This analysis led the federal Department of Finance to commission an arm's-length Review of the Structure of Securities Regulation in Canada, which proposed the creation of a national securities regulator in its December 2003 report (Canada, 2003). Coolly received by most provinces, except Ontario, the proposal was designed to enable the federal government to rationalize the complex legislative architecture for corporate governance discussed earlier. All ten provinces - and the three northern territories - have securities regulators, although their relative autonomy and the scope of their activities vary widely. Ontario, Alberta, and British Columbia structure their securities commissions as arm's-length regulatory agencies, possessing independent rule-making authority and enforcement capacity. Since 2000, Quebec and Saskatchewan have created integrated financial services commissions responsible for the regulation of all financial sector industries within their jurisdictions. Regulators in smaller jurisdictions are usually divisions of provincial or territorial ministries. The size and scope of securities regulators tends to mirror the size and scale of publicly traded corporations headquartered within their provinces. Ontario-based companies accounted for 45 per cent of the total market capitalization of publicly traded firms listed on Canadian equity markets in 2003, compared with 18 per cent for Alberta, 14 per cent for Quebec, and 5 per cent for British Columbia. The nine other provinces and territories share the remaining 17 per cent (Alberta Securities Commission, 2004: 4). While Ontario remains much the largest centre for 'large-cap' corporations - defined as those with shareholders' equity of more than $100 million, the 'second-tier' provinces of British Columbia, Alberta, and Quebec each remain home to about half as many large-cap firms as Ontario. The largest eighty firms - or 2.5 per cent of listed firms - accounted for more than 80 per cent of total market capitalization in Canada in 2002 (Carpentier and Surer, 2003a: 12). However, a large majority of publicly traded corporations in 2002 were 'small-cap' firms (66.9 per cent), with capitalization of less than $10 million, or 'mid-cap' firms (19.7 per cent), with capitalization of between $10 and $100 million. Almost two-thirds of these firms were located in British Columbia and Alberta. Initial Public Offerings (IPOs)

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by companies entering public markets for the first time are more numerous in Canada than in major European countries, but at much lower levels of capitalization. Only 10 per cent of Canadian IPOs between 1991 and 2000 raised the $US20-million threshold at which federal Securities and Exchange Commission regulations begin to apply to firms in U.S. capital markets (Carpentier and Suret, 2003a: 12). These figures demonstrate the 'two-tier' character of Canadian capital markets, their highly regionalized character, and the challenges of regulatory coordination in an environment characterized by the significant concentration of financial services providers and widely diffused markets for corporate management and share ownership. The overlapping effects of securities, insurance, and pension policy initiatives are reflected in the growth of intergovernmental coordination during the 1990s through the Canadian Securities Administrators, the Canadian Council of Insurance Regulators (CCIR), the Canadian Association of Pension Supervisory Authorities (CAPSA), and the Joint Forum of Financial Market Regulators. In 2003 the Canadian Public Accountability Board was created by the Canadian Institute of Chartered Accountants, the CSA, and OSFI to oversee the activities of auditors of public companies (Kennedy, 2004: 39). At the political level, provinces have formed the Provincial-Territorial Council of Ministers of Securities Regulation to provide a framework to combine the pursuit of greater legislative and regulatory harmonization with political accountability in the balancing of national and regional policy priorities. Historically, the CSA has reflected the strengths and limitations of network governance, depending primarily on resources provided by its larger member even after March 2004, when a permanent secretariat was established in Montreal. Ontario has played a leading role in fostering increased regulatory cooperation, particularly in the development of common technical standards, initiating movement towards a system of 'mutual recognition' in the review and registration of new securities issues - the so-called passport system - and developing proposals for Uniform Securities Legislation. The latest stage in this process has been the development of a Memorandum of Understanding among twelve provinces and territories to establish a process for the implementation of the 'passport system' by the end of 2006. Ontario has withheld its approval of the passport system in the hope of forcing provincial approval of a firm timetable for adoption of Uniform Securities Legislation and the creation of a single national securities regulator (Melchin, 2004; Phillips, 2004).

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The third tier of Canadian securities regulation is composed of selfregulatory organizations (SROs), with responsibility for the regulation of securities brokers, the organization of stock markets, and operations of trading systems. SRO designations are subject to the approval of securities regulators in individual provinces. The Ontario Securities Act defines an SRO as 'a company that represents registrants and is organized for the purpose of regulating its members and their representatives, with a view to promoting the protection of investors and the public interest' (Ferrari, 1998). The Investment Dealers Association of Canada (IDA) combines the role of industry advocacy group and professional self-regulatory body responsible for establishing standards and monitoring and disciplining the conduct of securities dealers and their employees. In late 2005, it announced plans to split the two functions between separate organizations. The Mutual Fund Dealers Association is the SRO for mutual fund distributors. Canada's major securities exchanges are also recognized as SROs. Historically, Canadian stock exchanges have been self-governing private corporations - with Toronto as the dominant exchange for largecap stocks, and exchanges in Montreal, Vancouver, and Alberta providing markets for major regional firms and small-cap stocks. Each exchange sets its own criteria for allowing market listings and for the delisting of companies which fail to meet them, together with disclosure requirements to maintain the transparency, integrity, and orderly operation of markets. The reorganization of Canadian stock markets between 1998 and 2002, outlined in table 8.2, reflected global trends towards marketdriven convergence and the efforts of these markets to compete more effectively for trading volumes with other North American stock exchanges. Consolidation was also seen as a way of lowering transaction costs and related costs of capital and of increasing market liquidity, which tends to be lower for small-cap stocks. The Toronto Stock Exchange followed New York's lead in 'demutualization' - moving from member ownership to become a publicly traded company, with a 10 per cent cap on individual shareholdings similar to that of the chartered banks. In 2001 the TSE took over the major small-cap market, the Canadian Venture Exchange (CDNX), together with the small-cap listings on the Montreal Exchange. In return, the ME assumed responsibility for the trading of 'derivatives/ including options and futures. The ME also initiated a short-lived joint

Investment, Trade, and Growth 199 Table 8.2. Stock exchange consolidation in Canada 1999 - merger of Alberta and Vancouver stock exchanges 2000 - Winnipeg, Alberta, and Vancouver stock exchanges merge to form the new Canadian Venture Exchange (CDNX) April 2000 - TSE demutualized 2001 - TSE buys out CDNX - which becomes division of TSE/TSX October 2001 - transfer of Montreal Exchange small-cap stocks to CDNX July 2002 - TSE becomes TSX; CDNX becomes TSX Venture Exchange. Source: Carpentier and Suret (2003b: 440).

venture with NASDAQ in an effort to expand access to the U.S. market for Canadian technology firms. The Winnipeg Commodities Exchange, regulated by the Manitoba Securities Commission, remains Canada's primary market for commodities trading. In 2002 the TSX and the IDA formed Market Regulation Services Inc. ('RS') as an arm's-length body to monitor 'real time' trading on Canadian securities markets, including newly recognized 'Alternative Trading Systems' such as Bloomberg Tradebook Canada and the Canadian Trading and Quotation System (CDQ). This discussion does not include the growth of a broader financial market infrastructure initiated by market participants and governments, including such organizations as the Canadian Depository for Securities, the Canadian Derivatives Clearing Corporation, and the Canadian Payments Association (CPA). Changes to federal legislation in 2001 allowed mutual fund and securities dealers to become members of the CPA - increasing their capacity to compete with chartered banks for the savings of Canadian consumers (Harris, 2004:178). International Governance Structures The fact that there is no mechanism to govern international finance is surely one of the most extraordinary features of the world economy at the opening of the twenty-first century.' Gilpin, 2000:161

The primarily national - or, in Canada's case, subnational - character of capital markets regulation has resulted in the relatively slow growth of international governance networks comparable to those in other sectors. Robert Gilpin notes that the international harmonization of finan-

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cial and investment regimes has generally been constrained by interest conflicts between net debtor and investor nations and by difficulties in harmonizing national regimes governing finance, capital markets, foreign investment, and competition policies (Gilpin, 2004:134-92). These challenges are being addressed primarily by what Gourevitch describes as 'private governance networks' dominated by technical and regulatory specialists rather than by conventional processes of negotiations among sovereign states (Gourevitch, 2003: 314-15). C. Jordan and G. Majnoni describe the gradual spread of standards and codes (of conduct) as 'a substitute for legal provisions at the international level ... fill(ing) the void left by the absence of international laws' or treaties (Jordan and Majnoni, 2003: 270). Informal regulatory convergence, sometimes described as the spread of international 'soft law,' is driven by a mixture of market-induced and government-induced factors. The incremental emergence of 'soft law' regimes governing financial institutions and capital markets reflects four broad factors: the need to reconcile the traditional national emphasis of the domestic financial sector and capital markets policies with the internationalization of financial markets; the need to strengthen domestic financial institutions and regulatory oversight of financial markets after the regional financial crises of the 1990s, especially in developing countries; the response of American domestic regulators to corporate scandals resulting from the neglect or abuse of existing laws and regulatory requirements; and the efforts of European governments and financial regulators to develop and enforce common financial market and related tax policies by fostering compatible international institutions. (Hanson, Honahan, and Majnoni, 2003:10) These processes have often taken the form of 'parallel statements developed by international associations of regulators for the various segments of the financial system, or by international financial institutions for areas as insurance, securities markets, accounting, auditing, corporate governance, systemically important payments systems, and the transparency of financial policies' (ibid., 23). The International Organization of Securities Commissions (IOSCO) was formed in 1974 to foster cooperation among securities regulators in

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the United States and other countries in the Western Hemisphere. lOSCO's relative informality in its early years was reflected in the fact that it was originally incorporated in 1987 under a private member's bill in the Quebec National Assembly (IOSCO, 2004: 35). IOSCO currently has 180 members, together with at least 50 affiliate members, primarily representing SROs. IOSCO activities are based on a principles-based or 'soft law' approach to regulatory cooperation, rather than a formal framework of international treaties. Its annual report describes it mandate as 'to cooperate together to promote high standards of regulation ... to exchange information ... to unite their efforts to establish standards and an effective surveillance of international securities transactions; [and] to provide mutual assistance to promote the integrity of markets' (IOSCO, 2004: 25). Its major achievement in recent years has been the development of a Memorandum of Understanding in 2002 to provide a legal mechanism for the coordination of securities regulation. Canada's lack of a national securities regulator has not prevented provincial regulators from playing an active role in lOSCO's activities. Both Ontario and Quebec are full members, while the Alberta and B.C. securities commissions are associate members. The Ontario Securities Commission's former chair, David Brown, has played a leading role on lOSCO's technical committee. Pressures for Reform - Accountability, Legitimacy, and the Persistence of Domestic Politics

Current debates over capital markets policies and securities industry regulation raise numerous questions about the historically competing objectives of accountability and effectiveness. Accountability can take a number of forms, including the accountability of businesses to regulators, the accountability (nominal or effective) of regulators to cabinets and legislatures, and the accountability of managers to shareholders whether through increasingly rigorous disclosure regulations or enhanced grounds for legal action by shareholders. Questions of accountability also involve theoretical and practical issues of corporate governance and economic and regulatory theory that range well beyond the scope of this chapter. There is general consensus among federal and provincial regulators, as well as organizations representing major financial sector interests, institutional investors, and corporate issuers of securities, that the fur-

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ther harmonization of provincial securities regulations and the promotion of 'best practices' in corporate governance are 'good things' deserving of political attention and, in some cases, legislative action. However, there is far less consensus on the most effective means of achieving these objectives. Passage of the U.S. Sarbanes-Oxley Act (2002) has created substantial pressures on Canadian regulators to take similar action. Key issues under consideration by Canadian securities regulators, their responsible ministers, and other major stakeholders in the debate over capital markets regulation include: whether reforms to corporate governance and securities should be primarily 'principles-based' or 'rules-based'; whether changes to corporate governance policies and regulations in Canada should mandate rules and standards as stringent as those in the United States, or accommodate the structural differences between Canadian and U.S. securities markets; and whether uniform regulatory systems are more or less effective than some degree of regulatory competition in testing the effectiveness and potential shortcomings of regulatory innovations (Kaura, 2004: 12-18). Organized financial interests in Canada have pointed to the growing integration of Canadian financial markets within North American and global markets, the demands for further lowering of barriers to crossborder investments, and the harmonization of securities regulations both within Canada and between Canada and the United States. This outlook is based in part on self-interest but also on the perception that financial globalization reflects 'the inexorable integration of markets, nation-states, and technologies to a degree never witnessed before,' a process that will result in 'a massive integration and centralization of world markets ... leav[ing] individual institutions and regulatory systems little choice but to move in the same direction' (Neufeld, 2003: 45). Advocates of greater regulatory harmonization also point to the potential for lower transaction costs and greater security for individual investors - and for the institutional investors who manage the vast majority of private savings in Canada. The contrarian position - supporting an 'outcomes-based' approach emphasizing harmonization of minimum standards and mutual recognition of measures taken by securities regulators that conform to those

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standards - is reflected in the proposed 'passport system' of regulation endorsed by Quebec, Alberta, British Columbia, and most smaller jurisdictions. Its advocates tend to emphasize the 'two-tier' character of Canadian financial markets and the fact that large corporations whose shares are inter-listed on U.S. and other foreign exchanges must conform with higher regulatory and disclosure standards in any event.4 They also tend to emphasize the rigidities and barriers to economic innovation inherent in rules-based regulatory monopolies, as well as the potential for 'regulatory capture' - the process through which a regulator is captured by the industry it is intended to regulate - inherent in a regulated marketplace characterized by a high concentration of securities industry ownership in Canada (in sharp contrast to the situation in the United States) (Carpentier and Suret, 2003a, 2003b; Gagnon, 2004). The lack of consensus on these issues among governments, regulators, stakeholders, and policy analysts has contributed to an ongoing policy dance in which governments and regulators attempt to respond to both international market and domestic political pressures. The proximity and influence of U.S. capital markets make it inadvisable for Canada to ignore recent regulatory changes in that country. As in the trade policy debates discussed earlier, Canadian policy makers have some discretion over the extent to which they choose to harmonize their regulatory systems with those of the United States - as long as the measures that they put in place can be credibly defended as 'comparable' in their intent and application. Companies seeking to raise capital in the United States will conform to U.S. regulatory standards, whatever the actions taken by Canadian governments. However, the failure of existing rules-based approaches to prevent corporate scandals on the scale of Enron, Worldcom, and Parmalat (or of Bre-X and Hollinger in Canada) tends to enforce a certain scepticism over current enthusiasms for particular models of regulatory reform, suggesting that 'there is no single best model for effective governance as no model can eliminate the element of risk or effectively combat deliberate misconduct' (Kaura, 2004:16). Conclusions The processes of structural adjustment to globalization, free trade, and resulting economic changes have taken very different forms in different policy sectors, reflecting major differences in the nature of relevant

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national and international regimes. The evolution of horizontal tradepolicy and regulatory regimes has reflected efforts to balance crosscutting international and domestic political pressures - including those of provincial governments and competing business interests - through the development of new regimes for policy coordination under federal leadership. Although the negotiation of the FTA involved a major departure in federal policies, it took place within the context of institutions and processes already established under previous rounds of multilateral trade negotiations. While most provinces acknowledged the long-standing federal primacy in international trade negotiations, Ottawa's willingness to accommodate provincial (as well as business) interests facilitated the development of a two-level negotiating strategy that allowed for the harmonization of domestic policy goals within the broader framework of international negotiations over three major rounds of trade negotiations. Arguably, the horizontal policy regime has enhanced the policy capacity of the Canadian state by enabling the federal government to build an intellectual consensus in support of current trade policies and to broker regional, industry-sector, and other societal differences through a mixture of institutionalized consultation processes and improved communications with other societal groups. However, these conditions are largely absent in capital markets policies and the regulation of the securities industry. The slow evolution of a domestic horizontal securities-policy regime is directly linked to the absence of an international legal framework that provides Canadian governments with the political leverage necessary to broker substantial differences among competing regional and societal (especially business) interests. Intergovernmental cooperation through the Canadian Securities Association, IOSCO, and other forums may eventually lead to greater policy harmonization. Yet, to date, intergovernmental negotiations have taken on aspects of a zero-sum game that make it difficult to develop attitudes of mutual accommodation and trust - or the communities of interest that sustain them - which are necessary for the consensual development of an effective national or interprovincial regime. The development of any such regime may well depend on the capacity of investment and securities regimes to take on some of the characteristics of the current trade policy regime: • an acknowledgement that the market-driven integration of North American markets for goods, services, and capital is likely to con-

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tinue with or without major changes to government policies - but that regulatory changes can facilitate adaptation to these processes more effectively than entrenched commitments to either the status quo or an imagined Utopia of regulatory perfectionism; an emphasis on mutual recognition based on common standards, rather than regulatory uniformity across national (or provincial) borders; a demonstrated commitment and capacity to bridge the differences between Ontario's interests and those of medium-sized and smaller provinces in framing a horizontal regulatory regime that can accommodate the needs of domestic (and emerging) firms, larger international corporations, and financial sector firms while also protecting investor interests; measures that either expand the capacities of regulators to protect investor interests or enable investors to do so themselves through enhanced access to timely legal remedies; and a willingness to acknowledge the two-tier (and regionally specialized) character of Canadian financial markets, without creating sufficiently large regulatory hurdles (and related costs) that will create prohibitive barriers to smaller firms attempting to enter 'tier one' markets. The outcomes of these processes are not pre-determined. However, unless governments pursuing greater centralization are prepared to invest substantially more political capital in the pursuit of a national securities regime, the probable outcome is the incremental extension of regulatory harmonization among provinces until a critical mass of governmental and private sector stakeholders perceive more substantial changes to be in their respective interests. NOTES 1 The CITT's mandate also allows Canadian firms to use it to protest alleged abuses of government procurement processes. To this point, the overwhelming majority of cases have involved domestic, as opposed to international, complaints. See Lemieux and Stuhec (1997), 2,62-3,154. 2 Another view suggests that the ability of the ITAC and SAGITs to mount any real opposition to NAFTA was limited by their 'relationship' with the federal government. Unlike their American counterparts, ITAC and SAGITs

206 Geoffrey Hale and Christopher Kukucha did not have the legislated authority to evaluate and comment on federal trade agreements. See Bello and Winham (1992), 50. 3 A review of public opinion polling carried out for the federal departments of Finance and International Trade in recent years suggest that between 25 and 30 per cent of Canadians are more or less persistently opposed to market-oriented economic policies, including free trade. 4 Carpentier and Suret (2003a) note the existence of a 'certification effect': 'issuers migrate to U.S. exchanges in particular because by voluntarily subjecting themselves to the U.S/s high disclosure standards and greater threat of enforcement... they partially compensate for weak protection of minority investors under their own jurisdiction's law and also credibly signal their intention to make fuller disclosure, thereby achieving higher market valuation and a lower cost of capital.'

REFERENCES Alberta Securities Commission (2004). The Alberta Capital Market: A Competitive Overview. Calgary: Alberta Securities Commission, March. Atkinson, M, and M. Chandler, eds. (1983). The Politics of Canadian Public Policy. Toronto: University of Toronto Press. Bello, J.H., and G.R. Winham (1992). 'The Canada-USA Free Trade Agreement: Issues of Process.' In L. Waverman, ed., Negotiating and Implementing a North American Free Trade Agreement, 29-60. Vancouver: Fraser Institute/Centre for International Studies. Boissoneault, G. (2003). The Relationship between Financial Markets and Economic Growth: Implications for Canada. Research report prepared for the Committee to Review the Structure of Securities Regulation in Canada. Ottawa: Department of Finance, 24 October. Brown, D.M. (1991). 'The Evolving Role of the Provinces in Canadian Trade Policy/ In D. Brown and M. Smith, eds., Canadian Federalism: Meeting Global Economic Challenges? Kingston, ON: Queen's University Institute of Intergovernmental Relations. Canada. Committee to Review the Structure of Securities Regulation in Canada (2003). It's Time. Ottawa, December. Carpentier, C., and J.-M. Suret (2003a). 'Are Canadian Securities Markets Hollowing Out?' Mimeo. 12 September. - (2003b). The Canadian and American Financial Systems: Competition and Regulation/ Canadian Public Policy 29, no. 4: 431^7. Doern, G.B., and M. MacDonald (1999). Free Trade Federalism: Negotiating the Canadian Agreement on Internal Trade. Toronto: University of Toronto Press.

Investment, Trade, and Growth 207 Ferrari, T. (1998). 'Oversight of Self-Regulatory Organizations.' OSC Dialogue. Toronto: Ontario Securities Commission, 3 November. Available at www.osc.gov.on.ca/en/About/News/Speeches/toniferrari_19981103.html Gagnon, J.M. (2004). 'Do We Need a National Regulator? Globe and Mail, 28 January, A15. Gilpin, R.G. (2000). The Challenge of Global Capitalism: The World Economy in the 21st Century. Princeton, NJ: Princeton University Press. Gourevitch, P. 2003. 'Corporate Governance: Global Markets, National Politics.' In M. Kahler and D.A. Lake, eds., Governance in a Global Economy, 305-32. Princeton, NJ: Princeton University Press. Haas, E. (1958). The Uniting of Europe. Stanford: Stanford University Press. Hale, G. (2004). 'Federalism and the Challenges of North American Integration.' Canadian Public Administration 39, no. 4: 497-524. Hanson, J., P. Honahan, and G. Majnoni (2003). 'Globalization and National Financial System: Issues of Integration and Size.' In J. Hanson et al., eds., Globalization and National Financial Systems, 1-32. New York: World Bank and Oxford University Press. Harris, D. (2002). A Symposium on Canadian Securities Regulation: Harmonization or Nationalization? - White Paper. Toronto: Capital Markets Institute, University of Toronto, October. Harris, S. (2000). 'Will That Be Small, Medium or Large? Why Good Politics Doesn't Make Good Policy: The Case of the Canadian Financial Services Industry.' In L. Pal, ed., How Ottawa Spends, 2000-2001,211-37. Toronto: Oxford University Press. - (2004). 'Financial Sector Reform in Canada: Interests and .the Policy Process.' Canadian Journal of Political Science 37, no. 1: 163-6. Hoberg, G., ed. (2002). Capacity for Choice: Canada in North America. Toronto: University of Toronto Press. Hewlett, K. (2004). 'Industry Resists Rules to Police trading.' Globe and Mail, 12 July, Bl, B4. International Organization of Securities Commissions (IOSCO) (2004). Annual Report: 2003. Madrid. Available at www.iosco.org/annuaLreport/pdf/ IOSCO-Annual_Report_03.pdf Jordan, C, and G. Majnoni (2003). 'Regulatory Harmonization and the Globalization of Finance.' In J. Hanson et al., eds., Globalization and National Financial Systems, 259-82. New York: World Bank and Oxford University Press. Kaura, B. (2004). 'The Corporate Governance Conundrum: Re-investing the Board of Directors and Board Committees.' In P. Puri and J. Larsen, eds., Corporate Governance and Securities Regulation in the 21st Century, 7-59. Markham, ON: Butterworth Lexis-Nexis.

208 Geoffrey Hale and Christopher Kukucha Keating, T. (2002). Canada and World Order: The Multilateralist Tradition in Canadian Foreign Policy. 2nd ed. Don Mills: Oxford University Press. Keohane, R., and J. Nye (1977). Power and Interdependence: World Politics in Transition. Boston: Little Brown. Kukucha, C.J. (2003). 'Domestic Politics and Canadian Foreign Trade Policy: Intrusive Interdependence, the WTO and the NAFTA.' Canadian Foreign Policy 10, no. 2: 59-86. - (forthcoming). The Federal-Provincial Committee System on International Trade: CTRADE - An Extension of Executive Federalism?' In N. Michaud and L. Bernier, eds., The Administration of Foreign Affairs: A Renewed Challenge? Toronto: University of Toronto Press. Lemieux, D., and A. Stuhec (1999). Review of Administrative Action under NAFTA. Scarborough, ON: Carswell. Lipsey, R.G. (1996). Economic Growth, Technological Change, and Canadian Economic Policy. Toronto: C.D. Howe Institute. Mendelsohn, M., et al. (2002). 'Globalization, Trade Policy, and the Permissive Consensus in Canada.' Canadian Public Policy 28, no. 3: 351-71. McNally, W., and B. Smith (2004). 'Do Insiders Play by the Rules?' Canadian Public Policy 29, no. 2:125-44. Mitrany, D. (1943). A Working Peace System. London: RIIA Neufeld, E. (2003). Implications for the International and Canadian Financial Services Industry and their Governance of Varying Future International Scenarios. Working Paper 2003(5). Kingston, ON: Institute of Intergovernmental Relations, Queen's University, March. Ostry, S. (1997). The Post-Cold War Trading System: Who's on First. Chicago: University of Chicago Press. Puri, P., and J. Larsen, eds. (2004). Corporate Governance and Securities Regulation in the 21st Century. Markham, ON: Butterworth Lexis-Nexis. Ruggie, J.G. (1982). 'International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order.' International Organization 36, no. 2: 379^15. Simmons, B., and Z. Elkins (2003). 'Globalization and Policy Diffusion: Explaining Three Decades of Liberalization.' In M. Kahler and D. Lake, eds., Governance in a Global Economy: Political Authority in Transition, 275-304. Princeton, NJ: Princeton University Press. Winham, G. (1992). The Evolution of International Trade Agreements. Toronto: University of Toronto Press. - (1994). 'NAFTA and the Trade Policy Revolution of the 1980s: A Canadian Perspective.' International Journal 19, no. 3: 472-508.

9 Forest-Sector Regulation and Communities KARINE LEVASSEUR AND STEPHANIE PATERSON

Multilevel regulatory activity is not new to Canadian public policy: the historical jurisdictional wrangling of the federal and provincial governments illustrates that regulatory development at various levels has always been an issue. What has changed over the last fifteen years, however, is the magnitude and scope of regulatory activity, as witnessed by a transition from multilevel regulatory governments to multilevel regulatory governance. Governance, as an approach, introduces new actors to the public policy process and expands their role beyond just service delivery. 'Governance/ Gerry Stoker argues, 'involves working across boundaries within the public sector or between the public sector and private or voluntary sector. It focuses attention on a set of actors that are drawn from, but also beyond, the formal institutions of government' (Stoker, 1998: 23) Not to be treated as synonymous with government, governance signifies a change in the role of government in which new actors now participate in the delivery and the development of public goods. As a result, governance implicates collaboration, in which actors become partners engaged in sharing power, resources, decision making, responsibility, and risk. Collaborative partnering, according to Lester Salamon, is a core concept of the new governance paradigm, ultimately replacing the competitive feature of sectoral relationships (Salamon, 2002: 14)1 Government is giving way, by choice and by necessity, to governance and its core concept of working across boundaries in collaborative partnerships. While this new era of Canadian regulation has significant implications for all of those involved, it is especially crucial for single-industry towns or resource communities. This chapter will situate and assess the role of municipal governments and communities in the forestry sector within the broader matrix of multilevel regulatory governance by prob-

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ing several questions: Where do municipal governments in resource communities fit into this framework? What is their role as both regulator and regulated? How do they situate themselves between their respective communities and external regulatory entities? What concerns do they have about the current regulatory framework? And how do municipalities in one-industry communities, often caught between neweconomy demands in a resource-economy town, create a political space in which local concerns are heard? We begin by profiling two one-industry towns, Dry den, Ontario, and Mackenzie, British Columbia. Subsequently, we briefly examine the context of forest sector regulation, conceptually mapping the sector in the areas pertaining to health, safety, and the environment. Trends in sector regulation, as well as the changing roles and responsibilities of various players, are discussed. We then report on the survey results from both communities. In essence, the story reveals the extent of 'collaborative governing' among the various regulatory actors in the forestry industry and the resulting impacts on the local community. We demonstrate that the key to municipal governance is collaboration between both communities and federal and provincial governments. Further, we show that, although multilevel regulation is at times burdensome and complex, sometimes causing anxiety within communities, it enables local governments to adopt mechanisms through which to make their voice heard, thereby creating a political and local space for resistance and/ or support of regulatory activity in their communities. Using a 'bottomup perspective/ the chapter surveys the nature and impacts of multilevel regulation and rule making in the forestry sector on smaller communities. Communities, Forestry, and Natural Resources: Context and Regulatory Development In this section, we demonstrate the importance of resource communities in the Canadian economy and offer a rationale for our focus on these communities. After introducing our two communities through brief community profiles, we then outline the regulatory context, reporting on general trends in forest sector regulation and explaining the various roles and responsibilities of each level of government. In addition, we conceptually map all of the regulations facing these communities in the areas of health, safety, and the environment.

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Natural resources, including forestry, mines and mining, and energy, constitute a significant portion of Canada's economic development and growth. Harold Innes's staples theory suggests that Canadian economic development relies on staples production for export. Even today, the economic contributions of staple products are crucial for the Canadian marketplace, contributing nearly 12.7 per cent of the gross national product in 2002 (about $133.3 billion).2 In terms of new capital investment, this sector accounts for $45.4 billion or 22.1 per cent of overall new capital investment in Canada, while exports of natural resources account for $140.5 billion or 38.5 per cent of all Canadian exports. Natural resource industries directly employ 6.1 per cent of Canadian workers and offer employees some of the highest average weekly earnings. In particular, forestry communities make Canada the world's leading exporter of forestry products while also contributing to a balance-of-trade surplus, which in 2002 stood at $32.6 billion. Forestry accounts for 2.8 per cent of the Canadian gross domestic product and directly employs 2.3 per cent of Canadian workers, making this sector the largest employer of all Canadians outside cities and First Nations individuals. Many Canadian towns rely on natural resources as their main source of income. Single-industry resource communities are generally located in rural or remote areas and derive most of their income from natural resources. Estimates on the number of single-industry towns vary, ranging from just over 170 to almost 500, depending on the definition used.3 Forest communities are the most plentiful, with Natural Resources Canada estimating that more than 350 communities are reliant on the forest industry as their main source of economic well-being. These figures suggest that single-industry resource communities represent an important source of Canada's natural resource development and growth. To date, much of the recent literature on single-industry towns, or resource communities, focuses on the impact of economic restructuring caused by the shift from an industrial to a post-industrial economic base.4 Within this literature, a variety of schools of thought have arisen to explain the emerging role and importance of cities in the new economy, including structural, cultural, and 'rational choice' traditions. Little of this literature explores the implications of global change for municipal governments in one-industry towns, however.5 In addition, much of the research completed to date has concentrated on understanding the various levels of regulations from a top-down

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perspective, starting with regulations stemming from the international community, the federal government, and the provinces (Doern, 2004). In their attempt to understand the complexity of Canadian forestry policy, Evert Lindquist and Adam Wellstead lament that 'surprisingly little attention has been paid to community-level policy-making... where the consequences of policy shifts are experienced most acutely/ (Lindquist and Wellstead, 2001:438). This is especially true for resource communities, since, arguably, they feel the effects of such shifts even more accutely than communities with diverse economic bases. Indeed, globalization and internationalization have changed the regulatory environment, contributing to the further proliferation of regulatory bodies which affect and influence domestic political environments in key ways. In the era of globalization, the Canadian political environment, as with most advanced industrial countries, has been characterized by shifting political responsibilities both up, to international bodies, and down, to provincial and local levels of government. At the same time, the shift from government to governance, as discussed above, has brought in new actors to policy making. The result is a regulatory framework created by multiple regulators, none of whom is an 'all seeing and all-knowing decision maker' (Doern, 2004: 261). Rather, differing actors implement regulations in response to specific public policy problems and pressures. The consequence of this piecemeal approach is the partial or seeming 'invisibility' of regulations. Bruce Doern argues that once regulations are 'adopted or put into place, the rules and the regulatory bodies ... then function at an operational level in such a way that they escape serious political notice simply because the political system has turned its attention to some other problem or some other pressure point' (Doern, 2004: 261). These regulations seem invisible to the regulators, but never to the regulated. Local firms and communities carry the cumulative weight of the entire regulatory framework, which has an effet on the corporate bottom-line and on the firm's decision as to whether or not it will continue to invest in the firm/community. It is only from this perspective that we begin to see the impacts stemming from regulatory gaps and congestion. Our two case studies - Dryden, Ontario, and Mackenzie, British Columbia - help to illuminate the perspective of the regulated. Our selection of these two communities was based on the following criteria. First, there was a desire to ensure geographical representation to a degree. Second, to illustrate the impacts of the various levels of regula-

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tions on smaller communities as opposed to more diverse larger ones, the selected communities had to be 'one-industry towns/ with reliance on the forestry industry. Third, the two selected communities would ideally not be in a state of high tension (a community consistently marked by protests against a forestry company, for example).6 Community Profiles With approximately 8,200 citizens, Dryden, Ontario, is located between Winnipeg, Manitoba and Thunder Bay, Ontario, with a surrounding terrain of forestry. For its primary industry and overall economic stability, Dryden is heavily reliant on forestry production, though its secondary industry tourism, is slowly growing. It is estimated that approximately 70 per cent of Dryden's economy is driven by the forestry industry and its related industries (for example, the trucking industry), thus making Dryden one of the most forest-dependent cities in northern Ontario. The local community is economically stable, with incomes slightly higher than the Ontario average coupled with low-to-average unemployment rates. The Weyerhaeuser Company, with a central focus on pulp, paper, and packaging, is the largest employer in Dryden despite its recent reduction in employees from 1,200 to 900 through the restructuring of pulp operations and the shutting down of a sawmill.7 Weyerhaeuser is an international forestry company with annual sales of close to $20 billion and 55,000 employees in eighteen countries. The Weyerhaeuser operation in Dryden consists of 'a kraft pulp mill producing 300,000 tons per year of bleached northern softwood and hardwood pulp and 2 paper machines producing 390,000 tons per year of white paper' (Weyerhaeuser website, 2004). A number of much smaller logging companies operate within the region as well, feeding into the wood supply of Weyerhaeuser. The District of Mackenzie is situated within the Rocky Mountain Trench, south of Williston Lake in British Columbia.8 With less than 6,000 people, Mackenzie's primary economic activity is forestry - including forest products and logging - which is estimated to comprise 70 to 80 per cent of the community's economic base. There are three major employers in the community: Abitibi Consolidated, Pope and Talbot, and Canfor. Abitibi is Mackenzie's largest employer, operating a pulp and paper mill, a woodlands office, and two sawmills. The company employs over 700 people directly and almost 300 through contracts.

214 Karine Levasseur and Stephanie Paterson Pope and Talbot, a pulp mill, employs more than 200 people. Canfor, which recently merged with Slocan, runs two sawmills and employs over 400 people. As in Dry den, the average income within the district is higher than the provincial average. The Mackenzie timber supply area (TSA) is approximately 6,130,604 hectares of crown land, of which 18 per cent is classified as operable forest land. With nearly 90 per cent of provincial forest products being sold to non-provincial entities, and with forestry being the primary economic lever in the province, global competition is crucial. Mapping Regulation from a Community Perspective The Regulatory Environment: Trends, Roles, and Responsibilities The forest industry is governed by at least three levels of government, international, federal, and provincial. In addition, municipal governments, responsible for community economic development, may regulate indirectly, imposing taxes or fees on local firms and citizens for use of forest areas. Tables 9.1 and 9.2 provide a conceptual map of regulations affecting health, safety, and the environment in the forestry sector for the two towns profiled. Multilevel regulatory governance has had significant implications for forest sector regulation in Canada.9 First, the internationalization of the forest industry has prompted a change in the regulatory governance of the sector, with an increasing global focus on both the environment and the market via international trade and with the introduction of new actors to the policy process, especially non-governmental organizations (NGOs) and international bodies.10 Second, governance, as a mode of governing, has meant an emphasis on enabling and sharing mechanisms rather than the old-style command-and-control regulation. This is demonstrated in the federal government's 'smart regulation' initiative of 2003^1, which envisages a modern regulatory regime where 'regulation is a shared responsibility in which governments, citizens and industry all have an active role to play in making the system more effective' (Canada, External Advisory Committee on Smart Regulation, 2004). Although multiple land use has been prevalent in Canadian forest policy since the 1960s, increasing activism at both international and domestic levels meant that, by the early 1990s, environmental concerns could no longer be ignored by policy makers.11 Indeed, NGOs have been able to exploit Canada's dependence on foreign markets to initiate

Forest-Sector Regulation and Communities 215

a change in the focus of forest sector policy and regulation. In addition, forest sector regulation is increasingly reliant on international cooperation, especially in regards to environmental regulation. For example, the United Nations Conference on Environment and Development, held in Rio de Janeiro in 1992, witnessed the adoption of an international commitment to sustainable development, with participating countries developing common principles in forest management.12 As M.K. Luckert and RJ. Salkie note, forests have come to symbolize the health of the planet, are recognized as a source of biodiversity and provide many environmental services, such as carbon sequestration, and water and air filtration. Accordingly, the public is increasingly concerned that forests are managed to provide the full range of such services. In response to this pressure, the industry is beginning to focus on sustainable forests rather than the traditional goal of sustained yield in which forests where managed to ensure a continuous flow of timber products. Companies now recognize the importance of providing a sustainable flow of all benefits associated with forests.' (Luckert and Salkie, 1998: 7)

Not only are companies and governments now conscious of the benefits associated with sustainable resources, but there is also growing awareness of a change in consumer values, in which international standards and certification criteria play an increasingly important role.13 Again, NGOs have been instrumental in this respect.14 At the international level, the main certifying body is the International Organization for Standardization (ISO). The ISO has developed an index of environmental management standards and has influenced many national and subnational certification programs. For example, the Canadian Standards Association (CSA) has adopted the ISO standards, complemented by the standards set out by the Forest Stewardship Council (FSC).15 International activity has obviously influenced national and subnational policy making, especially given Canada's dependence on international markets.16 Although regulatory jurisdiction was transferred to the provinces during the 1930s, the federal government maintains regulatory control over international trade, research and funding, and environmental regulation, including regulations concerning sustainable forest management.17 In addition, the scope of federal activity has expanded to include biotechnology research and regulation. (It has contracted in the area of Aboriginal affairs, and the growing presence of

216 Karine Levasseur and Stephanie Pater son

Aboriginal government on the national scene has important implications for the forestry section, as we see in more detail below.18) In recent years, the federal government has sought out partnerships with both provincial governments19 and private sector bodies in order to streamline sector regulation. Government collaboration and internationalization has also meant a changing role for the provinces in forest sector regulation. Traditionally, provincial regulation was primarily concerned with collecting rents via tenure contracts from private activity on public land. More recently, however, provinces have been called upon to develop their own standards and indicators for environmental protection and sustainable forest management. This ultimately means that provincial regulation is especially caught between the new-sustainability paradigm and economic concerns.20 G.C. Van Kooten and S. Wang observe of British Columbia's government: The government is charged with managing public forest lands (of which it owns some 95 percent of the BC total) to provide both public goods (wildlife habitat, watershed functions, scenic amenities, recreation, and so on) and private goods (commercial timber)' (Van Kooten and Wang, 1998). Although municipal governments, especially those in resource communities, have an active interest in forest sector regulation, there is no direct municipal regulatory activity in either Dryden or Mackenzie. In general, however, municipalities make rules regarding local taxes and commercial zoning, which have a significant impact on firms. These activities are beyond the scope of this chapter, but are important nonetheless. From tables 9.1 and 9.2, it is obvious that the municipalities contribute little to the regulatory context facing the forestry industry along the lines of health, safety, or the environment. Thus, key sources of difference between the two communities will stem from provincial regulations and some federal rules as well. Talking to Communities In this section, we report on the results from surveys sent out to local community representatives. We were especially interested in two main issues. First, we wanted to determine the areas of concern for municipalities. We asked community representatives to identify any areas of duplication and overlap and/or gaps and inconsistencies. Second, we asked them where exactly they fit into this framework. If municipal governments were not generating regulations, how were they responding to the concerns of firms that occupy the role of regulated entities. In

Forest-Sector Regulation and Communities 217 Table 9.1. Regulations affecting health, safety, and the environment in the forestry sector, Dryden, Ontario Health

Safety

Environmental

Federal

- Canadian Labour Code (HRDC) Pest Control Products Act (HC) Seeds Act; Fertilizers Act (AAFC)

- CLC (HRDC) Navigable Waters Protection Act (Transport Canada)

- CEAA (EC) CEPA (EC) Fisheries Act (DFO) Migratory Birds Convention Act Species at Risk Act Cdn Wildlife Act (EC) Plant Protection Act (AAFC - CFIA) Sustainable Development Technology Act (NRCan) Fisheries Act (Fisheries and Oceans)

Provincial

- Employment Standards Act

- Occupational Health and Safety Act Workplace Safety and Insurance Act Forest Fires Prevention Act

Crown Forest Sustainability Acta Class Environmental Assessment for Timber Management Aggregate Resources Act Algonquin Forestry Authority Act Conservation Authorities Act Lakes and Rivers Improvement Act Environmental Assessment Act Environmental Bill of Rights Act Municipal Act Plant Diseases Act Endangered Species Act 1997 Fish and Wildlife Conservation Act Forest Management Guidesb

Municipal

NA

MA

Zoning Site Plan Development Control

a

This Act provides legal authority for the four manuals containing the rules and procedures for forest management on crown land in Ontario: Forest Management Planning Manual, Forest Operations and Silviculture Manual, Scaling Manual, and Forest Information Manual. b There are forty-three guides in total.

218 Karine Levasseur and Stephanie Paterson Table 9.2. Regulations affecting health, safety, and the environment in the forestry sector, Mackenzie, B.C. Health

Safety

Environmental

Federal

- Canadian Labour Code (HRDC) - Pest Control Products Act (HC) - Seeds Act; Fertilizers Act (AAFC)

- CLC (HRDC) - Navigable Waters Protection Act (Transport Canada)

CEAA (EC) CEPA (EC) Fisheries Act (DFO) Migratory Birds Convention Act Species at Risk Act Cdn Wildlife Act (EC) Plant Protection Act (AAFC - CFIA) Sustainable Development Technology Act (NRCan) Fisheries Act (Fisheries and Oceans)

Provincial

- Employment Standards Act

- Forest Practices Code of BC Act, especially Forest Fire Prevention and Suppression Regulation Employment Standards Act Workers Compensation Act - OHS Regs Wildfire Act (as of June 2004, not yet in force) Foresters Act College of Applied Biology Act - these last two ensure competency among those in the forest industry to protect the public interest Forest Safety Task Force (initiated by Skills, Development and Labour)

Forest Land Reserve Act - protection of forest land and wildlife • Ecological Reserve Act • Environment and Land Use Act • Environment Management Act Environmental Impact Assessment Environmental Assessment Act EAO • Waste Management Act - Pulp and Paper Emissions; Wood Burning Weed Control Act • Wildlife Act • Sustainable Environment Fund Act • Plant Protection Act • Forestry Revitalization Act • Forest Range and Practices Act (MSRM) • Forest Renewal • Management Board

Municipal

NA

NA

NA

Forest-Sector Regulation and Communities 219

other words, how do the concerns of local firms become local political concerns, and how are these concerns represented to regulators? Sources/Nature of Regulatory Congestion and Gaps Concerns regarding regulatory congestion in the areas of safety and health were not identified by respondents, with the exception of those concerning water crossings. In Ontario, the federal Navigable Waters Protection Act and provincial guidelines in this area require two duplicate applications for water crossings. The wait times for approvals seems to range from one month for the province to nearly eleven months for the federal government. Timing appears to be a significant challenge for the forestry industry in that the companies need continuous access to timber but this can be obtained only with secured approvals. The challenge then becomes to secure approvals promptly and to foresee the unforeseeable, since it is difficult to operate on a continuous basis with unscheduled work stoppages. Another potential area of regulatory congestion stems from certification. In Ontario, concerns have arisen over the duplicate auditing function that is currently performed by the province of Ontario and by independent third parties. On 1 April 2004 the provincial government announced that all forestry companies operating in Ontario must achieve an acceptable third-party certification (subject to ongoing audits) by 2007. Prior to this announcement, forest certification had always been a voluntary, market-driven decision by the forest companies. The province changed the rules for two reasons. First, it wished to make clear that it was not prohibited from regulating the industry. Second, it wanted to help forest companies meet standards so as to compete more effectively on the international scene. While the new arrangements are subject to domestic government standards, it is believed that requiring the forestry companies to abide by independent standards will help them compete internationally since third-party certification sends a powerful message to the world's buyers and suppliers that the goods produced by a forestry company did not contribute to environmental or social decay. Such a message, it is hypothesized, will 'help ensure the Ontario forest industry is given preference in export markets' (Ontario, Ministry of Natural Resources, 2004). Others disagree. One respondent to our survey stated that 'obtaining forest certification will in no way enhance Ontario's marketability of its timber as we sell to large manufacturing facilities.' As mentioned above, the top forestry certifiers in Canada include:

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the International Organization for Standardization, an international body that outlines the parameters of a proper environmental management system; the Canadian Standards Association (Canada's National Standard for Sustainable Forest Management - CAN/CSA Z809); and the Forest Stewardship Council, an international not-for-profit organization established in 1993 to support environmentally appropriate management of the world's forests. In addition to meeting the criteria established by these bodies, the firms must then meet the standards set out by the province. Meeting two sets of rules with two audits will, according to several respondents, have negative impacts on companies, especially smaller ones, since most of the larger forestry companies that have a Sustainable Forest Licence already have forest certification. Another potential concern centres upon the possibility for conflicting rules between the province and the informal regulatory body.21 Although not explicitly identified as a concern in British Columbia, provincial regulatory reform there has created a similar environment, in which companies must meet international, federal, and provincial environmental standards for certification. In their analysis of Canadian forest policy, Linquist and Wellstead identify an emerging actor in the regulatory governance of the forest industry: First Nations. They argue: Perhaps the most significant change in community-level dynamics has been the recent efforts to address Aboriginal treaty rights and land claims. The 1996 Royal Commission on Aboriginal Peoples made specific recommendations for interim measures to improve Aboriginal access to forest resources on Crown lands and to increase participation in managing and developing forest lands and resources. The results of these negotiations, ususally between First Nations and provincial and federal governments, are beginning to have a significant impact on resources management at the community level, creating new pattersn of ownership and stakeholders in policy-making and these will vary signicantly from community to community. (Lindquist and Wellstead, 2001: 422-3).

G. Hoberg and E. Morawski similarly suggest the importance of Aboriginal policy and its impact on the forestry sector. Their research correctly concludes that understanding forestry policy requires an understanding of Aborginal policy since both fields generate change. The

Forest-Sector Regulation and Communities 221

case study of Clayoquot Sound illustrates how forestry companies 'ha[ve] to carefully negotiate [their] cutting permits with two sovereigns': the province and First Nations people (Hoberg and Morawski, 1997: 410). For the community of Dryden, the area to the north is largely First Nations land. As forests to the south, east, and west of Dryden become depleted, logging must logically move north onto this land. Whereas the federal government once spoke for First Nations people, a new level of regulations is slowly emerging for the forestry industry to contend with as Aboriginal people increasingly negotiate for themselves. When First Nations throughout the country enter into partnerships with forestry companies, they attach their own rules and regulations, thus forming another layer within the regulatory framework. As one respondent argues, 'the First Nations have "Traditional Use" claims and are working to build an overlapping authority with the province to have jurisdiction over the forest industry. In the event this happens the forest industry will be subject to two governments and possible two 'royalty' payments.' In British Columbia, the uncertainty of land claims has meant that there is concern that potential investors may be reluctant to invest. In addition, ISA clawbacks, which are being reallocated to Aboriginal groups, are causing some stress in Mackenzie. Although First Nations groups are becoming increasingly active in forestry ventures with local companies, it remains to be seen what this means for municipal governments. Regulations regarding the protection of endangered species produce some tension between the provinces and the federal government, resulting in regulatory congestion for firms. Ontario's Endangered Species Act provides protection to species at risk. However, in June 2003 the federal government passed the Species at Risk Act, which committed it to preventing 'wildlife species from becoming extinct and secur[ing] the necessary actions for their recovery. [The Act] provides for the legal protection of wildlife species and the conservation of their biological diversity' (Canada, Environment Canada, 2004). Two concerns emerge regarding the federal approach to this issue: jurisdiction and duplication with regard to jurisdiction, the province sees the protection of endangered species as a matter that falls within its jurisdiction, not that of the federal government, and so there were strains between the two levels of government when the federal legislation was enacted last year. With the introduction of this federal legislation, concerns also arose about possible duplication of regulations and possible negative effects

222 Karine Levasseur and Stephanie Paterson

on forestry companies. Respondents said that the duplication of legislation to protect endangered species might well result in congestion, not to mention such things as paperwork, enforcement, and monitoring costs. While regulations designed to protect endangered species cause some tension, so do regulations designed to deal with Dutch Elm Disease and invasive species such as the Pine Shoot Beetle, the Asian Long-horned Beetle, the Emerald Ash Borer, the Brown Spruce Longhorn Beetle, and the Gypsy Moth. Because invasive species can cause significant havoc for the forestry industry if local forests become infested, they constitute an important public policy problem. According to the World Conservation Union, for millennia, the natural barriers of oceans, mountains, rivers and deserts provided the isolation essential for unique species and ecosystems to evolve. In just a few hundred years these barriers have been rendered ineffective by major global forces that combined to help alien species travel vast distances to new habitats and become alien invasive species. The globalisation and growth in the volume of trade and tourism, coupled with the emphasis on free trade, provide more opportunities than ever before for species to be spread accidentally or deliberately. (World Conservation Union, 2000)

These pests are regulated provincially, federally, and internationally, primarily through the use of controls and quarantines which restrict the movement of infested or potentially infested material. Both communities in our study identified pest control as a cause for concern. Currently, neither Ontario nor British Columbia has quarantine legislation to restrict the transfer of infested or potentially infested wood supply or products. At the federal level, a plethora of acts provide regulatory guidance when dealing with invasive pests, including the Plant Protection Act, the Health of Animals Act, the Canadian Environmental Protection Act, the Environmental Assessment Act, the Seeds Act, the Pest Control Products Act, the Forestry Act, the Natural Resources Act, the Transportation of Dangerous Goods Act, the Oceans Act, the Fisheries Act, the Canada Wildlife Act, the Wild Animal and Plant Protection and Regulations of International and Interprovincial Trade Act, and the Canada National Parks Act. The Plant Protection Act is important legislation for invasive species, giving authority to the Canadian Food Inspection Agency (CFIA)22 which reports to the minis-

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ter of agriculture and agri-foods, to impose quarantines on domestic and international movement of infested or potentially infested material, imports, and exports. The CFIA has a forestry section within its operational structure to develop forest policies that prevent the introduction and spread of invasive species into Canada. Canada and its partners in the North American Plant Protection Organization (NAPPO), the United States and Mexico, are attempting to harmonize the regulations regarding the quarantining of invasive pests in North America. The mission of NAPPO is to 'coordinate the efforts among Canada, the United States and Mexico to protect their plant resources from the entry, establishment and spread of regulated plant pests, while facilitating intra/ inter regional trade' (NAPPO, 2004). These efforts are important both for trade and for the protection of forests. Meanwhile, Canada works within NAPPO for heightened coordination, it is anticipated that the United States will pass new regulations concerning invasive species in an attempt to protect its citizens from bioterrorism via the introduction of a deadly invasive pest. Prior to 9/11 and the rise of the 'security state/ invasive species were not considered a threat to the security of either Canada or the United States. Within Canada, invasive species have traditionally been viewed as falling under the purview of the federal government, which explains why the provinces under consideration here do not have legislation in this area. If they were to enact legislation, such legislation would be able only to constrain the domestic movement of wood supply and products since the federal government alone has the authority to regulate quarantines at the international level. Respondents to our survey believe that the authority given to CFIA is generally sufficient, because inspectors have the power to inspect any premise during regular operating hours, to shut down a forestry operation, to force a recall at the expense of the forestry company, to stop any vehicle, to oppose quarantines that are based on politics and not science, and to impose fines.23 While CFIA has considerable power, there are several factors, largely political in nature, that prevent the government from effectively managing this issue. First, there does not appear to be any political will to elevate the danger of invasive pests to the level of pressing public policy problem. Second, when the lack of political will is coupled with CFIA's limited funding, the result is a lack of enforcement of the regulations that are already 'on the books.' This lack of enforcement makes Canada vulnerable on the international scene, since international quar-

224 Karine Levasseur and Stephanie Paterson

antines are allowed only if the domestic country is actively quarantining the pest itself. Finally, the CFLA, according to our respondents, does not have the expertise to respond adequately to the needs of the forestry industry regarding invasive species. CFIA has a wide mandate involving much more than invasive species in the forestry sector, including such hot political issues as West Nile Virus, 'mad cow' disease, e-coli, and avian flu in chickens. Inspectors are not specialized in certain fields, and so it is possible to have an inspector with little forestry experience inspecting forests. The concern here for forestry communities is the economic and environmental impact caused by both invasive species and quarantines. Once a forest is infested and quarantined, the company has few options for moving its wood supply and products, which has a damaging effect both on its bottom line and on the environmental bottom line. Once a forest is infested, it is not able to contribute positively to the environment (for example, it cannot act as an air filtrator). Failure to impose a needed quarantine only further spreads the pests throughout the country and beyond. However, if a quarantine is put into place when a forest is not infested, then the company's bottom line also suffers. Respondents acknowledge the need and importance of quarantines but warn that imposing an unnecessary quarantine can devastate a forestry community just as much as failing to impose a scientifically needed quarantine. While these findings relate primarily to invasive species from a forestry perspective, the federal Office of the Auditor General suggests the inadequacy of the government's response to the issue in general, arguing that 'there is no consensus on priorities among federal departments or between the federal government and other jurisdictions of who will do what to respond' (OAG, 2002: 1). Four solutions were identified by respondents: increase the enforcement ability of the CFIA; institute another layer of regulation in the provinces by enacting invasive species legislation to compensate for the inadequate federal response; agree to a sharing of power and funding between the province and federal government via a memorandum of understanding; and create a provincial centre of management excellence, just as Quebec did through the establishment of Societe de protection des forets contre les insectes et les maladies (SOPFIM). This private, non-profit organization has the sole authority to implement protection measures against invasive forestry species, its funding being provided by the forest industry and the government of Quebec.

Forest-Sector Regulation and Communities 225 Mechanisms for Dealing with Multilevel Regulatory Governance Both municipalities identify their primary role as community advocacy. In Dryden, for example, respondents suggest that the municipality is not a source of numerous by-laws. The forestry industry faces two municipal by-laws that are tied together: zoning and site plan development control. The zoning by-law prohibits the forestry industry from floating between various zones without regulation. Most forestry companies are zoned as 'industrial/ and so if they wanted to change part of that zoning, the zoning regulation would come into play. Similarly, under the Site Plan Development Control by-law, this regulation comes into effect if a forestry company wants to expand its physical operation. Officials in Dryden note that the municipality acts less as a direct regulator over the forestry industry than as an advocate for the forestry industry and the community. The power of the city of Dryden rests with its ability to influence the provincial and federal governments on behalf of the forestry industry in northern Ontario. This is a role that is taken quite seriously, given that the entire community is heavily reliant on the forestry industry. As an example, when another level of government wants to create parkland, thereby reducing the amount of available land for forestry development, the city acts as an advocate on behalf of the forestry industry and the community to make clear the possible repercussions of such a policy decision from a community perspective. Like Dryden, the municipal government in Mackenzie sees itself as an advocate for the local employers as well as the community. A member of the municipal government writes, 'Our major concern is jobs and the sustainability of the resource for continued operations in Mackenzie/ In addition, one council-member states that, when issues arise, the local government takes action, pointing to trade tariffs and anti-dumping penalties. 'When changes occur in the forestry sector we take an active participant role to discuss the impact of such changes and we provide political support for the local forest companies. Mayor and Council do contact appropriate Ministers when required/ He continues: The concerns of the major forest companies in Mackenzie are not dissimilar to the Municipalities. The Mayor and Council use all means at their disposal to actively be involved and support local forest companies/ Given this role, the municipal governments do not directly regulate the forestry industry in the areas of health, safety, and the environment. Rather, they view themselves as the intermediary between local compa-

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nies and provincial and federal levels of government, providing political voice for the community. A local official notes, 'We have no bylaws that directly impact the forest industry. Were any proposed cutting or issues to be considered within our Municipal boundary we would commence a consultative process with the local forestry department to better understand and exchange/voice concerns/ He also states that changes to TSA, trade disputes, and other issues that have an impact on local forestry operations become political concerns for the local government. Overall, the Mackenzie government is satisfied with the current state of forestry regulation. Major coping mechanisms for the town of Mackenzie are information-gathering, consultation, and relationship building. One local council member states that 'the District of Mackenzie stays current with Forestry operations [and with regulation changes] and does take intervener status whenever possible/ This includes forums for discussion at the local level and consultation at the provincial and federal levels. With local firms, communication is largely informal. At the same time, however, municipal representatives attend meetings with local employers to identify any concerns and problems that have arisen. Dealings with provincial and federal governments are informal, too, and on a less regular basis. One official notes that little communication takes place between Mackenzie and the federal government. However, local government officials do contact federal officials periodically and attend meetings when necessary. While the communities were generally positive about the regulatory context, representatives did express concerns regarding their place in the regulatory environment and the perceived instability of regulations. Members of both communities felt that they had little control or influence over the regulatory process. They were pleased with the lines of communication between themselves and regulators, but they also felt a limited ability to influence or enact change. For example, a representative from a local firm said that, although the regulatory regime was quite extensive, he felt that it was just part of the culture - a necessary evil for running a company. He also said that, while he was not always happy with the result, he felt comfortable with the consultation and development process established by governments. He claimed that he was always open about his concerns and that he had good relationships with regulators, enabling him to express his concerns freely. This was echoed by members of the local governments. As for the 'instability' of regulations within the forestry sector, smart regulation, while balancing the need to protect the environment and

Forest-Sector Regulation and Communities 227

stimulate economic growth, must also be stable, consistent, and responsive in terms of time (for example, quick turnaround is needed for forestry companies to receive work approvals). When a forestry company invests money into its operations, it needs to know that the regulations will not continuously change, because it is competing with firms in other countries that enjoy a distinct advantage by not have many regulations to begin with or regulations that are not monitored. Conclusions The purpose of this chapter has been to situate and assess the role of municipal governments of one-industry forestry communities in the broader multilevel regulatory framework. The chapter began by profiling two one-industry towns so as to provide a narrative of their experiences with multilevel regulatory governance. It then examined the context of forest sector regulation by providing a conceptual map of the forestry sector for our two towns in the areas pertaining to health, safety, and the environment. In addition, the chapter demonstrated the impacts of multilevel regulatory governance on municipal political actors and their respective communities while exploring the various ways in which municipal governments see themselves within the regulatory framework and the ways in which this role is operationalized. Finally, the chapter highlighted the areas of concern for each community and the various strategies used to give communities a political voice. By way of overall conclusions, it is useful to discuss the potential implications of these findings for both multilevel regulatory governance in forest communities and for future research. First, it is important to note that the findings here from two community case studies are necessarily more illustrative than definitive. Moreover, the singleresource communities of our study readily identified with local firms owing to the indispensable economic contribution that these firms made to community life. Given these potential constraints, what does the preceding discussion tell us about multilevel regulatory governance and resource communities in the forest sector? First, the governance paradigm is one that emphasizes partnership and collaboration among stakeholders. Partnering suggests an important degree of sharing of power, resources, decision making, risk, and responsibility. This necessarily includes sharing the policy agenda as well. While some areas of concern were identified, overall, community

228 Karine Levasseur and Stephanie Paterson

respondents articulated the adequacy of the regulatory framework. Yet, at the same time, a disconnect emerges between the ideas of 'partnering' and 'consulting.' What has occurred with these communities is more 'consultation' than 'partnering,' with more powerful governments controlling the consultation process and thus the direction of the regulation. Communities are rarely called on in advance to gather feedback about regulations and do not always feel that they have the capacity through which to initiate change. Instead of partnering with other levels of government, municipalities are necessarily reactive, responding to changes in the regulatory framework when needed on behalf of local firms. This may be a problem specific to one-industry towns, which are reluctant to add burdens to the regulatory context, and do not see the political needs of the community as distinct from its economic needs. Second, despite the apparent satisfaction with the lines of communication between regulators and communities, when asked about their thoughts on the smart regulation initiative, which emphasizes enabling regulation rather than command and control, neither community was aware of this new development. This suggests that the federal government and the provinces need to articulate their goals while partnering with smaller communities in order to proceed with the vision of the core of the initiative. The smart regulation agenda cannot operate in single-industry communities without input from these communities, where economic realities mean that the implications of regulations are magnified. Perhaps representatives in single-industry communities should be the first people with whom governments partner, in order to minimize the potential disruption from changes to the regulatory framework but also to gain insight into possible regulatory gaps and overlap. Related to this is the need for stability within the regulatory framework, as respondents suggest. The smart regulation agenda builds this 'stability' component into its enabling orientation but, given that the communities have not heard of the initiative, they are left with the concern that the regulatory framework may not be as consistent or stable as they desire it to become over time. Future attempts to institute new or modified regulations need to be considered in light of community needs for stability and consistency. This chapter is just one of the starting points for research on local communities in the matrix of multilevel regulatory governance. Additional areas for future research include a focus on local companies and their relationships with various levels of government, First Nations, and informal regulatory bodies, as well as their role on the international

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scene. Overall, it is one-industry towns that arguably feel the effects of regulation most. Thus, it is important to ensure continued communication and partnership building, not only to bring one-industry towns into the policy process as a partner but also to minimize the political and economic disruption in communities that can least afford it. NOTES 1 Salamon (2002) denotes the use of tools and networks (as opposed to governing through hierarchical, command-and-control mechanisms) as other core concepts of the new governance paradigm. 2 Statistics in this paragraph are from Natural Resources Canada. See Canada, Natural Resources Canada (2002; 2003). 3 See Leadbeater (1998) for an overview of the various attempts to quantify single-industry resource communities in Canada. 4 For a discussion, see Barnes et al. (2001); Leadbeater (1998); Randall and Ironside (1996). 5 For a discussion of environmental policy making at the local level of rural and remote communities, see McAllister (2002). For a general overview of this literature, see Digaetano and Strom (2003). 6 Once case studies were selected, interviews with various community and regional representatives were conducted. Questions covered areas such as interaction with local firms and provincial/federal governments, areas of direct municipal regulation, areas of overlap, duplication, and so on. From the outset, it was apparent that strict confidentiality was required given the sensitivity of the subject. Despite our offer of confidentiality, however, some key respondents declined to be interviewed. These limitations certainly affect the generalizability of our findings. Consequently, the experiences of these two towns must be considered as illustrative only. 7 This shutting down of the sawmill has been attributed to softwood-lumber trade dispute, but it may also have resulted from a competitive global marketplace with an excess of sawmills. 8 See Wilson, Wang, and Haley (1999) for an overview of British Columbia's forest industry and policy framework. 9 For a discussion of recent trends Canadian forestry policy, see Hewlett (2001a). Also, see Ross (1995) for an overview of forest management policy in Canada. 10 Refer to Bernstein and Cashore (2001) and Luckert and Salkie (1998) for a discussion of the emergence of international NGO activism.

230 Karine Levasseur and Stephanie Paterson 11 See Adamowicz and Veeman (1998). 12 Interestingly, Canada is a proponent of a binding international convention for global forests, a subject discussed but not agreed upon at the Rio conference. See Bernstein and Cashore (2002) for a discussion of some points of contention. See also Haener and Luckert (1998) for a discussion of the role of the Rio conference in building consensus on indicators and standards for forest management. It should be noted, however, that while several countries adopted the principles of sustainable forest management, there is no legally binding agreement on such. 13 See Haener and Luckert (1998) for a discussion of the economic implications of certification. 14 See Bernstein and Cashore (2002) for a discussion of the influence of NGOs in domestic policy making. 15 See Haener and Luckert (1998) for a discussion of the various roles and responsibilities of each body and their differences. 16 For an overview of the impact of internationalization and environmentalism on domestic policy, see Bernstein and Cashore (2002); Stefanick (2001); Luckert and Salkie (1998); and Adamowitz and Veeman (1998). 17 See Hewlett (2001b) and Luckert and Salkie (1998). For a discussion of the emergence of 'green science' as a basis for policy, see Doern (2000). 18 On 18 November 2004 the Supreme Court of Canada announced that governments must consult with Aboriginal groups regarding land use where land claims have yet to be settled. This will have important implications for forestry policy in Canada. Poelzer (2002) discusses the increasing influence of Aboriginal groups in environmental policy making. 19 For example, the Canadian Council of Forest Ministers (CCFM) 'led to the establishment of criteria and indicators (C&I) for achieving sustainable forest management in 1995 that fed into the Montreal Process for establishing C&I internationally for temperate and boreal forests' (Bernstein and Cashore [2002]: 218). The CCFM is also responsible for the National Forest Strategy. See also Kronberg and Fyfe (1992) for a discussion of the importance of boreal forest management. 20 See van Kooten and Wang (1998) for a discussion of the political dimensions of B.C. Forest Practices Code. 21 It is important to note that multiple regulations do not necessarily imply regulatory congestion. At this point, however, members of the local communities were concerned about the duplicate auditing functions that currently exist. In addition, there are a number of 'costs' associated with certification - paperwork, for example. See Haener and Luckert (1998)

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for a discussion of the various costs and benefits associated with certification. 22 In April 1997 the CFIA was created to deliver services (for example, inspection) that were once under the domain of other government departments such as Agriculture and Agri Food Canada, Fisheries and Oceans Canada, Health Canada, and Industry Canada. 23 One area lacking in federal regulations, according to respondents, concerns the issue of compensation. If, for example, landowners are forced to destroy their non-infested trees as a method of preventing the spread of infestation, the CFIA must pass separate regulations for each instance of compensation - something it is reluctant to do, public demands notwithstanding.

REFERENCES Adamowitz, W.L., and T.S. Veeman (1998). 'Forest Policy and the Environment: Changing Paradigms.' Canadian Public Policy 28, no. 2: 51-61. Barnes, T., R. Hayter, and E. Hay (2001). 'Stormy Weather: Cyclones, Harold Innis, and Port Alberni, BC.' Environment and Planning, 122-33. Bernstein, S., and B. Cashore (2002). 'Globalization, Internationalization, and Liberal Environmentalism: Exploring Non-Domestic Sources of Influence on Canadian Environmental Policy.' In D.L. Van Nijnatten and R. Boardman, eds., Canadian Environmental Policy: Context and Cases, 212-32. Don Mills, ON: Oxford University Press. Canada. Environment Canada (2004). Species at Risk Registry. Available at http://www.sararegistry.gc.ca/the_act/default_e.cfm Canada. External Advisory Committee on Smart Regulation (EACSR) (2004). Smart Regulation: A Regulatory Strategy for Canada. Available at http:// www.smartregulation.gc.ca/en/index.asp Canada. Natural Resources Canada (2002). Statistics and Facts. Available at http: // w w w.nrcan. gc .ca / statistics / factsheet.htm - (2003). Important Facts on Canada's Natural Resources (as of October 2003). Available at http://www.nrcan.gc.ca/statistics/2002-949%20important%20 fact%2003E.pdf Digaetano, A. and E. Strom (2003). 'Comparative Urban Governance: An Integrated Approach.' Urban Affairs Review 38, no. 3: 356-95. Doern, G. Bruce (2000). 'Patient Science versus Science on Demand: The Stretching of Green Science at Environment Canada.' In G. Bruce Doern and

232 Karine Levasseur and Stephanie Paterson Ted Reed, eds., Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime, 286-306. Toronto: University of Toronto Press. - (2004). 'Smart Regulations, Regulatory Congestion and Natural Resources Regulatory Governance.' In Doern, ed., How Ottawa Spends, 2004-2005: Mandate Chance in the Paul Martin Era, 245-76. Montreal and Kingston: McGill-Queen's University Press. Haener, M.K., and M.K. Luckert (1998). 'Forest Certification: Economic Issues and Welfare Implications.' Canadian Public Policy 28, no. 2: 83-93. Hoberg, G., and E. Morawski (1997). 'Policy Change through Sector Intersection: Forest and Aboriginal Policy in Clayoquot Sound/ Canadian Public Administration 40, no. 3: 387-414. Hewlett, Michael (2001a.) 'Introduction: Policy Regimes and Policy Change in the Canadian Forest Sector.' In Hewlett, ed., Canadian Forest Policy: Adapting to Change, 1-20. Toronto: University of Toronto Press. - (2001b). 'The Federal Role in Canadian Forest Policy: From Territorial Landowner to International and Intergovernmental Coordinating Agent.' In Hewlett, ed., Canadian Forest Policy: Adapting to Change, 378^18. Toronto: University of Toronto Press. Krongberg, B.I., and W.S. Fyfe (1992). 'Forest-Climate Interactions: Implications for Tropical and Boreal Forests.' In P.N. Nemetz, ed., Emerging Issues in Forest Policy, 72-85. Vancouver: UBC Press. Lawson, Jaime, Marcelo Levy, and L. Anders Sandberg (2001). '"Perpetual Revenues and the Delights of the Primitive": Change, Continuity, and Forest Policy Regimes in Ontario.' In Michael Hewlett, ed., Canadian Forest Policy: Adapting to Change, 279-315. Toronto: University of Toronto Press. Leadbeater, D. (1998). 'Single-Industry Resource Communities and the New Crisis of Economic Development: Lessons from Elliot Lake.' Final Report of the Community Response Sub-Project. Lindquist, Evert, and Adam Wellstead (2001). 'Making Sense of Complexity: Advances and Gaps in Comprehending the Canadian Forest Policy Process.' In Michael Hewlett, ed., Canadian Forest Policy: Adapting to Change, 419-46. Toronto: University of Toronto Press. Luckert, M.K., and F.J. Salkie (1998). 'Forestry in Canada: Transitions and Emerging Issues.' Canadian Public Policy 28, no. 2:1-10. McAllister, M.L. (2002). 'Grounding Environmental Policy: Rural and Remote Communities in Canada.' In Van Nijnatten, D.L. and R. Boardman, eds., Canadian Environmental Policy: Context and Cases, 233-252. Don Mills, ON: Oxford University Press: North American Plant Protection Organization. (2004). Available at http:// www.nappo.org/

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Office of the Auditor General (OAG) (2002). Report from the Commissioner of the Environment and Sustainable Development - Chapter 4: Invasive Species. Available at http://www.oag-bvg.gc.ca/domino/reports.nsf/ html/c20021004ce.html Ontario. Ministry of Natural Resources (2004). 'Ontario Promotes Forest Certification.' Available at http://www.mnr.gov.on.ca/MNR/csb/news/ 2004/apr01nr_04.html Poelzer, G. (2002). 'Aboriginal Peoples and Environmental Policy in Canada: No Longer at the Margins.' In Van Nijnatten, D.L. and R. Boardman, edsv Canadian Environmental Policy: Context and Cases, 87-107. Don Mills, ON: Oxford University Press: Randall, J., and R.G. Ironside (1996). 'Communities on the Edge: An Economic Geography of Resource-Dependent Communities in Canada.' Canadian Geographer 40, no. 1:17-35. Ross, M. (1995). Forest Management in Canada. Calgary: Canadian Institute of Resources Law, University of Calgary. Salamon, Lester M. (2002). 'The New Governance and the Tools of Public Action: An Introduction.' In Salamon, ed., The Tools of Government: A Guide to the New Governance, 1-47. Oxford: Oxford University Press. Stefanick, Lorna (2001). 'Environmentalism and Environmental Actors in the Canadian Forest Sector.' In Michael Hewlett, ed. Canadian Forest Policy: Adapting to Change, 157-71. Toronto: University of Toronto Press. Stoker, Gerry (1998). 'Governance as Theory: Five Propositions.' International Social Science Journal 50, no. 155:17-28. Van Kooten, G.C., and S. Wang (1998). 'Estimating Economic Costs of Nature Protection: British Columbia's Forest Regulations.' Canadian Public Policy 28, no. 2: 62-71. Wilson, B., S. Wang, and D. Haley (1999). 'British Columbia.' In B. Wilson et al., eds., Forest Policy: International Case Studies, 81-108. Wallingford, UK; CAB International. World Conservation Union (2000). 'IUCN Guidelines for the Prevention of Biodiversity Loss Caused By Alien Invasive Species.' Available at http:// www.iucn.org / themes / ssc /pubs / policy / invasivesEng.htm

10 Intergovernmental Regulation and Municipal Drinking Water CAREY HILL AND KATHRYN HARRISON

The tragic events in Walkerton, Ontario, in May 2000, in which contamination of the local water supply led to the deaths of seven people and the illness of 2,300 others (Walkerton Commission of Inquiry, 2002), remind us that the provision of safe drinking water is one of the most fundamental, if least visible, roles of the modern state. The task of water treatment and delivery historically has fallen to local governments. However, the dramatic failure of local water authorities in Walkerton brought to the fore the question of who should oversee those responsible for provision of safe drinking water. The purpose of this chapter is to examine the role of provincial governments and, to a lesser extent, the federal government in regulating local governments' provision of safe drinking water. This is done through case studies of two cities, Vancouver and Toronto. Under what conditions do governments undertake to regulate each other? And when they do, are they successful in directing other governments to do their bidding? We find that, although local governments have, at times, either declined to act or delayed providing drinking water protection, provincial and federal governments have not embraced a regulatory role in overseeing municipalities. Local governments have strong incentives to maintain a high standard of drinking water protection, but they also have the strongest incentives to drag their heels. In contrast, with no financial responsibility for water treatment, provincial governments have an opportunity to claim political credit by setting drinking water standards. While they have done so, a review of the history of drinking water protection in Canada over the last century suggests that their role has often been symbolic. Provinces have been more aggressive in their oversight of local governments in response to occasional high-profile

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events such as the Walkerton tragedy. Yet the uneven timing and frequency of such incidents has led to considerable variation in the role of the provinces with respect to the two cities studied. Moreover, it is striking that provinces' actions have occurred at a time when the local governments themselves have also seen an urgent need to step up their efforts in order to restore public confidence. Perhaps most striking to us has been the limited regulatory role of the federal government, which has not seized the opportunity to claim credit for setting national drinking water standards. Theoretical Framework We begin from the assumption that politicians at all three levels of government as well as bureaucrats responding to their directives are motivated to seek credit and avoid blame from the electorate (Weaver, 1986; Harrison, 1996). However, incentives may change as the nature of the problem and the public awareness of issues change. During periods of 'normal politics,' the public assumes the water that comes from their taps is safe to drink. But, when confronted with evidence to the contrary, the public can lose confidence in the water supply. During periods of 'loss of confidence,' the public is attentive and there is greater potential for political blame. The Walkerton tragedy is one such example. 'Normal Polities' LOCAL GOVERNMENT

The public expects municipalities to provide potable water to their homes or businesses. Municipalities cannot claim political credit for something they are simply expected to do. Moreover, voters typically perceive protecting drinking water as an all-or-nothing proposition; either the water is 'safe' or it is not. Thus, there are few, if any, opportunities to claim credit for doing a better job, since improvements in drinking water systems only raise questions about why the local government was not adequately protecting the water supply in the first place. Yet, while opportunities for local credit claiming with respect to water are few, there is considerable potential for blame if something goes wrong. If the system fails and drinking water is not safe, the local government can expect to be the first target for blame, perhaps even from other levels of government, since it has the primary responsibility for delivery of the service. The possibilities for such blame can be

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understood as a function of the likelihood of the event times the severity or consequences of that event. As such, if local governments perceive the risks to be slight (e.g., because the source water is of high quality), they have fewer incentives to act than if they are aware of substantial risks. The desire to avoid blame leads to the possibility of action, but in the context of the actor's assessment of the likelihood of an adverse water-quality event. This would suggest a high level of commitment by municipalities to protect drinking water. However, while local politicians seek to avoid blame for failure to provide potable water, they may also fear a very different kind of blame from voters who resent the imposition of taxes to improve the water system. This is particularly true since funding water treatment has historically been the exclusive responsibility of local governments. During periods of 'normal politics,' the average voter gives little thought to water quality, but homeowners are always keenly aware of the property taxes they pay. Moreover, since expenditures on water infrastructure are not separately identified in tax bills in most cities, or at least have not been in the past, there is a weak psychological connection between taxes paid and the services they support. In summary, local governments have the strongest incentives to act to protect drinking water, but also the strongest incentives not to act. PROVINCIAL GOVERNMENTS

Provincial governments, too, may fear electoral retribution if there is a failure to protect public health. However, the degree to which the provincial governments are blamed by voters will depend on the perceived culpability of local officials. Potential for assignment of blame at the provincial level may also depend on the nature of the problem. For example, provinces could expect to be held responsible for industrial threats to drinking water sources, both because environmental regulation is not within the purview of local governments and because most industrial discharges to source water bodies are beyond local reach. At the same time, while provincial governments generally will have less fear of blame for inadequate protection of drinking water than local governments, they do have greater potential for credit. Even in the absence of public demand, a province may gain credit for setting drinking water standards, thus reminding voters of something they value. Standard setting may be purely symbolic, with lax standards and/or weak enforcement. Even so, merely by proclaiming standards, provincial governments can stand to gain credit for regulating local governments.

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It is noteworthy that, given the expectation that local governments should provide and pay for local services, provinces can claim credit by setting standards without accruing the blame associated with raising taxes. Nonetheless, provincial intervention in the form of drinking water standards does risk legitimizing local demands for financial assistance. At the same time, the assertion of a provincial role via drinking water standards also creates risks that the province will be assigned a greater share of the blame for any future failure of the water system. THE FEDERAL GOVERNMENT

The federal government is even further removed from the potential for blame than provincial governments. There is less perception of responsibility, both because local governments are expected to deliver the service and, if anyone, provincial governments are expected to provide oversight. By the same token, there may be even more incentive to get credit for setting 'national standards/ even symbolic ones. However, we envision two reasons for the federal government not to get more involved in this policy issue. The first is opposition from provincial governments resentful of federal government intrusion. Provincial governments, not least Quebec, can be expected to object that the federal government is intervening in an area of clear provincial jurisdiction. While that may also be true in the case of provincial governments regulating municipalities, the greater visibility and constitutional authority of provincial governments can be expected to serve as a stronger deterrent for the federal government. Indeed, the political costs of picking a fight with the provinces may not outweigh the electoral benefits, particularly given the public's predisposition to look to local governments with respect to drinking water. The second barrier to federal involvement is its potentially high costs. The easiest, indeed arguably the only, way to assuage provincial (and potentially also judicial) objections to federal regulation would be for the federal government to contribute a substantial share of the costs of water infrastructure improvements. But, given the huge expense of water infrastructure, taking this route would exact considerable costs on the federal government, costs currently borne, for the most part, by municipal governments. 'Loss of Confidence'

In periods of 'loss of confidence/ each level of government's calculations shifts in favour of stronger efforts to protect public health. The

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local government is likely to suffer the brunt of the blame, as explained above, when the public loses confidence in the water system. Luckily, during periods in which the public is attentive to drinking water quality, the local government also faces reduced blame for raising taxes since voters are more willing to pay to protect their drinking water. Citizens concerned about water quality are more likely to look to the provincial government to enact stricter standards and oversight. It is not obvious that there would be a greater expectation for the provinces to pay for water system improvements; however, provincial governments may be more willing to do so in order to 'deliver the goods.' The federal government also is more likely to claim credit by asserting an oversight role during periods when the issue of drinking water quality is salient. In sum, local governments have strong incentives for drinking water protection but also to delay protection. The actions taken at the local level, in this sense, are indeterminate, since these depend on the perceived magnitude of risks, the magnitude of costs, and the public mood with respect to both. However, when there is a loss of confidence, local governments have little choice but to spend as needed to mitigate risks and restore public faith in the system. Federal and provincial governments have incentives to assume a regulatory role with respect to local drinking water protection. However, they may be able to achieve their political objectives with purely symbolic standards, except during periods when the public has lost confidence in local provision. The irony is that provincial and/or federal regulation is expected to be most effective when it is least needed in light of local governments' own incentives. Design of the Study We have introduced a basic, simplified framework to examine multilevel regulatory governance with respect to drinking water protection. Clearly, not all cities or provinces are alike, nor are all federal governments alike over time. In addition, there may be different historical norms and expectations with respect to drinking water. However, this chapter offers a preliminary test of the explanatory power of the framework through consideration of two cities in two different provinces: Vancouver, British Columbia, and Toronto, Ontario. We have chosen to focus on large cities for two reasons. First, we expect that the capacity to deliver safe drinking water will depend on

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the size of city. Second, the public, the province, and the federal government may have higher expectations of cities, and thus assign greater responsibility to large cities than to small towns or villages. That said, we acknowledge that the decision to examine only large cities limits the generalizability of our findings, as does the small number of cases. While Vancouver and Toronto are both large cities with significant capacity, they nonetheless face quite different challenges with respect to the characteristics of their water sources and the nature of the threats present in untreated water. Vancouver relies on a contained reservoir in a protected watershed. As such, natural threats, especially microbiological contaminants, are the primary concern. In contrast, Toronto draws its water from a large surface water body - Lake Ontario - which is also a depository for a broad range of natural and human-generated wastes, including sewage, agricultural run-off, and industrial effluents. We have relied on a variety of data sources, including secondary literature, archival documents, and interviews with government officials. The case studies presented here are part of a larger project that compares three Canadian cities to three U.S. cities of comparable size (Hill, forthcoming). The Multibarrier Approach to Drinking Water Protection It is generally agreed that a multibarrier approach to drinking water is most conducive to public health protection (Federal-Provincial-Territorial Committee, 2002; USEPA, 1999). Source water protection is the first line of defence. The idea is to prevent contamination of source water by restricting various discharges into the water supply. At the limit, it may be possible to ban all discharges and restrict access to a watershed, though that is not feasible for municipalities that rely on large surface water bodies for drinking water. Moreover, even with smaller watersheds, closure of the watershed is not fail-safe, since there is potential for contamination by animals and humans who must enter the watershed for management purposes. The second barrier is water treatment. Disinfection and filtration are the most commonly used treatment technologies. The purpose of disinfection is to kill microbial organisms such as giardia and Escherichia coli. Chlorination is inexpensive and thus widely used as a drinking water disinfectant worldwide. Its unfortunate side-effect is the production of carcinogenic trihalomethanes (Viessman and Hammer, 1993). Alternatively, chloramination employs a combination of ammonia and

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chlorine, produces fewer trihalomethanes, and lasts longer in the distribution system, thus providing continuing disinfection during distribution. However, chloramine is highly toxic to fish should there be leakage or a watermain break. Ozone may also be used as a disinfectant but it must be manufactured on site. It has few by-products yet is more costly to produce and, because ozone does not persist for long, systems that rely on ozonation also typically require chlorination in the distribution system. Filtration involves the use of filters to remove particles from the water. Turbidity in water is 'caused by suspended matter, such as clay, silt, fine organic and inorganic matter, soluble coloured organic compositions, plankton and other microscopic organisms' (Federal-ProvincialTerritorial Subcommittee, 2002). As cloudy water passes through sand, anthracite, or other fine mediums, it becomes clearer, and some contaminants are removed. Increased turbidity is associated with increased concentration of microorganisms in the water. Moreover, turbidity can reduce the effectiveness of disinfection as well as present an aesthetic concern. Thus, turbidity is considered a surrogate measure for microbial risks. A third line of defence is the distribution system of pipes that takes water to the consumer's tap. Key concerns with respect to distribution systems are leakage and contamination from corroding pipes, crossconnections, and backflows. Comprehensive testing is recommended to ensure that the water is safe to drink, even after treatment. The two most widely used tests are for turbidity and coliforms. Evidence of either turbidity or coliforms in the water suggests contamination and the need to further test and/or treat the water (USEPA, 2002). Mapping the Multilevel Regulatory Framework In Canada, drinking water regulation is the nominal responsibility of provincial governments. However, they have typically delegated responsibility for water treatment and delivery to municipalities. Municipal governments ensure that water is potable through a combination of source water protection, water treatment, and maintenance of the distribution system. Cities monitor their drinking water for contaminants to ensure that systems are operating correctly. Provincial governments are responsible for regulation of drinking water provision. Legislation varies significantly from province to prov-

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ince. Ministries of health and/or the environment are responsible for monitoring municipalities and for enforcing compliance with the regulations. British Columbia enacted the Drinking Water Protection Act (2003)1 and Ontario enacted the Safe Drinking Water Act (2002) post-Walkerton. Prior to Walkerton, neither province had stand-alone drinking water legislation. The federal government historically has not played a direct regulatory role with respect to drinking water, but it has provided research support and coordination. The first Canadian drinking water guidelines were issued in 1968. These had been developed by a joint committee of the Canadian Public Health Association (CPHA) and an Advisory Committee on Public Health Engineering to the Department of National Health and Welfare. The Drinking Water Standards Committee of the CPHA had been meeting since 1966. The Advisory Committee, composed of federal and provincial departments of health, academics, and the Canada water-pollution and water-resource control agencies, convened a subcommittee on Drinking Water Standards (Health and Welfare, 1969). The overlapping membership of the CPHA Committee and the Advisory Committee's subcommittee led these two to combine and work as a joint committee. In 1978 the deputy ministers of health convened the Federal-Provincial Working Group on Drinking Water. This group developed a new set of guidelines for Canadian drinking water quality in 1978, but it disbanded thereafter. In 1986 the Federal-Provincial-Territorial Subcommittee on Drinking Water Quality was formally established by the Federal-Provincial Advisory Committee on Environmental and Occupational Health to revise and update the standards. The committee currently meets twice annually, once in Ottawa and once in one of the provinces. The basic function of the committee is to assess contaminants found in drinking water and to establish guidelines agreeable to all the provinces. However, to date, only three of the provinces have adopted most or all of the guidelines Ontario, Quebec, and Alberta. The guidelines are updated regularly and new contaminants added. The Cases VANCOUVER

The Vancouver metropolitan region obtains its water from three watersheds in the 'North Shore' mountains. The Capilano, Seymour, and Coquitlam watersheds are served by 6 storage lakes, 6 dams, 22 reser-

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voirs, and more than 550 km of pipes that deliver the treated water to individual homes and businesses. Municipalities are largely responsible for their water systems, and Vancouver is no exception. The water system is operated by the Greater Vancouver Water District (GVWD), which is a creature of the Greater Vancouver Regional District (GVRD), a regional agency directed by a board of representatives from twenty-one local municipalities and one electoral area. References to 'Vancouver' in the discussion that follows thus refer to the regional district, rather than the city of Vancouver, unless otherwise noted. The GVWD is the regional provider of water to the member municipalities. Although local governments own and operate the waterworks, there is no question that the provincial government has authority to regulate the system to protect public health. The province began regulating the water system in the late 1800s when it passed the Public Health Act. The Act established the position of medical health officers and granted them various powers to protect public health including oversight of municipal water systems. The medical health officer model persists today, albeit with legislation more specifically addressing drinking water and some financial penalties for non-compliance. Vancouver's reliance on mountain reservoirs rather than large surface water bodies (lakes or rivers) has facilitated greater emphasis on source water protection, a strategy that has characterized Vancouver's drinking water protection approach from its inception. In 1905, soon after assuming control of the water system, the municipality moved quickly to protect the water source when it asked the provincial government to permit it to lease the land surrounding the Capilano River. The province refused, citing loss of potential timber revenues. In response, the city began purchasing parcels of land within the watershed and lobbied the provincial government until it was able to protect the water source with the creation of the Greater Vancouver Water District in 1927. At that time, the province agreed to lease the watersheds to the GVWD for 999 years. Somewhat ironically, Vancouver's conscientious efforts to protect its pristine watersheds have at times led to delays in responding to natural threats to public health. While other major Canadian cities chlorinated their water early in the twentieth century, Vancouver still had not done so by the advent of the Second World War. Instead, councilors in the Greater Vancouver area and regional water superintendent E.A. Cleveland spoke of the 'pristine purity' of the water (Province, 1905). How-

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ever, the city faced increasing pressure from both the provincial and federal governments to chlorinate. Dr C.E. Dolman of the Provincial Health Board refused to certify Vancouver's drinking water as safe for foreign ships in 1937 on account of its refusal to chlorinate the water (Morton, 1970). But even then, the GVWD continued to resist chlorination until the federal government stepped in.2 Only the federal government's threat during the Second World War that it would take over the water system led E.A. Cleveland to put in the chlorinators. Dr Ian McKen/ie, federal Minister of pensions and health and a Vancouverite, explained at the time, 'We would chlorinate the water if it came from heaven' (Vancouver Sun, 1942a). While the GVWD has maintained its long-standing commitment to prohibit housing or industrial development in its watersheds, it has not always viewed logging of the watersheds as a comparable threat. Between the 1950s and mid-1990s, logging was permitted in the watersheds, ranging from clear-cutting in early years to selective harvesting more recently. Logging in the watershed became controversial in the late 1980s when environmentalists and the British Columbia Medical Association expressed concern that mudslides in the watershed may be connected to logging (Etkin, 1994: 76; BCMA, 1990). The fear is that deforestation will lead to greater run-off of soil into the watershed, and that increased turbidity of the source water will render disinfection less effective. In response, the GVWD has asserted that some logging is necessary to avert intensive fires and insect infestations that could lead to greater contamination of the resource (GVWD, 1991), though this explanation would not seem to explain more extensive clear-cuts in the 1950s.3 In 1989 the GVWD undertook major deliberations to plan a longterm water supply strategy for the region. The last review of watershed management had occurred in the 1960s. The GVWD noted that watershed 'philosophies and social concerns have changed in the past two decades' (GVWD, 1991). The review found that Vancouver's water did not meet all of the Canadian Drinking Water Guidelines. High turbidity, lack of rechlorination, and excessive bacteria levels in summer and fall put the water supply at risk of waterborne diseases. This review coupled with major turbidity events in 1990 raised public awareness of the issue. The Western Canada Wilderness Committee called for a moratorium on logging and the British Columbia Medical Association called for a public inquiry (Etkin, 1994: 86). In response, the GVWD moved to initiate a public consultation pro-

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cess in 1991. A year later, the provincial government introduced the Safe Drinking Water Regulation under the Health Act. This included binding standards for coliforms and required water purveyors to deliver potable water to consumers. It is notable that the GVRD failed to meet both the Canadian Guidelines and the provincial regulation during some periods of high turbidity. In 1994, following public consultation and review, the GVWD passed a motion to build rechlorination stations and commence filtration on the Seymour source as soon as possible. By 1998, five of the now seven rechlorination stations were operational. In November 1996 the GVRD board approved the use of ozone as a primary disinfectant, replacing chlorine. However, around the same time, the GVRD board voted to postpone construction of some aspects of the plan to improve Vancouver's drinking water quality, including the Seymour filtration plant, in order to save money. Although the GVRD's water committee voted to proceed with the original timetable at the urging of regional health officials, the board reversed the committee's decision, stating that the costs saved were worth the 'minute risk' (Lee, 1998). The GVRD's budget was strained at the time by another major capital project: construction of secondary sewage treatment plants. The 1994 schedules had the Seymour plant slated to be built by 2003 but construction did not commence until 2004, delaying completion until 2007. Amidst these delays, the Walkerton tragedy occurred in May 2000. For Vancouver residents, concerns about risks of waterborne disease were further heightened when just five months later, in October 2000, Health Canada released research linking turbidity events in Vancouver's watersheds to gastrointestinal illness, including 17,500 visits to physicians and 85 hospitalizations annually (Aramini et al., 2000). For British Columbia residents, a 'landmark' report by the auditor general (1999) released a year earlier already had contributed to increased interest in the province's lax drinking water regulations. The provincial health officer (2001) chose drinking water quality as the focus of his annual report for 2000, noting the number of water systems, types of treatment, number of systems in compliance, and the level of waterborne-related illness in British Columbia as information gaps. The provincial government passed amendments to the Safe Drinking Water Regulation in 2001. The new standards resulted in a 2001 decision by the GVRD board to cancel the Capilano Ozone Project in favour of filtration on the Capilano water source as well as the Seymour

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source. The new Seymour-Capilano Filtration Plant is scheduled to be operational by 2007. A 2000 GVRD report noted that the Canadian Guideline of 1 NTU (nephelometric turbidity unit) had been exceeded 11.6 per cent of the time at Capilano, 9.6 per cent of the time at Seymour, and 4.1 per cent of the time at Coquitlam. GVRD water commissioner Johnny Carline explained that, as a result of recent water tragedies, 'public concern with this issue will push the district, both directly and through senior government action, towards earlier implementation of treatment that responds to all known risks' (Simpson, 2001: Al). The Coquitlam source, which suffers from far fewer turbidity events, is not scheduled to be filtered until 2025, at which time Vancouver's drinking water is expected to meet 100 per cent of the Canadian Guidelines (GVWD, 1994). In 2001 the New Democratic (NDP) provincial government also passed the Drinking Water Protection Act, but the Act did not come into force before the newly elected Liberal government convened a Drinking Water Review Panel to review the legislation. An amended Drinking Water Protection Act came into effect in 2003, with a new Drinking Water Protection Regulation replacing the now repealed Safe Drinking Water Regulation (2001). Although the new regulation included requirements for operator certification and public notification of unpotable water, requirements for testing were limited to only total coliforms, fecal coliforms, and Escherichia coli. In summary, the Greater Vancouver Water District is responsible for drinking water provision in the Vancouver metropolitan area. From the outset, there has been a strong commitment to protect Vancouver's water source. However, the GVWD's commitment to protecting the watershed from development seems, at times, to have blinded local officials to the natural threats to public health. In theory, these shortcomings should be addressed through formal oversight by the provincial Ministry of Health. But, in practice, the provincial government does not appear to have wielded much influence over the regional government. The province acted when the municipality was also willing to act, after a tragedy and considerable publicity. It could be argued that the most significant action in terms of public health was the federal government's regulation of the municipality during the Second World War, which resulted in installation of longdelayed chlorination. However, the federal government's effort in that case stands out as exceptional when viewed over the longer history.

246 Carey Hill and Kathryn Harrison TORONTO

Today, Toronto's water system consists of 4 filtration plants, 18 pumping stations, 10 major ground-level storage reservoirs, 4 elevated storage tanks, 510 km of trunk watermains, and 5,015 km of distribution mains. This infrastructure stands in stark contrast to the city's water system in its early days, when it consisted of one water intake in Lake Ontario chosen for its purity and accessibility. As in Vancouver, a private entrepreneur originally built the water system, but by 1873 it had been purchased by the city (Jones and McCalla, 1979: 320). Toronto's early water system was marked by criticisms of local management and calls for external accountability. The first scandal emerged in 1886, when an inquiry found that the chief engineer was guilty of misconduct and that there was 'no doubt' the waterworks were defective (McDougall et al., 1887). In response to the scandal, the city created the Board of Commissioners to oversee the waterworks. Additional oversight came from the medical health officer. Federal funding for medical health officers resulted in Toronto's Dr F. Canniff conducting his first sanitary survey in 1883, in which he mentioned water and sewer drainage (Bordessa and Cameron, 1980: 128). In 1884 the province increased the authority of the medical health officer under the local board of health (ibid.). During the early years, the role of the medical health officer appears to have led to improvements in the system, but the city also played a strong role. In a' 1908 report the vice-chair of the Provincial Board of Control, the city's medical health officer, and the deputy city engineer recommended filtration of the water supply. They pointed to data from Albany, New York, showing significant decreases in typhoid after filtration (Board of Control, 1908). When the city introduced chlorination in 1910, typhoid deaths were reduced by half. Additional public health protection was afforded when Toronto's first filtration plant was completed within a year. In 1912 the province amended the Provincial Health Act to include section 89, which stated that operators of water systems needed to submit plans, specifications, reports about the water supply, and works to be undertaken. A year later, the Provincial Board of Health emphasized that, before the water supply could be allowed to be used by the public, the sewage 'shall be efficiently disinfected to the satisfaction of the Board' (Harris, 1913). The local Board of Commissioners (1912) had already recommended that the sewage be treated since, in their estimation, it was 'abhorrent to all ideas of hygiene.' These concerns might be

Municipal Drinking Water 247

seen as echoes of an early city of Toronto bylaw (1834) which stated that it was unlawful 'for any person to throw or deposit, or cause to be thrown or deposited, any Dung, Manure or filth of any description whatsoever, in front of the City upon the road, beach, or in the water in the harbour under a penalty of five shillings for each offense' (Bordessa and Cameron, 1980:124). Despite the provincial requirements, and the municipal bylaw, no further action was taken for decades to address the threat to drinking water posed by municipal sewage other than simple primary treatment beginning in 1910. The quality of Toronto's drinking water deteriorated over time, with sewage as a particular concern (ibid.). In 1929 a second filtration plant was built at Victoria Park, the R.C. Harris. But it was not until 1951 that the first central sewage treatment plant opened, almost forty years after medical health officer Charles J. Hastings and the provincial Board of Health had expressed concerns about dumping sewage in the source water. The Municipality of Metropolitan Toronto was formed in 1953, and by 1954 it had assumed responsibility for the water supply, with the water, sewage, and recreational departments integrated. As the city's Department of Works explained, 'one of the main reasons for forming the Corporation of Metropolitan Toronto was to solve the environmental problems of the municipalities in the Metro region by a unified approach' (Metro Toronto Department of Works, 1977). The Ontario Ministry of Health was responsible for overseeing Toronto's water system until the Ontario Water Resources Commission (OWRC) was created in the 1950s. The Ontario government's interest in this policy area also led to the development of the Ontario Drinking Water Objectives by 1964 (Walkerton Commission of Inquiry, 2002). In 1972 the Ministry of the Environment assumed responsibility for drinking water. From its inception in the mid-1950s through to the 1970s, the OWRC had made funds available to improve water systems. Significant public expenditures occurred between the 1950s and 1980s, including two more filtration plants, the R.L. Clark in 1968 and the F.J. Horgan in the 1970s. In addition to municipal and provincial funding, the federal government provided funds for water infrastructure via cost-sharing programs. However, in 1984, the federal funding for direct assistance for municipal infrastructure was terminated (Infrastructure Canada, 2004). At around the same time, provinces began downloading costs onto municipalities. In 1986 the provincial Ministry of the Environment initiated the

248 Carey Hill and Kathryn Harrison

voluntary Drinking Water Surveillance Program, to which Toronto signed on. The purpose of the program, which still exists, includes tracking of trends and collection of data to facilitate development of new standards. It is not a compliance monitoring program but involves municipal government reporting, with the intention that information be made publicly available on the ministry's website. (By 1999, only 24.7 per cent of municipalities had signed on.) In 1994 the province revised the Ontario Drinking Water Objectives, and by 1997 it had embarked on a process of transferring ownership of small municipal water systems back to small municipalities. While this had no direct effect on Toronto's water system, it was indicative of a larger trend of downsizing that occurred within the Ministry of the Environment. The Red Tape Commission aimed to eliminate waste and costs. One of the primary ministries the commission focused on was the Ministry of the Environment, which was the subject of 36 out of the commission's 131 recommended changes, the greatest of any ministry (Walkerton Commission of Inquiry, 2002). In 2000 the town of Walkerton announced that its water system had been contaminated with E-coli, resulting in the hospitalizations of thousands and the deaths of at least seven people. Soon after the Walkerton tragedy, the Ministry of the Environment issued the Drinking Water Regulation (2000), which included procedures for notification of the local medical health officer and the ministry by telephone if E-coli is found. The government also initiated a large-scale inquiry led by Justice Dennis O'Connor. Following the Walkerton inquiry, both the Conservative government and the opposition Liberal Party agreed to implement all the commissioner's recommendations. New legislation included the Safe Drinking Water Act and the Ontario Drinking Water Quality Standards4 and the Drinking Water Systems Regulation pursuant to the act. The major differences between the new legislation and the legislation that existed prior to Walkerton are the existence of binding standards, enhanced operator certification, requirements for laboratory certification, source water protection, and public notification if drinking water is unsafe. The government also passed the Sustainable Water and Sewage System Act in 2002 requiring municipalities to report on the costs of their water system and their plans for cost-recovery. This was a response to the issue of water rates raised during the inquiry. The province of Ontario, through the Ministry of Public Infrastructure Renewal, has also announced the convening of an expert panel on water infrastructure which is expected to report in 2005.

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Prior to retrenchment, the Ministry of Environment used a cooperative approach to ensuring local compliance with provincial standards. If there were problems with the water system, abatement officers aided the municipality and discussed options for meeting the objectives. However, the Walkerton tragedy had a profound impact on the ministry, including psychologically. Staff became all too keenly aware that people really could die from drinking contaminated water. Recently, the ministry has hired about one hundred inspectors with a range of backgrounds, from water systems to law enforcement. Each municipal system must have at least an annual inspection. There is a significant amount of paperwork to fill out prior to a visit by one of the inspectors. This increases the costs of municipalities in delivering the service. Toronto had consistently met the Canadian Drinking Water Guidelines and Ontario Objectives ever since it participated voluntarily in the Drinking Water Surveillance Program. However, with the stringency of the new regulations, it had to seek relief since otherwise it would not have been able to comply with some chlorine residual requirements and with issues related to laboratory accreditation. It appears that this situation has strained the relationship between the ministry and the city. It is noteworthy that, in recent years, the city of Toronto complied with provincial standards even when the ministry was largely absent. The goals of both the ministry and the city are to provide high quality drinking water to the public. In the past, this has been done using a cooperative approach while the current atmosphere is somewhat conflictual.5 While it is laudable that the ministry is now enforcing the new regulations, there is a need for more supporting documentation explaining the reason for the existence of specific regulations and for regular review of the regulations (Rudnickas, 2004:12). One positive move has been the May 2004 decision of the Ministry of the Environment to convene an advisory group including representatives from large water systems, small water systems, public health, and universities as well as the ministry to review recommendations and make comments. Comparison of Cases Ultimately, protecting water quality is the objective of water systems. However, comparison of water quality in Vancouver and Toronto is complicated by the different quality of the water sources, changes over time, and data availability. As a proxy for water quality, we compare the degree of effort made by each city, in particular the timing of

250 Carey Hill and Kathryn Harrison

installation of the basic elements of any modern treatment system. Given the size of these cities, it is reasonable to expect that modern treatment systems would be in place. We also compare the local efforts at source protection, since these comprise the first aspect of a 'source to tap approach/ Both cities demonstrated that they were cognizant of their responsibility and committed to public health. Cities bought the water systems from private companies with no assistance from other governments. Initial improvements and extensions were all paid for at the local level. With respect to source protection, Vancouver acted early and aggressively to protect its drinking water from contamination at the source. Of the two cities, Vancouver's source clearly is the best protected, and has been since the early twentieth century. However, it has also been the easiest to protect. In the case of Toronto, the source was more challenging to protect, used as it is for both upstream and downstream shipping, recreation, and dumping of sewage and industrial effluents. The Toronto case demonstrates that cities have incentives not only to protect their water sources but also to shirk investments to do just that. Although the city initiated primary sewage treatment in response to the local Board of Commissioners' concerns, it did not institute additional sewage treatment until 1951.6 A second and important aspect of the multibarrier approach is water treatment. Both disinfection and filtration are important. Toronto illustrates local incentives to avoid blame by protecting public health. Confronted with high typhoid rates and information from American cities about the positive public health impacts of chlorination and filtration early in the last century, Toronto had little choice but to act. This effort appears to have been largely locally initiated. The case of Vancouver illustrates the importance of risk perception. We note a thirty-year gap between chlorination in Toronto and chlorination in Vancouver, and it will have been almost a century before Vancouver catches up with respect to filtration. Ironically, Vancouver's aggressive protection of its water source has resulted in misplaced public confidence about the safety of the city's 'pristine water.' Given citizens' confidence in the water supply, the prospect of political blame for taxation to support expensive improvements to the treatment system loomed that much larger. Not only did Vancouver resist chlorinating its water in the first half of the previous century, but more recently it has repeatedly delayed expenditures for rechlorination and filtration. The above discussion indicates the importance of public awareness in

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prompting local responses, especially during typhoid outbreaks or the significant environmental pollution in Lake Ontario recognized in the late 1960s. More recently, the loss of public confidence after Walkerton has allowed Toronto to convince its citizens to raise taxes to pay for improvements to its water system. Vancouver's ten-year-long period of public consultation and debate about water quality also heightened public awareness and improvements to the system are in progress. Provincial Regulation

As indicated in table 10.1, the role of the provinces as regulators of the municipalities has varied both across provinces and over time. PRE-WALKERTON

Of the two provinces studied, British Columbia has shown the least inclination to regulate its municipalities' provision of drinking water. The provincial government actually rebuffed early efforts by the municipality to protect the water sources, and, since ceding control of the watershed to the GVRD, the province has played only a minor role with respect to Vancouver's drinking water. The province urged the city to treat its water on more than one occasion - during the Second World War with respect to chlorination, and more recently with respect to filtration - but, in the absence of any penalties for non-compliance, pressure from the province has been remarkably ineffectual. British Columbia has few provincial standards with respect to drinking water and much is left to the discretion of the medical health officer. In 1992, with the Safe Drinking Water Regulation under the Health Act, the province included penalties for non-compliance with drinking water standards. However, to our knowledge, no penalties have been applied to the city of Vancouver despite its ongoing failure to comply with provincial standards. Vancouver's source protection is unique, perhaps in the world, but its tap water nonetheless fails to meet federal guidelines and provincial standards during certain periods even though the provincial standards, in particular, are not very demanding. Provincial regulation had significant impacts in Ontario in the early years, apparently reflecting the strong personality of the medical health officer. For several decades thereafter, however, the province appears to have had little impact on Toronto's drinking water. The provincial government expressed concern about the city's dumping untreated sewage in the drinking water source in the early 1900s, as did the local

Table 10.1. Provincial regulation of municipalities pre- and post-Walkerton Toronto

Vancouver Pre-Walkerton

Post-Walkerton

Pre-Walkerton

Post-Walkerton

Number of contaminants monitored

3 but MHOa can request others

3 but MHO can request others

104

161

Treatment required

Disinfection

Disinfection

None

Surface water must be chlorinated and filtered

Stringency of provincial standards

Non-binding

Binding

Non-binding

Binding; MOEb staff can issue Provincial Officer Orders directing what must be done, and follow-up to ensure compliance

Operator certification

None

Required

40 hours of training required

Officially accredited by Ministry of Environment

Drinking water inspectors

MHO may enter premises under Health Act

MHO may enter premises

Yes, but limited

Yes - at least annually; comprehensive compliance inspections

Penalties

Fines of up to $2,000 or imprisonment up to 6 months

Fines of not more than $200,000 or imprisonment of not longer than 6 months

No penalties

Fines of between $5,000 and $4 million or up to 5 years in prison or both (Ontario Water Resources Act)

Form of provincial standards

Safe Drinking Water Regulation 1992

Safe Drinking Water Regulation (2001 repealed 2003) Drinking Water Protection Act (2001, amended 2003) Drinking Water Protection Regulation (2003)

Ontario Drinking Water Objectives

Safe Drinking Water Act 2002 Drinking Water Systems Regulation Ontario Drinking Water Quality Standards Ontario Water Resources Act

a

Medical health officer Ministry of the Environment

b

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board of health, and Toronto responded by building a primary sewage treatment plant. Yet additional treatment did not begin until 1951. Further, while Toronto did instal chlorination and filtration early on, that action appears to have been prompted more by public concern about typhoid than by pressure from the province. This is not to say that the province of Ontario did not establish standards. Pre-Walkerton, Ontario established drinking water objectives, but these were without penalties for non-compliance or requirements that municipalities employ particular treatment technologies, even disinfection, if systems did not meet the objectives. The Ministry of the Environment had considerable discretion in issuing certificates for water systems. As anticipated, we thus see that, during periods of 'normal politics/ both provinces have pursued a largely symbolic approach to regulating municipal provision of drinking water. Pre-Walkerton, British Columbia sought to claim credit with its Safe Drinking Water Regulation, but only a full three years after Vancouver had initiated its Drinking Water Improvement Plan. Ontario issued objectives but avoided significant costs by not enforcing them. In addition to threats, provinces can convince the cities to do their bidding by providing inducements. However, water infrastructure, as Infrastructure Canada reports, is more costly than other utilities.7 As anticipated, the provinces have contributed to help fund municipal water infrastructure from time to time, but these amounts are not significant compared to the costs borne by the municipalities. During this recent period of loss of public confidence, Toronto moved quickly to raise its water rates to pay and plan for long-term water infrastructure improvements. Vancouver had already introduced a significant rate increase to pay for the Seymour filtration plant. POST-WALKERTON

The period following the Walkerton tragedy may be termed one of public Toss of confidence/ As anticipated, both provinces enhanced their regulations, with direct impact on each of the cities. Ontario was acting in response to electoral blame, while British Columbia sought to decrease the potential for similar blame closer to home. Both provinces adopted a variety of new requirements, including operator certification, more extensive testing, and higher fines for non-compliance. Following Walkerton, Ontario's Safe Drinking Water Act 2000 was issued as an immediate response to the Walkerton tragedy. It is telling

254 Carey Hill and Kathryn Harrison

that the statute was officially titled 'An Act to Restore Public Confidence in the Quality of Drinking Water in Ontario/ It was later rescinded and replaced with the Safe Drinking Water Act 2002. After Walkerton, Ontario moved from using a primarily voluntary compliance approach to a non-voluntary one complete with at least annual inspections. The effects on the city of Toronto of the new legislation were significant. It faced non-compliance for the first time in many years because of the new standards. In sharp contrast to Ontario, in proclaiming the Drinking Water Protection Act, British Columbia's minister of health services (2003), Colin Hansen, emphasized that the government had taken a 'common-sense approach' since it 'wanted to ensure new laws are outcome-based rather than overly prescriptive.' The GVRD board determined that it needed to filter the Capilano source in response to the NDP government's amendments in 2001 to the Safe Drinking Water Regulation (GVRD, 2002: 4). While the Liberal government elected in 2001 withdrew the regulation, the GVRD's combined filtration-plant project is still proceeding as planned, and the Coquitlam water is scheduled to be filtered by 2025. Federal Influence

While the provinces have played varied roles with respect to regulating municipalities, the federal government has participated in a largely supportive capacity. It has facilitated intergovernmental consensus on national guidelines and provided research and advice about contaminants. It also prepares informational reports and supports drinking water research. Most recently, the federal government has facilitated intergovernmental collaboration through the Canadian Council of Ministers of the Environment (CCME) in partnership with the Federal Provincial Territorial Committee on Drinking Water. Though the federal government has provided regulatory support, interventions have been rare. However, the fact that it was the federal government that finally forced Vancouver to chlorinate its water demonstrates that this level of government is capable of regulating effectively. Conclusions Local governments have strong incentives to protect their drinking water. Not surprisingly, the two cities discussed in this chapter have often taken the initiative and risen to the occasion. Yet even these large

Municipal Drinking Water 255

cities have on other occasions dragged their heels to avoid necessary expenditures to protect public health. Municipalities'disincentives to levy taxes when the public is inattentive to the risks suggest a need for provincial or federal regulation. We find, however, that such multilevel regulation has been the exception to the rule. What is perhaps most striking is the limited role of the federal government. The federal government has foregone an opportunity to claim credit for establishing binding national standards, even in the wake of widespread calls for binding national standards postWalkerton. In contrast, provincial governments have grasped opportunities to claim credit by imposing drinking water standards on local governments, but, in the absence of meaningful monitoring and enforcement, such standards have been largely symbolic. Provincial governments have been more aggressive with respect to their regulatory function during periods of significant public concern about drinking water quality. Yet there is a certain irony in the fact that the periods when the provinces are most activist - periods of heightened public concern - tend to be when provincial action is least needed because local governments have little choice but to respond to public demand themselves. The question, especially in the wake of post-Walkerton assertions of regulatory authority, is whether provincial regulatory oversight will still be there when public attention (and willingness to pay) have subsided. NOTES 1 In addition to the specific roles described at three levels of government, each province has a variety of pieces of legislation that also affect drinking water quality. For example, in British Columbia, these include the Forest and Range Practices Act (2003), the Environmental Management Act (2003), the Water Protection Act (1996), and the Water Act (1996). Our focus, however, is on legislation that has a direct impact on drinking water, as well as its implementation. 2 A similar situation occurred at this time in Victoria, Nanaimo, and Prince Rupert, British Columbia, where the federal government also forced chlorination. 3 The view among foresters that selective logging and/or 'controlled burns' are needed to mimic natural fire disturbance and prevent more catastrophic fires has emerged recently. 4 The non-binding Ontario Drinking Water Objectives became the binding

256 Carey Hill and Kathryn Harrison Ontario Drinking Water Standards from August 2000 through June 2003, at which time they were renamed in their current form as the Ontario Drinking Water Quality Standards. 5 Bertels and Vrendenburg (2004: 43) note a similar finding in their work. They state that the Ontario government's 'move towards compliance and authority-based regulator-operator relationships' was viewed as a 'step in the wrong direction' by Toronto officials. 6 It is noteworthy that Vancouver also does not have secondary treatment for all of its sewage, but that is not an issue for the city's drinking water. 7 Infrastructure Canada (2004) estimates water infrastructure to be at a cost of 5:1 versus revenues whereas electricity and telephones are 3:1 and gas is 2.5:1.

REFERENCES Aramini J., et al. (2000). Drinking Water Quality and Health Care Utilization for Gastrointestinal Illness in Greater Vancouver. Health Canada, Population and Public Health Branch, October. Bertels, S., and H. Vredenburg (2004). 'Broadening the Notion of Governance from the Organisation to the Domain: A Study of Municipal Water Systems in Canada.' Journal of Corporate Citizenship 15 (autumn): 33^47. Board of Control (1908). Report of the Vice-Chairman Board of Control, the Medical Health Officer and Deputy City Engineer Re: Sewage Disposal and Water Filtration. 18 May. City of Toronto Archives. Bordessa, R., and J.M. Cameron (1980). 'Sanitation, Water and Health: Two Centuries of Public Health Progress in Toronto.' In Frank A. Barrett, ed., Canadian Studies in Medical Geography, no. 8,121-46. Toronto: Department of Geography, Atkinson College, York University. British Columbia Medical Association (BCMA) (1990). BCMA Policy Resolutions Relating to Water Quality and Marine Environments. Environmental Health Committee. British Columbia Ministry of Health Services (2003). 'British Columbia's Action Plan for Safe Drinking Water.' Speech of Minister Colin Hansen delivered to the British Columbia Water and Wastewater Association Annual General Meeting, 28 April. British Columbia Office of the Auditor General (1999). 1998/99 Report 5: Protecting Drinking Water Sources. Victoria. British Columbia Provincial Health Officer (2001). Annual Report of the Provincial Health Officer 2000. Drinking Water Quality in BC: The Public Health Perspective. Victoria.

Municipal Drinking Water 257 Etkin, Alan (1994). 'When Common Sense Fails: Public Debate over Watershed Management in British Columbia - A Case Study.' MA thesis, Simon Fraser University. Federal-Provincial-Territorial Committee on Drinking Water and CCME Water Quality Task Group (2002). From Source to Tap: The Multi-Barrier Approach to Safe Drinking Water. May. Federal-Provincial-Territorial Subcommittee on Drinking Water (2002). Summan/ of Guidelines for Canadian Drinking Water Quality. April. Greater Vancouver Water District (GVWD) (1991). Watershed Management Evaluation and Policy Review Final Summary Report. Prepared by Economic and Engineering Services. Greater Vancouver Water District (1994). Minutes of a meeting of the Greater Vancouver Water District Administration Board. 29 June. Harris, R.C. (1913). Report of the Commissioner of Works on Extension of the Toronto Waterworks System, City of Toronto Archives. Harrison, Kathryn (1996). Passing the Buck: Federalism and Environmental Policy. Vancouver: UBC Press. Health and Welfare Canada (1969). Canadian Drinking Water Standards and Objectives. Joint Committee on Drinking Water Standards of the Advisory Committee on Public Health Engineering and the Canadian Public Health Association, Canada. - (1979). Guidelines for Canadian Drinking Water Quality. Federal-Provincial Working Group on Drinking Water of the Federal-Provincial Advisory Committee on Environmental and Occupational Health, Canada. Hill, C. (forthcoming). 'Intergovernmental Regulation: A Study of Safe Drinking Water Policy Implementation in Canada and the United States.' PhD diss., University of British Columbia. Infrastructure Canada (2004). 'Water Infrastructure: Research for Policy and Program Development.' Research and Analysis. Ottawa: Infrastructure Canada. Jones, Elwood, and Douglas McCalla (1979). 'Toronto Waterworks, 1840-77: Continuity and Change in Nineteenth-Century Toronto Politics.' Canadian Historical Review 60, no. 3: 300-23. Koop, W. (1992), 'Wake Up Vancouver! An Historical Outline of the Policies and Administration, including some of the Debates, Circumstances, and Controversies of the Greater Vancouver Watersheds.' Unpublished manuscript, Vancouver. Lee, Jeff (1998). 'GVRD Postpones Water Projects.' Vancouver Sun, 31 January, A3. McDougall, Joseph E., et al. (1887). Toronto Water Works Investigation. Toronto: EF Clarke Printer.

258 Carey Hill and Kathryn Harrison Macpherson, Peter, and Chris Tollefson (2001). 'A Fluid Situation: Evolving Drinking Water Law and Policy in BC.' Advocate 59, no. 4. Metro Toronto Department of Works (1977). Report on the Organization and Function of the Engineering and Planning Division. City of Toronto Archives, RF2745. Morton, J.W. (1970). Capilano: The Story of a River. Toronto: McClelland and Stewart. Rudnickas, J. (2004). 'A Review of the Regulatory Process in Post-Walkerton Ontario - A Utility Perspective.' City of Toronto Department of Works and Emergency Services, paper presented at the lllth Canadian National Conference and 2nd Policy Forum on Drinking Water, Calgary, Alberta. Sierra Legal Defense Fund (2001). Waterproof: Canada's Drinking Water Report Card. Prepared by Randy Christensen and Ben Parlin. Simpson, Scott (2001). 'GVRD Told to Toughen Water Standards: Move to Cost an Extra $25 per Year on Water Bill.' Vancouver Sun, 16 May, Al. U.S. Environmental Protection Agency (USEPA) (1999). 25 Years of the Safe Drinking Water Act: Protecting Our Health from Source to Tap. Office of Water. - (2002). Providing Safe Drinking Water in America: 2000 National Public Water Systems Compliance Report. Washington, July. Vancouver Province (1905). 'Refuses Lease of Capilano Lands - Government Turns Down the Proposal.' 7 April. Vancouver Sun (1942a). 'Ottawa's Sham Fight against Sham Bacteria.' 6 October. - (1942b). Treatment Only for Duration.' 26 November. - (1942c). 'Chlorination Out of Court.' 30 November. Viessman, Warren, Jr., and Mark J. Hammer (1993). Water Supply and Pollution Control. 5th ed. New York: HarperCollins College. Walkerton Commission of Inquiry (2002). 'Chapter 13: Legislative, Regulatory and Policy Framework.' Toronto: Publications Ontario. Weaver, Kent (1986). The Politics of Blame Avoidance.' Journal of Public Policy 6, no. 4: 371-98.

11 Municipal Wastewater Effluent and Multilevel Regulatory Governance JEN SULKERS

Sewage is not something that most people spend a lot of time thinking about. Instead, we often rely on the 'out of sight - out of mind' principle. But Environment Canada (EC) estimates that we produce more than 14 million cubic meters of sewage every day, and that kind of volume makes municipal wastewater effluents (MWWE) one of the largest single sources of water pollution in this country (Environment Canada, 1999a; 2001). Consequently, the management of MWWE must be brought to the fore of public discourse because the consequences of failing to do so are increasingly understood to have extensive implications for our economic, environmental, and public health. Wastewater includes everything that is collected (both liquid and solid) from individual homes, industries, other public institutions, and/ or roadside run-off. Effluent is the wastewater that is released, with or without treatment, back into the environment. With the exception of the relatively few treatment plants on federal lands and First Nation communities, most wastewater is processed by municipally owned and operated plants. However, the management of these plants involves all three levels of government in Canada. The result thus far has been a patchwork of legislation, making this an interesting case study for the broad analysis of multilevel regulatory governance in Canada. The purpose of this chapter is to examine the core issues in, and the prospects for, a harmonized approach to the governance of municipal wastewater effluents among federal, provincial, and municipal governments. Key themes for analysis stem from the idea that the spatial realities of water, along with the legacy of uneven application of environmental regulation among provinces, demand concurrent and co-

260 Jen Sulkers

operative federalism. This, of course, is true for many environmental issues and thus this chapter must be located in the context of the larger literature analysing environmental federalism in Canada (Harrison, 1996,2002; Van Nijnatten, 2002; Fafard and Harrison, 2000). The potential for harmonization is still problematical but government partners are currently working together to develop a long-term Canada-wide strategy to create higher and more nationally consistent environmental standards with respect to MWWE. This chapter is organized into four sections beginning with a description of the scientific fundamentals of wastewater management. The second section outlines the broad regulatory authority of each level of government in the management of MWWE. The third section examines the move towards a more nationally consistent management regime and the role of toxic substances as a catalyst for further multilevel regulatory cooperation. The final section suggests several key points that would benefit from further discussion and analysis as government partners seek to develop a long-term Canada-wide management strategy for MWWE. Core Scientific and Physical Aspects of MWWE The state of municipal wastewater effluents is an important policy issue in Canada because it 'represents one of the largest sources of pollution, by volume, in Canadian waters' (Environment Canada, 2001: xi). The consequences of insufficient treatment are increasingly recognized as having the potential for significant and adverse impacts upon economic, environmental, and population health. In order to appreciate fully the complexities of managing MWWE within a context of multilevel regulatory governance, we first provide a brief outline of the science behind MWWE, beginning with the following definitions meant to establish an initial common vocabulary: Effluent may be defined as the wastewater (both treated and untreated) that is 'released to surface water from a wastewater collection system or wastewater treatment system' (Canada Gazette, 2003b: 1642). Wasteivater includes all contents in the sewer system prior to its release; it is 'a mixture of liquid wastes primarily composed of domestic sewage, that can also include other liquid wastes from industrial, commercial and institutional sources' (Canada Gazette,

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2004a: 3490). Wastewater, in turn, is generally subdivided into two categories: sanitary sewage and stormwater. Sanitary sewage includes 'everything that is flushed down the toilets or rinsed down the drains of households, commercial establishments, institutional facilities, and factories' (Environment Canada, 2001: 2). The portion of sanitary sewage coming out of individual homes tends to be relatively consistent across the country, usually containing a variety of substances including but not limited to cleaning products, pharmaceuticals, foodstuffs, and human wastes. The contents of industrial sewage, conversely, can vary greatly depending on industry type. While some industries provide on-site treatment for their sanitary sewage, this chapter will focus only on those that are linked into the municipal/public treatment system. Stormwater is also collected in the wastewater system; it is run-off that originates from rainfall not reabsorbed into the earth, either because the surface is impervious (i.e., concrete) or because a particularly large volume of rainwater has overwhelmed the earth's natural reabsorptive capacity. In addition to rainwater, this roadside run-off also contains a variety of additives collected en route to the sewer system including but not limited to lawn pesticides/ fertilizers, road salts, and car oil, as well as many of the substances commonly found in sanitary sewage (Environment Canada, 2001). Newer Canadian municipalities generally separate the collection of stormwater and sanitary sewage into two distinct systems. Stormwater (roadside run-off) is often not treated with the same thoroughness as is the sanitary sewage. Although this is considered an acceptable practice, it certainly is not ideal considering the aforementioned constituents that are picked up en route. Older municipalities, on the other hand, generally have a 'combined sewer' where both sanitary sewage and stormwater empty into one large system for treatment. This can mean that stormwater is processed with the same thoroughness as is the sanitary sewage. Yet it can also mean that both types of wastewater are released directly into the environment with no treatment at all if a particularly high volume of rainfall threatens to overload the capacity of the combined system (Environment Canada, 2001). This is referred to as a Combined Sewer Overflow (CSO) and, in Canada, is primarily of concern during spring and summer months. Aside from the problem of combined sewer overflows, most waste-

262 Jen Sulkers water does receive some form of treatment. The quality of the effluent ultimately discharged is largely dependent upon the level of treatment received. In Canada, treatment for MWWE is divided into three categories: primary, secondary, and tertiary. Primary Treatment: To prevent damage to pumps and clogging of pipes, raw wastewater passes through mechanically raked bar screens to remove large debris, such as rags, plastics, sticks, and cans. Smaller inorganic material, such as sand and gravel, is removed by a grit removal system. The lighter organic solids remain suspended in the water and flow into large tanks, called primary clarifiers. Here, the heavier organic solids settle by gravity. These settled solids, called primary sludge, are removed along with floating scum and grease and pumped to anaerobic digesters for further treatment. Secondary Treatment: The primary effluent is then transferred to the biological or secondary stage. Here, the wastewater is mixed with a controlled population of bacteria and an ample supply of oxygen. The microorganisms digest the fine suspended and soluble organic materials, thereby removing them from the wastewater. The effluent is then transferred to secondary clarifiers, where the biological solids or sludges are settled by gravity. As with the primary clarifier, these sludges are pumped to anaerobic digesters, and the clear secondary effluent may flow directly to the receiving environment or to a disinfection facility prior to release. Advanced Treatment (Tertiary Treatment): Advanced wastewater treatment is the term applied to additional treatment that is needed to remove suspended and dissolved substances remaining after conventional secondary treatment. This may be accomplished using a variety of physical, chemical, or biological treatment processes to remove the targeted pollutants. Advanced treatment may be used to remove such things as colour, metals, organic chemicals, and nutrients (phosphorus and nitrogen). (Environment Canada, 2001: 4) While treatment to the tertiary level is considered ideal, it does not guarantee that the final effluent is free from all pathogens. Therefore, regardless of treatment type, a disinfection process meant to destroy or deactivate 'pathogenic microorganisms by using physical and/or chemical agents' is required to safeguard public health (Environment Canada, 2002: 6).

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Chlorine is commonly used for this purpose because it is effective and cheap. It is so effective, however, that the residual (or leftover) chlorine continues to work as a disinfectant once released into the receiving waters where it is then considered to be a toxic substance. While dechlorination prior to final discharge is an option, not all municipalities have chosen to take this step because it roughly doubles the cost of the process and because of technical/operational issues (Environment Canada, 2002). Ultraviolet (UV) radiation is increasingly being considered as a more preferable alternative to chlorination because it 'is a physical rather than chemical-disinfecting agent, and therefore produces no toxic residuals' (Environment Canada, 2002:6). Consequently, no final processing or dechlorination is required. Unfortunately, this form of treatment involves more significant start-up capital, a cost that, in the end, is roughly equivalent to the combined total of the chlorination/dechlorination process (Environment Canada, 2002: 7). Toxic Substances and MWWE

It is worth noting that, even under ideal treatment conditions, municipal wastewater effluent contains more than just H2O. Recall that, under the Environment Canada definition, tertiary treatment may be used to remove 'targeted substances.' From this it can be inferred that not all substances are 'targeted' for removal. In fact, there are approximately two hundred chemicals that have been identified in Canadian municipal wastewater effluents (Environment Canada, 2001). It is equally important, however, to make the point that municipal treatment providers are not the source of these pollutants; rather they are 'simply a vector through which pollutants and contaminants pass from a source to the environment' and a vector in which 'there are limited technical abilities to remove the contaminants.'1 Wastewater constituents range in their level of toxicity and some are more obviously in need of regulation than others. While this regulatory function is primarily a responsibility of the provincial governments, there are a few substances (those deemed to be 'toxic') that have warranted involvement by the federal government to ensure a nationally consistent management strategy. To be considered toxic, the substance must first be identified as part of a Priority Substance List (PSL); the creation of this list is the joint responsibility of the minister of the environment and the minister of health. The Priority Substance Assess-

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ment Program is designed to identify those contaminants that present a substantial risk to human or environmental health. The first such list (PSL1) was published in 1989 and it identified a total of forty-four substances that required further consideration.2 In 1995 twenty-five additional substances were identified as potentially toxic and published as part of the second Priority Substances List (PSL2). Upon extensive review of the PSL assessment research, the federal minister of the environment and the federal minister of health jointly determine which substances will be added to Schedule 1 of the Canadian Environmental Protection Act (CEPA) and are, thereby, formally labelled as 'toxic/ Of the toxic substances identified to date, this discussion focuses on three in particular: chlorinated wastewater effluents (formally labelled as toxic on 29 March 2000); ammonia dissolved in water (formally labelled as toxic on 1 January 2003); and inorganic chloramines (formally labelled as toxic on 1 January 2003) These are not the only toxic substances entering the environment via wastewater treatment plants. Also listed on Schedule 1 of CEPA are the following: nonylphenol and its ethoxylates; effluents from textile mills that use wet processing; mercury; lead; hexavalent chromium compounds; inorganic cadmium compounds; and inorganic arsenic compounds But, while this latter set of substances is of environmental concern, current strategies to manage their risk are focused on reducing and eliminating these toxics at the- source. As an example, nonylphenol and its ethoxylates (NPEs) are synthetically produced and, in addition to their use for industrial purposes, can be found in a number of domestic cleaning and personal care products. Because the law does not require such products to advertise their ingredients, consumers may unknowingly release them into the environment through MWWE. Accordingly, the federal government has determined that the most effective manage-

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ment strategy for toxics such as NPEs is to address them at their source by working alongside industry and other producers to seek out more acceptable alternatives. Beyond those substances formally labelled as toxic under CEPA, there are, literally, hundreds of other pollutants that exist as constituents of municipal wastewater effluent. The scope of this chapter, however, limits its discussion to those substances that are managed under a regime of multilevel regulatory governance. Again, the only reason for federal involvement in the management of MWWE (a provincial responsibility, involving local government) occurs when a substance is formally labelled as 'toxic' under CEPA. Therefore, this chapter focuses exclusively on chlorinated wastewater effluents, inorganic chloramines, and ammonia dissolved in water. Adverse Impacts Associated with Untreated or Insufficiently Treated MWWE

The release of untreated or insufficiently treated effluents into the receiving environment creates a number of potentially adverse impacts. This can entail risks to human health if, for example, there is contamination of drinking water sources. Economically, it can mean restrictions on fish/shellfish harvesting or beach closures and other restrictions on recreational water use. Environmental impacts may be acute (immediately toxic) or chronic and will vary depending on the type of pollutant and the nature of the receiving waters.3 Management of the chlorines (both chlorinated wastewater and inorganic chloramines) is more straightforward than that of ammonia. Whereas ammonia is a naturally occurring part of the environment, chlorines are synthetically produced and added as disinfectants. Residual chlorines released into the environment continue to work as disinfectants and have been shown to be toxic to a variety of aquatic organisms. Consequently, the management of chlorines is more truly a case of pollution prevention because it is possible to seek out and use alternative disinfectant measures to safeguard public health. Ammonia, however, is a naturally occurring part of the nitrogen cycle. Ever present in wastewater, it is created by the decomposition of the organic nitrogen found in human wastes (Environment Canada, 2003b). In a balanced ecosystem, ammonia is innocuous; released in sufficient quantity, however, it becomes toxic. Along with phosphorus, this nitrogen in ammonia contributes to nutrient loading and is 'respon-

266 Jen Sulkers sible for stimulating plant and algal growth in the aquatic environment' (Canada Gazette, 2004a: 3492), a process known as eutrophication. These nutrients stimulate the rapid blooming of toxic algae which grows like a thick green slime on the surface of lakes, ponds, and slowmoving streams. The densely packed algae blocks sunlight at the surface, restricting growth conditions for many of the bottom-dwelling plants that provide food and shelter for other species. The death and decomposition of these plants and algae is an oxygen-intensive process that reduces the levels of available dissolved oxygen and further restricts growth conditions. These changes contribute to a disruption in the balance of the ecosystem which can have 'toxic effects on aquatic organisms, harm spawning grounds, alter habitat, lead to a decline in certain species, and impair the aesthetic enjoyment of water' (Canada Gazette, 2004a: 3492). While eutrophication is not always associated with MWWE (its occurrence very much depends on the nature of the receiving waters), municipal wastewater 'is the largest point source of nitrogen and phosphorus released to the Canadian environment' (Canada Gazette, 2004a: 3492). Of the three MWWE toxics discussed in this chapter, it is clear that the management of ammonia will require more complex solutions than either of the chlorines. Municipal wastewater effluents represent one of the largest sources of pollution entering Canadian waters (Environment Canada, 2001) and the consequences of insufficient treatment are increasingly recognized as having the potential for significant and adverse impacts upon economic, environmental, and human health. The latter portion of this chapter outlines the process by which multiple levels of government in Canada have attempted to come together and begin the complex process of developing a nationally consistent management strategy for Municipal Wastewater Effluents. The Regulatory Regime for MWWE: Levels and Institutions Responsibility for the regulatory management of MWWE involves all three levels of government in Canada.4 It is important to emphasize, however, that the management of wastewater is not new. Provinces have long regulated this sector, and in many cases they have done so successfully. What is new in the MWWE realm is an interjurisdictional dialogue designed to establish a more nationally consistent environmental management strategy. So, although the current state of affairs is

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a patchwork of regulations, government partners are beginning to work together to move the sector towards a Canada-wide strategy for the long-term management of waste water effluents. There are many who would argue that assigning the management of MWWE to the provinces is inappropriate for modern times given the interjurisdictional nature of water, and that such a responsibility should rightly reside with the federal government. However, this chapter does not address such issues of constitutional reform per se because they are, for all intents and purposes, a moot point. Nevertheless, the realities of managing this sector have brought about the involvement of all levels of government, creating in practice what is a form of concurrent and cooperative federalism. Municipal Authority With the exception of the relatively few treatment plants on federal lands and First Nation communities, most wastewater is processed by municipally owned and operated plants that function under the direction of a provincial authority. The primary regulatory tool available at this level is 'sewer-use bylaws' which aim to prevent or limit the deposition of certain substances into the system. The design of these bylaws is based largely upon the nature of both local industry and the receiving waters. They are in an important sense spatially and locally driven. Accordingly, municipalities are both the regulators and the regulated. There are approximately 3,000 municipalities in Canada, but, because some of these municipalities own and operate more than one wastewater treatment plant, Environment Canada estimates that the total number of plants is actually between 4,000 and 5,000. This also means that, overwhelmingly, the core scientific and engineeringtechnical expertise that underpins the multilevel regulatory regime is located at the local level. Although sewer-use bylaws are the primary regulatory tool with which municipalities manage MWWE, they are extremely difficult to monitor and enforce, particularly at the individual household level. As a result, municipalities tend to employ sewer-use bylaws in concert with other governing instruments such as public exhortation. For example, education campaigns and 'take it back' programs for commonly used items such as motor oil or paints can significantly reduce the volume of pollutants that enter the system, providing an effective supplement to the regulatory regime. In this respect, it is worthwhile to recog-

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nize that, while multilevel regulation is the entry point for the analysis presented here, regulation alone can not define the parameters of the total management regime at any level of government. Provincial Authority By and large, the regulation of municipal wastewater has been assigned, constitutionally, to the provinces. Within each provincial government, however, this sector is governed by multiple pieces of legislation from a variety of different departments. So, when we speak of 'multilevel regulatory governance/ this refers, at one level, to the relationship among the three levels of government. Beyond this, however, it can also include the many sublayers that exist within each of these government levels. The result is a complex regulatory regime that can leave municipal owner/operators accountable to many different 'regulators/ Table 11.1 outlines the many pieces of provincial legislation pertaining to municipal wastewater effluents. Regional variations in factors such as industry, population, climate, funding, and the nature of receiving waters have contributed to interprovincial differences in wastewater regulation as standards have evolved to meet the unique needs of each community. This\has resulted in a substantial variation in the thoroughness with which wastewater is processed across the country and a legacy of uneven regulation. It does not mean, however, that provinces are acting in isolation; regular dialogue among the thirteen governments (provinces, territories, and the federal government) takes place under the auspices of the Canadian Council for the Ministers of the Environment (CCME). The CCME The CCME is designed as a consensus-based, decision-making, and priority-setting group that is comprised of environment ministers from the federal, provincial, and territorial governments. While the CCME does not have the statutory authority to legislate its recommendations, the consensus-based process used for decision making encourages broad support. Consequently, nationally agreed upon environmental goals and targets are voluntarily applied within each jurisdiction. The forum also holds substantial political clout because it is comprised of environment ministers form each jurisdiction. As such, the CCME is well situ-

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Table 11.1. Provincial legislation pertaining to municipal wastewater effluents Province/Territory

Legislation

Alberta

Environmental Protection and Enhancement Act Water Act

British Columbia

Waste Management Act Health Act Local Government Act

Manitoba

Public Health Act Environment Act Manitoba Surface Water Quality Objectives

New Brunswick

Clean Environment Act Clean Water Act

Newfoundland and Labrador

Water Resources Act

Northwest Territories

Northern Inland Waters Act, 1970 Northwest Territories Waters Act Public Health Act Environmental Protection Act Pesticide Act Transportation of Dangerous Goods

Nova Scotia

Environment Act

Ontario

Ontario Water Resources Act Canada-Ontario Agreement respecting Great Lakes Water Quality Environmental Protection Act Planning Act Sustainable Water and Sewage Systems Act Environmental Assessment Act Nutrient Management Act

Prince Edward Island

Environmental Protection Act 1988 Atlantic Canada Standards and Guidelines Manual for the Collection, Treatment, and Disposal of Sanitary Sewage/ Water Standards for Atlantic Canada

Quebec

Environment Quality Act

Saskatchewan

Environmental Management and Protection Act 2002

Yukon

Yukon Waters Act Public Health Act Environmental Contaminants Act

Source: CCME Discussion Document: Development of a Canada-wide Strategy for the MWWE, 2004.

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ated within the context of a multilevel regulatory governance regime to address environmental issues, like MWWE, that are inherently interjurisdictional. Via the Canada-wide Accord on Environmental Harmonization,5 the CCME has made progress in its ongoing efforts to promote the harmonization of environmental legislation, policies, programs, and assessments within and between governments (CCME, 1998). But, as in the present case study, and in other environmental controversies, progress takes time and involves serious debate at several political, regulatory, and scientific levels (Harrison, 2002; Van Nijnatten, 2002). Federal Authority

The federal government is responsible for ensuring the integrity of two primary pieces of legislation: the Fisheries Act and the Canadian Environmental Protection Act (CEPA1999). Authority for section 36(3) of the Fisheries Act, which has been delegated to the federal minister of the environment, broadly prohibits the discharge of 'any water that contains a substance in such quantity or concentration, or that has been so treated, processed or changed, by heat or other means, from a natural state' that it becomes 'deleterious to fish or fish habitat.' Clearly, this wording is widely applicable, covering just about any substance entering Canadian waters in sufficient quantity. Consequently, the Act offers substantial leeway for interpretation and sets wide legislative parameters within which to design policy, thereby increasing the tools available for governance. But it is also a statute whose use by the federal government has historically and continuously garnered considerable opposition from the provinces (Doern and Conway, 1994). Working in concert with the Fisheries Act is CEPA 1999, administered by the federal ministers of the environment and health. The Act recognizes that 'the risk of toxic substances in the environment is a matter of national concern and that toxic substances, once introduced into the environment, cannot always be contained within geographic boundaries' (CEPA, 1999: 2). In administering the Act, Environment Canada and Health Canada adopt a pollution-prevention approach to managing risks to the environment and human health posed by toxic substances; all substances deemed to be 'toxic' are listed under Schedule 1 of CEPA 1999. In assessing risks and designing risk management measures, the two departments regularly work with provincial and territorial partners to ensure a harmonized and cooperative regulatory regime.

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Key Stakeholder Groups

In addition to the three governments mentioned thus far, there are also many stakeholders in the sector. While non-government stakeholder groups do not have formal legislative authority over the management of wastewater, they do have influence in the process as lobbyists in a democratic system. Two of the more active stakeholder groups are described in further detail below but many others are potentially involved at the three levels of government. The Canadian Water and Wastewater Association (CWWA) represents the interests of municipal wastewater service providers. The CWWA has actively opposed federal regulatory intervention in the local management of water and wastewater, arguing that any such action amounts to a transgression of constitutionally awarded authority. Furthermore, this group has expressed concern that such interventions may 'set a legislative precedent for the direct management of toxic substances in municipal effluents' (CWWA, 2004). The Sierra Legal Defence Fund identifies itself as a 'national nonprofit organization dedicated to enforcing and strengthening the laws that safeguard our environment, wildlife and public health.' In September 2004 the group published its third national 'report card' to evaluate the quality of wastewater treatment processing in municipalities across the country. Unlike the CWWA, however, this group supports more regulation (not less), noting that 'history has shown us that guidelines without enforceable targets and timelines, do not change behaviour or compel compliance' (SLDF, 2004: 11). It also tends to favour federal regulation or at least measures that result in national standards. The Policy-Regulatory Story This policy-regulatory story really begins with three key points. First, the nature of water is inherently mobile, creating a pervasive interdependency among users sharing a single watershed. Second, as we have seen, there is, in Canada, a legacy of uneven environmental protection as a result of the uneven application of regulation for MWWE across the country. Third, scientific research has clearly shown that there are toxic substances, which have deleterious effects on human and environmental health, entering Canadian waters via municipal wastewater treatment plants. Increasingly, these realities have led to recognition that there is need

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for a nationally consistent and cooperative management of the risks posed by MWWE in order to safeguard the public interest. However, this recognition alone does not necessitate a regime of multilevel regulatory governance. The federal role in the management of this otherwise provincial responsibility began with the scientific research conducted under the Priority Substance Assessment Program and the subsequent determination that chlorinated wastewater effluents, ammonia dissolved in water, and inorganic chloramines would be formally labelled as 'toxic' under CEPA. These substances are the primary impetus for harmonization within the larger CEPA provisions. The addition of these toxics to Schedule 1 is an important point in the policy-regulatory story for two reasons. First, it meant that management of these three substances became both a national priority and a federal responsibility. Second, it acted as a catalyst for both further intergovernmental regulatory cooperation and disputes under the political auspices of the CCME, which has been charged with the task of developing a long-term Canada-wide management strategy by the year 2006. These two points will be further elaborated upon below. MWWE: A National Priority, Federal Responsibility, and Legislated Timelines

One of the unique features of the amendments made to CEPA in 1999 was the addition of legislated timelines. These timelines dictate that, once a substance is added to Schedule 1 under CEPA (and is thereby labelled as toxic), the responsible minister has just two years to propose an instrument for its management and an additional eighteen months to finalize it. This was an important amendment because, even when all partners and stakeholders are working together, the large number of parties involved (including business and environmental non-governmental organizations) can stall the forward momentum of the process. During the two years allocated for the proposal of an instrument, Environment Canada worked in continuous consultation with all provinces, territories, and stakeholders. This consultation process occurred largely through the National Advisory Committee under CEPA (CEPA NAC) and the CCME. CEPA NAC includes representatives from every province and territory, at least one representative of the federal ministers of the environment and health, and six representatives of Aboriginal governments. The primary role of this committee is to provide advice to the ministers on risk assessment and risk management initiatives.

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During the design process, much thought and consideration was given to creating a tool that would both ensure the integrity of the Canadian Environmental Protection Act and avoid duplicating existing regulatory efforts at the provincial (and local) level. Consequently, the process of developing this policy-regulatory regime provides a tangible example for the broader analysis of multilevel regulatory governance in Canada. Following extensive consultations, the proposed CEPA 1999 instrument finally selected to address the three MWWE toxics listed on Schedule 1 was a 'pollution prevention planning tool'. The proposal for this instrument was first published in the Canada Gazette on 7 June 2003 and targeted between 150 and 200 of the largest wastewater treatment plants - a small but influential fraction of the estimated total, which, as we have seen, is between 4,000 and 5,000 in Canada. The proposal would have required local water treatment plants that meet the aforementioned specifications to complete a series of pollution-prevention planning forms. Yet it did not oblige plants to comply with a set of national treatment standards; it was not intended as a 'regulatory' tool per se. Instead, the proposed notice required that these plants initiate a process audit, an internal assessment of ability to manage CEPA toxics. In the sixty days following publication of the proposal, Environment Canada received a number of comments from wastewater service providers, industry associations, and other stakeholders;6 several of these expressed opposition to the use of pollution-prevention planning for the toxics, and particularly for ammonia. These respondents noted that ammonia (a by-product of human waste) cannot be eliminated from the system in the same way that the chlorines can and that this reality should be reflected in the final management instrument. Records of the comments received during this consultation period also indicate that there was concern about the potential for duplication of efforts between governments and about the precedent that would be set by federal involvement in this sector. In short, other governments wanted to defend their jurisdictional roles. The final notice was published in the Canada Gazette on 4 December 2004. In accordance with the proposal, this notice ordered pollutionprevention planning for chlorinated wastewater effluent and inorganic chloramines.7 But there were substantial revisions made to the proposal for the management of ammonia dissolved in water. The final instrument selected for this purpose is a CEPA 'guideline' which maintains

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the intent of the Pollution Prevention Planning instrument but is not mandatory; Environment Canada will, however, continue to encourage process audits for ammonia. This revision is not intended to suggest that regulation of ammonia is less important than regulation of the chlorines; rather, it is an acknowledgment that the management of ammonia is highly technically and complex and will require a more comprehensive and long-term strategy. By helping to make these differences among toxic substances known and understood and by bringing out concerns about how intrusive regulations might be, the CWWA, and indirectly the larger CCME process, did help build some useful consensus among government partners. A Catalyst for Further Intergovernmental Regulatory Cooperation The CCME has been given the goal of creating a long-term Canadawide strategy for the management of MWWE by December 2006. This is designed to be a consensus-based, decision-making process. Ultimately, the management strategy selected must be capable of addressing more than just the three toxics discussed thus far; it must also include a strategy for addressing MWWE substances that are not toxic (under the definition of CEPA) but that are known to be pollutants. The overarching goal is to develop higher and nationally consistent environmental standards which are to be formalized in a comprehensive long-term Canada-wide strategy. There are three cornerstones of the CCME consensus-based, decision-making process: 1. Harmonization of the Regulatory Framework. This includes but is not limited to: propose recommendations to harmonize the generation and exchange of information; examination of cost implications and funding mechanisms; and definition of a clear, forward-looking, and flexible regulatory model. 2. Coordinated Science and Research. This includes: recommendations of approaches to disseminate information; preparation of a review of the state of knowledge on science and technology; examination of economic/opportunity costs with respect to cleaner source water;

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assessment of the need for action regarding emerging issues; and recommendations of approaches to fill information gaps. 3. Environmental Risk Management Model. This includes: integration of a list of pollutants, achievable/desirable performance standards, and characteristics of the site specific receiving environment; and management of nitrogen and phosphorous. (Source: CCME, 2004) The CCME, however, lacks the legislative authority required for implementation and so any long-term strategy to come out of the CCME must, ultimately, be positioned under the jurisdiction of the provincial or federal governments. For the purposes of long-term national consistency, Environment Canada has declared an intention to pursue regulation that would be situated 'under the Fisheries Act as its principal implementation tool to achieve effluent standards for wastewater treatment systems equivalent in performance to conventional secondary treatment, with additional treatment where required' (Canada Gazette, 2004a: 3492). From a policy-regulatory perspective, it makes sense to situate the long-term Canada-wide strategy for the management of MWWE under the Fisheries Act, for, as we have seen, section 36(3) of this Act is so broadly worded (it prohibits the discharge of any substance that is 'deleterious to fish or fish habitat') that it provides substantial scope for regulatory action. Although the ultimate goal of the long-term strategy is to create some national consistency and harmonization of regulatory standards, this should not be construed as a 'federal takeover.' Yet, as the analysis above indicates, some stakeholders do and will see it in these terms. Despite these concerns, however, federal and provincial governments will undoubtedly have to continue to work together as partners in the design of this strategy, with the recognition that each is equally concerned about maximizing scarce resources, avoiding duplication, and protecting environmental integrity. Looking Ahead The prospective nature of the MWWE-CEPA-related aspects of this case presents a challenge for analysis because outcomes of the CCME process will remain unknown until December 2006 (and indeed likely well beyond that date). In non-MWWE areas, there have certainly been

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several federal-provincial cooperative efforts under the auspices of CCME to develop long-term Canada-wide strategies for achieving higher and nationally consistent environmental standards. These have been important but they have also been difficult and have achieved mixed results (Harrison, 1996, 2002). Accordingly, there are several policyregulatory points that will undoubtedly require further discussion as government partners negotiate the long-term Canada-wide strategy on MWWE. Setting Measurable Goals

One of the principal tenets of good policy is that it should be based upon measurable goals. In this case, Environment Canada has indicated that the goal of the long-term Canada-wide strategy is to achieve higher and nationally consistent environmental standards. This presents a challenge, however, because there are two goals outlined in this statement: higher and nationally consistent environmental standards. Addressing the issue of consistency is the more straightforward of the two because it is relatively easy to design criteria with which to base an evaluation: Are the standards consistent or are they not? Achieving higher environmental standards, however, is a tricky proposition because it enters into the realm of normative decision making and questions how high these standards ought to be. This leads to the common policy question, how 'good' is 'good' enough? Of course, government partners have given, and will continue to give, careful consideration to this question. But achieving consensus will be difficult on some substances or on some approaches. Thus, 'higher' environmental standards could be set aside in an effort to reach consensus among the many regulators and other stakeholder players in the regulatory governance system. We have already seen that Environment Canada has rescinded its original proposal for an instrument with which to manage ammonia (a pollution prevention planning tool) and replace it with a more palatable guideline. This can be viewed, on one hand, as an act of good faith offered in recognition of the fact that the management of ammonia is significantly more complex than that of the chlorines. Furthermore, it stands as a signal that Environment Canada is hopeful that greater progress will ultimately be made under the auspices of the CCME as opposed to more traditional command-and-control regulation. On the

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other hand, it might also portend the concessions that will be required for regulators to reach a consensus on the long-term Canada-wide strategy within the given time-frame. Funding for Implementation

In this sector of regulation, as in others, there is a disconnect between the resources available and the tasks at hand. Regulatory governance is always broader than regulation per se (Doern, 2003). Upgrading wastewater infrastructure is a costly venture, and while there is a general consensus that tertiary treatment would be ideal, there are countless other projects that compete for limited public funding at all three levels of government involved. As a result, aging Canadian infrastructure presents what may be the most significant challenge for the broader governance of wastewater effluents in Canada. Municipalities own and operate the majority of wastewater treatment facilities. However, because they do not have the revenuegenerating opportunities that are available to provincial or federal governments, they remain largely dependent on external funding sources for the upgrade of existing facilities or the development of new ones. This has made the procurement of funds for such efforts increasingly difficult during the last decade or so in a climate of fiscal restraint and debt reduction. The tendency of government is to direct available resources to projects that effect more immediate and highly visible community change. In relative comparison to road repair or reduced classroom sizes, sewage upgrades are politically invisible. (See chapter 10's account in this book of these issues vis-a-vis the regulation of drinking water.) Thus, the arrangement of funding mechanisms that support a longterm Canada-wide strategy for the management of MWWE is crucial. In recognition of this broader governance issue, the CCME has indicated that implementation of the long-term Canada-wide strategy 'will be phased to suit appropriate financial planning' (CCME, 2004: 1). While specific funds have not yet been allocated for this purpose, the federal government has given every indication that it will be an upcoming priority by way of its commitment to provide municipalities with a portion of the federal gas tax to 'invest in new sustainable infrastructure projects in areas like transit, roads, clean water and sewers' (Canada, 2004). Alas, there will be many demands on this source of funding other than MWWE.

278 Jen Sulkers Reporting

A further key policy-regulatory issue will be the design of strong reporting mechanisms. Public reporting of effluent water quality, and/or of progress towards set targets should be a part of the regime. But how, in such a complex governance regime, can we guarantee accountability from multiple regulators? One option, which has been successfully employed in other sectors, is voluntary or agreed-upon reporting arrangements. This form of evaluation is known as 'report card federalism' and it offers a number of advantages, including increased transparency, democratic accountability, and opportunities for mentoring and training. It also puts pressure on governments. In many ways, the Sierra Legal Defence Fund already fills this reporting role with the publication of its MWWE report card. The grading assigned is based on, among other things, the level of treatment offered and the demonstrated improvement since the last publication. The most recent report (September 2004) concluded that, although overall improvements had been made, the pace of this change remains insufficient and that the 'ongoing discharge of raw and poorly treated sewage into Canada's waters was a national disgrace' (SLDF, 2004). The value of this form of reporting is that it allows municipalities to assess their performance on a comparative scale; the 'name and shame' approach also provides significant incentive to improve. For example, Montreal received an 'F' on its report card for failing to move beyond primary treatment. Worse yet was Victoria - deemed so delinquent in its management of wastewater that no grade was awarded and the municipality was 'suspended.' The report notes that this is the 'only city in Canada that still discharges all of its sewage raw and has not taken steps to improve in a meaningful way' (SLDF, 2004: 6). Ultimately, however, the state should take responsibility for this form of information sharing in order to provide results in the most fair and systematic way. How governments gather and share such information will be an important point for discussion under the CCME, as will the need for a coordinated mechanism for communicating results with the public. Conclusions Given the spatial realities of water, the known deleterious effects of untreated or insufficiently treated wastewater effluents, and the legacy

Wastewater Effluent 279

of the uneven application of environmental regulation among provinces, it is clear that there is a need for nationally consistent and cooperative management of these risks. However, the real push for harmonization in MWWE in any specific way is a direct result of the declaration under the CEPA process that ammonia dissolved in water, chlorinated wastewater, and inorganic chloramines are 'toxic.' This process, with its attached timelines, has demanded involvement of the federal government in a heretofore area of provincial (and local) government jurisdiction. Although regulatory harmonization is still in its early stages and its future is unclear, government partners are working together more than before to develop a long-term Canada-wide strategy that aims to achieve higher and more nationally consistent environmental standards. Initiating change in such a complex system of multilevel regulatory governance, however, is a slow process because it is interjurisdictional in nature, because the implications for infrastructure are significant, and because it stretches across multiple levels of government authority. The chapter has shown that the CCME is well positioned to assist consensus making in the process of developing a long-term Canadawide strategy for the management of MWWE. But the chapter has also shown that there are areas regarding the science of specific toxic substances or differences in regulatory approach where governments will disagree or where progress will take time. Meanwhile, local governments carry the core operational load and possess the largest amount of expertise about local conditions and industries but have the least fiscal capacity to provide the funds that will be needed to make multilevel regulatory governance in the MWWE sector work in the long run. Ultimately, the success of the strategy for the management of MWWE will depend on intergovernmental cooperation. In negotiations leading up to the 2006 strategy under the CCME, specific attention must be given to the discussions around goal setting/measurements, funding implications, and reporting structures, since these three issues will be key determinants of the final strategy's effectiveness. NOTES 1 Excerpt from a letter (3 November 2004) written by Duncan Ellison, the executive director of the Canadian Water and Wastewater Association (CWWA), to Environment Canada deputy minister Sammy Watson.

280 Jen Sulkers

2 3

4

5 6 7

The full document is available on the CWWA website: www.cwwa.ca/ letterECNov04_e.asp. Detailed information on the National Pollutant Release Inventory (NPRI) is available at www.ec.gc.ca/substances/ese/eng/psap/psap.cfm. The extent to which receiving waters are affected by toxics is mitigated by a number of factors, including, but not limited to, variations in volume, flow, pH, alkalinity, and temperature. Although this chapter is focused more narrowly on the federal-provincial regulatory regime, with some reference to local government, it does recognize that an international approach is, and will continue to be, central to the multilevel regulatory governance of MWWE. Quebec is not a signatory to this agreement. Environment Canada continued to receive and consider feedback well beyond the mandated sixty-day period for public consultations and, in fact, right up until the point that the instrument was finalized. Applies to systems where effluent to surface water is 'greater than or equal to 5000 m3 per day, based on an annual average, and where the concentration of total residual chlorine in the effluent released to surface water exceeds 0.02 mg/L in any sample during either 2004 or 2005' (Canada Gazette, 2004b: 3498).

REFERENCES Canada (1909). International Boundary Waters Treaty Act, R.S. 1909, c. 1-20. (1985). The Fisheries Act, R.S. 1985, c. F-14. (1999). Canadian Environmental Protection Act, R.S. 1999. (2004). Speech from the Throne. 5 October. Canada Gazette (2000). Order Adding Toxic Substances to Schedule 1 to the Canadian Environmental Protection Act, 1999. Formal order adding chlorinated wastewater effluents to this list. Vol. 134, no. 7 (29 March). Ottawa. (2001). Order Adding Toxic Substances to Schedule 1 to the Canadian Environmental Protection Act, 1999. Formal order adding Nonylphenol and its ethoxylates, Textile Mill Effluents, and Inorganic Chloramines. Part 1. Vol. 135, no. 25 (23 June). Ottawa. (2003a). Order Adding Toxic Substances to Schedule 1 to the Canadian Environmental Protection Act, 1999. Formal order adding ammonia dissolved in water and inorganic chloramines. Part II. Vol. 137, no. 1 (1 January). Ottawa. (2003b). Notice Requiring the Preparation and Implementation of Pollution

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281

Prevention Plans in Respect of Ammonia Dissolved in Water, Inorganic Chloramines, and Chlorinated Wastewater Effluents. Vol. 137, no. 23 (7 June). Ottawa. (2004a). Guideline for the release of ammonia dissolved in water found in wastewater effluents. Part l.Vol. 138, no. 49 (4 December). Ottawa. (2004b). Notice requiring the preparation and implementation of pollution prevention plans for inorganic chloramines and chlorinated wastewater effluents. Vol. 138, no. 49 (4 December). Ottawa. Canadian Council of Ministers of the Environment (CCME) (1998). A Canadawide Accord on Environmental Harmonization. Ottawa: CCME. (2004). Development of a Canada-wide Strategy for the Management of Municipal Wastewater Effluent Discussion Document. Ottawa: CCME, 5 May. Conference Board of Canada (2003). Performance and Potential, 2003-2004. Key Findings: Defining the Canadian Advantage. Ottawa. CWWA (2004). 'Municipal Wastewater Effluents (MWWE) Initiatives and CWWA's strategy.' Available at www.acepu.ca/junep2proposal_e.asp Doern, Bruce G. (2003). 'Improving Regulatory Relationships in Multi-Level Governance: Principles and Mechanisms.' Paper presented to the OECD Expert Meeting on Regulatory Cooperation between Levels of Governments. Paris, 30 June—I July. Doern, G. Bruce, and Thomas Conway (1994). The Greening of Canada: Federal Institutions and Decisions. Toronto: University of Toronto Press. Environment Canada. (1999a). Municipal Water Use Database (MUD). Ottawa. (1999b). Report on the State of Canada's Environment: Nutrients in the Canadian Environment. Prepared by the Indicators and Reporting Office of Environment Canada. (2001). The State of Municipal Wastewater Effluents in Canada.' State of the Environment Report. Available at www.ec.gc.ca/soer-ree (2002). Municipal Wastewater Treatment Plants (MWWTPs) Preliminary Upgrade Costs: Final Report. Prepared by A.W. Ndegwa & M. Beland of the Wastewater Technology Centre (WTC). (2003). Proposed Risk Management Strategy Addressing Ammonia Dissolved in Water, Inorganic Chloramines and Chlorinated Wastewater Effluents under CEPA 1999: Pollution Prevention Planning as a First Step toward a Long-term Strategy for Managing Wastewater Effluents. May. (2003b). NH3 Treatment Processes for the Removal of Ammonia from Municipal Wastewater. Ottawa. Fafard, Patrick C, and Kathryn Harrison, eds. (2000). Managing the Environmental Union. Kingston: Institute of Intergovernmental Relations, Queen's University; Regina: Saskatchewan Institute of Public Policy.

282 Jen Sulkers Harrison, Kathryn (1996). Passing the Buck: Federalism and Canadian Environmental Policy. Vancouver: UBC Press. - (2002) 'Federal-Provincial Relations and the Environment: Unilateralism, Collaboration, and Rationalization.' In Debora L. VanNijnatten and Robert Boardman, eds., Canadian Environmental Policy: Context and Cases, 2nd ed., 123-44. Toronto: Oxford University Press. Hrudey, S.E., et al. (2002). 'Walkerton: Lessons Llearned in Comparison with Waterborne Outbreaks in the Developed World.' Journal of Environmental Engineering and Science I, no. 6: 397-407. Organization for Economic Cooperation and Development (OECD) (2004). OECD Key Environmental Indicators 2004. Paris: OECD Environment Directorate. Sierra Legal Defence Fund (SLDF) (2004). The National Sewage Report Card: Grading the Sewage Treatment of 22 Canadian Cities. Prepared for the Labour Environmental Alliance Society, T. Buck Suzuki Environmental Foundation, and Georgia Strait Alliance. Available at www.sierralegal.org/ Van Nijnatten, Debora (2002). The Bumpy Journey Ahead: Provincial Environmental Policies and National Environmental Standards.' In Debora L. Van Nijnatten and Robert Boardman, eds., Canadian Environmental Policy: Context and Cases, 2nd ed., 145-70. Toronto: Oxford University Press.

12 The Alberta Oilpatch: Multilevel Regulation Transformed KEITH BROWNSEY

On 10 September 2004 the new federal Liberal government's minister of the environment, Stephane Dion, gave his first official address to the Calgary Chamber of Commerce. The session was sponsored by Canadian Chamber of Commerce, the Canadian Association of Petroleum Producers (CAPP), the Pembina Institute for Appropriate Development, and Pollution Probe. Along with the minister of natural resources, John Efford, and the government leader in the Senate, Dan Hays, a number of executives from Alberta's upstream and midstream petroleum industry were there to assess the new minister. After more than a decade of confrontation with previous Liberal environment ministers, the audience was more than a little curious about Dion's thinking on issues ranging from the Kyoto Protocol to the formation of stakeholder groups (Dion, 2004: 2). The minister's speech was generally well received. While Dion restated the federal government's commitment to the reduction of greenhouse gases (GHGs) mandated by the Kyoto Protocol, he announced the formation of stakeholder groups to determine and assess federal environmental initiatives as they affect the oil and gas industry. Sectoral organizations, such as CAPP, had sought the creation of such groups as a way to alleviate concerns within communities about oilfield activity. The federal government, on the other hand, believed that this consultation process would enable them to promote its policies of sustainable development and reduction of GHGs, while environmental and community organizations now thought that they would have an influence on future oil and gas developments. Nothing the minister said, however, addressed the problem of the contradiction between the provincial policy of promoting exploration and production of both conventional and non-conventional reserves and the federal initiatives of sustainable

284 Keith Brownsey

development and GHG reduction. Nor did the minister speak to the increasing regulatory burden imposed on the Alberta oilpatch by municipal and international rules, processes, and obligations. There are three major regulatory issues that confront the Alberta oil and gas industry. The first is the re-entry of the federal government into the direct regulation of the oilpatch. The Kyoto Protocol commitments have re-established a role for Ottawa in the Alberta oil and gas sector. Dislike of federal interference, uncertainty about the environmental measures necessary to meet set targets, and fear of the overall economic impact of Kyoto have pitted the industry and province against the national government. While the National Energy Board (NEB) and the Alberta Energy and Utilities Board (EUB) have initiated a system of negotiated performance standards with the industry through the application process, the federal government, through Environment Canada, has returned to a pattern of prescriptive regulation which many mid-size and small companies may find hard to meet. Prescriptive economic regulation has also reappeared in the form of interprovincial securities-reporting requirements on oil and gas reserves that, as we shall see, the larger, multinational firms can meet more easily than the smaller ones. Another issue confronting the oilpatch is the question of consultation. The EUB has amended its application process through Guide 56, which is designed to make stakeholder consultation a prerequisite for any application to explore and produce. For large companies such as Nexen which have developed models for community involvement in places such as Yemen, the consultation requirements are minimal. But, for the smaller firms, the costs of this process can be prohibitive. As a result, there is the possibility that smaller firms will be forced out of the industry at the moment when the multinationals are losing interest in the conventional reserves of the western sedimentary basin. Existing multilevel regulatory practices in the upstream and midstream Alberta oil and gas sector emerged out of the constitutional, legal, and political environment in which the industry operates. Competing federal-provincial visions of the petroleum industry have been overlaid with a series of municipal and international rules, processes, and obligations. The result of this situation is a multilevel regulatory structure which is complex and at times confusing and contradictory. The Alberta Oil and Gas Industry The Alberta oilpatch is part of the geological formation known as the western sedimentary basin. The value of the oilpatch reached

The Alberta Oilpatch 285

$62.5 billion or 73 per cent of total Canadian oil production in 2003. Production of crude oil was 1,620,000 barrels per day (b/d) out of a total Canada production of 2,460 b/d - 65 per cent of national output. The province produced 4,800 billion cubic feet (bcf) or 76 per cent out of a total Canadian production of 6,300 bcf of natural gas (Canadian Association of Petroleum Producers, 2004). Alberta has the largest oil sands resource in the world. The EUB estimates there are 174 billion barrels of recoverable bitumen with existing technology and economic conditions. Oil production from bitumen increased by 100 per cent during the period 1993-2003 to reach 965,000 b/d or 59.5 per cent of the province's output at the beginning of 2004. In 2003 there were 1.6 billion barrels of conventional crude reserves in Alberta and approximately 194 million barrels were added to the province's recoverable reserves of conventional crude oil. However, production outstripped additions, leading to a 2.5 per cent decrease in the remaining established reserves of crude. Of the conventional oil reserves, 73 per cent is light medium and 27 per cent is heavy crude (Alberta Energy and Utilities Board, 2004: 50-1). With recovery outstripping new finds, the reserves of conventional crude declined by 5 per cent in 2003 while the price of oil at the wellhead averaged $41.27 Cdn. a barrel (Alberta Energy and Utilities Board, 2004: 52). In 2003, 87 billion cubic metres (m3) of marketable natural gas were added to the province's reserves. But, here too, production exceeded additions, which resulted in a decrease of 4 per cent to 1,122 billion m3 for 2003. Despite the decrease in reserves, the number of gas producing wells has increased to the 2003 total of 80,000 (Alberta Energy and Utilities Board, 2004: 52). Gas production in Alberta peaked in 2001. There was a 2 per cent decrease in total provincial output in 2003. As a result, it takes an increasing number of gas wells to offset production declines. The problem of decreasing production is the result of depletion of reserves in the mature gas region of southeast Alberta. Coalbed methane (CBM) production is included in EUB production totals for natural gas. With the largest oil sands (crude bitumen) resource in the world, Alberta oil production from raw bitumen - the tar sands and heavy oil exceeded conventional oil production for the first time in 2001. There are approximately 315 billion barrels of potential recoverable of conventional oil under anticipated technology and economic conditions. This compares very favourably with Saudi Arabian reserves, estimated to be at 261.1 billion barrels. The total in situ and mineable remaining established reserves are 174 billion barrels. These latter figures are not

286 Keith Brownsey

considered in totals of world reserves by the International Energy Agency, the United States Department of Energy, or by the BP Amoco annual survey of world supplies. The oil sands reserves were, however, recognized by the U.S. administration of President George W. Bush in its May 2001 National Energy Policy (National Energy Policy Development Group, 2001: 8-8). At the end of 2003, only 2 per cent of Alberta's established crude bitumen reserves had been produced. It is evident that the future of Alberta's oil and gas industry rests with the production of oil from bitumen reserves. Canada is the second-largest foreign supplier of oil to the United States and the largest supplier of natural gas. Since the release of the Bush administration's National Energy Policy, American attention has focused on Canadian reserves of oil and gas as a secure and accessible source of energy. Canada provided 12 per cent of U.S. natural gas supplies and approximately 11 per cent of its oil imports in 2003. As conventional supplies of oil decrease, the tar sands will become more important to energy supply in Canada and the United States. The Bush administration describes the continued development of this non-conventional source of oil resource as a 'pillar of sustained North American energy and economic security' (National Energy Policy Development Group, 2001: x-x, 8-8). The most contentious issue facing the Alberta oil and gas industry is the Kyoto Protocol to the United Nations Framework Convention on Climate Change. On 2 September 2002, at the Johannesburg Summit on a Sustainable Environment, Prime Minister Jean Chretien announced that Canada would both ratify and implement the Kyoto Protocol. In December 2002 the protocol was enacted by parliament. After years of benign neglect, the federal government was once again attempting to regulate the development of Alberta's oil and gas industry. This was a surprising change in policy. The previous year the federal government had loudly announced its approval of the Bush administration's National Energy Policy and its intention to secure inexpensive and abundant supplies of oil and gas for the United States. Although Prime Minister Chretien had committed his government to selling Alberta's oil and natural gas to the United States in ever increasing quantities, the September 2002 Kyoto announcement reflected a different set of priorities, The federal government was now committed to implementing a vague set of environmental regulations that the provincial Conservative government was convinced would mean the demise of the Alberta oil and gas industry in the competitive global marketplace. Federal

The Alberta Oilpatch 287

government efforts to reassert a national federal presence through environmental regulation were unwelcome. While some members of the Alberta oilpatch view the Kyoto Protocol as simply another in a long history of jurisdictional disputes between the provinces and the federal government over control of natural resources - specifically oil and natural gas - its impact is very different. As an international agreement to reduce GHGs, the Kyoto Protocol reflects a new - international or multilateral - level of regulation. Through the 1980s and 1990s, the Canadian oil and gas industry supported free trade with the United States and was a staunch defender of both the 1988 Canada-U.S. Free Trade Agreement (FTA) and the 1993 North American Free Trade Agreement (NAFTA). While the industry had fought against the nationalist and market-interventionist policies of the Trudeau-era National Energy Program, demanding to be left alone to sell its product at world prices to whomever it wanted, the industry had not foreseen the extension of global commitments beyond the opening and securing of markets. The idea that globalization could mean anything but the ability to explore, produce, and sell its product was unthinkable. And so the current debate over environmental regulation is not the traditional continentalist-nationalist tension but a potentially new paradigm setting the continentalist tendencies of George W. Bush's foreign policy against the expanding multilateralism of the federal Liberal government, first under Jean Chretien and then under Paul Martin. All that said, however, while the domestic conflict over the Ottawa's re-entry into oil and gas regulation through the Kyoto Protocol is international in scope, it is also situated in the context of a historical conflict between the producing provinces and the federal government over control of the key provincial resources. In other words, the battle over Kyoto may have international implications, but one of the areas affected most immediately is the Alberta oilpatch. Multilevel Regulation of a Non-Renewable Resource Oil and natural gas are non-renewable resources. Once they are removed from the earth they cannot be replaced. In order to prevent chaotic development and rapid depletion of a non-renewable resource, oil and gas exploration and production require state intervention through regulation. In the early days of the Alberta oilpatch, operators put down as many wells as they could and produced as much as they could. This drained not only the oil and gas under the operator's

288 Keith Brownsey

property but also that under neighbouring producers in the same field. There was little or no regard for maximizing rates of recovery; the object was simply to beat your competitor. This system of property rights was based on the common law principle of the rule of capture. While this notion may have been appropriate in settling disputes in medieval England over migratory birds and game, in Alberta it led to the rapid depletion of reserves. There are four levels of regulation in the Alberta oilpatch - municipal, provincial, national, and international. Each level has its particular characteristics and none is mutually exclusive of the other. But all four levels share the role of imposing duties or obligations on the Alberta oil and gas industry. Regulation is defined as state imposition of controls designed to restrict, direct, or change the behaviour of individuals, groups, or business. The rules are supported by agencies, boards, and commissions that impose penalties for non-compliance (Strick, 2002: 263-4). As Malcolm Sparrow writes, 'regulatory and enforcement agencies have awesome powers. They can impose economic penalties, place liens upon or seize property, limit business practices, suspend professional licenses, destroy livelihoods' (Sparrow, 2002: 2). The powers are used against citizens under the authority of a constitution, series of laws, orders-in-council, or delegation of jurisdiction. But the practice of regulation includes all types of rules, from formal legal sanctions to incentives based in the tax system. The social changes that engulfed industrial society in the last quarter of the twentieth century - from the collapse of state socialism to the resurgence of faith in a market economy - contributed to the resurrection of regulation. While the market-triumphalism of recent years has not been as overwhelming as its advocates may have wished, the failure of command-and-control bureaucracy was not, on the other hand, as dramatic as its supporters believed. The deregulation policies of the 1980s and 1990s have been followed by a general reregulation of economic activity. The reregulated state contains a variety of new methods which surpass previous efforts at controlling economic activity. It is characterized by horizontal management and decentred governance. It is also marked by its multilevel complexity. There are six features that define the new regulatory state: the regulation of markets rather than just enterprises; voluntary or self-regulation; devolution of regulatory responsibility; privatization of regulation; internationalization of regulation; and a movement towards alternative regulatory techniques such as the notion of compliance without enforcement.

The Alberta Oilpatch 289

Social regulation is concerned with issues of health, safety, working conditions, and the environment, while economic regulation focuses on the functioning of markets. Also, whereas social regulation tends to cover specific risks across all sectors - a form of horizontal regulation economic regulation is industry-specific or vertical. For example, new Ontario Securities Commission (OSC) requirements on reserve reporting are specific to the upstream petroleum and gas industry while implementation of the Kyoto Protocol will affect the automotive as much as the petroleum industry (Doern and Gattinger, 2003). Regulators such as the HUB and the NEB have moved away from purely prescriptive regulation to a type of performance evaluation in which companies and regulators negotiate the terms and conditions of their licences (Doern, 2005). The Alberta oil and gas industry has both led and followed this pattern of deregulation and reregulation. During the 1990s the province decreased its oversight of the oilpatch, withdrawing funding and moving to a system of negotiated standards and voluntary controls. While the province was attempting to withdraw from its regulatory function, however, the federal government began to reassert its presence in the industry by increasing its role in social and economic regulation through a variety of environmental protection measures. Historical Regulation Under sections 92 and 109 of the Constitution Act 1867, provincial governments are given control over natural resources. But between 1869 - when Canada acquired the Hudson's Bay Company western lands - and 1930, the federal government retained control over natural resources in the region. The Dominion Lands Act of 1872 provided the legal framework for federal control of natural resources in Manitoba and the North-West Territories (which, after 1905, became the provinces of Alberta and Saskatchewan) (Breen, 1993). Only after years of lobbying and protest over this semi-colonial status were the western provinces given control over their natural resources in 1930. Federal regulation of the Alberta oilpatch prior to 1930 was non-existent. The industry suffered from the rapid depletion of pools and the continuous flaring of unsaleable natural gas (Stenson, 1985: 39^40; and Richards and Pratt, 1979:46-7). The only rule for the dozens of small local producers was to recover as much oil as quickly as possible. After the transfer of jurisdiction over natural resources to the western

290 Keith Brownsey

provinces in 1930, the United Farmers of Alberta government established the Turner Valley Conservation Board in 1932. Because of fierce opposition from local producers, this board was disbanded within months. Then, in 1938, at the instigation of Imperial Oil (the Canadian subsidiary of Standard Oil of New Jersey) and other major producers, the Social Credit government of William Aberhart created the Oil and Gas Conservation Board. Modelled after conservation commissions in Oklahoma and Texas, and in keeping with the ideology of the early Social Credit government, the board was an attempt to end the competition between Imperial Oil and the small local producers. Each side recognized that some form of regulation was necessary if the life of the industry was to be expanded and recovery rates and profits were to be maximized (Breen, 1993: 55-8). Aberhart's successor, Ernest Manning, encouraged multinational companies to develop Alberta's petroleum reserves as quickly as possible. After the legendary Imperial Oil drill foreman Vernon, 'Dry Hole,' Hunter brought in Leduc No.l on 13 February 1947, a new era in the Alberta oil and gas industry began. Combined with the establishment of the Oil and Gas Conservation Board, the Leduc find created the conditions for the entry of multinational petroleum companies - mainly but not exclusively American corporations - into Alberta. For the next twenty years, the Social Credit government actively encouraged the development of Alberta's oil and gas reserves through the multinationals at the expense of smaller Canadian firms. The withdrawal of the multinational oil and gas companies from Alberta in the late 1960s coincided with a political change in Alberta. In August 1971 the Progressive Conservative led by Peter Lougheed defeated the thirty-six-year-old Social Credit government. One of the reasons for the Social Credit defeat was concern that Alberta was not receiving its fair share of oil and gas revenues. Lougheed understood that the interests of the multinationals did not necessarily coincide with those of the province, and his 1971 election campaign focused on the problem of what do when the oil and gas ran out (Foster, 1979: 38-41). A couple of years later came the oil embargo of the Organization of Petroleum Exporting Countries (OPEC), followed by a sharp rise in prices. To make matters worse, the federal government started intruding into the oil and gas sector at around the same time. Lougheed was committed to a policy of economic diversification through increased oil and gas revenues, and so any attempt to decrease these revenues or interfere in any way with Alberta's efforts to create a viable post-oil and

The Alberta Oilpatch 291

gas economy were strongly resented. Instead of working towards maximization of revenues and recovery, the two levels of government were in a continuous conflict over the direction and control of the oil and gas industry (Possum, 1997). A second oil shock occurred in 1979, when the Iranian revolutionaries simply stopped oil exports to the west. Oil prices increased dramatically, from just under $U.S.20 a barrel to $U.S.40. And there was the expectation that petroleum prices would go much higher. The response of the federal government to the shock was to increase state involvement in the provision of energy. As part of a National Energy Program (NEP), the federal government offered incentives for drilling in the Canada Lands of the far north, increased export taxes on oil and gas, and offered a variety of 'off-oil' measures in an effort to conserve domestic oil and gas reserves while decreasing dependence on foreign energy supplies. Although a number of domestic companies benefited from the federal initiatives, the NEP as an economic regulatory instrument was strongly opposed by the oilpatch, the Alberta government, and much of the provincial population. The election of a Progressive Conservative federal government under the leadership of Brian Mulroney in September 1984 altered federal oil and gas policy dramatically. The Mulroney government was sympathetic to the demands of the western oil and gas producing provinces and dismantled the NEP. The program's demise, however, came as world energy prices collapsed. In 1986 the price for a barrel of oil fell to $U.S.12 and natural gas fell to $U.S.l per thousand cubic feet, hi the Alberta oilpatch, thousands of workers were laid off. The federal government's response to the decline in oil and gas prices was one of benign neglect. During the negotiations to end the NEP, the Lougheed government had contemplated an arrangement whereby the federal government would guarantee a minimum price for both oil and gas. But this proposal was taken off the table by Alberta in favour of establishing a market price for oil and gas (Lougheed, 1987). The questions of Canadian ownership and maintaining security of supply were no longer a concern of federal energy policy. Instead, Ottawa relied on low prices and the unfettered market to supply Canadian demand for inexpensive oil and gas. With the signing of the FTA in 1988, restrictions were put in place on state intervention in the oil and gas sector. Simply put, under the terms of the FTA, Canada could no longer give preference to Canadians. U.S. markets and businesses were to be given proportional access to Canadian oil and gas supplies. In

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November 1993 the new federal Liberal government of Jean Chretien ratified NAFTA, which further restricted the ability of the federal and provincial governments to determine pricing and secure the supply of oil and gas for domestic markets. The Alberta oil and gas industry was now integrated into the North American market. The Multilevel Regulatory State Ascendant As noted above, there are four levels of government involved with the economic and social regulation of the Alberta oil and gas industry (see table 12.1). The provincial and national governments are the principal regulators, but municipal and international bodies are playing an ever increasing role. When one level of government withdraws from active participation or refuses to recognize a particular regulatory gap, another level of government quickly takes its place. This type of competitive regulation has meant that efforts to deregulate or to simplify the regulatory process or move towards user-friendly customer service face substantial obstacles. Unless the agencies involved with the Alberta oilpatch agree to remain within specific jurisdictional boundaries, coordination of economic and social regulation will remain difficult. The oil and gas industry would not long survive without economic regulation, since the physical properties of oil production are such that competitive ownership of a non-renewable 'resource such as petroleum leads to waste and early depletion' (Richards and Pratt, 1979:48). The depletion of the western sedimentary basin would occur within months of its complete deregulation. The amount of oil recovered from a field depends on the pressure of gas in the well, the number and placement of wells, and 'the rate of production from a pool. Because oil and gas are considered migratory resources, they flow to the surface when a well is drilled. This common property resource creates a competition to extract as much as possible, as quickly as possible. As rational actors, producers favour the present over the future in an effort to maximize profits which depletes reserves far sooner than if there had been a unitization' (Richards and Pratt, 1979: 48). As well, public outcry over the end of environmental controls would force any government to reinstate emission standards and land use rules. The first goal of regulators in the industry was the rationalization of production. The example of the Turner Valley Conservation Board in the 1920s and 1930s taught the Canadian industry that, unless there was a regulatory instrument to guide exploration and production, mas-

The Alberta Oilpatch 293 Table 12.1. Multilevel regulation of Alberta oil and gas

International

National

Provincial

Local

Agency

Jurisdiction

North American Free Trade Agreement Securities and Exchange Commission Kyoto Protocol

Canada, United States, Mexico

National Energy Board Canadian Environmental Assessment Agency

Canada

Energy and Utilities Board Natural Resources Conservation Board Ontario Securities Commission Alberta Securities Commission Workers' Compensation Board Surface Rights Board Land Compensation Board

Alberta

Regulatory and Corporate Initiatives and Consulting Municipal councils

United States International

Canada

Alberta Ontario Alberta Alberta Alberta Alberta Calgary Various

sive waste and quick depletion would occur - a situation that would benefit no one. The large companies came to the conclusion that, in order to maintain a rate of return on investment, costs would have to be lowered. In order to achieve this goal, oil companies such as Imperial Oil lobbied for 'unitization' of oil and gas fields. Unitization treats a field as a single unit. Owners of adjacent properties pool reserves into a single unit operated by one of the owners or a regulatory agency, with production divided among the various participants by agreement (Bott, 1999: 95). Both local and provincial governments in Alberta are involved in the social regulation of oil and gas, through a variety of municipal and regional ordinances, regulations, and laws. This type of social regulation is authorized under the province's Municipal Act. The Act recognizes municipalities, villages, towns, and cities and all have the ability to regulate land use. In addition, local government acts as an intervener in regulatory consultations and hearings. The EUB and the provincial government department of Alberta Environment, as well as the Munici-

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pal Board, can overturn decisions made by municipal councils. Local health authorities in the province have also taken an interest in oil and gas regulation from a public health perspective. On several occasions, the Calgary Health Region has participated in HUB hearings on applications to drill sour gas wells and build gas processing plants and oil refineries. This is an intervener role assigned to the regional health districts under the Health Authorities Act, which states that the local health authorities operate in the interest of the public good. Unlike other municipal jurisdictions in the province, the city of Calgary plays a direct role in energy regulation. Through its office of Regulatory and Corporate Initiatives and Consulting, Calgary monitors oil and gas exploration and production in and around the metropolitan region. Its role is as an intervener in HUB consultations and hearings, but it is prepared to use its authority over land use to protect the interests of citizens in questions concerning public safety (Rowe, 2004). Under the Constitution Act 1867, Canadian provinces have jurisdiction over natural resources. As a result, Alberta has the responsibility to regulate oil and gas within its boundaries. There are thirteen provincial ministries with legislation that directly involves the oil patch: Health and Wellness, Human Resources and Employment, Municipal Affairs, Sustainable Resource Development, Innovation and Science, Finance, Community Development, Economic Development, International and Intergovernmental Affairs, Environment, Agriculture, Food and Rural Development, and Energy. While departments such as Human Resources and Employment set occupational safety standards, such as how narrow seismic lines may be cut, and monitor workers at various points in the upstream and midstream industry, the two key agencies of the provincial state are Energy and Alberta Environment. Acting primarily as a social regulator, Alberta Environment is mandated to protect and manage water, land, air, and climate within the province. Under the Water for Life strategy, it monitors, assesses, and licenses water used for injection into oil and gas wells. While only 2 per cent of the province's surface water is used for this purpose, it is contaminated with salt, benzene, or other chemicals which make it unsuitable for any other purpose. Alberta Environment also licenses the use of groundwater. Although there is no adequate assessment of groundwater in the province, Alberta Environment has given permission to a number of oil and gas companies to use the resource for oilfield injection. This has caused concern among environmental groups and rural residents dependent on groundwater supplies. The department also

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administers the Upstream Oil and Gas Reclamation and Remediation Program, which addresses surface contamination issues at production sites and in the mining of oil sands. Alberta Environment is also responsible for implementing the recommendations of the Clean Air Strategic Alliance (CASA), established by the Canadian Association of Petroleum Producers, the provincial government, environmental groups, and other agencies. This organization encourages producers to reduce flaring and venting - processes that can potentially release toxic gases into the atmosphere - by adhering to certain emission standards. Although these standards were voluntary, CASA, with the backing of CAPP, was able to persuade much of the oilpatch of the benefits of reducing emissions. In 1998 CASA established new rules for solution gas emissions which have been adopted by the HUB (Sharpe, 2002:120-3). The central regulatory agency for the upstream and midstream oil and gas industry in Alberta is the Energy and Utilities Board. The EUB is a quasi-judicial agency that regulates energy resources and utilities within the province of Alberta. It reports to the legislature through the minister of energy. With its 800 employees, the EUB is mandated to ensure that the discovery, development and delivery of Alberta's oil and gas take place in a way 'that is fair, responsible, and in the public interest' (Alberta Energy and Utilities Board, 2003: 4-5). The board focuses on the economic regulation of the oil and gas industry - it equates conservation and social responsibility with the efficient and orderly development of petroleum resources. During the 1990s the board moved from formal hearings to a system of alternative dispute resolution (ADR). This was in response to the increase in drilling and production applications as well as the demand from landowners, environmentalists, and community groups for consultation in the placement and operation of gas and oil wells. In 2003 there were 43,000 applications submitted to the EUB. Of these, 21,075 were for new wells; 2,753 for production facilities; 11,989 for pipelines; 169 for gas production in situ oil sands; 3 for new and expansion of existing mining or plant projects in the oil sands; and 509 for sour-gas flare permits. Since the mid-1990s, the EUB has taken on a greater social regulation role. One of its goals has been to assist in the resolution of conflicts between energy companies and individuals, groups, communities, and other producers whose property, safety, or health may be adversely affected by oil and gas development. The EUB uses a number of different methods to resolve conflicts, including 'kitchen table discussion,

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field facilitation, third-party mediation, and the formal hearing process/ For 43,000 applications, there were only 19 hearings related to the oil and gas industry. HUB decisions have three possible outcomes: approval, approval with conditions, and denial (Alberta Energy and Utilities Board, 2003). In 2003 the EUB, in consultation with the oil and gas industry and other stakeholder groups, revised its application process. Guide 56 is a step-by-step, 281-page set of directions and forms for applications (Alberta Energy and Utilities Board, 2004). While the application process involves the coal and utility sectors as well as oil and gas, the emphasis in Guide 56 is on public consultation before, during, and after exploration, drilling, and production. Detailed instructions are presented on how to organize stakeholder groups - what are known as synergies within the industry - and how to hold public consultations. The emphasis on consultation is an effort to provide the public with a voice in the development of the provincial petroleum industry (McCrank, 2004). Guide 56 also has an emphasis on community development and environmental protection. In the mid-1990s the EUB took on an increasingly active role in environmental management. With every routine application - for a non-sour gas (H2S) well - there is a requirement 'to conserve, reclaim, and mitigate the effects' of oil and gas exploration and production. Each applicant is expected to ensure that measures are in place to protect the environment during drilling and production in order to mitigate the consequences of a spill and other activity (Alberta Energy and Utilities Board, 2003:171-5). Applicants must comply with all relevant requirements of provincial and federal legislation and regulation. This includes the Environmental Protection Act, the Water Act, the Public Lands Act, the Fisheries Act (Alberta), and the Navigable Waters Protection Act and attendant regulations. If it is a typical well, it must meet occupational health and safety standards for such things as the width of seismic lines, the local Forest Management Agreement, and all of the various municipal regulations. These same measures are in place for sour-gas wells except that an explanation must be submitted explaining the reasons why the proposed well is non-routine. There are a number of other regulations in Guide 56 requiring geological mapping, the deposit of core samples with the EUB, proposed rates of emission for flaring and venting, and other engineering considerations. Application for exploration, drilling, pipelines, and refining and other oil and gas activities are generally submitted electronically.

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This is a multistage process. The first step is to have an official consult the local landowner. The next step is to determine who the stakeholders are and contact them. An advisory group is then formed. At this point, the formal HUB application process begins. In more remote areas the process is somewhat different. It may include Aboriginal peoples located within or near the proposed drilling site who have established treaty rights or land claims. Only rarely is the territory in question unencumbered crown land. Developed by several oil ands gas firms in their overseas operations, this 'holistic approach' is now standard operating procedure in the oilpatch (Miller, 2004). Oil and gas companies also report production to both the HUB and the Department of Energy. The Executive Council sets royalty rates on the advice of the department. The department then mdnitors production and collects the royalties on behalf of the province. While not a difficult task, oil and gas companies are required to submit duplicate production and reserve estimates to two agencies of the provincial government. This is the only direct regulatory function of the Department of Energy. The Department does represent the industry at the cabinet table, but it has delegated responsibility for regulatory oversight to the Energy and Utilities Board. Smaller oil and gas companies find these regulatory requirements cumbersome, and many would like to have the licence application process revised. The larger producers, however, have adapted to the regulatory environment quite well, though they, too, would like to see changes. The Canadian Association of Petroleum Producers represents approximately 150 of the largest producers. It has argued for a less prescriptive regulatory regime, favouring instead a more performance-based system that would account for technological change within the oil and gas industry. As well, there is a desire among a majority of Alberta oil and gas producers to simplify the regulatory process by reassigning the environmental assessment function to the Energy and Utilities Board. While the EUB conducts environmental impact studies of applications, this would increase the social regulatory role of the traditional economic regulator. The one-window approach would help eliminate duplication and ease the regulatory burden for the industry without, it is believed, lessening the social regulation function. In 1947 the province created the Surface Rights Board (SRB). The SRB was established to mediate disputes between surface landowners and the exploration, production, pipeline, and mining companies which

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held the minerals rights or pipeline permits on the same pieces of land. Once a well licence is issued by the HUB, the SRB mediates ny dispute that may arise between the landowner and the owner of the mineral rights. Although less than 1 per cent of licences issued end in a dispute before the SRB, the surface owner's land title is circumscribed by the mineral owner's right to enter the land in order to work and remove the minerals. Simply put, a resource company has the right of access to explore and produce. Another agency, the Land Compensation Board (LCB), established in 1974, determines the amount of compensation due to a surface rights owner in any dispute with an oil and gas or mining company. The LCB was merged in 1990 with the SRB. Today, the two boards share the same chair, vice-chairs, secretary, and several board members. The duties of the SRB and the LCB are set out in the Surface Rights Act and the Expropriation Act. This dispute settlement mechanism was designed to produce a mutually satisfactory agreement for land use between the owner of the mineral rights and the occupant of the land. While only 1 per cent of the approximately 45,000 licences issued by the HUB come to the SRB for mediation, the process is not always successful. There have been several tragic incidents where neither the HUB nor the SRB has been able to find a mutually satisfactory resolution of disputes between resource companies and landowners. The federal government plays a significant role in the regulation of the Alberta oil and gas industry. Since the end of the National Energy Program in 1985, the federal regulatory presence in the oil and gas industry has shifted from an economic to a social role through environmental monitoring, health and safety enforcement, and security preparations. While a number of federal departments, including Foreign Affairs, International Trade, Fisheries and Oceans, Industry Canada, Intergovernmental Affairs, Human Resources and Skills Development, Western Economic Diversification, and Public Safety and Emergency Preparedness, are involved in some way with oil and gas regulation, two departments of the federal government play a significant regulatory role in the Alberta oil patch: Environment Canada and Natural Resources Canada (NRCan). Environment Canada is responsible for legislation that regulates the environmental impact of industry. This social regulatory function is found in the Species at Risk Act, the Canada Water Act, the Canadian Environmental Protection Act, and other federal legislation which has a direct effect on exploration and development of the Alberta oilpatch. The formal environmental assessment

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process is, however, somewhat limited. Environment Canada has delegated this role to the Canadian Environmental Assessment Agency (CEAA), which monitors the environmental impact of the oil and gas industry on federally controlled lands within the province, including Native treaty lands and reserves. As well, the agency is mandated to monitor the interprovincial and international impact of any oil and gas projects. Nevertheless, most environmental assessment falls under provincial jurisdiction (MacDonald, 2004). Natural Resources Canada plays a significant role in the Alberta oilpatch. It oversaw the economic deregulation of the industry in the 1980s. Later, under the Liberal government of Jean Chretien, NRCan was transformed from a traditional economic regulator to an organization supportive of free markets and oriented towards sustainable development and the federal innovation agenda. The department has responsibility for resource management on frontier lands, interprovincial and international energy relations, and policies of national interest such as energy security, economic development, and federal science and technology development. The department's main focus, however, is on interprovincial and international movements of energy. As a result, federal jurisdiction extends to interprovincial and international oil and gas trade and pipelines. Although federal authority also embraces taxation and spending, Ottawa's taxing function with regard to the oil and gas industry extends only to corporate and excise taxes as well as the Goods and Services Tax (GST). The source of federal energy regulation is the National Energy Board. Established in 1959 as part of the Canada Oil Policy and located in Calgary since 1991, the NEB is the federal regulator in the oil and gas industry. The NEB reports to parliament through the minister of natural resources. It is a court of record and has the authority of a superior court with regard to the hearing process and enforcement of orders. The board's regulatory authority derives from the National Energy Board Act. It grants permission for the construction and operation of interprovincial and international oil and gas pipelines, the setting of tolls and tariffs on pipelines, and the export and import of oil and natural gas. It also has authority to regulate oil and gas exploration and production on Canada Lands not otherwise governed by federal-provincial agreements (National Energy Board, 2002: 43). Under the Canadian Environmental Assessment Act, the NEB is responsible for conducting environmental assessments of the construction, operation, and abandonment of oil and gas projects within its

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jurisdiction. Also, under the social regulatory mandate of the National Energy Board Act and the Canada Oil and Gas Operations Act, the NEB evaluates the environmental impact of proposed projects and enforces terms and conditions of approvals. It is also responsible for enforcing the health and safety provisions of the Canada Labour Code. The NEB will provide regulatory advice to the minister on request. In recent years, the NEB has moved from a prescriptive-economic-regulator to a performance-social-regulatory model. It will negotiate performance requirements in particular situations rather than issue blanket requirements for all places and times. This performance regime has been greeted with approval by the oilpatch's most powerful industry group, the Canadian Association of Petroleum Producers. Since September 11, 2001, the board has also been concerned with facility security. While the NEB has not gone as far as placing military personnel at refineries and along pipelines - as suggested by Alberta Premier Ralph Klein - it has taken on a much more security conscious approach to oil and gas regulation (Vollman, 2004). The final piece of the multilevel regulation puzzle in which the Alberta oil and gas industry operates is at the interprovincial and international levels. It consists of environmental and competition policy - what has been described here as social regulation. Two provincial agencies have recently been added to the Alberta oilpatch regulatory regime. In 2003 the Ontario Securities Commission and the Alberta Securities Commission required that any oil and gas firm, either located in their jurisdiction or trading on a stock exchange located in their province, would have to report reserve holdings every ninety days. Formerly, the reporting period for reserves - a key indicator of the value of oil and gas companies - was every six months. The new quarterly reporting system was in response to several companies misrepresenting their reserves. (Blue Range, Merit, and Royal Dutch/Shell have all been accused of filing false reserve estimates with regulators. Stock analysts and the public were not given the true value of these corporations.) The new requirements have added a financial burden to Alberta's oil and gas sector. While the large multinationals have accounting departments and produce reserve-assessment updates on a monthly schedule, many of the junior and small exploration and production companies must add to staff or contract out the work to meet the new requirements. As well, the exploration season in the more remote northern areas of the province and the Northwest Territories is limited. As a result, many smaller firms do not add to their reserves on a quarterly basis. This has

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the effect of decreasing their stock value and limiting their ability to obtain development capital. NAFTA also has a direct impact on Alberta's oilpatch. Under its Chapter 6 provisions, there can be no discrimination against foreign corporations - except in the case of Mexico, which reserves to the state the right to explore and exploit its oil and natural gas reserves. As well, under the treaty, Canada acquired proportional access to the U.S. market. Finally, the annexes to the treaty provide for both labour and environmental assessments. Any of the three signatories may protest to the environmental and labour standards panels about practices they believe are in violation of national and international codes. The most important international agreement to impact the oilpatch is the Kyoto Protocol. On 11 December 1997 the government of Canada along with 159 other states signed the Kyoto Protocol to the United Nations Framework Convention on Climate Change. In so doing, Canada committed itself to reduce greenhouse gas emissions to 6 per cent below levels found in 1990 by 2008-12. The commitment was part of the federal government's sustainable development strategy, which sets the reduction of GHGs - primarily carbon dioxide emissions (CO2), methane, and nitrous oxide - as a key goal. These gases are generally agreed to be major contributors to global warming. Kyoto enters into force when fifty-five signatories to the convention accounting for 55 per cent of world GHGs emissions have agreed to ratification. Petroleumrelated emissions in Canada accounted for 52 per cent of energygenerated GHGs in 2000 and, since 1990, the petroleum industries' emissions have increased by 40 per cent, a rise that was largely the result of increased production of oil and gas for export. Alberta's energy industry contributed 223,000 kilo tonnes of GHG emissions in 2000. This was 30.7 per cent of the national total. It is understood that the Alberta oilpatch will be have to bear a large burden in the reduction of GHGs. Through the provincial government and several industry organizations, the Alberta oil and gas industry has expressed its dislike of this new international regulatory burden (Rodrigues, 2002). A final area of international regulation is the result of the terrorist attacks of 11 September 2001. In its National Energy Policy, as we have seen, the United States recognized Canada as a secure and important supply of petroleum energy. Pressure from the United States along with domestic security concerns have prompted the Alberta and federal governments as well as oil and gas companies to increase security along pipelines, at refineries, and at wellheads. The NEB, for example, has

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worked with the Department of Public Safety and Emergency Preparedness and its predecessors to ensure the integrity of the Canadian portion of the North American petroleum pipeline grid (National Energy Board, 2002: 43). These precautions have added to the costs of maintaining pipelines and other infrastructure in the upstream and midstream petroleum industry. Conclusions The nature of regulation in the Alberta oil and gas industry has changed dramatically since the 1980s, with the emphasis moving from straightforward economic regulation to a multilayered social regulation regime focused on issues of security, public and worker safety, and the environment. While the oilpatch welcomed the end of the National Energy Program in the mid-1980s, a different type of federal regulation has emerged through environmental and security policies. The industry must now respond to environmental, community, and public health issues which consume increasing amounts of time and capital. At the same time, however, the industry recognizes that individuals, communities, and various stakeholder groups must have their concerns heard. If the oil and gas companies do not have the support of the residents, they cannot operate. This situation is full of contradictions. The oil and gas sector is the golden goose that has provided the wealth that Alberta enjoys. But that prosperity has come at a price. And individuals, communities, and other organizations are demanding a role in petroleum development. Regulators at the local, provincial, and national levels have responded to a liberalized petroleum market by dismantling many of the controls and incentives that existed to protect the public and the industry from price fluctuations and that attempted to direct the flow of investment, exploration, and production within the industry. The EUB mandate has been reinterpreted to include the concepts of sustainable development and environmental protection. The board still has a broad-based engineering and geological role to play in the regulation of the provincial petroleum industry but the social regulation role has increased dramatically. At the national level, the federal government has reasserted a role in the oilpatch through environmental regulation, especially with the Kyoto Protocol. The industry recognizes the need for environment regulation - several of the large multinationals working in the Alberta oilpatch, such as BP and Royal Dutch/Shell, are Kyoto-compliant - but

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the presence of another regulator is resented. Moreover, this federal incursion is viewed by the Alberta government as an unwelcome entry into what it views as its exclusive jurisdiction over natural resources. Other national and international policies and treaties have added to the regulatory burden placed on the petroleum industry. The contradictory regulatory environment in Alberta is the result of differing federal-provincial policy objectives and the demands of citizens for greater engagement in the exploration and production end of the oil and gas industry. Many of the larger firms have little problem with increased social regulation because of their organizational capacity and the models they have developed for operating in different and diverse regions. But the smaller companies in Alberta find the costs prohibitive and the rules confusing. Moreover, the reappearance of economic regulation as a result of increased reserve-reporting requirements has meant even greater burdens on the small Canadian operators. In short, while the current multilevel regulatory regime in Alberta's oil and gas industry has changed significantly over the last several decades, the system has grown more complex and expensive. The future of the Alberta oil and gas industry depends on the ability of the various regulators to find a way to reconcile their contradictory goals. REFERENCES Alberta Energy and Utilities Board (2004). Energy Development Applications and Schedules. (Guide 56). Calgary: Alberta Energy and Utilities Board. - (2003). Momentum: 2003 Year in Review. Calgary: Alberta Energy and Utilities Board. Bott, Robert (1999). Our Petroleum Challenge: Exploring Canada's Oil and Gas Industry. Calgary: Petroleum Communication Foundation. Breen, David H. (1993). Alberta's Petroleum Industry and the Conservation Board. Edmonton: University of Alberta Press. Canadian Association of Petroleum Producers (2004). 'Production Figures.' 16 March. Dion, Stephane (2004). 'Environmental Action for Economic Competitiveness: Will Canada Lead the New Industrial Revolution?' Speech to the Calgary Chamber of Commerce, 10 Spetember. Doern, G. Bruce, ed. (2005). Canadian Energy Policy and the Struggle for Sustainable Development. Toronto: University of Toronto Press.

304 Keith Brownsey Doern, G. Bruce, and Monica Gattinger (2003). Power Switch: Energy Regulatory Governance in the Twenty-First Century. Toronto: University of Toronto Press. Possum, John Erik (1997). Oil, the State, and Federalism. Toronto: University of Toronto Press. Foster, Peter (1979). The Blue-Eyed Sheiks: The Canadian Oil Establishment. Don Mill, ON: Collins Publishers. Gray, Earle (2000). Forty Years in the Public Interest: A History of the National Energy Board. Vancouver: Douglas and Mclntyre. Lougheed, Peter (1987). Discussion forum, Queen's University, Kingston, ON. March. McCrank, Neil (2004). Chair, Alberta Energy and Utilities Board, interview with author. Calgary, 14 October. MacDonald, Keith (2004). Official with the Canadian Environmental Assessment Agency, interview with author. Edmonton, 30 September. Miller, Eric (2004). Vice-president, Nexen Corporation, interview with author, Calgary, 12 October. National Energy Board (2002). Annual 2001 Report to Parliament. Calgary: National Energy Board. National Energy Policy Development Group (2001). National Energy Policy. Washington: U.S. Government Printing Office. Richards, John, and Larry Pratt (1979). Prairie Capitalism: Power and Influence in the New West. Toronto: McClelland and Stewart. Rodrigues, Stephen (2002). Manager of Research, Canadian Association of Petroleum Producers, interview with athor. Calgary, 12 September. Rowe, Mark (2004). Supervisor, Regulatory and Corporate Initiatives and Consulting, City of Calgary, interview with author. Calgary, 4 October. Sharpe, Sidney (2002). A Patch of Green: Canada's Oilpatch Makes Peace with the Environment. Toronto: Key Porter. Sparrow, Malcolm (2000). The Regulatory Craft: Controlling Risks, Solving Problems, and Managing Compliance. Council for Excellence in Government. Washington: Brookings Institution. Stenson, Fred (1985). Waste to Wealth: A History of Gas Processing in Canada. Altona, MB: Canadian Gas Processors Association. Strick, John C. (2002). 'Regulation and Deregulation.' In Christopher Dunn, ed., The Handbook of Canadian Public Administration. Don Mills, ON: Oxford University Press. Vollman, Kenneth (2004). Chair, National Energy Board, interview with author. Calgary, 27 August.

13 Multilevel Regulatory Governance in the Health Sector JOAN MURPHY

This chapter examines the nature and challenges of multilevel regulation and regulatory governance within the health sector. The health sector refers here basically to the regulation of health products such as drugs, medical devices, and biologically based products and does not include broader domains such as the Medicare system. Its focal point is Health Canada's complex array of regulatory realms and its multilevel regulatory aspects. The chapter sets out a conceptualized understanding of multilevel regulation and regulatory governance as a response to emerging pressures that are broadening the scope and changing the dynamics of the health sector's regulatory environment. Interest in multilevel regulation and regulatory governance is in response to the most challenging problems faced by governments. These cut across national borders and political-institutional jurisdictions and mandates; no single country or single level of government within a country can address all the regulatory issues necessary to protect health, safety, the environment, security, and the functioning of markets. My analysis builds on the core definitions of regulation and regulatory governance set out in chapter 1 of this book. It also argues that, even though the context, concepts, and arrangements around 'rule making' and 'rule taking' have changed considerably in the last decade or so, market economies still need rules to function effectively. This is why regulations are important. Increasingly, though, governments, citizens, consumers, and business interests are concerned with regulatory reforms as Canada continues to adjust to new and evolving social and economic conditions. At issue is the fact that many of the existing regulations, their governing institutions, and the administrative arrangements for development, enforcement and compliance were built in different historical times and contexts.

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A trend in regulatory reform is the movement towards defining stakeholders more broadly and giving them a greater voice in how regulations (and policies) are developed, implemented, evaluated, and reformed. An inclusive approach ensures that regulations and policies have legitimacy (Heritier, 2003). It also militates against the 'rules' being either overly restrictive or fraught with unintended consequences. 'Having a voice/ in this sense, is not simply consultation. It is informed participation fed directly into the decision-making processes (Palast et al., 2003). A key challenge for the regulator is that developing effective and legitimate arrangements for coordination is difficult (Saint-Martin, 2004). Coordinating mechanisms for multilevel regulation, regulatory governance, and regulatory reforms that cut across interdependent domains and levels, each involving a multiplicity of public and private actors, are complex and uncertain undertakings. The chapter sets the context and background through a discussion of how multilevel regulation and regulatory governance have broadened the scope and changed the dynamics of health regulation. The first section previews key themes and features of the health product sector. The second section maps out the major issues around multilevel regulation, regulatory governance, and regulatory reform caused by globalized health risks, emerging sciences, and integrating markets. These factors interactively change the calculations of health costs and benefits in sometimes rapid and unexpected ways. The third section of the chapter examines sources and levels of multilevel regulation in the health sector through a brief case study of the controversy regarding COX-2 inhibitors. It involves contrasts between the pre-market drug approval process and the recent greater focus on post-market assessments and surveillance. The predicament around the use of COX-2 inhibitors demonstrates why multilevel regulation is increasingly seen as important and how it is illustrative of regulatory reform and complexity. The problems and values of coordination and coordination mechanisms for managing regulatory relations are also outlined. Conclusions then follow. It must be stressed that the discussion of the health sector is presented generically, rather than by focusing on one particular aspect of the health regulators' varied sectoral or product mandates. Where possible, points are illustrated with other specific examples. Themes and Key Features of Health Sector Regulation Regulations in the health sector, including those regarding health products, are primarily aimed at protecting health while minimizing and

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managing risks. The nature of risk in the health sector is various, dynamic, and often requires immediate responses. Many times, these responses come in the absence of complete or timely information. The health regulator also has a supporting role in meeting Canada's economic objectives, such as a competitive health products industry. As these social and economic objectives become more interdependent, the health regulator is left with complex choices and is under complex pressures. Citizens expect governments to intervene on their behalf on matters of health, safety, the environment, and now security. They do not expect to be exposed to health risks nor do they expect to be denied access to health-related products, processes, and devices that, time and again, are readily available to citizens of other countries. These are not typical products of consumer convenience. They are drugs, medical devices, and biologically based products (Auditor General, 2000a, 2000b, 2000c, 2000d, 2002, 2004). Manufacturers are interested in ensuring that consumers have quick access to these products, which are also of particular interest to persons who face life-threatening and seriously debilitating illnesses and to the professional advocates who work on their behalf. Ever more rapidly, the health regulator is expected to conduct both pre-market assessment and past-market surveillance of science-based, technology-laden, pharmaceuticals, bio-pharmaceuticals, biologies, and medical devices. For the regulator, this raises serious issues of institutional mandate and capacity. The nature of health risks in a globalizing and interdependent world of emerging sciences is changing as well. Risks can develop quickly, and come from a number of sources. The classic examples are the spread of emerging and re-emerging diseases. As Severe Acute Respiratory Syndrome (SARS) and West Nile Virus demonstrated recently, and before them HIV/AIDS, our capacity for rapid global travel, although in many ways beneficial, provides an effective vehicle for the swift transmission of diseases which have potentially devastating results (Canada, 2003). Risks may also come from consumer or commercial products that unintentionally cause harm or injury whether they are produced domestically or come from abroad. In some cases and under certain conditions, therapeutic products can be harmful to use even if they have important actual or potential benefits. New risks for the considerations of the health regulator relate to the shift away from traditional chemistry-based sources of health products (i.e., pharmaceutical drugs) towards biology-based products (i.e., living material). This changes the nature of risk assessment significantly because biological products have greater variability than those based on

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chemically derived processes. Some of the risks are known, such as the potential for the transmission of infectious diseases, transfusion reactions, and bacterial contamination. Exactly how and when these risks occur, however, is sometimes apparent only after the event. In all these scenarios, the timely ability to generate 'alerts' across levels of governments and across sectors is a prerequisite to managing potentially harmful consequences so that the benefits of products continue to outweigh the costs to citizens and consumers. These illustrations of health risks demonstrate that the otherwise normal activities and transactions of everyday life can have rapidly unfolding and unintended consequences. They also demonstrate that managing and mitigating health risks pushes the health regulator deeply into the operational contexts of producers, local pubic health programs, hospitals, and even down to the level of individual health services provider. These same issues can transgress national boundaries and, within states, cut across political and institutional jurisdictions and mandates. Effective risk management and mitigation strategies rely on multilevel regulation and governance for collaborative, systematic reporting as well as communication tools and protocols that penetrate jurisdictions, mandates, and sectors. Depending on the kinds of risks involved, industry can have an important role to play here too. Access to reliable information through collaborative systems and sound science is a key component of the health regulators' capability and capacity to protect health, minimize and manage risks, and assess benefits and costs. This holds true whether the issue relates to disease or injury or to therapeutic products and medical devices that are changing as quickly as are the science-based technologies they derive from. And it is particularly important to the health regulator since Canada expects to accelerate its adjustment to the knowledge-based economy and society (KBE/S) through significant investments in research and development (R&D) and science and technology (S&T). Many of these investments will lead to the commercialization of new products and processes that have the potential to benefit health. The innovation's 'time to market' will determine the economic winners and losers (Canada, 2002). Under these conditions, the credible use of science in health regulation cannot be over emphasized. As chapter 4 in this volume has already shown, Health Canada is a regulator that relies heavily on 'related science activities' (RSA), in effect, the scientific knowledge and expertise embodied in its own assessors and staff. The primary objective of the health regulator is the challenge of

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staying on top of a dynamic environment to promote health and to address risks before they become problems. Another is to maintain public confidence in the health regulatory system. This, too, contributes to the complicated choices and demands placed on the health regulator. As social, health, and economic objectives become more interdependent, the health regulator faces increasingly complex choices and is under multifaceted pressures. Citizens, as I have said, expect governments to protect and promote their well-being. But they also express concern when these same institutions are mandated to ensure the conditions for competitive success (Health Canada, 2003; Auditor General, 2000a; Doern and Reed, 2000; and OECD, 2002). Managing the dual nature of Health Canada's regulatory mandate is no trivial task (Health Canada, 2003). The stakes are high, with health, safety, and public confidence resting in the balance (Krever Inquiry, 1997; Doern and Reed, 2000; and Canadian Health Coalition, 2003). The central questions are the following: When social and economic interests conflict, how do citizens, consumers, and businesses know which interest should prevail? And, under which conditions does one set of interests prevail over another in an interdependent world of multilevel regulation and governance? The yardsticks of accountability can begin to be met only if the circumstances around decisions are transparent. An often-repeated recommendation is that the government needs to clarify policy with regard to health and safety regulatory programs. This could be done by identifying priorities among conflicting demands, by strengthening the credible use of science in the regulatory process, and by establishing a transparent code of values to which those responsible can be held accountable. Multilevel Regulation and Governance - Broadening the Scope and Complexity of Health Regulation Six factors and challenges broaden the scope and complexity of health regulation and define its extended multilevel regulatory reach. Each is highlighted below as a crucial element of the real world of regulatory governance, and each emerges on top of the issues examined in chapter 1 regarding regulatory growth, reregulation, deregulation, and the need for flexible rule making and compliance to meet the diverse situations faced by businesses and consumers/patients of health products.

310 Joan Murphy Emerging Concepts of Regulatory Quality

There is no one accepted definition of 'regulatory quality/ but many governments are demonstrating their understanding of this notion by focusing on two approaches to reform. The first concerns regulatory quality in a context of 'combining both good regulation where needed to protect health, safety, and the environment, and to enhance the functioning of markets, with deregulation where free markets work better' (OECD, 2002: 22). The second approach to regulatory quality involves systematic and process-driven methods to develop, implement, and evaluate regulation based on principles of good governance and management, the credible use of science in health regulation, and the use of more flexible instruments. An additional aspect of regulatory quality for social regulations is the articulation of values where social goals and economic objectives are interdependent or potentially in conflict and choices have to be made. Experts and stakeholders deliver the content of regulation, but the processes of development, implementation, and evaluation derive from concepts of management and governance. From the view of good management practices, policy failures are less likely when regulatory frameworks address the challenges of enforcement and compliance at the outset. To do this, regulations must be 'consistent, understandable, measurable and enforceable,' and they must be enforced in a 'fair, predicable and consistent way' (Auditor General, 2000a: 24-7). A system of ongoing monitoring and evaluation ensures that regulations achieve the intended effect. If the intended effects do not materialize, or if unintended ones do, evaluation provides the necessary information so adjustments can be made. From a process perspective, these are the yardsticks that the health regulator is and has been evaluated against. Assessing Costs and Benefits over a Wide Area of Responsibilities

Health Canada is responsible for administering, or has an interest in the administration of, over fifty acts, guidelines and procedures, and agreements. The acts cover a diverse area, including the Quarantine Act, the Food and Drugs Act, the Pest Control Products Act, the Emergency Preparedness Act, the Tobacco Act, the Nuclear Safety Control Act, the Canada Health Act, and so on. Guidelines, procedures, and agreements

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are equally diverse, encompassing such programs and bodies as Drinking Water Quality, International Health Travel Information, Clinical Preventative Health Care, Good Manufacturing Practices, Industry Consultation on International Regulatory Cooperation, and the Medical Devices Global Harmonization Task Force. Producing health regulations and keeping them current with evolving conditions requires that the regulator continuously assess benefits and costs against a complex mix of priorities. The priorities are 'public health and safety, economic efficiency and performance, environmental protection, sustainable development, social cohesion, and international obligations/1 Sometimes these priorities conflict and choices must be made. Moreover, the costs of regulation are borne by producers and suppliers, and then passed on to consumers. The expected benefit to Canadians is the confidence of knowing that their health and safety is being protected. The core features of the federal health regulator's mandate are two. First, health regulators have responsibilities over a wide array of dynamic health-related activities, which can cut across the private, public, not-for-profit, and volunteer sectors. Second, health regulations have an impact on both social and economic interests in terms of costbenefit trade-offs. Calculations of costs and benefits involve an ongoing adjustment to new information, new technologies, new ways of using information in the management and evaluation of health, and, of course, new and emerging health risks. To determine cost-benefit trade-offs, Health Canada has to build collaborative arrangements across numerous departments and with various levels of government, industry sectors, and interested and affected parties. On occasion, federal departments have been divided on the degree and significance of risks, the interpretation and application of legislation, and the nature of their respective roles and authorities. Nonetheless, despite diversity of scope, complexity of topic, and the occasional conflict, the trend towards broad collaboration is understood as a necessary arrangement to assess costs and benefits. The Nature and Scope of Health and Safety Risks in a Globalized World The nature and expanding scope of health risks in a globalizing and interdependent world is ever more apparent. Diseases such as SARS, West Nile Virus, and HIV/AIDS, as already noted, can be transmitted rapidly and with catastrophic consequences, and coping with these

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threats involves intricate, ongoing regulations and collaborations with the World Health Organization and with other nations' health regulators as well as multiple local and regional hospitals and health professionals. In addition, defective or inferior consumer and commercial products, whether produced domestically or abroad, can be a source of unintentional harm, injury, or even the spread of diseases. Canada has over $2.3 billion of goods and services travelling across its borders every day, and, with markets globalizing and a policy emphasis on liberalized trade, expectations are that international economic activity will continue to increase. Although this is good for the economy, the movement of people, products, animals, and even insects across national borders can have unintended consequences. West Nile Virus entered the United States when infected mosquitoes were imported into New Jersey along with recycled tires from Japan. Within a few years, the disease had spread from a few accidentally imported mosquitoes into human populations. West Nile placed unexpected demands on a health care 'system' that has little or no so-called 'surge capacity' to absorb additional demand, and many Canadians now also face controversial pesticide spraying programs to keep mosquito populations low. In this case as in others, the ability to generate 'alerts' across levels of governments and across sectors is vital. Managing the Core Health Mandate and Other Government Roles Regulations in the health sector are primarily aimed at protecting health and minimizing and managing risks. This is certainly Health Canada's core mandate both legally and in terms of public perception. But, as we have seen already, the health regulator also has a supporting role in the pursuit of Canada's economic objectives. The health products industry is a case where the health regulator 'also plays a role in delivering on one of the Government of Canada's economic objectives - a strong competitive health product industry that stimulates R&D investment, jobs and growth for the benefit of Canadians' (Gorman, 2004: 4). New Relationships between Smart Regulation and Health Regulation Increasingly, regulatory reform is driven by the integration of national economies into globalizing markets, a process that has fundamentally changed how markets work. It is also being driven by the potential for

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commercial applications of new science-based technologies. This is a part of a broader national agenda to improve productivity and generate economic growth through the federal government's Innovation Strategy. Canada has been making significant investments in R&D and S&T and in 2002 the federal consultation paper on the Innovation Strategy set goals, targets, and priorities for government action on existing and new regulatory regimes. All this will lead to the need to approve products based on scientific advances in sectors that barely existed fifteen years ago. Many of these products will have health applications and thus clearly there will be consequences for the health regulator and for citizens. These developments and forces have been examined by the work of the External Advisory Committee on Smart Regulation. As chapter 1 of this book has already shown, the smart regulation agenda seeks to provide a kind of seamless connection between the regulatory systems' efficiency and health and safety issues as part of a continuous process of innovation rather than regulatory reforms every decade or so. But 'seamless' regimes in a world of dynamic health risks and shifting costs and benefits, and particularly within the context of multilevel regulation, will be difficult to achieve. Public Confidence and the Health Regulator

To maintain the confidence of Canadians in the government's ability to act on behalf of citizens and businesses, the health regulator calculates and manages social goals and economic objectives and adjusts to emerging health risks, often without the benefit of complete or timely information. As social and economic objectives become more interdependent, the health regulator is faced with a difficult task. Managing the complex nature of Health Canada's regulatory mandate and its subsidiary roles is, as I have said, a high-stakes game in which health, safety, and public confidence are at risk. Health Canada's health-social mandate and supporting roles, although in many ways unavoidable under the present institutional arrangements, also puts into question the relationship between the health regulator and the regulated (Krever Inquiry, 1997; Canadian Health Coalition, 2003; and (Doern and Reed, 2000). Under these conditions, the standards of democracy and accountability can be met only if decisions are transparent and based on the credible use of science.

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An Illustration of the Dynamics of Multilevel Regulation and Governance in the Health Sector: COX-2 Inhibitors In the context of the above issues, it has long been the case that no single country or single level of government within a country can address all the regulatory issues necessary to protect health and to manage the risks and benefits conferred by health products. In this sense, multilevel regulation results from different levels of government exercising their normal responsibilities in response to dynamic and emerging issues and pressures. What is different is the increasing recognition that, for regulations to be effective, they must address the connectedness of issues that interact in complex ways that are often cross-jurisdictional. The COX-2 case study examined briefly in this section illustrates the multilevel dynamics of the pre-market assessment and approval of a drug, and the issues, roles, interactions, and responsibilities after a drug is approved as new information emerges during the post-market assessment and surveillance phase. This example demonstrates the complexity and uncertainty of the health regulator's environment and the necessary involvement of multiple players and regulators, while also highlighting how the normal activities and transactions of everyday life can have rapidly unfolding, unintended, and difficult-to-predict consequences. At such times, our understanding of the risks and benefits associated with the use of a therapeutic product can change quickly. Finally, this example makes clear that effective risk management and mitigation strategies implicitly rely on multilevel regulation and governance for collaborative, systematic reporting and for communication tools and protocols that can penetrate political jurisdictions and institutional mandates and span different sectors. The Multilevel Dynamic: Pre-Market Drug Approvals versus Post-Market Drug Assessments and Surveillance

The Therapeutic Products Programme (TPP) of Health Canada is responsible for the regulation and risk management of a variety of healthrelated areas, including drug, biologies, and medical devices. Over the last decade, the TPP has changed significantly along with the processes for therapeutic product approvals. There has been an effort to complement pre-market assessment with post-market drug assessment in order to manage and mitigate risk (Gorman, 2004; Doern, 2000). These adjustments are in response to changes at the macro level of the politi-

The Health Sector 315 cal economy and in the micro institutional operating context of the TPR Collectively, they have pushed and pulled the health regulator towards ever more complex multilevel regulation and governance. In the pre-market-focused system, the onus was on Health Canada's scientific and medically trained personnel to do all the analysis required for therapeutic product approvals. This approach took an 'institutional-centric' perspective. Scientific knowledge for product approvals was mainly generated internally as staff sought to assess testing and product data presented by commercial producers. Science from other countries was also reviewed and considered but not always explicitly accepted. The lines of accountability were clear, and the approval process was effective in an overall sense. Yet it was also slow. There was a backlog of drugs and products waiting for approval in Canada, and businesses, AIDS victims, activists, and people interested in the latest cancer treatments became increasingly frustrated (External Advisory Committee on Smart Regulation, 2004; Doern, 2000). By the 1990s, other OECD countries such as Australia and Sweden as well as member states of the European Union (EU) had already moved to the more explicit model of risk-benefit analysis in the drug approval process. Increasingly, Canada was to follow their lead. Drug approvals using risk-benefit analysis place a greater emphasis on scientifically valid methods to rank classes of products or drugs. Using and sharing of information produced by experts outside government agencies as well as accessing information from other health regulators is encouraged. At the same time, there was a growing trend - which Health Canada also embraced - to couple the pre-market system with post-market evaluation. The post-market approach recognizes that data collected from pre-market evaluations during the three stages of clinical trials required for drug approvals does not detect all the eventual adverse effects of drugs. This is because clinical trials are very controlled research activities; it is only when drugs get out into the population and become widely used under different conditions and circumstances that more of their effects in general or on subpopulations become known. Under the post-market model, experts at several levels of government and in different health professions continue to collect data and share information once products are being sold commercially. Currently, the health regulator has an important role in facilitating the collection and sharing of information on adverse effects of approved drugs with consumers, patients, and professionals. Health professionals and drug manufacturers also have a more active role to play

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in post-market surveillance. They provide the health regulator with updated information of a drug's efficacy once in use. Data comes to the regulator through physicians' experiences with patients who use the drug and from further research. This model pushes the health regulator into other political jurisdictions and deeply into operating contexts where adverse events happen and where information is collected. Canada and the United States require drug companies to report adverse drug reactions by law, but the reporting requirements for physicians are only voluntary even though many feel that doctors are in a better position to notice problems once drugs are in widespread distribution. While the current minister of health, Ujjal Dosanjh, plans on making it mandatory for physicians to report adverse drug reactions, he admits that it could take years of negotiations with the provinces to put a rule in place. For the post-market assessment system to work effectively, once data is collected in the field by medical professional and drug researchers, it must travel back up through the levels of the regulatory system and become the key informational input for post-market evaluation. Arguably, Canada's health regulator will face many challenges in making this system work. To take a simplified view, there are three main constraints. The first relates to capacity, the second to political jurisdictions and regulatory governance, and the third to data collection standards. First, Health Canada has experienced periods of prolonged staff shortages which have negatively affected the department's ability to conduct investigations related to enforcement and compliance, pre- and post-market reviews, post-market surveillance, and even to conduct regulatory research and policy development. One result has been the department's persistent difficulty in meeting internationally set performance targets on drug approvals. The EACSR, among others, has taken the position that Canada can resolve this problem by often accepting drug approvals from the U.S. Federal Drug Agency (FDA), which has ten times the staff resources of Health Canada for drug assessments. Although efficiency in the drug approval process is important, one has to ask whether the FDA is doing much better than Health Canada when it comes to efficacy and risk management through post-market assessment. The answer is not straightforward and will be discussed further below. Second, even under ideal conditions for Health Canada, there would be structural problems to overcome both in terns of Canada's Federalist system and in terms of the larger society before risk-benefit analysis of

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drug effects through post-market assessments could work effectively. Monitoring and assessment through post-market surveillance are timeconsuming activities that implicitly rely on levels of governments, private organizations, and practitioners to collaborate - yet these 'partners' operate under different mandates, have different roles and responsibilities, and compete for attention and resources. Third, even if obstacles of political jurisdiction can be resolved and effective and legitimate arrangements for coordination can be found, there remains a residual problem at the operational level. There are massive issues of dissimilar data definitions, processes, and standards across provinces and down to the medical community itself when it comes to data collection and reporting. There are many outstanding issues, such as what data is collected and when? There are concerns about how or if data collection complies with patient confidentiality and privacy laws. Are the data collection systems automated? If they are automated, are they interoperable across jurisdictions so that information can be collected and disseminated quickly? Can the automated systems automatically generate alerts when problems arise? Who pays for these systems? Accurate, timely information is critical to quality regulations and post-market assessment through surveillance, but, to make reporting structures reliable, consensus, often in the absence of incentives, must be struck first. Canada's adverse-drug-reaction database, the Canadian Adverse Drug Reaction Information System (CADRIS), was created in 1965, following the worldwide realization that thalidomide caused disabilities in children in utero. Yet, today, Health Canada estimates that only one in ten adverse events is reported to the government.2 Health Canada also is aware that the quality of information is a problem. Health professionals, patients, and consumers make reports on a voluntary basis only. COX-2 Inhibitors It would be incorrect to assume that Health Canada is alone in facing these challenges of multilevel regulation and governance or that Canadians could be better serviced by circumventing Health Canada altogether when it comes to getting their drugs approved. The crisis over COX-2 inhibitors provides insight as to why drug approvals and ongoing risk assessments through post-market surveillance is a complex, uncertain undertaking for health regulators in most countries. On 30 September 2004 the pharmaceutical company Merck voluntary

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withdrew Vioxx, its brand of COX-2 inhibitor,3 from the market. Data from a controlled clinical trial on colon cancer showed that people taking the drug for eighteen months or longer had twice the chance of having a serious cardiovascular event (heart attack and stroke) than those people taking a placebo. And so the enthusiasm for COX-2 inhibitors as the first pain relievers that did not irritate the stomach faded quickly because of a clinical trial for a novel application of the drug. Concerns that the long-term use of Vioxx had the potential to increase risk of an adverse event seemed to have caught the drug regulators in the United States, the United Kingdom, the EU, Australia, and Canada off guard. On the day of Merck's announcement, there were 1.3 million Vioxx prescription holders in the United States.4 Within twenty-four hours, 2.4 per cent of Americans on Vioxx had new prescriptions for alternative therapies.5 Prescriptions for Pfizer's brands of COX-2 inhibitors, Celebrex and Bextra, increased 78 per cent as physicians scrambled to find suitable therapeutic replacements for patients who required pain relief from degenerative diseases such as rheumatoid arthritis and osteoarthritis, the diseases that Vioxx was most commonly prescribed for. Expert opinion at the time indicated that the removal of Vioxx from the market 'may not affect care much; other drugs could be used/6 Market shares rose and fell in the pharmaceutical world and financial forecasts were reworked. Total prescriptions for COX-2 inhibitors worldwide declined by 14.3 per cent, from 4.48 million in September to 3.84 in October 2004. Yet, despite the drop in total prescriptions, the COX-2 inhibitor market was still worth $U.S.409 million. Celebrex increased its market share from 48.7 per cent to 63.5 per cent. Bextra also made significant market gains, increasing its share from 23.5 per cent in September to 36 per cent in October 2004. Pharmaceutical market researchers admitted surprise at Bextra's strong market profile and found it particularly interesting, 'considering that it has become the black sheep in the market, following persistent questions over its safety.'7 Questions arose next over the safe use of Celebrex. 'On Big Pharma's "Black Friday" (17 December 2004), Pfizer announced that its COX-2 inhibitor more than doubled the risk of heart attack when used in high doses.'8 Celebrex had previously been thought to be the safest drug in its class. Now, it was widely accepted that the adverse effect reported by Merck in respect to Vioxx was a therapeutic class problem. Not even the 'black sheep' Bextra was an option. It, too, came under suspicion as

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having the same safety concerns as other COX-2 inhibitors. On 22 December 2004 the United Kingdom's drug regulator, Medicines and Healthcare Products Regulatory Authority (MHRA), issued a nononsense warning of 'interim advice' and told doctors to switch all patients using COX-2 inhibitors to other painkillers. The next day, the FDA and Health Canada took a more cautious approach, issuing an advisory warning to limit the use of all COX-2 inhibitors because of the therapeutic class effect. At the time of writing, Celebrex and Bextra have not been pulled from the markets by either Pfizer or the FDA but the FDA has discontinued the use of Celebrex in clinical trials for cancer-related studies. Some commentators on these developments think that the postmarket assessment process is working and praise Merck for its initiative in removing Vioxx from the market. But in fact alarm bells were going off about the use of Vioxx much earlier than September 2004. In September 2001 the FDA had written Merck a 'warning letter' to express its concern that the company had downplayed the risk about potential cardiovascular side-effects and misled doctors. In February 2002 a research group, the Therapeutics Initiative, which reviews drugs for British Columbia's health care plan, sent a warning to doctors and pharmacists about Vioxx. At the time, Vioxx was Canada's most prescribed drug for arthritis. This group referenced a study conducted by Merck that showed an increased risk of adverse events in 1.5 per cent of patients on Vioxx over those on another medication, Naproxen.9 It is tempting to vilify both the pharmaceutical companies and the health regulators in this case because the number of estimated adverse events and deaths related to COX-2 inhibitors is very high owing to their prolific use. But the situation is much more complex. The scientific evidence in terms of the potential risk of COX-2 inhibitors is not straightforward. Various studies have come up with contradictory results. As late as 6 December 2004, scientific reports were indicating that Celebrex did not represent the same cardiovascular risks as Vioxx.10 On 23 December 2004 yet another scientific study reported that the use of Vioxx significantly reduced the risk of colon cancer.11 Further, even if there is a consensus that COX-2 inhibitors can cause adverse cardiac events, some patients who have a low risk to heart disease may be more seriously threatened by bleeding ulcers. The benefits to individual patients are typically considered against the therapeutic options in specific cases. At least patients and physicians now

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have better risk-benefit information. Some patients have weighed the options for themselves and have requested that their physicians continue to prescribe a COX-2 inhibitor for them. It will likely be sometime before regulators and researchers come to a conclusive understanding about the use of COX-2 inhibitors and new information will continue to emerge. The underlying issue is that, although drug approvals are important for patients and for economies, more emphasis needs to be placed on systematic, post-market surveillance in order to manage risk more effectively. This brief illustration demonstrates how the dynamics of contemporary issues can quickly play out, cutting across national borders, spanning federal-provincial jurisdictions and mandates, and moving down to the local level and even into the operational context where regulatory practices involve the detailed experiences of businesses, consumers, health professionals, and citizens. It also makes clear that market economies need rules and thus regulations play an important role. But these rules can be effective tools of democracy too. In order to perform that function, however, rules have to involve an extraordinary level of stakeholder involvement and control. Consultation is not the same as participation. The right to comment, as opposed to participate with full information, is often worse then nothing at all. Comment versus participation can be seen as a veiled attempt to lend a false legitimacy to decisions that have already been made. The resulting cynicism does little for public trust and confidence. One challenge to open, transparent processes can be vaguely defined concepts of commercial confidentiality. In a similar way but for different reasons, privacy and confidentiality requirements on health information can make data gathering complex and can reduce the availability of information as a tool for feedback and monitoring. In either case, this can produce a regulatory system that is more closed than would be ideal, but striking a balance between social goals and economic objectives, or between efficiency and values, is a demanding task full of trade-offs. It is through social dialogues in the pursuit of public interest values that democracy and transparency in the regulatory process are enhanced. 'Democratic governance' demonstrates that levels of service can improve and prices can be lower when decisions are made through public debate and when all information is made freely available to interested parties. In contrast, where regulatory systems are closed,

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exclusive, and secretive, costly errors have resulted. In this way it 'is not the rules of regulation but the methods by which the rules are designed which makes all the difference' (Palast et al., 2003: 3). It is easy to understand that the health regulator has to build broad collaborative arrangements for regulations to be successful and kept up-to-date. But that leaves untouched the mechanisms for coordination. This difficulty is amply demonstrated when the complexity of the health regulatory environment is considered. Good governance requires mechanisms to give effective voice to broadly defined interests. In areas of health, these interests often have little middle ground. They can represent a specific focus on an aspect of an issue that covers a breadth of potential social and economic impacts. Trust let alone consensus can be problematic, particularly when an issue is highly charged politically, when it is value-based, when it has the potential for significant economic or social-health impact, or when the scientific evidence is uncertain, preliminary, or evolving. Conclusions The objective of this chapter has been to examine in a generic way the nature and challenges of multilevel regulation and governance in the health sector. It has also set out a conceptualized understanding of multilevel regulation and regulatory governance as a response to emerging pressures that have broadened the scope and changed the dynamics of the health regulators' environment. It is clear that, to manage health regulatory product issues, multijurisdictional, cross-sector, and inclusive stakeholder involvement is increasingly necessary to work legitimately and effectively. However, coordinating regulations and reforms across interdependent domains and levels of governance, each involving a range of public and private actors, is a difficult and uncertain undertaking. A challenge for the health regulators centred in Health Canada is to work in formal and informal collaborative arrangements. Regulatory governance in these arrangements often has few road maps to base practice on. Efforts can be frustrated by different legislated mandates, by different roles and responsibilities, and, given the number of pressing issues, by competition for attention and resources. Equally, the speed with which events can unfold can frustrate collaborative arrangements while also making them that much more important to have in

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place. That said, information sharing can ensure that collaborations remain open and flexible, thus making adjustments to evolving situations possible. The health regulators' environment is complex. This is particularly so given the nature of risks in the health sector, which are various and dynamic and often require immediate responses even in the absence of complete or timely information. Within a context of multilevel regulation, governance, and reform, the health regulator must have the capacity to adjust and enforce regulations in an evolving environment of rapid, ongoing, sometime unexpected change. There are opportunities to simplify the regulatory process by harmonizing regulations across countries and jurisdictions. Yet harmonization can confuse basic aspects of sovereignty and democratic accountability. It can also lead to a 'one size fits all' approach that prevents the various levels from adjusting the rules to suit specific circumstances. This is a particularly significant issue for the credibility of health regulators and for public confidence. As we have noted, it is well documented that citizens expect governments to intervene on their behalf when it comes to health, safety, and the environment, but, at the same time, they express concerns when these same institutions are charged with promoting conditions for competitive economic success. Regulations in the health sector are primarily aimed at protecting health and minimizing and managing risks, but the health regulator also has a supporting role in the realization of Canada's economic objectives. An important consideration now and into the future for Canada's health regulatory system is how it manages the combination of its core health mandate with other responsibilities and policies that relate to competitiveness, innovation, and smart regulation in an increasingly multilevel regulatory world. NOTES 1 http://www.pco-bcp.gc.ca/raoics-srdc 2 CBC news report, 'In-depth: faint warning/ 2004. 3 COX is an enzyme produced by the body in two forms, COX-1 and COX2. Both affect blood platelets, i.e., cells that enable the blood to clot. Blocking COX-1 suppresses the formation of blood clots, while blocking COX-2 supports the formation of blood clots. The effects are opposite. COX 2

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4 5

6 7

8

9 10 11

inhibitors, which block COX-2 much more than COX-1, could tip the balance in favour of blood-clot formation and thus promote heart attack or stroke depending on the dose, the duration of treatment, and the degree of COX-2 blockage. Traditional non-steroideal anti-inflammatory drugs (NSAIDs), which block both COX forms, would tend to have a neutral effect on cardiovascular risk. These are the traditional drugs of the NSAID family (e.g., aspirin, ibuprofen, naproxen) which, when used over prolonged periods, increase the risk of stomach bleeding and ulcers. David Brown, 'Vioxx's Removal May Not Affect Care Much; Other Drugs Can Be Used, Experts Say/ Washington Post, I October 2004. M2 Communications, 6 December 2004 - Research and Markets: Despite the Withdrawal of Vioxx (Rofecoxib) from the Market in November 2004, Considerable Activity Continues to Be Reported Relating to the Development of COX-2 Inhibitors.' Accessed online. Washington Post, I October 2004. Gustav Ando - 'Sales of COX-2 Inhibitors and NSAIDs Indicate Uncertainty following Vioxx Withdrawal,' World Markets Research Centre, 2 December 2004. Accessed online. Gustav Ando, 'Regulatory Agency in UK Warns against Use of COX-2 Inhibitors,p' World Market Research Centre, WMRC Daily Analysis, 22 De-cember 2004. Assessed online. CBC news report, 'Researchers Raise Warnings About Arthritis Drug, 2002.' 'Cardiology Study Shows Differences in Cardiovascular Risk among Cox-2 Inhibitors,' Biotech Business Week, 6 December 2004. Antonio Regalado, 'Study Suggests a Vioxx Benefit, but Drug Won't Return to Market/ Wall Street Journal, 23 December 2004.

REFERENCES Auditor General (2000a). Protecting Health and Safety. Chapter 24. December. (2000b). Federal Health and Safety Regulatory Programs. Chapter 25. December. (2000c). Health Canada: Regulatory Regime of Biologies. Chapter 27. December. (2000d). Follow-up of Previous Recommendations on Health and Safety Regulatory Programs. December. (2002). Status Reports. Health Canada: National Health Surveillance. (2004). Health Canada: Regulation of Medical Devices. March. Canada (2002). Achieving Excellence. Ottawa: Industry Canada.

324 Joan Murphy - (2003). Learning from SARS: Renewal of Public Health in Canada. A Report of the National Advisory Committee on SARS and Public Health. Ottawa: Health Canada. Canadian Health Coalition (2003). 'Risk First, Safety Last: A Citizen's Guide to Health Canada's Health and Safety First - A Proposal to Renew Federal Health Protection Legislation.' Ottawa: Canadian Health Coalition. Doern, G. Bruce (2000). The Therapeutic Products Programme: From Traditional Science-Based Regulator to Science-Based Risk-Benefit Manager.' In Doern and Ted Reed, eds., Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime, 185-207. Toronto: University of Toronto Press. Doern, G. Bruce, and Ted Reed, eds. (2000). Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime. Toronto: University of Toronto Press. External Advisory Committee on Smart Regulation (EACSR) (2004). Smart Regulation: A Regulatory Strategy for Canada. Ottawa: External Advisory Committee on Smart Regulation, September. Gorman, Diane C. (2004). Presentation to the Policy Research Initiative Symposium on Canada-U.S. Regulatory Cooperation 'Charting a Path Forward.' Ottawa, 29.October. Health Canada (2003). 'Health Canada Decision-Making Framework for Identifying, Assessing, Managing Health Risks.' Paper prepared for the External Advisory Committee on Smart Regulation. Ottawa: External Advisory Committee on Smart Regulation. Heritier, A. (2003). 'New Modes of Governance in Europe: Increasing Political Efficiency and Policy Effectiveness.' In Tanja A. Boerzel and Rachel Cichowski, eds., State of the European Union. Oxford: Oxford University Press. Krever Inquiry (1997). Commission of Inquiry on the Blood System of Canada. Final Report. Ottawa: Minister of Government Works and Public Services. Organization for Economic Cooperation and Development (OECD). (2002). 'Governance Issues in Multi-Level Governments.' Paris: OECD. Palast, Greg, Jerrold Oppenheim, and Theo MacGregor (2003). Democracy and Regulation: How the Public Can Govern Essential Services. London: Pluto Press. Saint-Martin, D. (2004). Coordinating Interdependence: Governing and Social Policy Redesign in Britain, the European Union and Canada. CPRN discussion paper F/41. Ottawa: Canadian Policy Research Networks. Available at: http://www.cprn.org

14 Regulating Risk: An Assessment of Canada's Multilevel Emergency Management Framework PHIL GRAHAM AND CHRISTOPHER STONEY

According to Cicero's maxim of government, the safety of the people is the supreme law. Given the emergence of the so-called 'new risk' environment, the degree of public concern, and the scale of government resources directed towards improving the safety of Canadians, it is difficult to dispute the veracity of this statement. Fuelled by the emerging threat of global terrorism following the attacks on New York and Madrid, public health emergencies such as Severe Acute Respiratory Syndrome (SARS) and 'mad cow' disease, and devastating 'natural' disasters, including the Iranian earthquake and Asian tsunamis, public concern has escalated into a climate of fearfulness that has compelled governments around the world to review and improve their systems of emergency management and preparedness. However, Canada's federal system has always meant that the reality of a supreme law remains complex and controversial. As a consequence, there is growing concern that the resulting absence of a clear and unambiguous overarching framework to deal with emergencies and disasters is exposing Canadian citizens to unnecessary and avoidable risks. In response to intense media scrutiny and three damning reports, Canada's municipal, provincial/territorial, and federal jurisdictions have each been working towards creating a more effective emergency response framework. By creating new organizations, improving multilevel cooperation and collaboration, strengthening strategic leadership, and increasing funding, the objective is to provide a regulatory framework that facilitates emergency preparedness and mitigates the risks to, and impacts on, public safety and security. Within the span of two years, we have seen the creation of a new federal department respon-

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sible for public safety and security, Public Safety and Emergency Preparedness Canada (PSEPC), a new national security policy, and legislative and organizational reform in the provinces and territories to augment emergency management capabilities. Yet, although many observers believe that the federal-led reforms of Canada's emergency management systems are headed in the right direction, some argue that progress could ultimately be undermined by the federal system of multi-level governance and, in particular, the regulatory and constitutional framework that creates layered and regional jurisdictions and severely restricts federal government involvement in municipal affairs. Wesley K. Wark, for example, contends that while the federal government's new agencies have been effective in generating plans, the real cause for concern lies in the complex federal system that hinders the kind of seamless coordination necessary for a successful emergency response (Ottawa Citizen, 27 November 2004: E5). In Canada, all three levels of government are responsible for emergency management activities, and, currently, all three are engaged in a process of reforming emergency management response. But, in the present context of rapid change, it is often unclear which reform activities the different jurisdictions are involved in and to what end. Furthermore, it is also unclear how the different levels of government interact when it comes to emergency management. Since all jurisdictions appear to work within separate regulatory environments, there is little surprise that a recent Senate report (2004) into national security and defence criticized the current fragmented emergency response system for lacking effective central coordination and strategic oversight. The purpose of this chapter is to explore some of these key emergency management problems and tensions, particularly where they arise out of Canada's federal system of multilevel governance, regulation, and rule making. The chapter begins by providing an overview of emergency management in Canada and outlines the responsibilities of each level of government. It then conceptualizes emergency management as a framework or hierarchy of rules that governs emergency management activities at all levels of government. We follow this by examining recent reforms to the emergency management framework and assess their contribution and inadequacies in respect of the system's overall efficacy. The chapter concludes by making observations and recommendations on emergency management in Canada and suggesting ways in which it could be improved to better protect public safety and security.

Emergency Management 327 Emergency Management in Canada Emergency Planning as a Priority Public and political attention to emergency management in Canada tends to ebb and flow. For many who work in the field, the general belief is that it is through disasters that attention and resources are drawn to their work; the Asian tsunami bears unfortunate testimony to this belief. However, under the normal circumstances of competing priorities and a tight, results-based fiscal climate, it is difficult for governments to justify to the taxpayer large targeted expenditures to prepare for something that may never happen. Nevertheless, over the past few years, Canada has experienced a number of disasters and many of them have demonstrated serious deficiencies with the current emergency management system. The outbreak of SARS in Toronto during the winter and spring of 2003 revealed that there was insufficient public health infrastructure to plan for and manage public health emergencies (Naylor, 2003). Following the release of the Naylor report into the handling of the SARS crisis, the federal government has moved to act on its recommendations and approximately $680 million has so far been pledged to establish a health agency in Winnipeg with a national reach (Globe and Mail, 13 May 2004: A2) Similarly, the power outage that affected the northeastern seaboard of North America in August 2003 also served to reveal how vulnerable large population centres and critical infrastructure can be. Following another catalogue of errors in the handling of the emergency, described by Lloyd Axworthy as a 'Keystone Kop performance/ new funds have been dedicated by the federal government to investment in critical infrastructure, including electricity supply (Ottawa Citizen, 27 November 2004: E3). In this context, it could also be argued that the 'New Deal' initiative for infrastructure renewal as part of the cities agenda is related to the emergency management program. As Canada becomes increasingly urbanized, it grows ever more dependent on urban infrastructure and is increasingly vulnerable in its major centres. In the event of attack, emergencies, or natural disasters, such vulnerability can be mitigated if urban infrastructure is modern and well maintained. To this end, the federal government has pledged $5 billion over the next five years for cities and communities, with the promise of still more in future years. In spite of the fact that the attacks of 11 September 2001 were

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executed on American soil, they, too, served as a sharp reminder to Canadians about the vulnerability of their borders and cities. Against this background, the federal government has moved to tighten up security and is planning to spend a further $690 million on emergency response improvements, data centres, the policing of seaports, and intelligence (Globe and Mail, 28 April 2004: A5). Even legislation and regulatory measures that infringe on human rights and erode traditional liberties and freedoms are politically and socially acceptable in the general desire to institute tighter security. As these examples illustrate, the current climate of uncertainty and risk avoidance has put the issue of emergency preparedness and regulation at the top of the political agenda and attracted significant resources during a period of relatively tight fiscal management. For example, in the four years since the 9/11 attacks, approximately $8 billon has been earmarked to improve national security and defence. However, the public's willingness to tolerate (and often demand) higher levels of spending during times of perceived crises, allied to the secrecy involved in aspects of emergency preparedness, relaxes some of the controls usually associated with government spending. Moreover, the fact that emergency preparedness is a difficult concept to measure (often the best outcome is that nothing happens) makes it difficult to assess the efficacy of the money spent and renders Value for money' an abstract and limited concept. Notwithstanding these difficulties, attempts are now being made to evaluate expenditure on emergency preparedness and a debate is emerging as to the efficacy, value, and appropriateness of such spending within Canada. In a report released in 2004, the federal auditor general concluded that most of the $8 billion earmarked for national security has been distributed with little analysis or strategic thinking as to how or where the money could most effectively be spent. The result has been a dispersed and uncoordinated response system that leaves authorities at all levels of government without an 'overall plan to focus on threats, guide spending and choose between conflicting priorities' (Ottawa Citizen, 4 December 2004: E5). For many experts in the field, it is increasingly apparent that the government of Canada must play a strong role in providing public safety and security by building a coherent multilevel regulatory environment and a multi-jurisdictional coordination framework which allocates financial and other resources effectively and clearly defines the nature and scope of emergency management.

Emergency Management 329 What Is Emergency Management? Emergencies are defined as 'abnormal situations that demand prompt, co-ordinated actions that exceed normal procedures, thereby limiting damage to persons, property and/or the environment' (PSEPC, 2005: 97), while emergency management is the term used to describe the 'systems and processes for mitigating, preparing for, responding to, and recovering from emergencies and disasters' (ibid.: 98). Generally, emergency management gravitates around four themes: preparedness, prevention/mitigation, response, and recovery (Emergency Management Ontario, 2004). Preparedness is 'developing effective policies, procedures and plans for how best to manage an emergency' (PSEPC, 2005: 100). Preparedness activities can also involve becoming aware of the most acute risks to, and subsequent impacts on, a given jurisdiction and making the appropriate plans to address them. The National CounterTerrorism Plan, for example, identifies the specific risks of different types of terrorism and establishes a response structure to reduce the impact on the safety of Canadians and the continuity of government (PSEPC, 2004b and c). Prevention and mitigation activities flow from the identification of risks and impacts and involve the measures put in place to reduce both. More specifically, mitigation is defined as 'sustained actions to reduce or eliminate the long-term impacts and risks associated with natural & human-induced disasters' (PSEPC, 2005: 99). For example, work that is being undertaken both in Canada and in the United States aims to protect critical infrastructure, such as nuclear installations, telecommunications, and water treatment facilities. Response activities refer to the 'actions taken immediately before, during or directly after an emergency occurs (PSEPC, 2005:100). There are a number of considerations involved, which range from the organizational structure that is used to address a given situation to the type of logistical requirements that are needed to reduce harm to people and infrastructure. Recovery activities are the arrangements made to return communities to normal after an emergency has occurred. The nomenclature of 'emergency management' can be problematic, since the word 'emergency' has come to take on more than one meaning. On the one hand, 'emergency' is used as a general, catch-all term to denote an event that causes societal disruption (Quarentelli, 1998). On the other hand, the term 'emergency' takes on definitive meaning in various pieces of legislation. In the latter case, the term emergency is

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associated with criteria whereby governments may declare a state of emergency. For the purpose of this chapter, the former and broader meaning of emergency is used, although we do consider the legislative definition in the discussion on emergency regulation in Canada. Responsibility for Emergency Management

Emergency management responsibilities in Canada are divided among federal, provincial, and municipal jurisdictions (PSEPC, 2004a, b, and c). Federal and provincial/territorial jurisdictions have their own legislation which governs a range of matters, from the way that 'emergency' is defined to the scope of powers assigned to officials during the course of an emergency. Municipal emergency-management responsibilities are incorporated into provincial law. Each jurisdiction also has a collection of organizations and institutions charged with the task of dealing with emergencies. The guiding principle for emergency management in Canada is that initial responsibility for the management effort normally rests with those who are directly affected. The chain of action therefore begins at the local level with municipal governments. Provincial/territorial and federal involvement is primarily contingent on the nature of the emergency and on whether the local government has requested provincial assistance (PSEPC, 2004a, b, and c). In respect of a regulatory framework, the current rules and responsibilities place an emphasis on local management of the crisis in the first instance. LOCAL EMERGENCY MANAGEMENT RESPONSIBILITIES

This emphasis on local management is well established in Canadian federalism; indeed, the creation of municipalities by provincial governments was an effort to improve local responsiveness and administrative efficiency. Emergency management is consistent with this thinking. Consequently, municipalities have a large role to play in ensuring readiness and public safety in communities. Nevertheless, in spite of their considerable responsibility for dealing with emergencies in the first instance, municipalities often complain that they are not adequately consulted or engaged in the development of the policies and frameworks that govern emergency management. Consequently, as we go on to discuss, the current multilevel emergency framework is seen by critics to make municipalities accountable for something over which they have very little authority. The U.S. experience with Hurricane

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Katrina in September 2005 brought out these realities starkly and clearly. The local government agencies that deal with emergency preparedness and management vary in terms of number and complexity across provinces and territories. For example, in British Columbia, a province particularly vulnerable to forest fires, the larger municipalities have unique staffing and committee structures to deal with preparedness, mitigation, response, and recovery issues, including developing and implementing local emergency plans.1 In Nova Scotia, local emergency management essentially revolves around the development, maintenance, and implementation of an emergency plan. Some municipalities have integrated human and financial resources and share emergency management responsibilities between them.2 Interestingly, although responsibility for emergency management efforts for Canada's First Nations lies with the federal Department of Indian and Northern Affairs Canada, band councils in some provinces and territories (Alberta, Northwest Territories, and Prince Edward Island) have assumed the same authority as municipalities for emergency management. PROVINCIAL AND TERRITORIAL RESPONSIBILITIES

Emergency management activities at the provincial and territorial level primarily involve monitoring the progress of emergency situations in communities, reflecting the fact that, while most emergencies begin locally, they can then expand province-wide. While the first outbreak of SARS was confined to Toronto, it quickly became an Ontario-wide concern requiring provincial-level action. As a result, there is an established emergency-management legislative and organizational framework in each province/territory to deal with province-wide emergencies. Each jurisdiction has an Emergency Act (nomenclature varies), which outlines the roles and responsibilities of officials at the provincial level (including the lead taken by Emergency Measures Offices) and at the local level. The focus of most provincial/territorial emergency-management legislation is to ensure that emergency plans are developed, maintained, and implemented when necessary at both the provincial and local levels. Provinces and territories also have a variety of systems to deal with emergency preparedness, mitigation, response, and recovery. The smaller Maritime provinces, for example, operate with just one Emergency Measures Office, whereas Alberta has developed an emergency management network called Alberta Emergency Preparedness Partnership,

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which consists of the academic community, public sector associations such as the Urban Municipalities Association, government organizations, private industry, and non-governmental organizations (NGOs). Recent disasters, both natural and human-caused, have prompted many provincial jurisdictions to re-examine emergency management. Ontario, which suffered both the SARS outbreak and the power outage in 2003, is reforming its Emergency Management Act and, according to Ontario officials, pursuing a rigorous program to prepare all ministries and municipalities for a range of disasters, from pandemic influenza to nuclear spills (Emergency Management Ontario, 2003). FEDERAL EMERGENCY MANAGEMENT RESPONSIBILITIES

The scope of emergency management at the federal level is established by two pieces of legislation: the Emergencies Act and the Emergency Preparedness Act. The Emergencies Act (1988) is an important piece of legislation in the federal regulatory framework for a number of reasons. First, section 3 of the Act defines a national emergency as 'an urgent and critical situation of a temporary nature that: (a) seriously endangers the lives, health or safety of Canadians and is of such proportions or nature so as to exceed the capacity or authority of a province to deal with it, or (b) seriously threatens the ability of the Government of Canada to preserve the sovereignty, security or territorial integrity of Canada' (Emergencies Act 1988). Second, the Act identifies different types of emergencies and separates them into four categories: public welfare, public order, international, and war emergencies. Third, it outlines the roles and responsibilities of government officials and of parliament. Significantly, in its definition of emergency, the law is carefully designed not to tread on provincial emergency-management responsibilities, reflecting its federal regulatory status. It does this in two ways: first, by limiting its reach only to 'national' emergencies; and second, by prescribing a role for the federal government only if it exceeds 'the capacity or authority of a province to deal with it' (Emergencies Act 1988). Furthermore, these 'conditions' act as constraints on federal powers, which, in times of crisis or emergency, can quickly be extended to the point where they constitute an incursion into provincial jurisdiction and/or threaten civil liberties. In Canada's federal system, these checks and balances are seen as an important component of any emergency regulatory framework. Indeed, they were incorporated into the 1988 Act to safeguard against the perceived abuses that occurred under its

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predecessor, the War Measures Act. The controversial War Measures Act provided the then prime minister, Pierre Trudeau, with the authority to suspend civil liberties during the Quebec October Crisis of 1970. Consequently, the Emergencies Act differs from the War Measures Act in that it prescribes a clear role for parliament to review a declaration of emergency made by cabinet and it makes any temporary laws passed under the Act subject to the Canadian Charter of Rights and Freedoms. Though these provisions serve as an important check on federal power, they also, from a regulatory perspective, complicate the notion of 'supreme law/ The Emergency Preparedness Act (1985) is the companion legislation to the Emergencies Act. This act designates the minister of national defence as the official responsible for the development and implementation of civil emergency plans.3 It also places expectations on other ministers who report to parliament to have civil emergency plans for their respective departments. Within the federal government, as with many provinces and territories, there is a complex network of organizations that are charged with emergency-related responsibilities. The latest addition to this network is Public Safety and Emergency Preparedness Canada, the creation of which was announced on 12 December 2003 by Prime Minister Paul Martin. PSEPC's mandate is to provide policy and operational advice in support of a range of matters, including emergency preparedness and management, critical infrastructure protection, community safety programs, criminal justice, border safety, and other issues related to national public safety. PSEPC is an amalgam of new and existing organizations and combines the core activities of the previous Department of the Solicitor General, the Office of Critical Infrastructure and Emergency Preparedness, and the National Crime Prevention Centre. The new department is part of the portfolio of Public Service and Emergency Preparedness, which includes the Royal Canadian Mounted Police, the Canadian Security Intelligence Service, the Correctional Service of Canada, the National Parole Board, the Canada Firearms Centre, and the Canada Border Services Agency (PSEPC, 2004c). The envelope of responsibility currently falls under the authority of the deputy prime minister. This reflects both the operational need to integrate the Canadian safety and security system under the leadership of one minister and the strategic move to locate the new portfolio close to the Prime Minister's Office (PMO).

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There is also a number of other federal government organizations and units that that are part of the federal emergency management network. At the centre of this have been the Department of National Defence (DND) and its Office of Critical Infrastructure Protection and Emergency Preparedness (OCIPEP). However, PSEPC is now mandated with acting as manager in emergencies related to national security. In other types of emergencies, departments with the appropriate expertise act as the lead manager. For example, the response to a healthrelated federal emergency would be managed by Health Canada's Centre for Emergency Preparedness and Response. For an environmental emergency, Environment Canada's Environmental Emergencies Program plays this role. In other words, different departments across the federal public service are responsible for preparing for and managing the response to different emergencies, since the mandate of such departments and the expertise within them make this appropriate. In all cases, the role of PSEPC will be to act as helper and facilitator, as it is when emergencies are limited to provincial or municipal jurisdictions. Brief mention must also be made of the number of NGOs that are involved in emergency preparedness and emergency management. Such organizations are organized locally, provincially, federally, and internationally and come to the assistance of the public in times of need. The Red Cross and the important relief services it provides is a clear example. Other organizations, such as religious groups and professional associations, are also involved in the response effort. In this way, the roles and responsibilities for emergency management at each level of government are prescribed by a set of rules. These rules comprise a multilevel framework within which emergency management organizations and others work to prepare for, respond, and manage the recovery from emergencies. Although this multilevel framework provides a clear structure and set of rules for governing emergencyrelated activities within each jurisdiction, in practice it is not so clear how or where these parallel rules intersect. Notwithstanding the convention that, when one level of government is unable to handle an emergency, it asks the next order of government for assistance, it is not evident what happens next in terms of the nature of the intervention, coordination, and accountability. As a consequence, intergovernmental relations remain the most ambiguous, complex, and heavily criticized feature of Canada's emergency management framework. In order to analyse these issues more closely, we now examine the rules in more detail.

Emergency Management 335 Multilevel Responsibilities as a Set of Rules

Normally, emergency management involves dealing with unpredictable events. Preparing for and managing such unpredictable events requires a flexible response; however, to be effective, this flexibility in turn requires some structure and therefore needs to be located within a predictable set of rules. In Canada, there is a complex hierarchy of cascading rules which govern emergency management activities at all levels of government. This regulation hierarchy includes legislation, departmental/ministry regulations, and standards, plans, policies, and procedures. The hierarchy of regulations exists within each level of government, either formally or informally, and clearly defines the scope of activities that are carried out in the name of emergency management. Legislation

The legislation that governs emergency management activities at the local level is for the most part enacted by the provincial masters. In many cases, municipal bylaws prescribe specific responsibilities for municipal bodies but overall governance resides within the provincial legislature, with compliance enforced through provincial emergencymeasures organizations. In Ontario, for example, Emergency Management Ontario is staffed by at least twelve community officers located in different communities across the province. Their role is to assist municipalities to comply with the Ontario Emergency Management Act and to provide assistance and expertise during emergency situations (Emergency Management Ontario, 2003). Since provincial bodies and municipalities are both governed by the same legislation, there is, in theory, a high degree of coordination between these two levels of government. Of course, it is crucial that formal and informal networks and linkages are created in nonemergency times, if coordinated and effective responses are to occur in an emergency situation. Linkages between the federal and provincial levels, on the other hand, are not as clear or well established through legislation. Though the federal Emergencies Act is clear on what type of emergencies require federal leadership (public welfare, public order, international, and war emergencies), it does not identify the mechanisms whereby the three levels of government can coordinate a response. The only provision for provincial/territorial involvement in federal emergency legis-

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lation is in the Emergency Preparedness Act, whereby the minister of defence5 is granted the authority to 'enter into an agreement with the government of any province with respect to civil emergency plans' (s.6). Similarly, provincial emergency legislation in some cases allows for federal standards to apply to provincial emergency plans. Regulations and Standards

Whereas emergency management legislation provides for the broad regulatory framework under which emergency management activities are carried out, regulations and standards prescribe more specific functions for government departments and agencies to deal with emergencies. The reality of emergencies and disasters is that they can be extremely diverse, ranging from natural disasters to terrorism and public health emergencies. To account for this wide range, regulations and standards prescribe more specific roles for government departments and agencies to deal with emergencies that come under their purview. A good illustration of this is in Ontario where, under an order-incouncil, different ministries are designated as being responsible for different types of emergency situations. For example, Ministry of Natural Resources is designated as the lead ministry in the preparation and management of forest fires, and the Ministry of Health and Long-Term Care is in charge of human health emergencies. Lead ministries are therefore charged with the responsibility of planning for types of emergency situations that fall under their purview and with leading certain aspects of an emergency, such as liaising with and providing direction to sector stakeholders. Similar 'contingent' rules are in place at the federal and municipal levels, and, while this can make for a more flexible response, it can also add considerably to the complexity. Plans

Planning is an integral aspect of emergency management. Whereas standards and regulations assign different ministries emergency management responsibilities over different types of emergencies, plans describe the arrangements and measures in place that will assist these departments and agencies to respond. For instance, many plans have operational components to them, which identify the location and inner workings of an emergency operations centre to assist personnel in managing an emergency situation.

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Different jurisdictions take different approaches to planning. One that is currently used by the government of Canada is referred to as the 'all-hazards' approach. The 'all-hazards' way of doing things is to make plans sufficiently general that they can be applicable to a variety of situations. In contrast, a hazard-specific approach involves having a central plan, broad in scope, that contains general emergency management arrangements and, in support of the general plan, having more specific plans that deal with particular types of emergencies. This is a further aspect of the emergency-management multilevel regulatory environment that lacks clarity and has the potential for confusion. Having different approaches to planning in certain contexts mean that different levels of government will respond to emergencies in different ways. Whereas an all-hazards approach to planning may prescribe similar responses to a particular emergency situation, the hazard-specific approach used in some of the larger provinces, such as Ontario, may prescribe entirely different responses. In the event that one of these unforeseen events required federal and provincial coordination, the interoperability that would be gained from taking similar approaches to planning would be noticeably and perhaps disastrously absent. Policies and Procedures

Policies and procedures are the most detailed form of regulatory rules in Canada's emergency management framework. All levels of government have policies and procedures to structure how activities are to be carried out in preparation for, and in response to, emergency situations. They help channel strategic aims and objectives into operational tasks and help clarify the crucial questions of 'who/ 'when/ and 'how.' Communication procedures are an important example of this and, significantly, they have also been the subject of criticism during recent inquiries into Canada's handling of emergencies. Stated bluntly, poor communications among the various players can pose serious problems at most emergencies. Informal Networks

This examination of Canada's framework of rules has focused on the legal and formal aspects of regulation. However, in reality, any structure relies heavily on informal relationships to guide and structure an

338 Phil Graham and Christopher Stoney effective response. J. Scanlon argues that, in a federal state in particular, informal linkages, often at the local or grass-roots level, are vital to the overall framework in overcoming organizational or systemic divides (Scanlon, 1995). Often, strong informal links can provide effective coordination in spite of an inadequate regulatory framework. In this way, well-developed informal relationships help fill the gaps between the different levels of government involved in emergency management. Assessing the Emergency Management Framework The regulatory regime described above was intended to provide structure and stability to situations that, by their very nature, are unpredictable, sporadic, and difficult to manage. While a set of 'rules' has developed, the key problems with the current federal framework arise from the fact that emergencies do not recognize political boundaries, nor do they respect the organizational and resource capacity of any given jurisdiction to deal with an emergency situation. Thus, most large-scale emergencies will require the convergence of local, provincial, national, and even international bodies engaged in response and recovery activities. There is increasing concern that the regulatory frameworks currently in place within each jurisdiction lack the coordination and portability to integrate with those in other jurisdictions, especially in the federal and provincial/territorial spheres. A clear example of the inconsistent regulatory framework between jurisdictions in Canada can be drawn from Ontario's SARS emergency in the spring and summer of 2003. Of the many reports written in the aftermath of SARS, Learning from SARS - A Renewal of Public Health in Canada (2003) provided some of the greatest clarity on the lack of multilevel coordination to manage the emergency. The report made a number of critical observations directed at Canada's emergency management system. A central criticism was that federal-provincial linkages, required for the effective management of a public health emergency of this scale, were underdeveloped and not well understood. The report found that, in public health, mechanisms designed to support collaborative decision making or systematic data sharing across different governments were inadequate (Health Canada, 2003). As a result, key information necessary to manage the emergency collaboratively was at times compromised. For instance, there was considerable confusion between local authorities (Toronto Public Health), provincial authorities (Ontario Min-

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istry of Health and Long-Term Care), the federal government, and the World Health Organization over definitions of 'probable,' 'suspect/ and 'confirmed' SARS cases. The failure to utilize precise definitions meant that the severity of the emergency was not clearly understood at all levels and that the public received inconsistent messages. It was not until the second wave of the illness that consensus was reached on case definitions. The Naylor report into SARS and public health management was also critical of the framework used to coordinate intergovernmental cooperation. As we have seen, the federal Emergencies Act establishes a regulatory framework with no clear mechanism of interjurisdictional collaboration. The Naylor report illustrates this flaw by identifying two extreme options that the Act provides for the federal government. The first option is for the federal government to use the broad and heavyhanded powers afforded to it under the act. These powers would enable the federal government to enter into the provincial realm and in essence take over the management of an emergency (Naylor, 2003); however, such powers have never been used since the Act's passage in 1988 because the threshold that needs to be met for these powers to be exercised is set so high. The second option, albeit a much weaker one, is for the federal government simply to request voluntary assistance from partners. Historically, the federal government has preferred to take this approach with the provinces, rather than to intervene directly. Neither of these options, provided for in the Emergencies Act, results in a regulatory environment that lends itself to sustained multilevel coordination in the management of emergencies. Cross-jurisdictional collaboration, when it occurs, happens in a much more ad hoc and informal manner (see Scanlon, 1995, for Canadian examples). While this can be effective, it fails to provide the kind of predictable and coherent framework of rules required to manage emergencies that involve multiple agencies and jurisdictions. The Naylor report also criticizes a general lack of knowledge and understanding of the different emergency management frameworks across the provincial and territorial governments. The report emphasizes 'federal and provincial planning must be as integrated as possible to avoid confusion and duplication of effort and to ensure a timely flow of essential information and advice between levels of government' (Naylor, 2003: 99). A third report, National Emergencies: Canada's Fragile Front Lines - An Upgraded Strategy (Standing Senate Committee on National Security

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and Defence, 2004), is also critical of Canada's parochial approach to emergency management and suggests that many of its problems are political in nature: Tower struggles, jealousies and differences of opinion inevitably arise when three different jurisdictions of government have important roles to play in solving a problem. As a result, developing a truly national approach to disaster response and assuring that resources and training are sufficient and properly distributed is a formidable task that should not get in the way of defining it as an essential task' (Standing Senate Committee on National Security and Defence, 2004: 37). These findings support those of Scanlon, who found that provincial-federal posturing and party politics were key factors in the success or failure of disaster management in Canada: It is probably not a coincidence that on two occasions when federal help was refused, (Mississauga and Nanticoke), the party in power in the province was different from the one in power at the federal level. It is also not a coincidence that in Edmonton where all three governments worked so smoothly together, both the provincial and the federal government were controlled by the same party. The history of Canadian emergency planning shows changes in the federal planning structure are often a function of party politics. When it comes to disaster management in Canada, government and politics are intertwined. (Scanlon, 1995: 23)

The Senate Committee identified several related weaknesses in the existing regulatory framework for emergency management and recommended a number of measures to improve multilevel coordination in particular. These recommendations gravitate around four themes. First, the federal government should demonstrate more leadership when preparing for and managing emergencies. Second, the federal and provincial governments should adopt a more cooperative approach towards solving emergency management issues. Third, the federal and provincial governments should do more to understand the demands placed on municipal levels of government when it comes to managing emergencies, and engage municipal government in developing emergency management frameworks and strategies. The final recommendation is for the federal government to use the power of the federal purse to augment the emergency response capabilities of other levels of government (Standing Senate Committee on National Security and Defence, 2004: 38). These recommendations place considerable responsibility on the

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Canadian government to rethink the way that emergencies are managed in Canada. In addition to changes in leadership and funding, the Senate committee highlights the need for the federal and provincial governments to demonstrate a more collaborative approach to emergency management. Since becoming prime minister, Paul Martin has shown a willingness to adopt an 'urban lens' and has repeated his wish to work more collaboratively with provincial and municipal 'partners' in rebuilding Canada's infrastructure. Judging by the high priority attached to, and the significant resources being channelled into, emergency management, the prime minister may be prepared to change the federal government's role in this area and work more closely with other levels of government. Nevertheless, although the Senate's recommendations are both sensible and persuasive, they are essentially about changes in attitude and style. What they fail to address are the more substantive issues of regulatory reform. Current and Planned Reforms The government of Canada is working on many fronts to address the lack of multilevel coordination in Canada's emergency management system. In an effort to improve leadership and coordination, the federal government's newly created PSEPC brings together a number of portfolio agencies with the mandate to protect the safety and security of Canadians. An important objective of PSEPC is to build partnerships -with the private sector, the provinces and territories, municipalities, and key international partners, and this could be crucial in strengthening existing networks and forging new ones. As responsibility for emergency management has shifted to PSEPC, that body has also been charged with the responsibility of reviewing emergency management legislation in an effort to ensure its relevance in the current risk environment. In this context, PSEPC's task could be seen as one of providing a better 'strategic fit' between the emergency management framework and the new risk environment. PSEPC's new functions are codified in Canada's new national security policy, Securing an Open Society (PCO, 2004). This policy statement makes commitments on a number of fronts to address the new risk environment, including cyber protection, transportation security, and efforts to combat terrorism. The document also aims to address multi-

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level coordination in Canada's emergency management system. Throught the document, there is clear concern about the lack of multilevel coordination between jurisdictions: 'National emergency coordination currently suffers from the absence of both an effective federal-provincial/territorial governance regime, and from the absence of commonly agreed standards and priorities for the national emergency management system' (PCO, 2004: 25). To address these shortcomings, the document sets out a number of initiatives to improve the current regulatory regime, including a review and overhaul of current legislation and emergency planning. At an operational level, Securing an Open Society indicates that the federal government is working to co-locate federal emergency operation centres with provincial/territorial operations centres in an effort to move towards a more seamless emergency response (PCO, 2004:12). In addition to the proposed policy and organizational changes, the federal government has committed to developing new funding programs to further multilevel coordination, in particular the Joint Emergency Preparedness Program (JEPP) and the Disaster Financial Assistance Arrangement (DFAA). JEPP is administered by Public Safety and Emergency Preparedness and it provides funding for 'earmarked' projects in the provinces and territories to augment emergency preparedness capacity. Its stated purpose is to 'encourage and support cooperation among federal and provincial/territorial governments in working toward a national capability to meet emergencies of all types with a relatively uniform standard of emergency response' (PSEPC, 2004b: 1). To this end, emergency preparedness projects in the provinces and territories will need to be aligned with the emergency preparedness priorities of the federal government in order to for them to receive funding. Though JEPP has existed since 1980, the 2001 budget allocated an additional $10 million over two fiscal years to augment the program (PSEPC, 2004b: 1). Federal financial assistance for emergency management is also provided through the Disaster Financial Assistance Arrangements (DFAA). The DFAA makes federal funds available to assist provinces and territories in recovering from an emergency. It follows a cost recovery model, so that jurisdictions must request federal funding after costs have been incurred. The DFAA has been a controversial program because it appears to favour some provinces over others and tends to focus too narrowly on natural disasters as opposed to other types of disasters such as public health emergencies. In particular, funding arrangements

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have been identified as a key reason why provinces often prefer to 'go it alone' in response to an emergency and refuse assistance from the federal government and other outside agencies (Scanlon, 1995). In addition to financial programs, work is being done to establish federal-provincial/territorial structures to increase the level of cooperation between different jurisdictions on emergency management issues. At the deputy minister level, there is the Forum on Emergency Preparedness. There are also a number of director-level, sector-specific structures, such as the Council of Health Emergency Management Directors (CHEMD). However, this appears to be little more than a loose affiliation of individual groups rather than a fully cohesive and coordinated system of federal-provincial/territorial collaboration. The minister for public safety and preparedness, Anne McLellan, recognizes that these problems are common in many countries; she commented that the way in which American security agencies operate together is 'a weakness that has also plagued Canadian agencies' (Globe and Mail, 28 April 2004: A5). She has also stated, however, that the federal government's new spending allocations and reforms announced in April 2004 'will go a long way towards fixing the cooperation problem' (ibid.). Although significant work is being done to enhance federal-provincial/territorial collaboration in emergency management, few of the initiatives announced to date effectively address the regulatory framework that we believe is the key obstacle to effective emergency management in an era of heightened risk. Conclusions Canada's emergency management system is a complex one that involves all levels of government and a plethora of actors and institutions. This complicated and highly contingent system, likened to a 'bowl of bureaucratic spaghetti' by a former chief of emergency management, appears increasingly inappropriate and ineffective in the face of the challenges presented by the new risk environment (Ottawa Citizen, 27 November 2005: E5). Emergencies such as the terrorist attacks of 11 September 2001, SARS, 'mad cow' disease, and the Ontario power outage have provided evidence of acute deficiencies in Canada's emergency management systems and raised concerns about the nation's ability to manage future emergencies. Both the Naylor report (2003) and, to a lesser extent, the Senate Standing Committee on National Security and Defence attributed the

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lack of multilevel coordination to the absence of a suitably integrated regulatory regime. As it stands, the hierarchy of rules that governs emergency management at the federal level (especially the legislative component) prescribes a 'hands-off approach to local and provincial emergencies. Accordingly, we feel that the current regulatory framework presents the biggest single obstacle to greater coordination and collaboration between all the parties responsible for emergency management in Canada. The federal government is the only body capable of coordinating a national regulatory framework and should be responsible for developing a strategic overview of emergency management across Canada. In this context we support the call for the public safety minister and the national security adviser to take a 'hands-on' approach to ensure that the plans needed for closer integration are acted upon (Ottawa Citizen, 4 December 2004: E4). This would also involve the Department of Public Safety and Preparedness being given enhanced legal powers to act as a type of 'super-agency/ with the authority to direct other government departments on issues of emergency management. Under this model, 'individual agencies would retain responsibility for particular plans, but the super-agency would do the strategic thinking and planning' (ibid.). Such reforms would help to provide a coordinated emergency response and replace the staggered municipal, provincial/territorial, and federal response that appears to frustrate and bewilder many of the professionals responsible for dealing with emergency situations. Toronto's chief of police, for example, recently attacked the staged sequence of response as a 'basic flaw' in Canada's emergency management and believes that 'the federal government should not be required to stand by until municipal and provincial resources are exhausted' (Ottawa Citizen, 27 November 2004: E3). In many ways, identifying flaws in the current system is the easy part compared with the task of developing a more coherent and integrated framework. Regulating emergency management presents a number of challenges and dilemmas. First, in an effort to respond quickly and decisively to emergencies and threats, regulation can often appear hasty and Draconian. Ensuring public safety is clearly a priority, but this has to be reconciled and balanced with individual rights, civil liberties, and freedoms.6 Second, appropriate regulation in this area needs to provide structure and rules but avoid becoming excessively bureaucratic and inflexible. Third, while a degree of centralization is required to provide

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strategic coordination, an overly centralized system can quickly become dysfunctional, creating bottlenecks, over-extending lines of communication, and disabling those at the scene of the emergency. Furthermore, in a federal and geographically dispersed country like Canada, the degree of centralization remains a sensitive political issue. As ingrained and historical as these political differences are, it is to be hoped that they will not prevent the necessary reforms of the current regulatory framework from being undertaken. As Senator Colin Kenny states: 'People turn to their governments in times of national emergency and the last thing they want is to have a system that has friction between one level of government and another, or that the different levels have not planned in a cooperative way (Ottawa Citizen, 27 November 2004: E5). The need for constitutional change in this area, we believe, is not proven. Although there have been calls for constitutional change to allow for substantial reform of emergency management, we do not believe that such change would be desirable, achievable, or even necessary. Embarking on constitutional change could in fact prove to be counterproductive if protracted debate led to further entrenchment of political and regional divisions. The necessary changes to the current emergency management framework can be achieved through a combination of changes in attitudes, regulation, funding, and institutions. The current work being done to improve multilevel coordination and communication must be supported and enhanced by the creation of a coherent multilevel regulatory regime that governs and clarifies emergency management activities at all levels. It is through such comprehensive reforms that Canada must work to ensure that Cicero's maxim rings true - that the safety of the people is the supreme law. NOTES We would like to thank Joe Scanlon, Ruth Carriere, and Allison Stuart for their advice and technical assistance and are grateful to the journalists at the Ottawa Citizen for their excellent series of reports on emergency management. 1 Local emergency management organizations in British Columbia include those in Burnaby, Coquitlam, Cowichan Valley Regional District, Delta, Kelowna, Mission, North and West Vancouver, Richmond, and Surrey. See

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2

3 4 5

Emergency Preparedness Information Exchange, Canadian Local and Regional Emergency Management Programs. Available at http://epix.hazard.net/ local.html. The town of Windsor and the municipality of West Hants have a joint Emergency Measures Office, as do the towns of Truro and Stawiacke and the municipality of Colchester. See Local Emergency Measures Organizations in Nova Scotia. Available at http://www.gov.ns.ca/emo/links/links.htm. At the time of writing, this new legislation aims to transfer responsibility to the minister of PSEPC. This responsibility will be transferred to the minister of PSEPC. Ontario's draft emergency powers bill is a good example of this dilemma. In response to a perceived lack of direct powers to deal with recent emergencies in the province, the new law would provide the Ontario premier and cabinet with extensive powers to control the movement of people, requisition property and supplies, and order actions by the employees of provincial and municipal governments. However, the bill failed to build in a review of any use of emergency powers by a judge or independent auditor (see Globe and Mail, 2 November 2004: A8).

REFERENCES Alberta Emergency Preparedness Partnership (2004). Objectives. Available at http: //www.aepp.ab.ca/objectives.html Emergency Management Ontario (2004). About Us. August. Available at http:// www.mpss. jus .gov. on. ca / english / pub_security / emo / about_emo .html Fritz, Charles (1961). 'Disasters.' In Robert K. Morton and Robert Nisbet, eds., Contemporary Social Problems: An Introduction to the Sociology of Deviant Behaviour and Social Disorganization. London: Harcourt, Brace and World. Gillespie, David E, et al. (1993). Partnerships for Community Preparedness. Boulder: University of Colorado Press. Health Canada (2003). Learning from SARS: Renewal of Public Health in Canada. Ottawa. - (2004). National Framework for Health Emergency Management: Guideline for Program Development. Prepared for FPT Network on Emergency Preparedness and Response. 28 January. National Commission on Terrorist Attacks upon the United States (2004). Report of the 9/11 Commission. Washington. Naylor, D. (2003). The Report of the National Advisory Committee on SARS and Public Health chaired by Dr. David Naylor, Dean of Medicine at the University of

Emergency Management 347 Toronto. Available at http://www.hc-sc.gc.ca/english/protection/warnings / sars / learning.html Privy Council Office (PCO) (2004). Securing an Open Society: Canada's National Security Policy. Ottawa: Privy Council, April. PSEPC (1999). Office of Critical Infrastructure Protection and Emergency Preparedness. Fact Sheet: Disaster Financial Assistance Arrangements (DFAA). Available at http://www.ocipep.gc.ca/info_pro/fact_sheets/general/ FA_df_assist_e. asp (2004a). Office of Critical Infrastructure Protection and Emergency Preparedness. Who We Are. Available at http://www.ocipep.gc.ca/whoweare/ index_e.asp (2004b). Office of Critical Infrastructure Protection and Emergency Preparedness. Introduction: Joint Emergency Preparedness Program (JEPP). Available at http://www.ocipep.gc.ca/fap /joint_emerg/en_jeppl_e.asp (2004c). Legislation to Establish Department of Public Safety and Emergency Preparedness. Available at http://www.psep.gc.ca/publications/ news/20041008-2_e.asp (2005). Basic Emergency Management Course. Canadian Emergency Preparedness College CD-ROM, Version 2. Quarantelli, E.L. (1998). What Is Disaster? Perspectives on the Question. New York: Routledge. Scanlon, J. (1995). 'Federalism and Canadian Emergency Response: Control, Co-operation and Conflict.' Australian Journal of Emergency Management 10, no. 1:18-24. Senate Standing Committee on National Security and Defence (2004). National Emergencies: Canada's Front Fragile Lines - An Upgraded Strategy. Vol. 1. Ottawa, March.

15 Conclusions G. BRUCE DOERN AND ROBERT JOHNSON

The purpose of this book has been to use a multilevel regulatory governance lens, with a focus ranging from the international to the urban/ community level, to explore how regulation is developing and changing in Canada. Using this lense, the chapters have mapped and analysed in various ways why and how multilevel regulatory governance is evolving and also how change is being resisted. Most of the chapters have also identified a number of contested norms, principles, and mechanisms to advance ways to improve multilevel regulatory governance in Canada. In this concluding chapter, we draw out further the explanatory and normative perspectives advanced in a number of chapters to deal with several key themes and issues. The chapter's first section elaborates on the question of whether Canada should adopt a more active approach to regulatory cooperation with the United States. This is one of the key recommendations made by the External Advisory Committee on Smart Regulation (EACSR), and, within the context of current debates about a possible NAFTA 'plus/ it is also one of the main issues before the federal Conservative government. The second section deals with the theme of smart regulation: Is it a seamless operation to pursue a host of public interest purposes, or is it naively optimistic about the complex realities of multilevel governance? This is followed in the third section with an analysis of the related issue centred on the norms, principles, and mechanisms outlined in chapter 1, as they are revealed in both the macro and the sector-level chapters. Finally, the fourth and fifth sections address in greater detail the conceptual basis of multilevel regulatory governance as an explicit framework. The fourth section considers not only how 'levels' emerge from legal/constitutional levels

Conclusions 349

of government but how they come into the foreground as a result of pressures, advocacy, and new governance architecture, as well as through political controversies and their diverse interpretations. While the discussion is certainly not comprehensive, we focus on three further kinds of levels that arise from the chapters: spatial levels from the urban to the global; levels of rule making versus levels of compliance, related to 'hard' and 'soft' rules; and levels and networks. We then conclude the chapter with a discussion of the sectoral versus horizontal realities and determinants of multilevel regulatory governance. These include, but are not limited to, the need to match sectoral regulation and regulatory regimes to multiple macro or horizontal goals and objectives, to powerful ideas and norms, and, as a consequence and increasingly, to related legislation, policies, and guides. This section also deals with the independent causal role of regulatory sectors. Canada-U.S. Regulatory Cooperation: Passive or Aggressive Regulatory Pursuit? As emphasized in chapter 1, the reference point in Canada for further international regulatory cooperation has increasingly shifted to the United States, to the point that speaking of continental economic integration after fifteen years of trade liberalization is merely to utter a truism. Nevertheless, Michael Hart's chapter documents the extent to which existing and newly created 'small' regulatory differences between the two countries continue to be a potential drag on competitiveness, innovation, and growth, a drag that can no longer be afforded in a world of fast-moving economic and political change. This is a key new argument about the next phase of liberalization in key sectors, and, in the context of the 'smart regulation' agenda outlined in the first chapter, it warrants serious discussion. Hart's chapter provides a detailed look at Canada's historically activist stance to influence international rule making and standard setting through instruments such as the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). He argues that Canada's extensive participation in international forums can be explained in light of the small size and openness of the Canadian

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economy, while the foreign trade-policy turn in the mid-1980s to recognize the American acquis through, first the Canada-United States Free Trade Agreement and then the North American Free Trade Agreement charted a new path to greater continental economic integration. Past choices matter, in other words, and the current question is whether to move along the same path to further regulatory cooperation bilaterally and internationally, or, instead, to reduce remaining regulatory differences through a more aggressive strategy that aims at greater regulatory cooperation and convergence with the United States. Noting that informal institutional linkages already exist in most areas among regulators for information-sharing and cooperation, Hart argues for aggressively pursuing closer cooperation in key sectoral areas, through the creation of new joint decision-making institutions, and, if necessary, unilaterally aligning Canadian regulations and standards with those of the United States - or just adopting American regulations and standards as they stand - to integrate further the common continental economic space. It is worth noting that the EACSR has also recommended greater economic integration. It notes that, in any event, Canadian regulatory requirements are increasingly ineffective in global markets and are contested by supranational authorities. Thus, eliminating small regulatory differences 'could save millions with no increased risk... It should be part of future foreign policy/1 Anecdotally, this point is stressed through a number of examples, including the case of Canada and the United States mandating tiny differential amounts of cheese in cheese-flavoured popcorn. Hart's call to move key aspects of multilevel regulatory rule making upwards to the continental level, underpinned by new institutions and governance processes, underlines the necessary political nature of the project rather than simply responding to extant continental and global processes (although these certainly play a part). Hart's argument is also premised on his view that the basic values of Canadians and Americans are basically similar. In some respects this is true, but, of course, there are some realms of regulation and rule making, such as gun control and health care, where it is not true and thus the notion that the remaining differences are few and inconsequential is not wholly convincing. In any event, market forces rather than stated values per se may be the more powerful driver of change towards convergence, a point that Hart notes. But market forces are not just the laws of supply and demand. They also represent the political lobbying of business and consumer interests on both sides of the border. In particular sectors, differences

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that look small in the total scheme of things are in fact rather large in sectoral political-economic terms on the United States side of the border as well as on the Canadian. The politics of multilevel regulatory governance also reflect different interests among and across different levels of regulatory authority and also the complexity of regulatory regimes. While the question of accelerating regulatory cooperation remains wide open at this historical juncture, it is highly dependent on political and contingent factors.2 First, multilevel sovereignty is still a key issue since a number of the sectors identified fall under provincial jurisdiction. It is for this reason that the EACSR proposes to give provinces and territories a greater say in foreign policy and calls for greater harmonization between federal and provincial regulations as well. As Geoffrey Hale and Christopher Kukucha's chapter shows, subnational interests may shape both the starting negotiating position and the policy outcomes in the trade and investment regimes of multilevel regulation. Second, the argument for the adoption of United States regulatory decisions in areas such as pharmaceutical drug approval was undermined by the very public recall of the arthritis drug Vioxx, providing an anecdote on the opposite spectrum to that of popcorn, where issues of risk, legitimacy, and accountability can conflict with the principle of efficiency. These complexities of the regulatory environment are explored in Joan Murphy's chapter (see more below). Finally, there is the larger context of CanadaU.S. relations, with the question of how the re-election victory by George Bush affects the prospects for accelerating regulatory cooperation, especially given the Canadian electorate's suspicions of Bush but at the same time its recognition that cooperation with the United States is essential. Hale and Kukucha posit that domestic interests on both sides of the border will mean passive cooperation in the short to medium term, with 'mad cow' disease, softwood lumber, and wheat on the Canadian radar screen and security, Iraq, and missile defence on the American. 'Smart Regulation': The New Regulatory Paradigm? 'Smart regulation' is premised on an ability to allocate scarce regulatory resources to public purposes in the most efficient and effective manner and with a firm eye on the imperatives of the knowledge-based and innovation-centred economy. As we said in chapter 1 when we outlined the smart regulation paradigm, a key question is whether that paradigm's

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aim to reconcile values of economic efficiency and innovation with other public interest purposes was possible. We also argued that it is not entirely clear what paradigm of regulation the smart regulation was replacing or building on. Smart regulation itself picks up and subsumes other changes in regulatory thought that had followed the simpler deregulation urges of the 1980s. We also asked whether such values as democratic accountability, legitimacy, trust, and efficacy in the management of the risks and benefits of health, safety, and the environment could all be accommodated. To speak of a potential paradigmatic change in ideas requires still further elaboration. After all, the preoccupation with ensuring 'sound/ 'better' (United Kingdom and European Union [EU]), 'quality' (Organization for Economic Cooperation and Development [OECD]), or 'smart' (Canada) regulation is an international reflection of various attempts to adjust and enhance the policies, processes, and institutions of regulation in the pursuit of economic performance and key democratic goals such as increased accountability, transparency, legitimacy, and equity in the transition and adaptation to a knowledge-based economy and a globalized economy and society. There has been a growing consensus internationally over the last decade, through the adoption and dissemination of 'best regulatory practices' and norms of good governance via the OECD and other international bodies. This includes a view that improving multilevel regulatory governance holds the promise of achieving these twin objectives, or at least improving upon them and with countries learning from each other in a continuous fashion. Thus, the premise is that not only are the regulation-making, implementation, and reviewing processes important to achieve consistent, efficient, cost-effective, and effective (i.e., enforceable) regulations, but transparency and principles of due process (e.g., notification) are also important democratic values in their own right. Effectiveness in regulation, according to this view, is a combination of efficiency and legitimacy (European Commission, 2004; OECD, 2002). In the case of policies on regulation, as Robert Johnson's chapter shows, OECD best practices are not only in evidence at the federal level but are being adopted at the provincial-territorial level as well. We illustrate these principles further in Table 15.1 by reproducing the EACSR's 'ideal' regulatory system, based on a cycle of informational feedbacks into the system and out to the public. Embedded within the smart regulation approach is the underlying implied notion that there is a 'one-size-fits-all' solution, and that learning experiences will (eventu-

Conclusions 353 Table 15.1. EACSR principles of the regulatory system from design to review Effectiveness

Meet its objectives Based on performance targets (flexibility in instruments) Evidence-based Regular review Up-to-date with changing environment

Cost-efficiency

Analysis, measures, and enforcement commensurate with risk or problem Least cost to achieve objective Single windows between departments and jurisdictions Minimize cumulative impact of regulation by avoiding overlap, duplication, inconsistency, unintended consequences

Timeliness

Regulatory decisions and services provided in a way that new knowledge develops, consumer needs evolve, business prospers Time frames and standards for decision making

Transparency

Promote learning and information sharing Policy objectives clearly defined Explain priorities and decisions with justification to public interest Public scrutiny Information readily available in print and electronically Predictability for regulatees Business and citizens participate through active consultation and engagement

Accountability and performance

Regulators must account for their performance Announce intended results and demonstrate progress in achieving them Performance monitored, measured, and reported publicly Results systematically reported to public Complaints procedures are well publicized, accessible, fair, and effective

Source: Adapted from External Advisory Committee on Smart Regulation (2004), 14.

ally) lead to a convergence of approaches between levels of government. However, it is fair to ask whether the search for the holy grail of seamless regulatory operation is naively optimistic about multilevel realities of efficiency, democracy, and complexity. This is certainly not to argue that the pursuit of better regulatory mechanisms and institutions is an illusory objective; on the contrary, one of the goals of this book is to contribute to a discussion of how multilevel regulatory governance may be improved in a democratic context. However, by ignoring the real tensions and trade-offs between competing norms, regime complexities, uncertainties, and dynamics, we obscure how much 'smart

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regulation' is a difficult and contentious balancing act, especially when it is attempted in diverse concrete situations, cases, time periods, and arenas of political-economic life. Thus, we first demonstrate the complexities of how multilevel regulatory governance works in practice and then, in the next subsection, we deal with the tensions and tradeoffs inherent in the contending norms, principles, and mechanisms. Complex Choices and Competing Objectives

Initially, we simply illustrate the limitations of the inherently rational model that lies at the heart of 'smart regulation.' In this respect, one important difficulty resides in marrying up different roles, purposes, and objectives in increasingly complex, web-like multilevel environments of change and challenges. This is especially evident in several of the sectoral chapters, but it also comes to the fore, in different ways, in several of the macro-level chapters as well. Susan Phillips shows the contradictory nature of the voluntary sector's role as social actor, service provider, and civil society. In particular, she demonstrates that the difficulties that the regulatory regime has in simultaneously ensuring adequate governmental rules for the voluntary sector, and thereby securing public trust, and allowing sufficient flexibility and responsiveness for compliance by organizations that vary greatly in size and scope. Bruce Doern's chapter on federal 'related science activities' (RSA) makes clear that the fluid boundaries between regulatory and servicelike tasks means not only that the importance of these activities is inadequately recognized by the federal government's R&D policies but also that provincial and local sources of knowledge have to be coordinated. Chris Stoney argues that a one-sided focus on economic objectives at the expense of social ones cannot solve the pending urban crisis in Canada and its underlying multilevel regulatory challenges and impacts. At the sectoral level, the fault lines and continuing tensions among economic, social and environmental objectives are evident in other ways. Joan Murphy demonstrates the difficulties of reconciling social and economic objectives in Health Canada's health and safety mandate, on the one hand, and the tasks imposed on the department by other economic/commercial federal policies and commitments, on the other. The resulting de facto dual nature of what Health Canada has to do in health product regulation makes the assessment of the benefits and costs, and risks, a difficult endeavour. Murphy notes that the minimiza-

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tion of risks is paramount to ensure the trust of Canadians in the regulatory system. Yet she also points out that Health Canada's related policy task - to support federal policy on the competitiveness of the health products industry - raises complex choices: while timely access to health-related drugs and competitiveness may be reconciled, the increased speed of regulatory approvals may bring with it the danger of increased risk. In particular, she asks, when social and economic interests do collide, which priorities will prevail? Similarly, Grace Skogstad's chapter on food safety regulation shows the difficulties in reconciling social and economic objectives at the domestic and international levels. These tensions are not only limited to areas of primarily so-called social regulation. Keith Brownsey's chapter on the oil and gas industry in Alberta highlights the role of environmental and sustainable development considerations in the core economic mandate of Alberta's Energy and Utility Board (HUB) and in the federal commitment to the Kyoto Protocol. He concludes that the dramatic change from 'a system of prescriptive economic regulation to one approaching performance social regulation [means] that the system has grown more complex and expensive.' Similarly, Karine Levasseur and Stephanie Paterson come to the same conclusion regarding single-resource communities in their chapter on forest regulation, since companies now deal not only with overlapping federal and provincial legislation and related regulatory frameworks but also with First Nations as a new level of rule making, while being subject as well to new areas of quasi-social regulations such as those involving sustainable development strategies. The Limits to (Scientific) Knowledge and Capacity The chapters by Joan Murphy and Grace Skogstad provide the most telling examples of the 'grey' areas of scientific and technological knowledge, but the role of pervasive uncertainty and unintended consequences is also a complementary thread running through most of the chapters in the book. Joan Murphy's discussion of the Vioxx case shows that the scientific evidence is ambiguous at best, and therefore subject either to manipulation by various interests or simply to the impacts of new, unexpected knowledge being discovered by broader post-market surveillance. More fundamentally, a number of chapters show the myriad of governmental and non-governmental linkages that underpin the capacity to generate information and knowledge. This is particularly the case for

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RSA, where, as Bruce Doern's chapter points out, information capacity is dependent on scientific experts at various levels of government and internationally. For the health sector, the institutional and capacity issues to generate information relate particularly to the crucial dependency on the pharmaceutical industry and health professionals to trigger 'alerts' across levels of governments and sectors. Murphy also notes that the increasing reliance on partners with different mandates may lead to other complications. Moreover, given the changing risks associated with biology-based products, Murphy argues that the risk of unintended consequences increases while, at the same time, budget cutbacks magnifies the dependence on accurate external information. One other solution to these capacity issues is to accept drug approval from jurisdictions with greater resource capacities, including the United States. Clearly, Health Canada is now exploring these possibilities more actively than it did in the past. Skogstad, however, makes a case for 'inhouse' capacity rather than relying on that of industry and other governments. Increased 'in-house' capacity is a necessary, although insufficient, condition for public trust in regulatory regimes. The disconnect between the resources available and the tasks at hand is a recurring theme in the book, as, for example, in the relation between the federal government and the voluntary sector, but the local/municipal/communities level is where the accumulated weight of regulatory and service-activities often falls. Carey Hill and Kathryn Harrison's analysis shows that the 'blame game' may mean that governments, especially at higher levels, may not have an incentive to provide adequate funding for drinking water systems. Christopher Stoney's chapter on cities confirms that the current inadequate funding of Canada's cities is attributable to intergovernmental relations, where blaming and shirking responsibilities are common. Phil Graham and Christopher Stoney's analysis of emergency management suggests that party or partisan politics can play a role as to where responses actually occur and with what level of intensity or effective coordination. On the other hand, Brownsey finds that the capacity of players to adhere to regulations depends crucially on their size. Similarly, the actual ability of industries in single-resource towns to implement and comply with regulations from multiple levels of government determines whether firms will remain in these communities. In turn, this depends on the capacity of communities to be political advocates for these industries in representations to higher levels of government.

Conclusions 357 Table 15.2. Norms, principles, and mechanisms of multilevel regulatory governance Norms

Principles

Mechanisms

Efficiency and effectiveness of regulation (competitiveness, innovation, health, safety, and environment) Democratic efficacy (accountability, transparency, legitimacy, and equity)

Harmonization Mutual recognition Subsidiarity Uniformity or tacit cooperation and capacity building Competitive regulation and best-practice benchmarking

Integration and capacitybuilding incentives to conform MOUs (joint formal agreements, contracts, or licences) Voluntary codes (private action by citizens to trigger enforcement or compliance) Performance reporting requirements and 'report card' federalism

Duelling Norms, Principles, and Mechanisms In this section, we review the particular norms, principles, and/or mechanisms to address the problems and challenges of multilevel regulatory governance. The principles, themselves, based on even broader overall norms, are separate kinds of ideas for improvement and reform, although it is important to stress that norms, principles, and mechanisms are contested ideas, with various regulatory bodies and stakeholder interests (within countries and among countries) having strong and often conflicting views about what principles should prevail and also about what exactly these mean in specific regulatory situations and circumstances. It is therefore important to determine the level at which these norms, principles, and mechanisms are enunciated and advocated. Indeed, as some of the chapters show, accountability and related norms and regimes are increasingly multidimensional and matrixed and thus they raise real issues in relation to cabinet-government and to the public, as well as to other contending concepts and regulatory efficacy and democracy, where direct accountability to clients, groups, and customers is stressed. Michael Hart's chapter focuses on efficiency-related benefits for Canada while also paying attention to the institutional requirements to ensure democratic efficacy. To resolve multilevel regulatory differences, he advocates the principles of harmonization and/or mutual recognition and the removal of regulatory impediments to trade. Formal agree-

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merits, centred on robust principles, combined with institutions for joint decision making, would both provide efficiency-enhancing benefits and mitigate concerns about adverse impacts on sovereignty and democracy. When it comes to political legitimacy and democratic accountability, Hale and Kukucha note that Canadians have generally supported the federal government's efforts to pursue agreements for further integration, although they note that international forums (e.g., G-8, G-20 meetings) are under increasing public scrutiny because of questions about their degree of transparency and public accountability. In assessing the factors involved regarding the degree of convergence between federal-provincial/territorial policies on regulation, Robert Johnson argues in his chapter that a limited convergence in efficiencyoriented norms has taken place, albeit in a haphazard fashion across Canada, while democracy-oriented criteria in policies on regulation are absent in a number of provinces and territories. He notes that tacit cooperation and some competitive regulation, as well as the adoption of best practices from the international level, are also relevant factors. Johnson views the federal government, with its well-established regulatory policy and research capacity, as being instrumental in improving coherence and uniformity in this area by extending an 'opt-in' arrangement to provinces and territories and providing integration and capacity-building incentives. Both Murphy and Skogstad stress that improving the efficiencyoriented aspects of regulation must be accompanied by a parallel focus on democratic efficacy. While governments and business have an interest in achieving greater efficiencies through harmonization and mutual recognition, democratic efficacy is undermined unless these efforts to 'move up' are matched by the presence or similar 'moved up' institutions and processes committed to achieving public trust through transparency, legitimacy, and accountability. In the Canadian multilevel regulatory context, there are real limitations to this. For regulatory regimes, the capacity of the federal government to engage citizens remains crucial, even as its efficiency is dependent on a host of other international and domestic governmental and non-governmental actors. To Skogstad and Murphy, there are continuous and difficult tradeoffs implicit in pursuing efficiency and democracy-related norms. They are not seamless and 'smart' in any automatically agreed-on and especially 'timely' way. Like Murphy and Skogstad, Jen Sulkers endorses the primacy of the

Conclusions 359

federal government to resolve multilevel regulation problems in wastewater effluents, particularly with regard to particular pollutants identified under the Canadian Environmental Protection Act. She argues strongly that harmonization is necessary to create uniform standards and regulatory application across the country with respect to these hazards. While the mechanisms to achieve a harmonized approach among the three levels of government are still a work in progress (as in the case of food safety regulation) norms of efficiency and equity reinforce each other in this respect. The chapters by Stoney and Graham and Stoney, on the other hand, imply that multilevel regulatory governance is served better with a decentralizing approach. Improved multilevel regulatory governance, according to Stoney, depends not only on increased funding as part of the Martin government's 'New Deal' for cities but also on increased local autonomy for cities and municipalities. The resolution of the 'democratic deficit' and citizens' apathy, he argues, can be achieved only with the recognition of the subsidiarity principle and the delegation of regulatory authority down to local governments. Similarly, such autonomy will spur innovation, experimentation, and competitiveness at the local level. It also implies that different standards of rule making and compliance may result from having more local regulatory autonomy and other kinds of related governing instruments (spending and taxation). The complexity of accountability and related norms at multiple levels, however, needs to be recognized as well. Federal public accountability and transparency for the allocation of funds is increasingly sought through performance reporting ('report card federalism') by other levels of government. In other words, it comes with rules (conditions) and/or strong pressure (to report 'voluntarily'). At the same time, equity and equality considerations as to where funds with their attendant rules should be allocated are at play too. In this case, there is a tension between directing funds to urban centres (places in crisis yet also places of competitiveness) and spreading them more evenly across the country to many smaller communities. Similarly, whereas the notion of subsidiarity is well recognized in the area, the uneven capabilities across the country in the face of uncertain challenges and problems raise questions about how and where the funding power of the federal purse should be allocated, whether strings should be attached, and, if so, how.

360 G. Bruce Doern and Robert Johnson Levels of Regulatory Governance In this section, we sharpen the conceptual focus on 'levels' of regulatory governance. This is important, for not only do external and internal challenges, the role of politics, power, and ideas create and affect the nature and shape of levels, but the dynamics of 'levels' are themselves an important factor in multilevel regulatory governance. As we outlined in chapter 1, levels can have different meanings: Levels initially mean 'governmental levels': shared or overlapping levels of rule making and compliance, emphasizing jurisdictions and regulatory roles and responsibilities. At its core, this notion of levels means government rule making at the international, national, provincial, and local/city levels. Levels may also include players or interests that are not governmental. These players or interests are affected by rule making, but they may become co-governors and regulators with state authorities. This is what brings 'regulatory governance' to government regulation. However, this book's analytical lens necessarily goes further to include the realities of 'spatial' levels - that is, different levels as determined by the contrasting perspectives of rule makers and rule enforcers and as associated with various types of rules - and questions about levels related to networks. Spatial Levels: From the Global to the Urban/Local/Community Levels

Several of the chapters draw attention to the importance of taking geographical space explicitly into account in a conceptualization of 'levels/ since levels may not obey conventional jurisdictional boundaries or may be remapped and reconceptualized with new rules as a result of new challenges, risks, opportunities, or, as in the case of First Nations rule making, new agreements (see, for example, the Levasseur and Paterson chapter on forestry regulation and communities). The 'urban' level has taken on a new importance in the Canadian federation, and this is reflected in its salience as a political issue - the 'New Deal' for cities - with the resulting intergovernmental rule making. In part, the impetus is material: urbanization as a process has been ongoing for decades and the recent amalgamations in the mid- to late

Conclusions 361

1990s have exacerbated the trend. Over half of all new immigrants settle in the country's three largest cities. Further, almost 80 per cent of Canadians live in cities, and more than half in just four city regions (Bradford, 2004). Add to this the fact that the largest cities, Toronto, Montreal, and Vancouver, are larger than some provinces (the Greater Toronto Area is larger than the four Atlantic provinces combined) and the large cities' argument for the urban level being distinct from the municipal level can be put in perspective. Also, as Stoney shows, ideas about the knowledge-based economy, innovation, and competitiveness play a large role in the conceptualization of an urban scale. The big cities are - and demand to be - seen as the engines of growth in the economy, while the federal government's innovation policy posits them as regional nodes within a continental or global economic space. The conceptualization of levels as differential economic spaces is an ongoing process, as Hart's chapter underscores with reference to the North American economic space and other regional trade blocks. However, there are also other global, continental, and regional pressures, as well as regulatory challenges, that interact spatially with the local and community levels. In other words, different flows require geographical orientation and consideration of what the 'local' means in terms of going beyond the traditional third order of government in Canada. In one sense, the interaction and congestion of rules at the local level has always been a historical reality. The chapters by Sulkers and by Hill and Harrison document the spatial realities of (waste and drinking) water at the local level - specifically, its inherently mobile nature and the historically uneven application of regulations concerning waste water effluents and drinking water. As Hill and Harrison show, this may also depend on the geographical layout of the water source, a point they demonstrate with regard to their two case studies (Vancouver and Toronto) and the post-Walkerton reaction to water quality issues. Graham and Stoney show how emergency management stretches the 'local' beyond the realm of municipal authority and illustrate this with the case of forest fires in British Columbia. The 'local' level, however, requires constant remapping and reconceptualization as a result of what Graham and Stoney call the emergence of the 'new risk environment.' This includes such diverse high-profile cases as 'mad cow' disease (western Canada) and contaminated water in Walkerton (municipal area), but it also encompasses the environmental and economic effects on localities of the continental and indeed global spread of invasive species, as Levasseur and Paterson document.

362 G. Bruce Doern and Robert Johnson

The third type of (spatial) level that emerges from a reading of several of the chapters is the 'community' level, although it inevitably interacts with the 'local' level. In Levasseur and Paterson's account of single-resource towns, the municipalities are not as much another level of regulation as a political voice both for local citizens and for the forest companies, which are seen as a central part of the community. Moreover, as they map the levels of regulation explicitly from a community perspective, they show the emergence of new local actors as part of the regulatory process for forest industries. In particular, First Nations' right to negotiate land use is a new development over the last two decades and represents a new level of regulation at the community level. This can be extended to the case of emergency management in some provinces, where First Nations assume this responsibility, although here Graham and Stoney also use a city/community perspective to show that other actors, such as NGOs, are equally important in the coordination and implementation of emergency responses. Levels of Rule Making versus Levels of Compliance

It is equally possible to distinguish between levels of rule making and levels of compliance, a distinction that goes beyond the usual divide between federal and provincial jurisdiction and implementation by municipalities in their traditional role as service providers, compilers with, and enforcers of higher levels of regulation (see the chapters by Stoney, Sulkers, and Hill and Harrison). Municipalities are also simultaneously enforcers and makers of regulations, as in the case of sewer or zoning bylaws (see the Sulkers and Levasseur and Paterson chapters). We limit ourselves here to discussing three types of levels of rule making and enforcement, which surpass traditional levels of authority: levels within government, levels arising from the interaction of public and private regulation and self-regulation, and the way in which levels of regulation may be seen by the regulated, such as firms, NGOs, and citizens. At the same time, we pay attention to the difference between 'hard' and 'soft laws' as they interact with the (governance) levels of regulation noted above. As Robert Johnson's analysis in chapter 3 indicates, the creation and adoption of macro regulatory policies is a relatively new although rapidly spreading practice in developed countries, and Canada is no exception. It is therefore possible to make a relatively clear distinction between a new level of rule making/enforcement and a level of compli-

Conclusions 363

ance (regulatory agencies) in the federal government and in a number of provinces/territories. The adoption of regulatory policies and standards, disseminated as 'best' practices through international agencies like the OECD, can be seen as an example of soft law, which constitutes another level. In effect, they are a set of guidelines and rules about rule making. Thus, a distinction must be made between provinces and territories in terms of the mandatory or voluntary nature of compliance with policies or codes, that is, various levels of 'soft' and 'hard' laws within government. The most important conceptualization of new levels, however, arises from the interaction between shared public and private regulation, as a number of the chapters outline. The most common impetus is the delegation of authority to the private or voluntary sector. Thus, as the voluntary sector becomes increasingly important for all kinds of regulation, including voluntary standards, new institutions arise in the form of self-regulatory bodies and agencies. This book does not deal with the professions since this is a vast area of regulatory governance with often unique problems of multilevel coordination. One can add to this the creation of new levels as a result of contracting-out practices. Here, too, an important distinction can be made between mandatory ('hard') versus voluntary ('soft') regulation. This is particularly evident in the sectoral chapters. For example, in Skogstad's chapter, the food producers and processors constitute an important new level for food safety regulation as a result of governments' fiscal imperatives (see also Prince, 2000). In the forest sector, as Levasseur and Paterson show, provincial certification and auditing requirements may be supplemented with a 'seal of approval' conferred by an independent party, as in Ontario, which is seen to help forest companies' image as they compete in world markets. The importance of such voluntary or mandatory standards based on self- or joint regulation, as in the areas of the environment, food safety, and charities, is that they supplement or displace government regulation and, in this way, come to constitute new regulatory levels from the international to the local. Finally, an important new level is constituted by Aboriginal governance, a reality that comes to the fore in several of the sectoral chapters. For forestry firms in particular, as Levasseur and Paterson document, this is a de facto new level of regulation since the firms are required to negotiate new terms of land use in each case. More broadly, however, the degree to which Aboriginal governance is a new level of regulation in provinces and territories (with the exception of Nunavut) is different

364 G. Bruce Doern and Robert Johnson

from province/territory to province/territory, as, for example, in the case of emergency management responsibilities (see the Graham and Stoney chapter). Moreover, from the perspective of citizens, the horizontal nature of emergency management (and other sectors) across government may well make it seem that multiple levels are involved within government. Finally, depending on the size of the sector, different levels may well arise from the need to target or tailor the compliance with regulation to large versus small firms or organizations, as both the Hale and Kukucha and Phillips chapters show respectively. Levels and Networks: Formal and Informal linkages

Many of the chapters illustrate that the proliferation of levels of authority is linked in complex ways to networks of knowledge, science, and experience embodied in agencies and individuals interacting in everyday ways. This is not only an important descriptive insight; what is striking is the salient role, as our authors explain, that formal and informal networks play in filling and mitigating important gaps and voids between levels of authority. In particular, these networks may exist to overcome 'deficits' related to capacity issues but this may equally include efficiency and democracy concerns. Hart's chapter shows that the de facto interlinked nature of the two economies necessitates the existence of vast formal and informal networks of Canadian and United States government officials to share information and solve common problems. As he notes, most of these exist and operate 'below the radar screen/ although, from time to time, such linkages may surface unexpectedly into the public eye, as in the case of the U.S. deportation of a Canadian citizen (Maher Arar) to Syria after its officials purportedly received information from the Royal Canadian Mounted Police and the Canadian Security and Intelligence Service. Without such formal and informal cooperation via horizontal linkages in a range of sectors, economic-related activities would operate inefficiently or not at all. At the international level, Skogstad, too, stresses the importance of supranational governance conducted, formally and informally, on a daily basis to resolve trade problems. This may also take the form of international private governance networks, as Hale and Kukucha point out, to fill the gaps in international treaties and laws. But the complex nature of these linkages may be best illustrated with Doern's description of both the relational and matrixed nature of knowl-

Conclusions 365

edge and science flowing in all kinds of 'top-down/ 'bottom-up/ 'outside-in/ and 'inside-out' directions. In part, this is related to the 'fuzzy' boundary of RSA, which include both direct pre-market regulation (product approvals) and post-market monitoring and surveillance. More fundamentally however, the knowledge to regulate and monitor is dependent on all kinds of other sites and actors. On the one hand, information flows from Doern's two case study agencies to other levels of government, from the municipal to the international realm. On the other hand, the monitoring is crucially dependent on external partnerships in different governance contexts, with information sharing flowing from cross-border agencies (the U.S. Environmental Protection Agency), from other research sites such as hospitals and universities, and from private sector companies. This conclusion is forcefully echoed in Joan Murphy's chapter, which shows that Health Canada's monitoring activity depends on the (mandatory) disclosure of information by pharmaceutical companies and the (voluntary) sharing of information among the medical professionals, hospitals, experts at other levels of government, and patients/consumers. The nature of the sector or its operations may also be network-like, as is particularly evident in Phillips's chapter on the voluntary sector. Charities and non-governmental organizations (NGOs) may operate in networks from the global to the local level, and therefore across multiple levels of government. Their capacity and strength lies precisely in network-type associations of social capital, which allow them to respond quickly to international disasters like the Asian tsunami in ways that governments cannot - even if they depend on government regulation for public trust. Similarly, Graham and Stoney's chapter on emergency management illustrates the way in which NGOs like the Red Cross are linked up with governments at all levels in Canada to deal with emergencies and disasters. However, charities and NGOs operate as networks in other ways as well. The nature of technological advances, in particular the Internet, shows that government regulation operating within certain geographical boundaries is increasingly ineffectual, as, for example, in the case of fundraising (see Phillips's chapter). Sectoral versus Horizontal Realities and Determinants of Multilevel Regulatory Governance The book as a whole includes eight sectoral chapters (nine if one thinks of the voluntary area as a sector as well as macro feature of society), but

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each also points to relevant horizontal linkages and influences. These linkages can centre on the need to match /coordinate sectors of regulation with multiple macro purposes (such as meeting economic and social objectives) or powerful overarching norms (such as fairness, but also 'new' norms such as the precautionary principle). Horizontal linkages may thus be related to the complex choices and competing sectoral objectives that we outlined above in the second section, or to duelling norms, principles, and mechanisms, as we illustrated in the third section. They may equally be linked to the kinds of knowledge/information dependencies that are needed in order to adapt to fast-moving political and economic circumstances. Two other horizontal linkages are important when it comes to sectoral regulation. The first is the impact that other policies/rules/guidelines (e.g., international 'hard' or 'soft' rules; Charter of Rights and Freedoms; risk assessment and risk management; access to information and privacy law; sustainable development policies) may have directly or indirectly on sectoral regulation. The second involves the different governmental and non-governmental players in complex governance arrangements. Such horizontal linkages may take unexpected forms, as in the case of the voluntary sector, where the issue of the insurance industry is front and centre. Without regulation to ensure that the risks of potential liabilities matches the level of insurance premiums, many charities will not be able to operate. Phillips also illustrates the indirect effects of other legislation on the voluntary sector: for example, antiterrorism legislation has fostered an 'advocacy chill' among voluntary sector organizations and thus regulates their political participation indirectly. With regard to the last point, Graham and Stoney also note the links between emergency management regulation and other areas of legislation and regulation. They point out that ensuring public safety while at the same time protecting individual rights and freedoms is a delicate balancing act. Given the diversity and range of emergencies and disasters, this sector requires horizontal management among a range of departments within government. In other respects, regulatory sectors live lives of their own or may drive change at a horizontal level, possibly through the lessons drawn in general from otherwise sectoral controversies such as SARS or 'mad cow' disease. Their capacity to be causal agents or simply to carve out crucial realms of their own is attributable to several factors. First, sectoral regulatory realms do develop their own forms of culture, tradition, and practice, in short, standard operating procedures. Second, they face

Conclusions 367

different actual volumes of business or case-loads and hence have to develop their own sense of what drives their core regulatory business and what notions of regulatory speed or slowness and deliberateness are appropriate legally, economically, and politically. Sectoral regulators also have their own scientific, technical, and knowledge imperatives. Finally, all sectoral regulators act within their micro political and policy-regulatory communities, which consists centrally of specific, usually well-known (to them) interest groups, NGOs, firms, and communities. For all the accumulated analytical reasons assembled in this chapter and throughout the book, multilevel regulation, functioning within multilevel governance, needs to be understood and debated on its own terms. It draws on previous historical debates about federalism and also new forms of globalization-linked governance such as the EU and NAFTA, but it also constitutes an important new and changing architecture of rule making and compliance where old and new issues of economic and social choice and of democratic values compete for attention and scarce resources. NOTES 1 Gaetan Lussier, head of the EACSR, quoted in Globe and Mail, 24 September 2004,1. 2 See G. Bruce Doern, 'The Governance of Effective Regulatory Cooperation: A framework, Case Studies and "Best Practice.'" A paper presented to the Symposium on North American Regulation, Cooperation: A Results Agenda. Ottawa, 8 December 2005 (Policy Research Initiative, Government of Canada). REFERENCES Bradford, Neil (2004). 'Place Matters and Multilevel Governance: Perspectives on a New Urban Policy Paradigm.' Prepared for the Panel 'Who Is Responsible for Cities? The Role of Governments/ McGill Institute for the Study of Canada Annual Conference, 'Challenging Cities in Canada/ 11-13 February. European Commission (2004). Project on Indicators of Regulatory Quality: Final Report. European Commission and Centre for European Studies, University of Bradford.

368 G. Bruce Doern and Robert Johnson External Advisory Committee on Smart Regulation (2004). Smart Regulation: A Regulatory Strategy for Canada. Ottawa: Government of Canada. Globe and Mail (2004). 'Regulatory Differences Hurt Economy: Panel.' 29 September. Organization for Economic Cooperation and Development (OECD) (2002). Government Capacity to Assure High Quality Regulation. Paris: OECD. Prince, Michael (2000). The Canadian Food Inspection Agency: Modernizing Science-Based Regulation.' In G. Bruce Doern and Ted Reed, eds., Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime. Toronto: University of Toronto Press.

Contributor List

Keith Brownsey teaches political science at Mount Royal College in Calgary. He has written extensively on Alberta and provincial politics as well as natural resource policy - especially the oil and gas industry. He is a frequent media commentator on provincial and national political issues as they affect western Canada. G. Bruce Doern is Chancellor's Professor at the School of Public Policy and Administration, Carleton University, and also holds a research chair in public policy at the Politics Department, University of Exeter in the United Kingdom. A former director of the School at Carleton, he has authored numerous books on various dimensions of Canadian and comparative public policy and regulation, including Power Switch: Energy Regulatory Regimes in the 21st Century (with Monica Gattinger) (University of Toronto Press, 2003); Changing the Rules: Canadian Regulatory Regimes and Institutions (edited, with M. Hill, M. Prince, and R. Schultz) (University of Toronto Press, 1999); Free Trade Federalism: Negotiating the Canadian Agreement on Internal Trade (with Mark MacDonald) (University of Toronto Press 1999); and Risky Business: Canada's Changing Science-Based Regulatory Regime (edited with Ted Reed) (University of Toronto Press 2000). Phil Graham is a graduate student in the School of Public Policy and Administration at Carleton University Geoffrey Hale is associate professor of political science at the University of Lethbridge in Lethbridge, Alberta. His primary areas of research are related to the management of structural policy changes and North

370 Contributors American economic integration. He is author of The Politics of Taxation in Canada (Broadview Press 2001). Kathryn Harrison is an associate professor of political science at the University of British Columbia. She is the author of Passing the Buck: Federalism and Canadian Environmental Policy (UBC Press 1996); co-author, with George Hoberg, of Risk, Science, and Politics: Regulation of Toxic Substances in Canada and the United States (McGill-Queen's University Press 1994); co-editor, with Patrick Fafard, of Managing the Environmental Union (Queen's University, School of Policy Studies 2000); and editor of Racing to the Bottom: Provincial Interdependence in the Canadian Federation (UBC Press, 2005). Her current research focuses on environmental regulation in the context of economic globalization and includes a cross-national study of climate change. Michael Hart holds the Simon Reisman Chair in trade policy in the Norman Paterson School of International Affairs at Carleton University, where he teaches courses on the laws and institutions of international trade. He was the founding director of Carleton's Centre for Trade Policy and Law and remains a Distinguished Fellow of the Centre. He is a former official in Canada's Department of Foreign Affairs and International Trade, where he specialized in trade policy and trade negotiations. Carey Hill is a PhD candidate in political science at the University of British Columbia. Her research focuses on whether the existence of national standards matters for drinking water protection. This work is comparative and examines intergovernmental regulation with respect to drinking water in six North American cities. Her research interests include Canadian and American comparative public policy, urban politics, provincial politics, and environmental policy. Robert Johnson is a lecturer in the Political Science Department at the University of Ottawa. His current research focuses on social policy and labour market policy in the Netherlands and Canada. The co-author of several forthcoming articles, he holds an MA in German and an MA in public policy and administration. Christopher Kukucha is an assistant professor at the University of Lethbridge. He teaches international relations, global political economy,

Contributors 371 Canadian foreign policy, the politics of Canadian trade policy, and international relations theory. Recent publications focus on the relevance of domestic politics and subnational governments in the formulation of Canada's global trade relations. Karine Levasseur is a PhD candidate in the School of Public Policy and Administration at Carleton University. Her areas of specialization include public administration, the non-profit sector, and public policy, with a keen interest in policy tools and social policy. Her dissertation examines Canada's use of charitable registration as a governance tool and its resulting impacts on voluntary organizations. Joan Murphy is a PhD candidate in public policy at Carleton University. Her research interests are in the areas of health and health research policy, the new economy, management in the public sector, and innovation policy. Her dissertation research is on the institutional evolution of the Medical Research Council (MRC) into the Canadian Institutes of Health Research (CIHR). She has worked directly in health care for over fifteen years years, first as a director in a community hospital for over seven years and subsequently as a consultant. Stephanie Paterson is a PhD candidate at the School of Public Policy and Administration at Carleton University, specializing in feminist political economy. Susan D. Phillips is a professor at the School of Public Policy and Administration, Carleton University, and senior scholar, Centre for Voluntary Sector Research and Development, also at Carleton. Her research interests focus on public policy governing the voluntary/nonprofit sector, citizen engagement, and Canadian public administration. Grace Skogstad is a professor of political science at the University of Toronto. She has written and published on the politics of Canadian agricultural and food policy, transatlantic regulatory divergence around genetically modified crops and foods, the regulation of food safety issues in the European Union, and international regulation of Sanitary and Phyto-Sanitary Measures (SPS) in the World Trade Organization. Her most recent book, co-edited with Herman Bakvis, is Canadian Federalism: Performance, Effectiveness and Legitimacy (Oxford University Press 2002).

372 Contributors

Christopher Stoney is associate professor in the School of Public Policy and Administration at Carleton University where he teaches on aspects of Canadian public policy, organizational theory, and strategic management. His research has examined neo-liberal reforms of local government in the United Kingdom and Canada and the significance of these reforms for local democracy, employees, and management. He has published journal articles on local government in the United Kingdom and is currently involved in a major funded-research program examining the role of local government in Canada. Jen Sulkers holds a Masters of Public Policy and Administration (MPA) from Carleton University. She is now a consultant with the Great Place to Work® Institute Canada, where she works with clients in a wide variety of organizations to assess workplace culture, to discuss options for change, and to support the transformation process.

Studies in Comparative Political Economy and Public Policy 1 The Search for Political Space: Globalization, Social Movements, and the Urban Political Experience / Warren Magnusson 2 Oil, the State, and Federalism: The Rise and Demise of Petro-Canada as a Statist Impulse / John Erik Possum 3 Defying Conventional Wisdom: Free Trade and the Rise of Popular Sector Politics in Canada / Jeffrey M. Ayres 4 Community, State, and Market on the North Atlantic Rim: Challenges to Modernity in the Fisheries / Richard Apostle, Gene Barrett, Peter Holm, Svein Jentoft, Leigh Mazany Bonnie McCay, Knut H. Mikalsen 5 More with Less: Work Reorganization in the Canadian Mining Industry /Bob Russell 6 Visions for Privacy: Policy Approaches for the Digital Age / Edited by Colin J. Bennett and Rebecca Grant 7 New Democracies: Economic and Social Reform in Brazil, Chile, and Mexico / Michel Duquette 8 Poverty, Social Assistance, and the Employability of Mothers: Restructuring Welfare States / Maureen Baker and David Tippin 9 The Left's Dirty Job: The Politics of Industrial Restructuring in France and Spain I W. Rand Smith 10 Risky Business: Canada's Changing Science-Based Policy and Regulatory Regime / Edited by G. Bruce Doern and Ted Reed 11 Temporary Work: The Gendered Rise of a Precarious Employment Relationship / Leah Vosko 12 Who Cares? Women's Work, Childcare, and Welfare State Redesign /Jane Jenson and Mariette Sineau with Franca Bimbi, Anne-Marie DauneRichard, Vincent Delia Sala, Rianne Mahon, Berengere Marques-Pereira, Olivier Paye, and George Ross 13 Canadian Forest Policy: Adapting to Change / Edited by Michael Hewlett 14 Knowledge and Economic Conduct: The Social Foundations of the Modern Economy / Nico Stehr 15 Contingent Work, Disrupted Lives: Labour and Community in the New Rural Economy I Anthony Winson and Belinda Leach 16 The Economic Implications of Social Cohesion / Edited by Lars Osberg 17 Gendered States: Women, Unemployment Insurance, and the Political Economy of the Welfare State in Canada, 1945-1997 / Ann Porter 18 Educational Regimes and Anglo-American Democracy / Ronald Manzer 19 Money in Their Own Name: The Feminist Voice in Poverty Debate in Canada, 1970-1995 I Wendy McKeen

20 Collective Action and Radicalism in Brazil: Women, Urban Housing, and Rural Movements / Michel Duquette, Maurilio de Lima Galdino, Charmain Levy, Berengere Marques-Pereira, and Florence Raes 21 Continentalizing Canada: The Politics and Legacy of the Macdonald Royal Commission / Gregory J. Inwood 22 Globalization Unplugged: Sovereignty and the Canadian State in the TwentyFirst Century / Peter Urmetzer 23 New Institutionalism: Theory and Analysis / Edited by Andre Lecours 24 Mothers of the Nation: Women, Family, and Nationalism in Twentieth-Century Europe / Patrizia Albanese 25 Partisanship, Globalization, and Canadian Labour Market Policy: Four Provinces in Comparative Perspective / Rodney Haddow and Thomas Klassen 26 Rules, Rules, Rules, Rules: Multi-Level Regulatory Governance / Edited by G. Bruce Doern and Robert Johnson