Could tariffs bring down interprovincial trade barriers?

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Canada’s interprovincial trade barriers have been a topic of debate in political and economic circles for years, with little actual progress toward resolving them. But tariff threats from U.S. President Donald Trump have brought new urgency to the issue, raising hopes from economists that the impediments will soon be resolved. Meetings between the prime minister and the premiers over the last few weeks have contained urgent discussions about removing internal trade barriers in Canada. But what exactly are the barriers, why have they persisted and how much do they cost us? The Financial Post’s Jordan Gowling explains.

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What are the barriers?

Canadians might be surprised to hear that a series of provincial regulations limit the services, labour and goods that cross provincial borders everyday.

In some cases these are hard restrictions, such as rules limiting alcohol sales from one province to the other. In others they involve paperwork and industry regulations, such as the need to register with multiple workers’ compensation boards or comply with different occupational health and safety standards, and also the cost and time associated with applying for different provincial licences.

The most notable drag on internal trade affects the trucking industry, where regulations differ around driver qualifications and weight load allowances.

“When Atlantic Canada truckers have to reduce their load when travelling through Nova Scotia to meet the province’s lower weight rules, you know something is not right,” wrote Daniel Teeter, PhD candidate at Queen’s University’s Smith School of Business and author of a working paper studying the matter.

Regulations around certifications also impact the ability of professionals to be licensed in different jurisdictions, which slows down labour mobility among different provinces.

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“Domestically, when a professional wants to move jurisdictions and they want to work at a certain place, they can’t do that until they’re recertified,” said SeoRhin Yoo, interprovincial affairs senior policy analyst at the Canadian Federation of Independent Business (CFIB). “For instance, nursing is one and I think financial planner is also another one, where they have to be individually licensed in each province in order to provide insurance as well as well as investment advice.”

The alcohol industry is also significantly impacted by provincial barriers, with provinces having monopolies on alcohol wholesaling.

“Manitoba, for instance, is the only province that allows direct consumer shipping of craft beer as well as spirits,” said Yoo. “Other jurisdictions, they just simply do not allow it, and obviously that’s really difficult for a lot of consumers who want competitiveness in the alcohol market, who want to buy something from a local brewery that they tried out while they were travelling, but they can’t get their hands on it.”

How much do they cost us?

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There are a number of studies over the years, that have attempted to quantify the cost these barriers pose to the Canadian economy. In 2019, the International Monetary Fund did a study that estimated that non-geographic internal trade barriers within Canada add up to a tariff equivalent of 21 per cent.

In July, the CFIB released a report that said removing interprovincial barriers could boost the economy by up to $200 billion annually.

In total, internal trade represents 18 per cent of Canada’s gross domestic product (GDP). A 2022 study by the Macdonald-Laurier Institute, based on research done by University of Calgary professor and economist Trevor Tombe, found that the country’s GDP is between 3.2 per cent and 7.3 per cent smaller because of internal trade costs.

Matthew Holmes, executive vice president and chief of public policy at the Canadian Chamber of Commerce, noted these costs are the result of inefficiencies and loss of trade, for which businesses bear the burden.

“It keeps us small,” he said. “It keeps us from being competitive, and as for those businesses that are willing to operate in multiple provinces, it just makes it expensive.”

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Why are they so hard to resolve?

There have been attempts to update Canada’s trade internal system in recent years, starting with the Agreement on Internal Trade signed in 1995. Its purpose was to decrease the number of internal trade barriers between provinces, although experts argue it fell short of its objectives. In 2017, it was followed up with the Canadian Free Trade Agreement (CFTA). There are also additional agreements between western provinces called the New West Partnership Trade Agreement (NWPTA) and the Trade and Cooperation Agreement (TCA) between Ontario and Quebec.

Holmes says the CFTA remains ineffective at fostering free internal trade.

“They meet once a year to talk about their lists,” he said. “They have something like 400 carve outs, so they’ve got a list of things that they don’t have free trade with, it’s actually more a Canada not-free-trade agreement than it is a free-trade agreement.”

Not all of these agreements are equal, with the NWPTA showing more improvements in productive capacity and a boost in the amount of goods sold to other provinces, according to Teeter’s study. When it comes to the CFTA, the CFIB noted in July that only 18 of the 30 recommendations in the agreement have been implemented.

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“Obviously, for years there’s been talks and recognition of the importance of internal trade,” said Yoo. “However, we heard a lot, but saw very little action.”

Holmes says there is politics at play for premiers, who have to show a willingness to protect their provinces’ industries, especially if they want to be re-elected.

“I think in certain cases, there’s a natural kind of protectionist impulse, particularly around elections, where premiers and politicians in general can be susceptible to that,” said Holmes. “But the other part of this problem is that it’s just systemic, it’s invisible.”

There has been progress this year, with the federal government announcing a pilot project in September, which seeks the mutual recognition of regulatory requirements in the trucking sector.

What are the premiers doing now?

This week, while Prime Minister Justin Trudeau and the premiers were meeting to discuss their response to Trump’s threat to impose a 25-per-cent tariff on all Canadian goods on Feb. 1, internal trade once again became a topic of discussion.

“As a follow-up to last week’s call, the prime minister reiterated the importance of lifting barriers to trade between provinces and territories and looked forward to the outcomes of the urgent meeting of the Committee on Internal Trade in Toronto, Ont., this Friday,” said the readout from a meeting that took place on Wednesday. 

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Transport and internal trade minister Anita Anand has been talking about the issue since the summer, when she was tasked with finding ways for Canada to address its productivity crisis. The business sector has also been calling on governments to present solutions, to make Canada’s economy more resilient and competitive, in the face of our newfound trade position with the U.S.

“We have to use this time as a rally call, to strengthen Canada,” said Nova Scotia Premier Tim Houston, during a press conference last week. “That means looking at our own internal trade policies across the country and just asking ourselves simple questions like why is it so hard to send a bottled wine from one province to the other?”

However, business groups remain cautiously optimistic.

“I think there’s a moral argument that this is the time to fix this,” said Holmes. “If we can’t trade well within our own country, then we’re always going to be on our heels with the U.S. or some other trading relationship.”

• Email: jgowling@postmedia.com

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