Can Canadian governments eliminate the long list of ‘exceptions’ stifling interprovincial trade?

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In a bid to bring down interprovincial trade barriers, Canada’s internal trade minister, Anita Anand, announced that the government intends to remove “more than half” of federal exceptions from the Canadian Free Trade Agreement (CFTA). Ahead of the Committee on Internal Trade meeting on Friday, the Financial Post looks at the CFTA to identify the exceptions and explain why it’s largely up to the provinces to make the first move.

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What is the CFTA and what’s included in it?

The federal government introduced the CFTA to “strengthen and modernize” the Agreement on Internal Trade from 1995. The CFTA came into force on July 1, 2017, with all 13 provinces and territories signing on to reduce and eliminate barriers that restrict the flow of goods and services, investments and labour mobility.

But there’s a catch: the CFTA contains several exceptions for certain industries, sectors and provincial legislation that critics say holds it back from its goal of promoting an “open, efficient, and stable domestic market.”

“It’s actually more a Canada not-free-trade agreement than it is a free-trade agreement,” Canadian Chamber of Commerce executive vice president and chief of public policy Matthew Holmes told the Financial Post in January.

What are the exceptions in the CFTA?

The CFTA includes exceptions for both existing and future measures. The agreement contains a pretty long list of general exceptions for areas such as national security, natural water resources, taxation, divestiture from government entities, social services, tobacco control measures, language, culture, Aboriginal treaty rights, citizenship and permanent residency requirements, gambling and betting, passenger transportation services and the supply management of agricultural goods including dairy, eggs and poultry.

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Federal exceptions fall under four categories: national security, national economic and social policy, international trade obligations and supporting regional interests.

Each province also has its own set of specific exceptions related to sectors like alcohol, cannabis, agriculture, wildlife, forestry, fisheries, business services, energy and tourism. Quebec and Ontario have the highest number of exceptions for existing measures at 19 and 18, respectively. Alberta only has two exceptions, while Nunavut and the Northwest Territories each have one.

“Many trade barriers are imposed to protect local industries, uphold regulatory standards, generate revenue and preserve jurisdictional autonomy,” according to a recent RBC Economics report. “However, prioritizing narrow economic interests over fostering broader standards across the country has hindered achieving economies of scale, reduced competition, and contained productivity growth in Canada.”

In July 2024, the federal government announced it removed or narrowed down 17 federal exemptions, mostly related to procurement. It’s not yet known what the next round of eliminations will include, but the government said it plans to remove an additional 20 federal exceptions from the CFTA, bringing the total number down to 19.

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How will getting rid of the exemptions help businesses?

“There seem to be more pages of exceptions in the agreement than there are pages of clauses, but it’s definitely not the whole story,” said Randall Zalazar, director of government relations at the Canadian Chamber of Commerce.

Zalazar says the conversation needs to shift toward mutual recognition, or the idea that “if it’s good enough for one province, it ought to be good enough for another.”

A common criticism from Canadian businesses is that it’s cheaper and easier to export alcohol and agricultural products such as meat and poultry to other countries than it is to deal with the bureaucracy of other provinces. Professional certifications and licensing requirements restrict labour mobility for nurses, doctors, tradespeople and other skilled professionals; differing provincial regulations also weigh on industries like trucking, retail and financial services.

“Provinces ultimately have a lot to say in terms of tearing down internal trade barriers,” said Zalazar. “The federal government is showing initiative by doing this, but this will require all provinces to come to the table.”

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A 2024 report by the Canadian Federation of Independent Business (CFIB) claims that removing internal trade barriers could add an extra $200 billion annually to the economy.

Liberalizing interprovincial trade “should be viewed as a complement to, rather than a substitute for, strong Canada-U.S. trade ties,” according to the RBC Economics report — and it’s not a quick and easy process. However, the report says removing trade barriers “could increase Canada’s capacity for self-sufficiency in the long-term.”

How can the CFTA be improved?

Along with removing federal exceptions from the agreement, organizations such as the CFIB and the Canadian Chamber of Commerce are calling for provincial governments to step up and adopt mutual recognition policies.

With U.S. President Donald Trump’s most recent comments on Feb. 24 that tariffs on Canadian imports are “going forward on time, on schedule” in March, Zalazar says the trade war is a big motivator for provincial leaders to take the first steps.

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On Feb. 20, Nova Scotia premier Tim Houston announced that he plans to introduce legislation to allow goods approved in other provinces and territories to be sold in Nova Scotia — but only from provinces that adopt similar rules.

“For the first time in a long time, we have a political moment where there seems to be growing will and ambition in the other direction to take down barriers,” said Zalazar.

• Email: jswitzer@postmedia.com

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