Beyond borders: A simple solution to internal trade barriers

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Canada has free trade agreements with 51 countries, and yet we have never been able to institute free trade within our own borders.

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Despite decades of discussion, an array of non-tariff barriers still limits the free movement of people and goods across our provinces. From professional certifications to supply-managed products to regulations in a wide variety of industries, restrictions on interprovincial trade flows prevail.

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United States President Donald Trump’s trade war may finally be the crisis that creates the political will to address this challenge. The easiest path to this end is to adopt a mutual recognition agreement, which would require provinces to accept the certifications of another.

Perhaps the largest reason for the persistence of internal trade barriers is that they are not obvious to most people. However, ask one of the many professionals and skilled tradespeople who work in a provincially regulated occupation about working out of province and you’ll start to see the problem.

Yes, the qualifications of nurses and electricians are not universally recognized across all provinces.

Barriers to trade in goods also abound. Food is a prime example of the challenge. A whole chicken currently costs $5.95 per kilogram in Ontario, according to Statistics Canada, but $8.45 in Quebec, in part because of the limitations on the movement of supply-managed chicken across provincial boundaries.

Labelling laws vary on certain products across provinces, increasing the cost to sell products in each province. And the rules concerning alcohol sales across provincial boundaries are positively arcane.

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However, these barriers are not limited to food. Industries as varied as electricity transmission, trucking and financial services face barriers.

For example, each province regulates the coverage options and factors that insurance companies can use to set policy rates, meaning the terms and price of home and car insurance can significantly vary across the country.

The impact of these barriers cannot be understated. Our fractured domestic market makes scaling a business in our already small market even harder. It is why nearly all provinces trade more with the U.S. than they do with the rest of Canada and why trade with the U.S. has consistently grown faster than interprovincial trade.

Put another way, it is easier and more profitable for many businesses to sell their products to customers in the U.S. than to those in a neighbouring province. For consumers, this means reduced availability of products and higher prices.

We have made some progress on reducing interprovincial trade barriers in recent years. For example, British Columbia, Alberta, Saskatchewan and Manitoba have had the New West Partnership Trade Agreement since 2010. As well, the Canadian Free Trade Agreement came into force in 2017.

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However, these frameworks sought to reduce barriers over time rather than eliminate them, and provinces can opt out. As a result, we are still far from having free trade within our own borders.

The good news is that nothing unites like a common threat and Trump seems willing to take on that role. Taking advantage of this moment to end our long-standing interprovincial barriers could potentially offset the effects of his tariffs. Estimates to date suggest the benefits of internal free trade for Canada would exceed the negative effects of U.S. tariffs.

To be clear, avoiding Trump’s tariffs should still be the goal, but ending interprovincial trade barriers would strengthen our ability to resist his threats.

Eliminating interprovincial trade barriers could add four per cent to real gross domestic product per capita in Canada, equivalent to $2,300 per person per year, according to a 2019 estimate from the International Monetary Fund.

Even better, there is a simple solution to this seemingly intractable problem: a mutual recognition agreement. By requiring all provinces to accept the certifications of another, we would immediately eliminate the need for people or products to meet the varying requirements of different jurisdictions. Governments could then continue the slow process of reconciling regulations behind the scenes while not impeding trade.

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Best of all, this is not a new idea. Australia, an economy with many similarities to our own, implemented an internal mutual recognition agreement in 1992 and has fared well since then.

Canada also has many mutual recognition agreements in place with other countries that cover at least some products and professions.

It appears that we finally have the political will to address a challenge that has long bedevilled our country. Now is the time to take advantage of this opportunity. An easy solution, a mutual recognition agreement, is at hand.

Michael Burt is vice-president of the Conference Board of Canada.

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