'For almost all products, there are no meaningful restrictions to trade across provincial borders'
Calls for the removal of interprovincial trade barriers may not be as good a solution as promised, according to a report from the Canadian Centre for Policy Alternatives (CCPA).
“The attempts to remove so-called interprovincial trade barriers is mostly a push for ‘mutual recognition’ of regulations – a process by which all provinces could be forced to accept the least stringent regulations for safety, environmental protection, and consumer protection,” says Marc Lee, senior economist at CCPA.
“It is a way of attacking provinces’ ability to pass laws for environmental, worker, and consumer protection.”
In the face of the US tariffs threat, Internal Trade Minister Anita Anand and her provincial and territorial counterparts have been discussing possible moves to eliminate regulatory barriers to internal trade, encourage free movement of labour and further standardize regulations across Canada.
Interprovincial trade ‘doing just fine’
Lee notes that politicians and media figures have claimed that Canada’s GDP could grow by up to $240 billion by eliminating interprovincial trade barriers, “such incredibly large numbers simply don’t make sense based on what we know about interprovincial trade”.
“Prior economic research on purported barriers to trade comes up with numbers that are an order of magnitude smaller.”
In reality, interprovincial trade is “doing just fine,” he says.
Total interprovincial trade in 2021 (the last data year) was $451 billion, up 44 per cent since 2007, compared to international export growth of 47 per cent and import growth of 56 per cent, according to the CCPA report.
Lee, however, identifies specific sectors where trade restrictions still exist but argues that their economic impact is minimal:
- Alcohol sales: Provincial liquor monopolies control product availability, but most provinces allow personal importation of alcohol. The report suggests that expanding these allowances would not necessarily lead to lower prices or significant economic benefits.
- Agricultural regulations and supply management: The report states that while supply management can lead to higher consumer prices, it helps stabilize markets and protect small-scale farmers from overproduction and price volatility.
- Trucking regulations: Differences in trucking standards are primarily due to geographic considerations. For example, British Columbia requires stricter safety regulations due to its mountainous terrain, while flat provinces like Saskatchewan have different requirements.
- Professional licensing: Credential recognition for workers moving between provinces remains an issue, but the report states that these are not conventional trade barriers.
- Government procurement: Most local preference policies in government contracts have already been eliminated under the Canadian Free Trade Agreement (CFTA).
However, he says that these issues "are usually invoked as if they are the tip of a much larger iceberg – but in fact, they are the whole iceberg."
“For almost all products, there are no meaningful restrictions to trade across provincial borders.”
Eliminating interprovincial barriers to boost GDP
This contrasts to the claims made by University of Calgary economics professor Trevor Tombe. In a 2022 report that Tombe co-wrote for The Macdonald-Laurier Institute, they estimated that eliminating interprovincial barriers could boost Canada’s gross domestic product by between 4.4 and 7.9 per cent over the long term, according to CTV News.
At the time it was published, Tombe’s paper estimated that opening up interprovincial trade could increase the size of the national economy by $200 billion. He said that increase in value would reach about $245 billion today.
As per the different trade rules across provinces, Tombe noted in the CP report: “There aren’t nefarious motives on the part of provincial governments. It’s just that naturally, when you set your rules, you’ll arrive at potentially slightly different rules.”
Differences in provincial structures, resources
The starting point is to imagine a Canada where there were no transportation costs and no barriers to trade, Lee says, explaining Tombe’s theory, “and consumers in each province have identical preferences for purchasing goods and services.”
“There is good reason to believe that this is a radical assumption that does not account for differences in provincial industrial structure and resource endowments. Canadian provinces have inherently different staple resources (such as forestry and fishing on the BC coast, oil and gas in Alberta, grains and potash in Saskatchewan) and linkages to suppliers and value-added production. Development patterns have been shaped by industrial policy choices (subsidies, resource royalties, cheap electricity). International exports as a share of provincial GDP are also different and affect interprovincial trade.
“Given these obvious differences, this approach greatly overstates trade barriers, as opposed to the wide range of other factors that shape spending by businesses and households.”
Lee also noted that in a model where all interprovincial trade barriers are eliminated, between 1.3 and 1.7 per cent of workers would need to move from their homes to another province in this modelling. Workers would also have to shift sectors within a given province.
In Alberta, “between 1.7 and 5.0 percent of the workforce would change the sector in which they work,” Lee says, citing Tome.
“The human costs of these adjustments are assumed to happen seamlessly and costlessly.”
Lee notes that instead of focusing on international trades barriers, “it is the big macroeconomic forces in the economy, such as interest rates or government spending or international trade that policy makers need to focus on.”
CIT meeting to improve trade
On Friday, at the Committee on Internal Trade (CIT) meeting, Anand and her provincial and territorial counterparts discussed the progress being made to improve trade within Canada. The discussion focused on the following, according to the federal government:
- eliminating exceptions to the Canadian Free Trade Agreement (CFTA);
- making it easier for businesses to access financial services by including the sector in the CFTA;
- prioritizing the removal of regulatory and administrative barriers to the movement of goods in Canada;
- ensuring workers can work in any jurisdiction in this country without delay; and
- making it easier to buy and sell Canadian goods from one another.
Nearly all Canadian employers are in full support of the federal government’s decision to retaliate against US President Donald Trump’s tariffs against Canada, according to a previous KPMG report.
