Insights & Analysis

November 10, 2021

Money on the table: why removing Canada’s internal trade barriers can improve our competitiveness

Canada is a trading nation. Close to one third of our GDP comes from goods and services that we sell to other countries. Trade creates jobs, attracts investment, and improves our standard of living.

To better take advantage of these opportunities, Canada has placed considerable emphasis over the years on liberalizing trade—removing the tariff and non-tariff barriers that prevent us from being able to access foreign markets. In exchange, we open our own markets up, creating competition, increasing choice, and driving prices lower for consumers. Not everyone wins with free trade, but on the whole, society benefits.

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Reducing barriers to interprovincial trade could mean that the average Canadian would make ~$1,800 more per year, enjoy lower prices on goods AND enjoy better government services. Find out why in this commentary from @BizCouncilAB. Click To Tweet

One of the profound ironies of Canada’s focus on foreign trade is that, in many cases, it is actually easier for Canadian companies to do business across international borders than it is within our own country. Barriers to interprovincial trade have been a longstanding frustration for many in Canada, and have resulted in billions of dollars of lost economic activity and lost employment opportunities across the country.

For this reason, the Business Council of Alberta (BCA) was pleased to participate in a Working Group on Internal Trade Barriers that looked at the economic cost of interprovincial trade barriers and what could be done about them. BCA was one of fifteen organizations in this coalition of business groups and think tanks—an effort spearheaded by the Business Council of Canada. In partnership with Deloitte, the Working Group developed a research paper titled The Case for Liberalizing Interprovincial Trade in Canada. That paper was released on November 4th.

In this commentary, we dive into the key findings from that paper, showing how economic activity would be improved by taking firm action on interprovincial trade barriers, and what initial steps need to be taken to begin resolving this intractable problem.

What are interprovincial trade barriers?

Provinces don’t impose tariffs on goods and services that cross internal borders, but there are a host of more subtle barriers that limit our ability to buy, sell, and transport goods and services across the country; or in some cases, to work in other provinces. These trade barriers can be divided into four broad categories:

  • Natural: Geographical barriers such as distance and configuration of borders.
  • Prohibitive: Provincial and territorial laws that unintentionally prohibit internal trade, notably restrictions on cross-border purchases of alcohol.
  • Technical: Sector-specific regulations that differ across provinces/territories such as vehicle weight standards.
  • Regulatory and Administrative: Provincial/territorial permits/licensing/other paperwork requirements imposed on businesses that operate in multiple jurisdictions.

Of these, the only one that is unavoidable is natural barriers. Otherwise, they create unnecessary hurdles for businesses and individuals. In fact, when it comes to barriers to trade, Canada has some of the highest in the world within its own borders.

What kinds of barriers are we talking about?

There are a wide range of interprovincial trade barriers in Canada. Some can impose major limitations on our ability to function as a national economy. Others are just annoying. Many are small, subtle, and hard to pinpoint. Some examples:

  • Only five provinces, including Alberta, allow the unrestricted transportation of alcohol across provincial borders.
  • In BC, certain types of trucks can only be driven at night, but in Alberta, they can only be driven during the day. That leaves truckers only a small window of time when they can cross provincial borders.
  • Different provinces have different rules on the kinds of toilet seats that can be used on construction sites (CWF, 2019).
  • Quebec, Nova Scotia, and Newfoundland & Labrador all restrict the export of live snow crabs; each province requires the crab to be processed in-province before being exported (CWF, 2019).
  • In some cases, a person cannot provide legal services in Manitoba unless they maintain a physical office in the province.

Not all barriers are as small as these. The most important ones are in areas like labour mobility, transportation, and government procurement. For example, differences in educational requirements or curricula mean that people in professions like social work, nursing, some skilled trades, or even law find their qualifications are not recognized in all provinces and therefore their ability to move around the country and practice their profession is limited.

Has anything been done about these trade barriers?

There have been many attempts to reduce the number of internal barriers to trade in Canada. Most recently, the federal, provincial, and territorial governments signed the Canada Free Trade Agreement (CFTA) in 2017. That agreement took a “negative list” approach to removing trade barriers, effectively stating that the CFTA applied to most areas of economic activity, except in cases where provinces and territories wanted to carve out specific exceptions. The problem is that there are many such exceptions, and the list varies considerably in length from one province to the next.

The other important advancement in removing internal trade barriers took place several years earlier. Alberta, BC, and Saskatchewan created the New West Partnership Trade Agreement (NWPTA) in 2009. Manitoba joined in 2017. This agreement was considerably more ambitious than the CFTA, and is the reason why the four western provinces have the fewest exceptions to internal trade of any in Canada.

In 2019 the Alberta government announced that it would unilaterally eliminate most of its remaining trade barriers. As a result, Alberta has assumed a leadership role in advancing internal trade, and currently has the fewest restrictions in the country.

Most recently, in October 2021, the Alberta government introduced legislation to improve labour mobility by making it easier for skilled professionals (such as doctors, accountants, and electricians) from other provinces or territories to move to Alberta. The Labour Mobility Act legislates the maximum timeframe for regulatory bodies to review and approve credential recognition applications. Applicants will see the process shorten from as long as 12 months, to 40 days, allowing skilled workers to get to work in the province sooner. If it passes, Alberta will be the first jurisdiction in Canada to legislate timelines for these decisions.

What would be the impact of removing internal barriers to trade?

According to our findings, interprovincial trade barriers impose the equivalent of a 6.9% tariff on goods across Canada—equivalent to more than doubling the current GST. The benefits of removing these barriers would be felt across the country:

  • National GDP could rise by $80 billion, or 3.8%
  • Average wages would rise by 5.5%, or about $1,800 per person
  • Government revenues to fund social programming would increase by 4.4%
  • Corporate profits will rise, attracting more investment to Canada
  • Canadians will enjoy lower prices on goods and services
  • Many workers will have better access to job opportunities across the country
What about in Alberta?

Liberalizing internal trade would also have a positive impact in Alberta. That said, the benefits would be somewhat smaller than in most other provinces because Alberta has done so much of the work already. Even so, the potential benefits of removing our remaining barriers—and those in other provinces—is significant. It would raise provincial GDP by about $11 billion—about a 3.2% increase. It would also increase provincial tax revenues by about $1.9 billion, enough to cover all provincial spending on continuing care in 2021-22.

What can we do about it?

Removing internal trade barriers is not easy. While some barriers are of the nuisance variety, many have been imposed for a reason. These include ensuring that local companies get first access to government procurement opportunities, protecting local jobs, or maintaining the integrity of provincial liquor control boards and, therefore, government revenues. Provincial governments are typically not keen on relinquishing their autonomy to make those choices. Moreover, removing trade barriers typically results in small, widespread gains but also concentrated losses. If a hundred people became $10 richer but one person lost $500, it’s not hard to guess who would be the most vocal about the change.

Solutions

In The Case for Liberalizing Interprovincial Trade in Canada, the Working Group arrived at four broad recommendations that will help make progress on removing internal trade barriers. These recommendations recognize the fact that progress must be incremental, and requires widespread buy-in from all thirteen provincial and territorial governments to succeed.

  1. Create a public repository of information about trade barriers in Canada: This will help policy makers prioritize their efforts on reforming restrictions, and strengthen the case for reform.
  2. Recognize the full potential of mutual recognition: Provincial governments should embrace the principle of mutual recognition for standards and regulations across Canada; one province’s standard should be good enough for other provinces.
  3. Collaborate widely on solutions: The private sector needs to be at the table in internal trade discussions, alongside policymakers and subject matter experts. Business can help focus attention on those barriers that most restrict Canada’s economic potential.
  4. Recognize the costs to embracing the full economic potential of free trade: Removing trade barriers can create winners and losers, and can extract a political price on provincial and territorial governments. Workable solutions are needed in cases where domestic industries and workers fear commercial harm. 

Removing internal barriers to trade is a challenging task, but the economic benefits are clear. The Business Council of Alberta strongly supports efforts to improve the free flow of goods, services, and people across this country.

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