There have been growing concerns about interprovincial trade barriers limiting potential growth, and if Canadians are losing out because of red tape. 

The federal government continues putting significant energy into international trade deals, even though countries have stated our interprovincial barriers are limiting their ability to trade with us. If we cannot trade freely within our own borders, what does that say about our future prospects?

canadNow has written articles about our supply chains and financial planning in the face Covid-19: now’s the time for a closer look at the trade barriers we have created.

What is the cost?

Various estimates pin the yearly cost of interprovincral trade barriers at $130 billion. This works out to roughly $9,200 for every household, every year.

The International Monetary Fund (IMF) states these barriers mean we are foregoing a potential 4 percent increase in GDP per capita.

On the whole, internal trade accounts for one fifth of Canada’s annual GDP

The stakes are significant. In today’s reality, when Canada is re-thinking supply chains, processing wide-ranging social and business supports, and distributing massive quantitative easing measures, many Canadians want to explore every avenue of potential GDP growth.

Of course, there needs to be a balance between protecting local industry against the opportunities of freer trade. We will provide the hard facts and leave the reader to decide for themselves which direction the country should go in.

A Brief History of Interprovincial Trade Barriers

Although some trade barriers have the best of intentions, like restrictions on agricultural products to protect local industry, many trade barriers are simply red tape, or insensible variations in standards.

As an example, differences in trucking standards between provinces make nationwide trade burdensome and many companies prefer to simply import directly from the US, where there is a single standard. Differences in occupational standards also require separate paperwork for each province.

As another example, Ontario vineyards are prohibited from directly selling to Manitobans, even though they’re free to sell the same products overseas.

It is easy to understand why the IMF has stated most of our lost potential with internal trade is due to “misguided provincial protectionism”.

There have been two recent legislative attempts to solve these problems, but both have been ineffective for separate reasons.

The Agreement on Internal Trade (AIT), passed in 1995, failed largely because there was more concern about provincial protection than furthering national interest. There was a lack of senior leadership, which allowed smaller players to move in and secure their own interests, and any results from disputes were non-binding.

The Canadian Free Trade Agreement (CFTA), passed in 2017, has also been ineffective as almost half its 345 pages are actually exceptions to the agreement itself.

Right now, Alberta has the least amount of trade barriers, due to unilateral action taken by the province itself, while Quebec has the most.

A Way Forward

Australia and the European Union (EU) provide some insight about how to potentially resolve these issues, if Canadians decide freer provincial borders are more beneficial for our country.

In Australia, different standards exist across jurisdictions, but are recognized by the others. This facilitates the freer flow of goods and labour by making international trade easier, since the product only has to be accepted into one jurisdiction to be recognized by the others, without extra paperwork. In fact, the EU has stated this is what Canada needs.

The EU itself speaks on trade matters for every individual country, which has helped streamline exchange and made it easier for all members to access the goods they need.

Either way, resolving these issues will take strong leadership and collective action, or provinces will have to act themselves to reduce these barriers to trade.

The Future of Interprovincial Trade

The premiers have expressed the will to address these issues, but talk is a lot different than agreeing on effective policy.

In today’s world, where small businesses and their employees are being hit hard by lockdown, it is important to bear in mind that barriers directly affect their access to markets, and clearing them would also expand domestic investment while attracting foreign direct investment.

On the other hand, completely removing all barriers is not without negative implications. Any legitimate concerns about local businesses suffering irreparable harm need to be taken into account as well.

As our economy recovers, keep these ideas in mind as we move forward as a nation and decide what our future economy is going to look like.

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