Homegrown trade barriers are looming large

The threat of US tariffs is making an old topic suddenly new: interprovincial trade barriers. Can our political leaders find enough common ground to cut them significantly and boost our economic resilience? They should – but it’s complicated.

In 2019 the International Monetary Fund estimated that eliminating them all could lift Canada’s per capita GDP by as much as 4%. Another estimate suggests the economy would grow by $200 billion.¹ Yet in a political federation as vast and sparsely populated as ours, internal trade restrictions have long been seen as necessary for protecting local jobs and interests. But Trump’s threats are driving fresh efforts to find solutions.

The barriers are mainly regulatory, not tariffs, and provinces have many unique rules. Businesses selling a product or service across provincial boundaries must comply with a variety of manufacturing, safety or registration regulations. Doing so piles on costs that can undercut the business case for expanding into other provinces in the first place. Similarly, local rules can limit the ability of individuals to move to another province and quickly start practicing certain professions.

Keeping it local since 1867

According to one estimate, there are approximately 600 professional credentialing bodies regulating goods and services within provincial borders ². The roots of this can be traced to the Constitution Act of 1867, the law that created Canada as a federation. A core section of it details the division of powers between provincial governments and the federal parliament in Ottawa. Local economic and political interests subsequently influenced the development of rules and regulations within provincial jurisdictions over time. Creating and protecting jobs was often a priority.

Since then, various efforts have been made to lower trade barriers. But despite some progress in the past 10-15 years many restrictions remain. Notable examples include:

Alcohol – varying rules on distribution, pricing, and transportation, including certain requirements for beer to be made in the province where it’s sold.
Trucking – different commercial weight, dimension, and safety standards can ramp up costs and complexity for companies operating across provincial borders.
Occupational licensing – engineers, accountants, doctors and tradespeople can still run into barriers getting their credentials recognized in another province.
Dairy and poultry supply management – provincial marketing boards control dairy and poultry production and quotas and restrictions limit the ability of producers to sell nation wide.
Government procurement – some provinces still favour local businesses for government contracts, making it harder for outside companies to bid. This can limit competition and create inefficiencies.
Energy transmission – different regulations and approval processes for pipelines and electricity transmission can delay or block efforts to move energy resources across provincial borders.
Food – different safety, packaging and inspection regulations can be challenging for producers seeking to sell in multiple provinces.
Building codes – these can vary between provinces, creating inefficiencies for cross border construction companies. Materials and techniques allowed in one province may not be acceptable in another, adding costs.

There are other examples in agriculture, insurance, pharmaceuticals and provincial crown corporation monopolies. Quebec has specific language requirements. Fish caught in Newfoundland waters must be processed there. Then there’s Lloydminster, a city straddling the Alberta-Saskatchewan border. A meat processing company on the Saskatchewan side can’t sell commercially outside the city limits of the Alberta side due to different provincial rules. But if it’s processing beef for an individual Alberta customer for personal consumption, then there’s no issue. ³

What’s being done?

The Canadian Free Trade Agreement (CFTA) came into effect on July 1, 2017, succeeding the Agreement on Internal Trade (AIT) signed in 1995. The AIT, the first major attempt at cutting barriers, was limited to specific sectors, so by default excluded a lot. The CFTA tried to flip that by including all sectors unless specifically excluded. It was also designed to reflect the realities of international trade deals such as the North American Free Trade Agreement (NAFTA).

Improvements were made in labour mobility, government procurement and cutting red tape. It created a dispute resolution process and committed the federal and provincial governments to explore further reforms within the Committee on Internal Trade (CIT), the body supervising the CFTA. But according to a study by the Montreal Economic Institute, there were still 245 exemptions between provinces and territories in effect in 2023.

One regional agreement had previously made some progress: the 2010 New West Partnership Agreement (NWPTA) linking BC, Alberta, Saskatchewan and Manitoba. Under it, certified workers can take a job in any of the four provinces without additional exams or training. Businesses registered in one province can do so seamlessly in the others and government procurement barriers were lowered significantly. ⁴

Tariff threats add urgency

But in the face of the US tariff threat more reforms are needed. An emergency meeting of the CIT held at the end of January focused on developing further action items. A key suggestion is for provinces to push harder on recognizing each other’s regulations in critical areas instead of the more time-consuming option of harmonization.⁵ Ottawa proposed this approach last year for provincial trucking regulations and the healthcare sector has been the focus of efforts to ease labour mobility for nurses. All this requires compromises.

Jobs, geography and the power sharing arrangements of our 158-year-old federation make it challenging. But unexpected and economically punishing US trade actions may accelerate tough choices in 2025 and beyond. With careful thought and some give and take between provinces reforms could lead to longer term benefits.

Sources

5 CBC