In the context of the evolving global trade landscape, particularly with the new U.S. administration under Donald Trump signalling potential tariff impositions, Canada finds itself at a pivotal juncture.
The removal of interprovincial trade barriers within Canada has never been more critical, not just for bolstering national economic resilience but also for mitigating the adverse effects of external trade disruptions.
This post delves into why Canada must aggressively pursue this path, providing real examples and highlighting the significant opportunities that could arise from such actions.
Economic Impact of Interprovincial Trade Barriers
1. Cost to the Economy:
Interprovincial trade barriers have been likened to imposing an internal tariff of approximately 6.9% on goods moving between provinces, which is more than double the global average tariff rate of 2.9%.
This internal “tax” on goods translates into lost economic opportunities, with estimates suggesting that these barriers cost Canada’s economy between $50 to $130 billion annually, or roughly $7,000 per household in forgone economic activity.
2. Productivity Loss:
A study by the International Monetary Fund (IMF) indicated that removing these barriers could increase Canada’s GDP by as much as 4%.
This productivity boost would come from more efficient allocation of resources, increased competition, and enhanced labor mobility across provinces.
3. Comparative Disadvantages:
Unlike the seamless trade within nations like Australia or the European Union, Canadian businesses often find it easier to trade internationally than domestically due to these barriers. This paradox not only stunts economic growth but also undermines Canada’s competitive position on the global stage.
Real Examples of Interprovincial Barriers
1. Alcohol Distribution:
Alcohol restrictions are among the most cited examples. For instance, Manitoba allows direct-to-consumer shipping of alcohol across Canada, while other provinces maintain prohibitive regulations, leading to inefficiencies and missed opportunities for businesses like local wineries and craft breweries.
2. Trucking Regulations:
Differing weight limits for trucks in provinces like Nova Scotia compared to others result in logistical inefficiencies where trucks need to offload or modify cargo before crossing borders, a direct cost to the transportation sector. The Canadian Trucking Alliance has advocated for harmonization to increase efficiency.
3. Professional Licensing:
The disparity in professional licensing across provinces creates significant barriers for workers, particularly in healthcare. For example, the Atlantic provinces have implemented a portable registration model for health professionals, which could serve as a model for broader adoption.
Opportunities from Removing Barriers
1. Enhanced Market Access:
By removing internal trade barriers, Canadian businesses, especially small to medium enterprises (SMEs), would gain access to a larger domestic market, reducing reliance on export markets potentially affected by U.S. tariffs. This could lead to new business models, like direct sales across provinces, particularly in sectors like agriculture and manufacturing.
2. Boost to Manufacturing and Innovation:
A unified market would encourage manufacturers to scale operations nationwide rather than within provincial silos, potentially leading to greater investments in innovation and technology due to economies of scale. The New West Partnership Trade Agreement (NWPTA) between Western provinces has shown that interprovincial trade liberalization can lead to increased productivity and export behaviour.
3. Job Creation and Labor Mobility:
With the removal of occupational licensing barriers, workers could more easily move to where their skills are in demand, potentially filling labor shortages in one province with excess labor from another. This could be particularly beneficial in sectors facing shortages like healthcare or trades.
4. Strategic Response to U.S. Tariffs:
If the U.S. imposes tariffs, focusing on internal market liberalization could serve as a strategic countermeasure by diversifying economic dependencies away from the U.S. market. This would not only mitigate the impact of tariffs but could also strengthen Canada’s negotiation position in trade talks.
5. Environmental and Regulatory Benefits:
Streamlined regulations could also lead to better environmental outcomes. For example, uniform vehicle emission standards across provinces could facilitate cleaner transport solutions. Moreover, harmonized regulations would simplify compliance for businesses, reducing administrative costs and fostering environmental innovation.
Case Studies and Success Stories
• The New West Partnership Trade Agreement (NWPTA): This agreement among Western provinces has demonstrated that mutual recognition of regulations can lead to tangible economic benefits, including a 1.97% increase in plant productivity and a boost in interprovincial exports.
• Atlantic Physician Registry: This initiative allows doctors to practice across Atlantic provinces without needing multiple licenses, highlighting how mutual recognition can address labor mobility and service delivery issues.
The urgency to dismantle interprovincial trade barriers in Canada is underscored by the potential economic shock from U.S. tariffs.
By aggressively pursuing internal market liberalization, Canada not only strengthens its economic resilience but also positions itself to leverage internal growth opportunities.
This strategy aligns with historical precedents where economic blocs like the EU have shown that internal unity can fortify against external economic pressures.
It’s time for Canada to turn inward to strengthen outward, ensuring that businesses and consumers can thrive in an integrated national market regardless of international trade volatility.
