President Trump’s tariffs have prompted renewed interest among federal and provincial policymakers to remove interprovincial trade barriers in Canada to mitigate some of the economic damage. But whatever happens with U.S. policy, with a new prime minister and a federal election looming, trade liberalization within our provincial borders is long overdue.
For decades in Canada, government policies have created substantial barriers to investment, trade and migration between provinces and territories, which hinder the free movement of workers, goods and services in Canada and limit economic growth.
These trade barriers include differences in licencing recognition and safety rules, trucking regulations, credential recognition, provincial monopolies over alcohol distribution, and strict restrictions on the sale of certain goods across provincial borders. This complex array of policies, unique to each province and territory, creates compliance challenges, additional costs for businesses and higher prices for consumers.
According to a 2019 report from the International Monetary Fund, internal trade barriers add between 7.8 per cent and 14.5 per cent to the prices of goods and services purchased by Canadians—that’s more than the GST (5.0 per cent). The harm to the broader economy is also no secret. Research by Ryan Manucha and Trevor Tombe estimates internal trade barriers cost the national economy as much as $200 billion annually.
And when workers are able to use their credentials obtained in one province to get jobs in other provinces, they have more opportunity. At the same time, businesses benefit from an expanded pool of qualified workers.
Again, provincial premiers and federal representatives recently met to discuss reducing trade barriers. For example, the federal government announced plans to strengthen the Canada Free Trade Agreement (CFTA)—a 2017 agreement intended to eliminate barriers for the movement of people, goods and services within Canada. The CFTA has been plagued with an abundance of exceptions that allow Canadian governments across the country to exclude many industries (i.e. dairy and poultry) or specific legislation from the agreement. The government has pledged to remove more than half of these exceptions to allow for more consistent rules and regulations across provinces.
While this is a step in the right direction, it doesn’t go nearly far enough. Working alongside the provincial and territorial governments, federal policymakers should propose a policy of “mutual recognition” so any good, service or professional credential that meets the regulatory requirements of a single province or territory automatically satisfies the requirements of another.
Research shows mutual recognition would increase Canada’s GDP per person—a broad measure of living standards—between $2,900 to $5,100 over the long term.
Provinces can also act on their own through bilateral or multilateral partnership agreements to harmonize regulations and improve worker mobility. One option is to expand the scope of the New West Partnership Trade Agreement (NWPTA) between British Columbia, Alberta, Saskatchewan and Manitoba, and include more provinces in the agreement.
Given President Trump’s aggressive stance on tariffs, federal and provincial policymakers must create an integrated internal trade market in Canada to offset some of the potential economic damage. By eliminating trade barriers, governments across the country can help increase the ability of workers and businesses to prosper, decrease prices, raise household incomes and improve living standards.
Jake Fuss is director of fiscal studies at the Fraser Institute.