Time to tear down interprovincial trade barriers

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This article was published 14/07/2022 (1532 days ago), so information in it may no longer be current.

JULY 1 marked five years since the coming into force of the Canadian Free Trade Agreement (CFTA), whose goal (its website tells us) is to “establish an open, efficient, and stable domestic market” in Canada.

Has there been any progress in the half-decade since then in reducing and eliminating barriers to interprovincial free trade?

According to the CFTA’s Regulatory Reconciliation and Cooperation Table (RCT), which was created to address regulatory barriers to trade between provinces and territories, the answer is a clear “yes.” In the 11 “reconciliation agreements” and 15 “work plan items” addressed over the past five years, the RCT has helped simplify processes, align regulations and set consistent standards across provincial borders. These are real achievements that deserve recognition.

It’s not just the RCT that should be addressing barriers; provinces can also make unilateral moves to liberalize interprovincial trade.

There are big benefits to be had by reconciling differing regulatory measures that act as barriers to trade, investment, or labour mobility within Canada.

Consider construction codes. Codes that differ from province to province increase compliance costs for businesses and, like all costs, these are ultimately passed on to consumers. The National Research Council has estimated the economic impact of eliminating duplication, limiting variation and increasing harmonization of construction codes at $750 million to $1 billion annually.

When we look at progress in terms of the CFTA more broadly, however, only some provinces have gone full steam ahead in search of interprovincial free trade. Others have done far less.

It’s not just the RCT that should be addressing barriers; provinces can also make unilateral moves to liberalize interprovincial trade. For instance, in late 2021, Alberta passed a bill to streamline and standardize processes for workers with credentials from elsewhere in Canada. This will reduce current barriers to labour mobility and help attract skilled workers to the province.

Though the main benefit of such a policy is to the province that institutes it, it remains to be seen whether other provinces will follow suit.

It’s not just the RCT that should be addressing barriers; provinces can also make unilateral moves to liberalize interprovincial trade.

One very disappointing fact about the CFTA, however, is that over 70 per cent of the agreement consists of a list of exceptions to it. While the intent was to enhance economic flows within Canada, more must be done to eliminate many of these exceptions.

As documented in a report two colleagues from the Montreal Economic Institute and I published last year, between 2017 and 2021 only Alberta, Manitoba and Ontario made any real progress in implementing the spirit of the agreement and reducing their barriers to the free movement of persons, goods, services, and investments within Canada.

Others, including British Columbia and each of the territories, actually went in the opposite direction — increasing their barriers to internal trade since signing the CFTA.

In other provinces, notably Quebec, not much has changed either way. Over the life of the CFTA, Quebec has not removed any protectionist policy written into the agreement through its “negative list” approach of explicitly excluding sectors from reform. In 2017, Quebec counted 35 broad exceptions to the CFTA, a number that remains unchanged five years later.

Alberta, on the other hand, has reduced its originally exempted barriers from 27 in 2017 to only six in 2021 — a 78 per cent decrease. Our study indicates that if Quebec were to remove all of its interprovincial trade barriers currently exempt under CFTA, per capita GDP in the province would increase by 4.6 per cent.

As Canadians grapple with supply chain issues, inflationary pressures and post-COVID or endemic-COVID recovery, we need to get serious about freeing up interprovincial trade once and for all. It’s a simple, low-cost way to stimulate the economy, raise our productivity and, in the end, improve our general standard of living.

In fact, it’s a no-brainer: clearing away the barriers would spur economic growth and increase Canadians’ prosperity by the equivalent of an estimated 3.8 per cent increase in GDP per capita, according to the IMF.

Some progress has undoubtedly been made, but we need to refocus on the original intent of the agreement from five years ago and ask ourselves: what more can we do, and how long must we wait to do it?

Krystle Wittevrongel is a public policy analyst at the Montreal Economic Institute.

— Troy Media