Experts recently testifying before a Commons committee called for lowering interprovincial trade barriers, reforming Canadian laws on competition, and improving preparedness for the digital economy to boost Canada’s competitiveness.
The experts were invited by the House of Commons Standing Committee on Industry, Science and Technology, which has been meeting over the past few weeks to undertake a series of studies on competitiveness in Canada.
Interprovincial Trade Barriers
Trevor Tombe, an associate professor at the University of Calgary, told the committee on April 20 that interprovincial trade barriers have dragged down Canada’s national productivity, competitiveness, and economic prosperity.
According to Tombe, while internal trade costs are not observable in a tangible way, the “tens of thousands of individually modest but collectively significant differences in rules, regulations, standards, certifications” have added costs to businesses operating across provincial boundaries.
Examples can be seen in agriculture inspections, labelling requirements, and differences in provincial standards and certifications for trade and services.
Tombe said interprovincial trade barriers could add up to 8 percent to shipping costs from one province to another for the manufacturing sector. When services are included, the average cost of trade between provinces is between 8 percent and 15 percent.
“There are hundreds of professional associations and occupational licensing authorities that largely operate at the provincial level. And that means that for an individual wanting to provide their service to a buyer in a province other than where they reside and are regulated, there may be barriers to doing so,” Tombe said.
Internal trade may also lower Canada’s overall productivity. According to Tombe, if Canada is to liberalize internal trade in goods, the country’s productivity could increase by roughly 4 percent, which represents an increase in Canada’s economy by nearly $90 billion per year. That represents over $2,000 per person, or $5,000 to $6,000 per household.
Competitiveness in Digital Economy
Jim Balsillie, chair of the Council of Canadian Innovators, told the committee at the same meeting that Canada must develop institutional and policy capacity to boost competitiveness in the intangibles economy.
Balsillie said Canada only has policies for the traditional production-based economy, which is shrinking in importance due to the digital transformation throughout industries.
He stated that prior to the COVID-19 pandemic, Canada’s GDP per capita was 3 percent lower than the 2010 level, while the United States had experienced a 35 percent increase over the same period by aligning its economic policies with digital transformation.
“In the traditional economy, competitive was synonymous with low cost. To attract multinational investors, companies cut red tape, offered land at concessional rate, provided tax benefits, etc., knowing this economic activity would generate a fair return to the host,” Balsillie said. “However, as economic returns increasingly shifted to owners of IP, and more recently data, this strategy amounted to capturing the low-rent district in the global economy.”
To improve Canada’s competitiveness, Balsillie suggested rebuilding the Economic Council of Canada—a former Crown corporation owned by the federal government—which conducted economic and policy analysis for the federal government.
“Proper regulations of the IP- and data-driven economy can restore competitive market dynamism, which is why IP and data giants are under investigation for anti-trust behaviour by U.S. federal and state authorities, EU, and others,” Balsillie said.
Reforming the Canadian Competition Act
Balsillie’s call for more preparedness for the digital economy echoed that of Vass Bednar, executive director of the Master of Public Policy Program at McMaster University, who suggested a reform to Canada’s Competition Act.
“It has been said that Canada doesn’t treat competition policy seriously and that we tolerate high corporate concentration in an effort to be competitive internationally,” Bednar told the committee at its meeting on April 15. “To my mind, what it comes down to is that there are structural limitations in our legislation that hinder our ability to curb anti-competitive practices, especially for today’s digital economy.”
Bednar said the lack of reform may lead the government to overlook anti-competitive mergers or conducts, and it would not be able to administer effective fines to curb such behaviours.
Bednar gave the example of Loblaw, a Canadian supermarket chain that has “admitted to fixing the price of bread and may have been colluding on wages with other grocers in the pandemic.”
She said the company—following the playbook of Amazon and Facebook—has been using a proprietary advertising platform, Loblaw Media, to grow its market share through targeted ads—a strategy that could impact competition and also harm consumers by limiting their ability to access everyday essentials at a cheaper price.
According to Bednar, the Canadian competition policy is silent on such activities because the legislation and policy guidelines are unable to adequately comprehend how data creates a competitive advantage.
“Put simply, Canada’s Competition Bureau does not have the tool kit for a digital economy,” Bednar said.
“As part of any modernization, we’re going to have to critically think about how we can redefine ‘dominance’ via volume and maybe even richness of data, and also understand the competitive harms that can flow from dominant firms that hold large volumes of information,” she said.