Getting rid of trade barriers between Canada’s provinces and territories has the potential to help unify the country after a divisive federal election, according to Peter St. Onge, senior economist with the Montreal Economic Institute (MEI).
“There are huge benefits in terms of reinforcing that we are all Canadians. We’re all in this together,” St. Onge said about dropping protectionist stances. “This is perfect timing, unfortunately, with the conflicts between people in Alberta and specifically in Quebec, but also among the other provinces that are not as welcoming about importing energy.”
St. Onge is a collaborator on a research paper introducing the MEI’s newly created Internal Trade Provincial Leadership Index (ITPLI). The ITPLI, launchedNov. 14, was established primarily to track progress toward a Canada free of internal trade barriers, which could raise economic growth by almost 4 percent, according to the International Monetary Fund.
The index ranked the 10 provinces and three territories based on having the fewest barriers to internal trade. Alberta ranked No. 1, thanks to Kenney’s efforts to eliminate large swaths of trade exceptions from the Canadian Free Trade Agreement (CFTA).
The CFTA, a joint project of the federal, provincial, and territorial governments, took effect in 2017 and was intended to be a significant step toward freeing up trade in “virtually every sector of the economy,” as noted by the federal government at the time. However, it’s so loaded with exceptions that it prompted the MEI, in collaboration with the Canadian Constitution Foundation, to create an index to monitor advancement toward eliminating those impediments.
Alberta ‘Doing the Right Thing’
Government procurement is one such crucial area filled with multiple exceptions.
The report also points to sections in the CFTA that support monopolistic behaviour at the provincial level if the government owns the monopoly. For example, Article 317 allows the provinces to discriminate against external investors in order to protect a monopoly.
“The perfect is the enemy of the good is the logic there,” St. Onge said, adding that by creating the index, it keeps pressure on the provinces and territories to get rid of awkward rules, special fees, certain licensing requirements, etc. that hinder commerce.
Simply put, the index appears to show that Canada has some provinces that want free trade and others that don’t. The western provinces of Alberta, Manitoba, B.C., and Saskatchewan lead the rankings while Quebec ranks last.
“By unilaterally disarming on protectionism, Alberta Premier Jason Kenney is doing the right thing. … This is going to be an easier province to invest in, to make money in, to hire people in. That’s positive for an economy,” said the research report’s author, MEI senior fellow Mark Milke, in an interview with BNN Bloomberg.
It’s also good for Alberta to diversify its economy, and it promotes national unity, Milke added.
Ontario ranked poorly in the index, at fourth-last among the 13 jurisdictions, but St. Onge says Premier Doug Ford’s rhetoric on reducing trade frictions and red tape has been excellent. The Conservatives in Ontario on Oct. 28 introduced legislation to cut more red tape and make doing business in the province easier.
However, the index focuses on reducing interprovincial trade barriers, and Ontario still needs to make greater progress on this front.
“Because of Premier Kenney’s move, there was a follow-up by Manitoba soon after that, so we’re hoping it’s a question of dominos falling. Hopefully, the largest economy within Canada, Ontario, will be next,” St. Onge said.
The report states that internal trade liberalization, based on the calculations of some economists, would add $50–$130 billion to Canada’s overall GDP, which represents between $3,500 and $9,200 per Canadian household every year.
“It’s hard for people to see what they’re missing,” St. Onge said. “If it’s been this way for 50 years, then, for example, for trading alcohol between provinces, for trading agricultural goods, they can’t see what they’re losing.”
The quagmire of trade impediments is partially created out of the laudable intention—and pressure—to devolve power to the local level. But these powers can be co-opted by special interest groups, which can then rewrite the rules for their own benefit, explains St. Onge.
“When you put a particular power at the local level, then it becomes attractive—a honey pot,” St. Onge said. This scenario gets multiplied across the country, resulting in a myriad of differences in regulation and standards along with stifling barriers, both major and minor, that choke businesses and consumers.
Canada’s Supreme Court has upheld rulings in favour of the provinces imposing trade regulations to supposedly protect their economies, even though the 1867 Constitution Act envisioned free trade within Canada.
“Canada was founded as a nation in part to eliminate the troublesome trade barriers that existed in pre-Confederation British North America,” states the ITPLI report.
The ideals of Canada’s founding fathers jive with public opinion that wants “one country, one market,” according to a 2017 poll commissioned by the MEI.
Bane of Small Businesses
The same can be said for small businesses, which dominate the Canadian economy and are disproportionately penalized by interprovincial barriers. They don’t have the resources to cope with the added costs like larger companies do.
“They’re effectively bullied out by these larger companies,” St. Onge said.
For example, interprovincial trade barriers make it difficult for workers to move between provinces and have their credentials recognized.
Other trade frictions that create costs for businesses include some truck configurations only being allowed to be driven at night in B.C. but only during the day in Alberta, some truck drivers needing to change their tires when crossing certain provincial or territorial borders due to different weight limits, and differing sizes for dairy creamer and milk containers across jurisdictions.
And, while there have been no restrictions on transporting lumber across provincial borders in recent years, several provincial governments are fighting against having pipelines built.
For consumers, two of the most troublesome rules are barriers to taking alcoholic beverages across provincial borders and the different ways in which car insurance is sold depending on the province.
“We applaud premiers Kenney and [Brian] Pallister [Manitoba] for doing their part to help resolve an issue of critical importance to our economy,” said the Canadian Chamber of Commerce in a Nov. 14 press release. “Today, the Canadian Chamber calls upon other premiers to follow suit and start removing their exceptions under the CFTA.”