‘Watershed Moment’: Pandemic Underscores Urgency of Toppling Internal Trade Barriers

Provincial barriers give some foreign companies better access to provincial markets than Canadian companies in other provinces
September 23, 2020 Updated: September 23, 2020

News Analysis

Premiers have been calling for freer trade between the provinces and making moves toward it since before the pandemic. Now, with the economy in a shambles and unreliable international supply chains leaving many businesses scrambling, removing interprovincial trade barriers has taken on new urgency.

Ryan Manucha, a lawyer at Davies law firm who has studied the issue of internal trade at length, says the pandemic has crystallized the need to reduce trade barriers in Canada.

“I think that COVID is a watershed moment for Canada on the internal trade front,” he said. “We saw supply chains disrupted and experienced the fallout of changing winds with respect to foreign trade. COVID gives us a moment to recalibrate and think about our internal markets.”

In a 2019 assessment of Canada’s internal trade barriers, analysts at the International Monetary Fund criticized the “slow progress” of efforts to liberalize internal trade, while international free trade agreements “allowed foreign companies better access to Canada than Canadian companies.”

Specifically, the authors criticized past efforts such as the 1995 Agreement on Internal Trade, for not achieving what it intended due to numerous factors including the lack of an adequate dispute resolution mechanism between the provinces, as well as Supreme Court decisions from 2011 and 2018 that helped stifle trade and the federal government’s role in facilitating trade.

The assessment concluded that removing trade barriers would increase GDP by 4 percent, with smaller provinces such as Nova Scotia benefiting substantially.

“Overall, larger gains in typically poorer regions implies trade promotes greater equality across provinces,” it said.

The Canadian Free Trade Agreement (CFTA) came into force in July 2017 with the intent of resolving many of the issues of the 1995 agreement. But despite aims to eliminate trade barriers and establish an open and efficient domestic market, it includes 130 pages of exemptions, and numerous restrictions and protectionist measures at the provincial level continue to be irritants.

The nature of Canada’s dominion means the federal government is limited in what it can do without agreement from the provinces. Some premiers have made interprovincial trade a higher priority.

In a speech to the Canadian Chamber of Commerce in September 2019, Alberta Premier Jason Kenney announced that Alberta would remove eight exceptions out of the fourteen that remained in the CFTA, making Alberta the province with the fewest exemptions in the country. He noted that interprovincial trade barriers cost the Canadian economy an estimated $130 billion a year.

Ontario Premier Doug Ford has also been an enthusiast for interprovincial trade, signing a memorandum of understanding and forming a Joint Red-Tape Reduction Working Group with the Saskatchewan government to improve trade relations.

In the current circumstances, Manucha says the provincial governments should continue to focus on strengthening their cooperation with one another.

“Canada’s leaders should capitalize on this moment of saliency and heightened interjurisdictional cooperation,” he says, adding that when the CFTA was implemented, it included the Regulatory Reconciliation and Cooperation Table (RCT), where governments could come together to hammer out their differences.

“This RCT process allows Canada’s governments to get into the nitty gritty of regulation to make it easier for businesses and consumers to participate in free-flowing domestic trade—think first aid kits, textile and upholstery regulations, drug scheduling requirements,” he says.

“Perhaps the COVID pandemic will trigger the political will for governments to expend greater commitment on reconciling disharmonious relations.”

Ben Woodfinden, a political theorist at McGill University, echoes Manucha in his assessment of the timeliness of addressing barriers to provincial trade.

“There’s never been a more pressing moment to finally move to tear down the internal trade barriers we still have,” said Woodfinden in an interview.

“Growing regional divides and polarization, and growing skepticism and challenges around the world to some aspects of the global trading order make it vital that we strengthen east-west economic relations and trade within Canada.”

Resolving internal barriers will also make it easier for Canada to engage in bilateral and international trade negotiations, he said.

“We are one nation, and it’s simply unacceptable that these barriers still exist.”

Woodfinden has made the case for a “New National Policy” on internal trade that includes federal leadership as well as provincial cooperation and collaboration. The idea is similar to Sir John A. Macdonald’s “National Policy,” whose goal was to help build a national economy for a new nation.

“We’ve seen some trailblazing premiers, like Premier Kenney in Alberta, make a push for this both at the provincial and federal level, but ultimately it’s going to take both federal and provincial leadership,” he says.

“The pandemic has led to an unthawing of some federal-provincial relations, and this might be a good time to use that goodwill and capital that’s been built up to put it towards something meaningful and lasting.”