What are interprovincial trade barriers, really?
Businesses across Canadian provinces and territories conduct a healthy amount of trade with each other. The total value of interprovincial trade in 2021 (the last data year) was $451 billion, an increase of 44% since 2007.
Statistics Canada conducts annual surveys of businesses, asking them about the interprovincial trade barriers that they experience. For 2023, two in five (41%) businesses in Canada purchased goods or services from suppliers operating in another province or territory, while more than one in four (26.9%) sold to customers located in another province or territory.
A smaller proportion of businesses conduct international trade – over the same period 30.2% of businesses purchased goods or services from international suppliers and 14.5% sold goods or services to international customers.
In terms of genuine trade barriers identified by businesses, transportation costs and the availability of transportation were the biggest reasons for not conducting interprovincial trade, but the vast majority of businesses who did not purchase (89.5%) or sell (88.2%) goods or services across provincial or territorial borders cited no need or interest in doing so.
For most provinces, a neighbouring province was the largest interprovincial trading partner, an additional point emphasizing that geography is the largest determinant of interprovincial trading patterns.
Big gains from removing barriers an illusion
Marc Lee at the CCPA has done a good job debunking some papers that have been used to justify removing interprovincial trade barriers.
Basically, it’s fancy math that’s not connected to the reality of business practices, consumer habits, or the important role that regulations can play in reducing the impact of costly harms for all of us. The paper assumes that there are two reasons that provinces don’t trade with each other: transportation costs and interprovincial trade barriers. They then assume that consumers in each province would buy from other provinces proportional to what is produced by each province. They calculate the gap between current habits and this alternative scenario – and after taking transportation costs into account, say that the difference is how much GDP growth we could expect from removing interprovincial trade barriers.
This method does not evaluate the economic or social benefits to maintaining any of the current exceptions and does not factor in any other differences – such as regional specialization of production or local preferences – which might contribute to differences in interprovincial purchasing profiles between provinces. There is no justification for why removing any existing regulations would result in the change of trading practices that the authors predict in their study.
The implication is that removing these barriers will offset reductions in trade with the United States, but there is no evidence this assumption is true. And the authors advocate for something called “mutual recognition”, where provincial standards are lowered, not harmonized to the highest standard. Where possible, provinces should attempt to harmonize to the highest standards.
What are interprovincial trade barriers?
Other than the sale of alcohol, trucking regulations, and recognition of labour credentials, there are few details on what remaining interprovincial trade barriers might even exist.
Too often worker protections, health and safety regulations, protections for public services and infrastructure, or supports for small local businesses are labelled as barriers to trade.
It is standard practice for trade agreements to have a chapter that allows each of the parties to the agreement to exempt specific parts of their economy from some of the rules of the agreement. For example, social services, such as childcare, are exempted from the rules of the interprovincial trade agreement in Chapter 8, because we have a strong belief that decisions about social services should be made in the public interest, and not financial or market-based priorities. There are other specific exemptions for existing measures in Annex I of the CFTA, and exemptions that protect policy space for future measures in Annex II of the CFTA.
When policy makers talk about removing trade barriers, they often mean eliminating these exemptions from the trade agreement. There are several existing protections that preserve the policy space that governments will need in order to respond to US trade aggression with bold action and progressive, public solutions that protect jobs, services, our communities, and our way of life.
Bring it back to Keynes - A New Deal for an Independent Canada
What we really need to do right now is to preserve the policy space to make big public sector investments in the infrastructure that our economy needs to be sustainable and independent from the US.
Hadrian Mertins-Kirkwood at the CCPA has laid out a plan to rebuild Canada in the public interest that would do more to support healthy private sector economic growth in Canada than removing any existing regulation possibly could. Let’s make sure our federal and provincial governments aren’t cutting off their ability to act in the public interest right before it becomes absolutely essential that they do so.