The seven-year deal for Quebec to supply power to Ontario expires at the end of this year, and Ontario Premier Doug Ford has indicated that he doesn’t intend to renew it.Graham Hughes/The Canadian Press
When it comes to removing trade barriers among Canada’s provinces, one boundary looms larger than all others: the one shared by Quebec and Ontario.
The two neighbours, which accounted for a combined 57 per cent of gross domestic product (GDP) last year, also share the country’s biggest internal trade relationship. The flow of goods and services across the Ontario-Quebec boundary represents more than half of all trade among provinces.
Recently, the Canadian Federation of Independent Business – the national lobby group representing the country’s small-business entrepreneurs – published a report arguing that about 215,000 small and medium-sized enterprises, or SMEs, in the two provinces would benefit from removing barriers to the flow of goods, services and labour.
The release follows another CFIB report earlier this month, which identified the two jurisdictions as among the least open interprovincial traders in the country. The CFIB gave Quebec its lowest grade for internal trade openness, while it ranked Ontario sixth out of 10 provinces.
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Under the Canadian Free Trade Agreement, the 2017 national deal to reduce trade barriers among provinces and territories, each jurisdiction was allowed to maintain a list of its own specific “exceptions” to open trade. This, in effect, serves as a formal gauge for just how open each jurisdiction’s interprovincial rules are. Quebec maintains the largest number of CFTA exceptions among provinces; Ontario has the third most.
Constitutionally, provinces aren’t permitted to apply tariffs on goods from their fellow jurisdictions. But they still maintain a multitude of other non-tariff barriers, such as regulatory restrictions, licensing requirements and other administrative hurdles that make it more costly and difficult to do business across provincial boundaries. These are a serious impediment to business productivity in Canada. Ontario and Quebec are a big part of the problem – and key to the solution.
“These barriers are not insurmountable, and governments possess the power to reduce them, but they need the political will,” CFIB policy analyst Riley Locke, co-author of the report, said in a news release.
The two provinces already have a bilateral trade agreement in place: the Ontario-Quebec Trade and Cooperation Agreement, signed in 2009. But the provinces haven’t revised it since 2015, eight years ago. With weak productivity growth becoming an increasingly pressing problem for the Canadian economy, there’s ample motivation for these two economic engines to address their cross-boundary shortcomings.
For Quebec, there has been a long-running concern about its competitiveness with Ontario. Quebec’s per-capita gross domestic product is 14 per cent lower than Ontario’s. That figure has fallen from 17 per cent when François Legault became Premier of Quebec five years ago, pledging to close the gap. Yet it shows that there is still a serious gulf in productivity between the two neighbours.
This isn’t a zero-sum game; it’s not necessary to narrow the gap for Quebec’s economy to see benefits. Any mutual agreements to reduce provincial barriers would improve the productivity of companies on both sides. And given that Quebec relies on the Ontario market for a larger proportion of its interprovincial trade (about 60 per cent) than Ontario relies on Quebec (about 40 per cent), it’s likely that Quebec would enjoy the larger benefit. A CFIB survey shows that nearly 40 per cent of Quebec’s SMEs buy goods from or sell goods to the Ontario market, and 22 per cent of Ontario SMEs buy or sell with Quebec.
One key area of potential gains is in better harmonization of regulations affecting labour mobility – a pressing issue for business operators amid shortages of skilled workers. Mutual recognition of certifications for certain professionals and tradespeople would help make skills more portable to where they are most needed; harmonized workers’ compensation systems would reduce red tape and costs for employers.
Given the nature of the CFTA, bilateral and regional agreements among provinces might offer the best and most expedient avenue to the next round of reductions of trade barriers. The national agreement has established the framework for open provincial boundaries, with the individual jurisdictions themselves maintaining their lists of exceptions; it’s entirely within the provinces’ powers to remove items from their exception list, or choose not to exercise them. This does set a stage for individual provinces to lift specific exceptions where they see room for meaningful gains or mutual co-operation, without having to resort to countrywide agreements.
And in fact, we have already seen some jurisdictions unilaterally remove exceptions from their list. Most notably, Alberta eliminated most of its exceptions in 2019 under then-premier Jason Kenney, recognizing that there were significant economic efficiencies to be achieved regardless of whether its other provincial counterparts followed suit. Meanwhile, the New West Partnership Trade Agreement, which has allied the four Western provinces since 2010, provides an effective model for region-specific co-operation.
Lately, the trade-related conversation between Ontario and Quebec has centred on the issue of electricity: The seven-year deal for Quebec to supply power to Ontario expires at the end of this year, and Ontario Premier Doug Ford has indicated that he doesn’t intend to renew it. That issue could cloud any attempts to make cross-boundary trade progress in other areas.
But as the CFIB report indicates, there’s a lot more to Quebec-Ontario trade than electricity. There are 215,000 private-sector employers who stand to gain. And a productivity-starved national economy that would benefit.