There are 89,862 words in the Canadian Free Trade Agreement, a long-winded testament to Canada’s 157-year-old failure to create a single national economic space rather than a collection of fiefdoms.
There should be just 12 words in the agreement: No province or territory will erect a trade barrier to any other.
The current agreement is helpful, though, as a demonstration of how far the provinces and territories are willing to go (answer: not nearly far enough) in scrapping regulations and laws that amount to tariffs within Canada, bleeding tens of billions of dollars from national gross domestic product.
As we wrote earlier this week, Ottawa’s fiscal policy and international trade policy need sharp course corrections, as productivity growth sags and trade wars threaten to crimp exports. But dismantling internal trade barriers, which have plagued Canada since Confederation, is an essential part of any solution.
One of the more egregious examples is the trucking sector, a trans-provincial industry that has to contend with a welter of local regulations. There are differing rules for safety standards, truck sizes and licensing requirements, notes a May, 2024, report from the Macdonald-Laurier Institute.
Those and other regulations inflate trucking costs by 8.3 per cent, or $500-million a year, the study estimates. That is a big enough price tag, but those higher transportation costs ripple through the economy, ultimately reducing annual gross domestic product by $1.6-billion.
Creating a single regulatory environment, ideally through harmonization, would result in a substantial economic dividend − and lower-income regions would benefit disproportionately, with per capita gains as high as $287.
And that’s just one sector. Professional accreditation, construction, liquor sales: The reach of provincial protectionism is as broad as it is damaging.
Bank of Nova Scotia has estimated that, depending on how ambitious the reforms are, reducing trade barriers within Canada could add between 3 per cent and 7 per cent to GDP. Even the low end of that range would be a huge boost: a $90-billion gain based on GDP estimates in the 2024 federal budget.
Ottawa would receive a windfall of billions of dollars as a result. In 2022, Scotiabank estimated the federal government could get $15-billion in new revenue from a modest liberalization push.
Given all the obvious economic benefits, why do those trade barriers still exist? Simple: the pull of politics. Every regulation has a beneficiary lurking behind it, waiting to howl in protest if those unearned competitive advantages are stripped away. As with any trade liberalization, the gains are much greater than any downside. But the costs are concentrated and felt immediately, while the benefits are diffuse and take time to materialize. It doesn’t help that many of those benefiting live in other provinces.
Clearly, the federal government will need to play a role to break that impasse. Ottawa doesn’t have the constitutional power to simply dictate to the provinces. But it could bribe them: creating a federal transfer that is open to any province signing on to the federal government’s agenda.
The effort should be self-funding, with provinces receiving a portion of the expected revenue gains from liberalization. A broad-ranging agreement that dismantled all trade barriers would be the ultimate goal, but a narrower approach might work better in the early going, targeted at the most damaging restrictions.
Trucking is one such area, since it underpins so much of the economy. Professional accreditation is another. If a Canadian doctor wants to begin practising in a new province, they must obtain a new licence, a requirement that the Canadian Medical Association says takes months and costs thousands of dollars. Such rules discourage labour mobility.
The construction sector is another piece of low-hanging fruit. A report this week from Toronto-Dominion Bank points out that labour productivity in the construction industry sits at a 30-year low, a major drag on Canada’s overall productivity performance. Harmonized building codes and standardized licensing requirements would strip away the artificial protections that have dampened competition, hindered the growth of firms and harmed the Canadian economy.
The path to reform is clear and the payoff enormous. The only missing ingredient is Ottawa’s leadership.