By Daniel Teeter and Christopher Cotton, Queen’s Economics Department

While Canada champions free trade on the international stage, its internal market remains fragmented by a web of provincial regulations, a lack of infrastructure, and other barriers to businesses operating across provincial borders. Our recent JDI Policy Insight article, “Breaking Down Canada’s Internal Trade Barriers,” considers the impediments to within-Canada trade, the costs of these barriers, and summarizes 22 potential reforms and investments that may help alleviate the barriers.

The Cost of Division

The paper underscores a startling reality: interprovincial trade barriers are potentially as costly as a 7% tariff on goods crossing provincial lines, inflating consumer prices by an estimated 7.8% to 14.5%. This artificial inflation stifles competition, hampers innovation, and curtails economic growth. The authors estimate that dismantling these barriers could boost Canada’s GDP by up to $161 billion annually, or an additional $2,300 to $4,000 per Canadian per year. Yet, despite these potential gains, such barriers persist.

A Multifaceted Problem

Our review article categorizes the barriers into four main types:​

1. Prohibitive Barriers: Outright bans or stringent rules that block cross-border trade. For instance, provincial liquor control boards impose varying regulations, complicating the sale of alcoholic beverages across provinces.​
2. Technical Barriers: Divergent provincial standards, such as differing product labeling requirements, force businesses to tailor products for each province, escalating costs and reducing efficiency.​
3. Administrative Barriers: Cumbersome permit processes and inconsistent licensing procedures create confusion and elevate operational costs for businesses aiming to operate interprovincially.​
4. Geographic and Infrastructure Barriers: Challenges arising from Canada’s vast geography and outdated transportation networks further hinder the movement of goods and services.​

If these barriers are so costly for the Canadian economy, then why do they exist? We attribute their persistence to several factors, including efforts by provincial governments to protect government revenue streams, industry protectionism, collective action and coordination problems within and across provinces, and the costs and complexity of addressing them.

Pathways to Reform

The article discusses recent actions that have made progress toward reducing Canada’s internal trade barriers, though more action is needed. We review 22 specific reforms and investments that should be considered as Canada works towards addressing its internal trade barriers.

1. Cutting Red Tape – Regulatory and Administrative Reforms: Half of the identified reforms fall into this category, including the mutual recognition of credentials and standards, streamlining labor, business, and trucking regulations, and standardizing business registration processes to reduce bureaucratic hurdles.​
2. Strengthening Infrastructure and Connectivity: Invest in upgrading transportation networks, integrate provincial power grids and rail and trucking capacity, and expand broadband access to facilitate the movement of goods, services, and information.​
3. Increasing Transparency and Accountability: Enhance data collection on interprovincial trade, conduct internal trade missions, and launch public awareness campaigns to highlight the costs and inefficiencies of existing barriers and what can be done to address them.​
4. Aligning Trade Policies with Sustainability Goals: Harmonize environmental regulations and carbon pricing mechanisms across provinces to ensure that trade liberalization efforts are environmentally responsible.

The JDI Policy Insight article highlights how provinces and industry organizations can work towards reform both through independent and coordinated efforts, and how the federal government can provide leadership and financial incentives to push reform forward. Suggestions include linking federal equalization payments to trade liberalization efforts and providing grants to provinces that commit to reducing trade barriers.

Conclusion

“Breaking Down Canada’s Internal Trade Barriers” explains interprovincial trade barriers and presents pathways for policymakers, businesses, and citizens to confront the obstacles fragmenting Canada’s economy. For a detailed exploration of these issues and proposed solutions, download the full policy paper.