Interprovincial trade barriers: what they are, why they exist and how to cut them

OTTAWA — The Trump administration’s on-again, off-again threat to impose damaging tariffs has boosted an old idea for driving economic growth in Canada: eliminating interprovincial trade barriers.

“There are millions of different ways in which rules and regulations and standards and so on affect decisions that add up to a lot, at the end of the day,” said University of Calgary economics professor Trevor Tombe.

Here’s a look at how interprovincial trade barriers work and why years of efforts to tear them down them have largely failed.

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What’s an interprovincial trade barrier?

Tombe said this term applies mostly to regulatory burdens that frustrate efforts to buy, sell or otherwise do business across provincial lines. They generally don’t involve quotas or tariffs.

“It should just be thought of as differences in the rules and regulations and standards and so on that exist from one province to the next,” he said. “Navigating those different rules adds costs, and therefore detracts from internal trade.”

Tombe said the provinces have a combined total of about 600 professional credentialing bodies that regulate goods and services within their borders — so these barriers exist in virtually every industry.

Health and safety rules that vary by jurisdiction can throw up barriers to interprovincial trade. They include provincial regulations that require a commercial vehicle to get a second inspection after crossing the border between British Columbia and Alberta.

They can also include federal regulations, such as those that require federal inspections of agricultural products when they cross a provincial border — even if the product was inspected provincially when it was produced.

Provincial regulations that categorize products for tax purposes — regulations that determine which ingredients a beverage must contain to be sold as “vodka,” for example — also make it harder to sell products across provincial borders.

But Tombe said the modest level of alcohol trade across provincial borders relates less to regulations and more to the fact that most provincial governments purchase their own supplies for provincial liquor agencies.

Experts have been lamenting the low level of interprovincial trade in Canada for decades. Tombe pointed out that the problem was flagged in the 1940 report of the Royal Commission on Dominion-Provincial Relations.

Why do these barriers exist?

Tombe said they’re largely the product of political inertia.

“There aren’t nefarious motives on the part of provincial governments,” he said. “It’s just that naturally, when you set your rules, you’ll arrive at potentially slightly different rules.”

He said that provinces have many priorities to focus on, such as schools and hospitals, and harmonizing regulations with their neighbours is “really difficult.”

Sean Speer, a public policy analyst and senior fellow at the University of Toronto’s Munk School of Global Affairs, has suggested governments should use artificial intelligence to “create an apples-to-apples comparison across the provinces” for various regulations, and propose ways to harmonize rules.

“A major obstacle to eliminating interprovincial trade barriers is actually identifying them,” he wrote on the platform X last month.

What’s the economic impact?

In a report Tombe co-wrote for the Macdonald-Laurier Institute in 2022, he estimated that eliminating interprovincial barriers could boost Canada’s gross domestic product by between 4.4 and 7.9 per cent over the long term. He pointed out that result would require the elimination of all barriers and probably wouldn’t be apparent for several years.

At the time it was published, Tombe’s paper estimated that opening up interprovincial trade could increase the size of the national economy by $200 billion. He said that increase in value would reach about $245 billion today — meaning thousands of dollars per person.

Tombe said that Statistics Canada data on exports and imports by province suggests that just one-third of Canadian trade by GDP is interprovincial, with the rest of it moving on to other countries.

He said that illustrates how it’s often easier for businesses to trade goods with foreign countries than across provincial lines.

What has the Trudeau government done to fix this?

Ottawa brought the provinces together to sign the Canadian Free Trade Agreement in 2017, which has led to some provincial and federal rules being softened or repealed to make them more uniform.

Some economists have criticized the agreement for retaining hundreds of exceptions to rules meant to ensure barrier-free trade.

“Despite some partial efforts to reduce barriers in the past, provinces have been reluctant to pursue further measures,” Scotiabank economist Jean-François Perrault wrote in a March 2022 analysis.

Tombe said the 2017 pact is “really meaningful” in that it created an institutional process for provinces to identify irritants and harmonize regulations. But the process itself is slow, he said.

He added that Ottawa has limited control over how provinces regulate within their jurisdiction.

The federal government has convened meetings and has launched surveys and databases meant to identify barriers and ways they can be removed.

Ottawa also has published a building code that provinces can choose to adopt to harmonize the construction sector. The federal government also standardized electronic hours-tracking for commercial drivers and consolidated 14 food safety regulations into a single set of rules.

What would the Conservatives do?

Conservative Leader Pierre Poilievre has said he’d prioritize tackling a patchwork of trucking regulations, arguing it should be the easiest way to get more Canadian goods moving across provincial borders.

He also has said he would remit tax revenue to provinces that scrap regulations preventing interprovincial trade, and use the added federal tax collected from the resulting increase in commerce.

That idea stems from Scotiabank’s 2022 analysis, which argued such a move could eventually generate $15 billion in federal revenues.

Poilievre also said he would standardize certifications for medical personnel — though past governments that have attempted to do so have faced pushback from regulators and unions.

Would resolving these barriers insulate Canadians from tariffs?

Tombe said scrapping barriers would boost productivity and unlock economic growth — but even swift action would take years to deliver real gains.

“There’s no avoiding a recession, if indeed the U.S follows through with permanent 25 per cent tariffs on Canada,” he said. “But over time, we could potentially more than compensate.”

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