Canada Eliminates Internal Trade Barriers, but Economists Warn of Limited Impact

Strategic Insights -

As part of Prime Minister Mark Carney's promise to strengthen the country's economy, Canada has eliminated its internal trade barriers by July 1. However, economists caution that this move may not have a substantial impact on the country's economy due to the significant role of U.S. trade. The federal government has pushed through a bill to eliminate rules and laws that stifle the movement of goods and many workers inside the country, but 10 provinces and three territories have created their own rules and regulations that inhibit internal trade.

Key Takeaways:

  • Prime Minister Mark Carney has met his pledge to eliminate internal trade barriers by July 1, but economists say it's not a substitute for lost U.S. trade.
  • Canada's internal barriers are considered stricter than in other federal systems, and the fragmenting of rules around product standards and regulations among provinces adds paperwork and expenses for many businesses.
  • Economists generally agree that fully opening trade within Canada is good policy, but there is broad consensus that it is unlikely to replace the U.S. market for Canadian goods anytime soon.
  • According to economist Trevor Tombe, fully realizing the benefits of internal trade could take decades, and the country's natural size and small market mean it will need to rely on exports, including to the United States.
  • The federal government can accept provincial standards for products as being equal to federal ones to ease shipments across provincial borders under the new law.
  • Many barriers are related to the ability of professionals to be licensed to work outside their home provinces, with progress limited, and Canada lacks a national securities regulator, creating costly duplication of paperwork.

Statistics:

  • Canada's economy could grow between 4.4 and 7.9 percent over the long run if all internal barriers on goods and services were removed.
  • 10 provinces and three territories have created their own rules and regulations that inhibit internal trade, considered a bigger obstacle than the federal barriers.
  • Transportation costs and the generally low productivity of many Canadian businesses are major factors limiting trade within Canada.
  • The federal government has used the example of shipping a washing machine made in British Columbia, but the washing machine industry has largely not been manufactured in Canada for decades.

Sources:

  • Trevor Tombe, an economist at the University of Calgary
  • Robert Gagné, an economist at HEC Montréal
  • Chrystia Freeland, the internal trade minister