The Carney government has pinned Canada Day as a self-imposed deadline for the removal of federal barriers to interprovincial trade. This July 1st target recognizes a reality of human nature: we need deadlines to get things done. And indeed it has accelerated movement on a file that ordinarily moves at a snail’s pace. The truth is that in ordinary times, it is difficult for a politician to consume airtime talking about East-West trade inside of a $2 trillion economy instead of strengthening North-South linkages with the $30 trillion behemoth across the border.
The government, in an attempt to prove its urgency, tabled legislation late last week that seeks to remove internal trade and labour mobility barriers in areas of federal jurisdiction.
But even though Canadians are all ears for the bashing of barriers, this deadline is imperfect. The risk is that it will complicate post-July-1 reform and implementation if it signals the end of efforts once the date is reached and prompts a reallocation of resources away from the file. The Carney government can’t simply wash its hands of this after securing whatever wins, real or symbolic, once the maple leaf face paint is washed off and July 2nd rolls around. Real success is going to require sustained attention.
Most concerning about the government’s plans, the outsized focus on the “removal” of federal barriers further obscures the important reality that many interprovincial trade barriers, the lion’s share of the frustrating laws and regulations, require active engagement and coordination by Ottawa. Still, a timeline can help squeeze the most out of this rare opportunity.
Declaring a July 1 deadline is akin to coining the “Doha Round” or the “Uruguay Round” in the international trade context. No one was under any illusion that global trade would somehow reach a final state of perfection following these negotiations. The same goes for this Trump-catalyzed round of internal trade reforms. To infer from Carney’s rhetoric that we can solve interprovincial trade by July 1 (or any future date for that matter) is to suggest that we can somehow perfect the Canadian project. Interprovincial trade barriers are simply transaction costs on account of an internal frontier and will remain part of Canada’s fabric so long as it remains a federal state. Just as couples may periodically renew their vows, Canadians will routinely renew their economic union, as in 2017, 2006, 1995, 1982, and 1949. The year 2025 will be recorded as the most substantive renewal since Confederation itself.
Some $200 billion, equivalent to 7.9 percent in long-run growth to Canada’s GDP, is an estimate of the potential yield from internal trade reform from a paper I co-authored with Trevor Tombe. I stand by this number but believe it to be on the lower end of what’s possible. No economic method is fully able to capture the dynamic effects that come from fostering greater competitive intensity and unleashing knowledge spillovers. If we were to rewind the clock to 1871 and ask a room full of economists to estimate the economic benefit of the Canadian Pacific Railway, none could have credibly forecasted the rise of a G7 nation.
Federally induced trade barriers come in two varieties. The first and easiest of the two to grasp are barriers that stem from federal measures. For instance, only meat processed in federally registered abattoirs can be exported inter-provincially. And yet when I sit down at a restaurant in Cornwall, Ontario, and order a roast beef sandwich, I don’t ask whether the meat came from a federally or provincially registered abattoir. (Undoubtedly, this is a pleasant requirement for the oligopoly of foreign multinationals in command of essentially all of the former.)
If the speech from the throne, which committed to the removal of “all remaining federal barriers to internal trade,” is to be taken literally, a full range of government policies would be up for reform, including supply management. The only way to square (a) the fact that agricultural boards will certainly live to see July 2 with (b) the literal language from the speech from the throne is to conclude that there is an implicit carveout to the term “federal barriers” for measures with an overriding “public interest.”
The more significant and underappreciated form of federally induced trade barriers stems not from its active ongoing measures, but rather its inaction. They come from Ottawa’s reluctance or failure to coordinate and lead. To suggest that its responsibility on the internal trade file is isolated solely to those barriers stemming from its own measures perpetuates a harmful misunderstanding of the nature of trade barriers in the country.
Canada has a leak in its prosperity boat due to the patchwork nature of disharmonious provincial rules and regulations. Provinces and territories are certainly most responsible, but a central government in a federation has a role of outsized importance. And it has taken up the mantle in the past—we need look no further than the instrumental role Ottawa played in the reconciliation of construction codes to find a healthy model.
As a live example, the absence of a proactive and engaged federal government means that small cannabis businesses maintain teams to manually scrape physical excise tax stamps from reallocated cannabis products, glue them back together, and then present the reconstructions to CRA inspectors, who promptly incinerate them.
The federal government is uniquely positioned to curry coordination via its spending power. Where loss of a revenue stream is the sticking point, Ottawa’s wallet can be healthily and wisely allocated to facilitate liberalized provincial reform. Side payments for road infrastructure to facilitate easier movement of trucks have a high ROI when the current patchwork of rules and regulations adds 8.3 percent to the cost of trucking services, thereby hiking prices of goods on grocery store shelves.
The sprint to Canada Day is worthwhile. But when the fireworks’ sulphur dissipates, the work will resume.
