Eliminating
interprovincial trade barriers
won’t boost
Canada’s gross domestic product
as much as forecasted, says a new report by the
École des hautes études commerciales de Montréal
(HEC).
“Even if we were to tackle the harmonization of provincial regulations — the real challenge — it would be utopian to envisage a 6.9 per cent rise in the country’s standard of living over the long term,” the report said. “This is partly because the very nature of the barriers in question is unlikely to produce such effects, but mainly because the real barriers to
interprovincial trade
are structural in origin.”
Various reports on ending provincial trade barriers estimate that doing so could be worth from $110 billion to $200 billion annually, or $2,900 to $5,100 per capita, for Canada’s economy.
HEC said the potential economic gains have been overstated because they overestimate the value of eliminating provincial exceptions in the
Canadian Free Trade Agreement
(CFTA) and underestimate the effect of distance on provincial trade.
Weak productivity
also makes it harder for businesses to effectively compete across those distances.
For example, Quebec has 36 CFTA exceptions, 19 of which relate directly to trade with other provinces and cover areas such as ferries, funeral services, travel agencies, explosives, wildlife, racehorses and co-operatives.
“Ultimately, only a limited number of exceptions explicitly hinder economic activity,” the report said, referring to those related to the forestry and seafood sectors and the provincial body that regulates alcohol sales.
HEC also said Quebec’s labour exceptions are “too specific and insufficient in number to have a major impact on economic growth.”
Quebec has the most CFTA exceptions, but HEC said all provinces have exceptions that are too narrow to have much of an impact on economic growth if they were eliminated.
“The real issue is the
lack of regulatory harmonization
, not the exceptions to the CFTA,” the report said, pointing out that federally licensed red-meat-processing facilities can trade across provinces and internationally, but companies with provincial licences cannot.
That, the report said, “stifles productivity and efficiency.”
Unlike exemptions, regulatory barriers that cover standards on goods and services cost the economy by interfering with movement and raising costs.
Prime Minister Mark Carney, who has made it his mission to eliminate federal barriers to provincial trade by July 1, met with premiers on Monday to come up with a list of projects of national interest that can be accelerated through the regulatory process.
Prior to the meeting, the premiers of Ontario, Saskatchewan and Alberta signed agreements to remove trade barriers between the provinces.
Politicians tout opening up borders, but HEC wonders if
businesses are actually interested in expanding provincial trade
, given that a 2023 Statistics Canada survey said 65 per cent of businesses reported they didn’t have any interprovincial sales due to a “lack of interest,” while 8.6 per cent said they avoided interprovincial trade due to barriers.
The 9.3 per cent of companies that did trade in other provinces and encountered barriers had problems with distances, including the cost of transportation, the distance between senders and receivers, the availability of transportation and the time it took to place orders and receive them.
From a regulatory perspective, provincial sales taxes topped the businesses’ list as a barrier.
“Legal barriers appear to be a secondary issue from a company’s point of view, a finding that clearly runs counter to the importance attached to them,” the report said.
Statistics Canada also said that those companies that undertook interprovincial trade also exported internationally, leading HEC to conclude that productivity is the key to competing over distances.
Canada’s productivity has been cited as a reason for its economy stagnating over the past decade. Labour productivity in the United States’ manufacturing sector is 70 per cent higher than in Canada.
HEC said despite a low loonie, Canadian companies have not made their products competitive enough to overcome hurdles associated with distance, with the small size of the market and “fragmentation” shielding them from competition.
The result is that the share of domestic demand made up of local products and those from other provinces has shrunk, while the share from exports has risen.
“Without substantial productivity gains, efforts to improve the fluidity of domestic trade will be in vain because Canadian companies will not be able to displace imports in the domestic market,” the report said. “And whatever happens, the size of the Canadian economy will remain insufficient to guarantee the country’s long-term economic prosperity.”
• Email: gmvsuhanic@postmedia.com
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Economic benefits of breaking down provincial trade barriers overestimated, says HEC report
2025-06-03 13:54:28