A report from the International Monetary Fund (IMF) suggests that Canada’s economy has the potential to grow by almost seven percent, equivalent to $210 billion in real GDP, through the gradual elimination of internal trade barriers among the nation’s 13 provinces and territories. According to the study co-authored by IMF researchers Federico J. Diez and Yuanchen Yang, in collaboration with University of Calgary economist Trevor Tombe, regulatory obstacles are estimated to act as a nine percent national tariff on average. Particularly in service-based industries such as healthcare and education, where inter-provincial professional mobility is heavily regulated, this pseudo-tariff can soar to over 40 percent.
Comparatively, the U.S. maintains an average tariff rate of 5.9 percent on Canadian imports, as stated by the Bank of Canada. The report highlights that smaller provinces and territories, along with the northern regions, bear a disproportional burden from internal trade barriers, incurring higher costs compared to larger provinces with more diverse economies. The removal of such barriers is projected to significantly benefit the Atlantic provinces, with Prince Edward Island predicted to potentially see a substantial increase of nearly 40 percentage points in real GDP per worker.
Alicia Planincic, the Director of Policy and Economics at the Business Council of Alberta, remarked that Canada’s economy is essentially segmented into ten distinct economies due to the existing trade barriers among provinces. The impediments not only hinder the movement of goods across provincial borders but also restrict job opportunities and business expansion within the country. The necessity to address internal trade barriers gained traction following the imposition of tariffs by the U.S., prompting federal and provincial governments to explore domestic trade opportunities.
Although some provinces have initiated bilateral agreements, a comprehensive national effort was made in November when the federal government, provinces, and territories signed an accord to eliminate trade barriers on most goods, excluding alcohol and food. However, services, which account for a significant portion of internal trade costs and are projected to drive about 80 percent of the GDP gains, were mostly excluded from this agreement. Sectors like finance, telecom, transportation, and professional services were cited in the report as critical areas impacting business costs throughout the economy.
Planincic emphasized that the responsibility to make headway on internal trade barriers lies with the provinces, as it requires not only political will but also a complex process of aligning numerous rules and regulations that vary across provinces. The intricate nature of these regulations underscores the challenges involved in achieving consensus and harmonization among different regions within the country.