Interprovincial Trade Barriers in Canada: Options for Moving Forward
Barriers to interprovincial trade impose significant costs upon the Canadian economy, with Alvarez et al (2019) estimating losses of between one and four percent of GDP (approximately $92 billion) on an annual basis. These barriers can take the form of natural barriers, prohibitive barriers that restrict or prohibit the movement of specific items, technical barriers, or regulator/administrative barriers. Regardless of the specific form of barrier, they all have the same effects: reductions in growth, output, efficiency and productivity.
A number of drivers have given rise to these barriers over a long period of time. In some cases, shared jurisdiction between the federal and provincial governments within the Canadian federation has led to a lack of certainty over which senior level of government has final authority. Some courts have interpreted relevant sections of the Canadian constitution literally, while our Supreme Court has not, allowing barriers to remain despite seemingly clear phrasing within the constitution that prohibits restrictions on the movement of goods. Rent-seeking, protectionism and self-interest by industry stakeholders also may be playing a role in the maintenance of barriers.
At least three options exist to begin to dismantle these barriers in order to realize the economic benefits associated with the freer flow of goods and services. First, a more constructionist interpretation of the relevant sections of the Constitution Act could help remove restrictions on interprovincial trade. Second, additional new partnerships similar to the New West Partnership Trade Agreement (NWPTA) between the four Western provinces could be negotiated. Lastly, efforts to remove barriers within specific industries could be increased, both within and outside of the Canadian Free Trade Agreement (CFTA). Each of these three potential strategies has benefits and costs, but it is certain that overall economic output, growth and equity would be increased as a result of increased liberalization of internal Canadian trade.
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