While Canada’s economy has long relied on international trade, a commentary from Desjardins suggests that focus needs to shift closer to home.
The piece, written by Desjardins Senior Economist Benoit Durocher, discusses the tangled system of trade among provinces and territories. He points out that many businesses are finding it easier to conduct trade internationally than with other provinces.
“According to the World Bank, Canada’s openness to international trade was 65.4% in 2015, one of the highest rates among industrialized countries… Meanwhile, trade within Canada, i.e. among the various provinces, remains hampered by various barriers,” he says.
There is an existing Agreement on Internal Trade (AIT) intended to deal with the obstacles to the free flow of people, products, services and investments within Canada. However, the piece asserts, the scope of the accord has become too limited given the increasing liberalization of international trade.
“Although no duty is applied to the goods and services traded between two provinces, there are many different kinds of roadblocks to such trade,” Durocher says. Citing a report by the Senate’s Standing Committee on Banking, Trade and Commerce, he cites various regulations that differ from province to province, including the following:
- In British Columbia, some types of trucks can only be driven at night, but can only be driven during the day in neighboring Alberta
- The standards on beer bottle sizes differ from province to province
- British Columbia and Alberta have a carbon tax, but Quebec and Ontario (and shortly Manitoba) have a cap and trade system, increasing the costs for operating in more than one jurisdiction
These and other blockages have caused interprovincial trade to lag behind international trade. According to the report, the ratio between exports to other provinces and total exports has declined from just over 50% in the early 1980s to less than 38% in 2014 nationwide.
The good news is that provinces and territories are determined to iron these issues out. On July 22, the Council of the Federation announced that the provincial and territorial premiers reached an agreement in principle on a new Canadian Free Trade Agreement (CFTA). The new pact promises to feature broader coverage of Canada’s economic sectors compared to the AIT.
The piece explains that the CFTA will be implemented through a negative list approach. “In other words, by default, all measures will be included unless an exception is mentioned during negotiation. This should make it a lot easier to apply.”
Given protectionist sentiments that are feared to weaken exports, harmonized trade among the provinces may eventually prove useful as a way to soften the blow for Canadian businesses.
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