Eliminating Barriers to Internal Trade within Canada

Nicholas Godwin

The Constitution of Canada delegates decision-making authority over all matters of international and interprovincial trade and commerce to the federal government. Yet interprovincial trade impediments abound, as a result of vested provincial authority that expressly allows for the regulation of all matters related to property and civil rights. In a federation of equal, self-governing provinces and territories, it is inevitable that regulatory discrepancies will arise out of mutually independent decision-making. Such a state of affairs can never be Pareto efficient; therefore, collective improvement upon the status quo can only be achieved in accordance with the principle of cooperative federalism.

 Within Canada, wherever regulatory misalignment adversely affects interprovincial trade in goods and services—which is responsible for one-fifth of Canada’s GDP—an internal barrier to trade is said to exist. From the perspective of Canadian firms, internal barriers to trade create duplication and variation in processes and procedures, deter foreign direct and private sector investments in uncompetitive jurisdictions and industries, and fragment the domestic market. This discourages both competition and innovation. From the perspective of Canadian consumers, this duplication, deterrence, and fragmentation increases the price of preferred goods and services, while simultaneously limiting their very availability. Internal barriers to trade influence productivity and competitiveness, the ease of doing business, the success of small and medium-sized enterprises, as well as aggregate welfare, labour mobility, and Canada’s ability to realize its future economic growth potential.

Historical attempts at dismantling internal barriers to trade have resulted in a patchwork of solutions across the country; certain efforts have fallen short, while others have made real progress, but none have resulted in a truly single market for Canadian goods, services, capital, and labour. Policy solutions to this seemingly intractable issue do exist, having been adopted by other federations around the world that have faced similar internal trade hang-ups. Mutual recognition agreements, regulatory harmonization initiatives, the continued expansion of internal trading arrangements, and empowering and modernizing existing regulatory authorities and existing public institutions would all help Canada to achieve the economic union that was first envisioned by the Fathers of Confederation. (The Fathers of Confederation were well-known for their rousing speeches in support of this particular facet of confederation.[1],[2])

As with any direct interference in the free market, any government support that facilitates greater levels of internal trade would inevitably come with unintended consequences. However, the long-run socio-economic benefits to Canadians from all walks of life, and Canada as a whole, would outweigh the near-term economic disruptions. In the wake of the current COVID-19 pandemic, Canada will need to use every policy tool in its arsenal to service its massive levels of debt, support an ageing population, attract the best and brightest from around the world, retain influence and relevance on the world stage, and preserve its way of life for future generations of Canadians. So, let the time be now that we throw down all remaining internal barriers to trade and make a citizen of one, citizen of the whole.

 [1]Sir Alexander Tilloch Galtonce proclaimed that: “The regulation of duties of customs on imports and exports might perhaps be considered so intimately connected with the subject of trade and commerce as to require no separate mention…[nevertheless, it is] most important to see that no local legislature should by its separate action be able to put any such restriction on the free interchange of commodities as to prevent the manufactures of the rest from finding a market in any one province, and thus from sharing in the advantages of the extended Union.”

[2]The Honourable George Brown was recorded as saying: “I go heartily for the union, because it will throw down the barriers of trade and give us the control of a market of four millions of people. What one thing has contributed so much to the wondrous material progress of the United States as the free passage of their products from one state to another? What has tended so much to the rapid advance of all branches of their industry as the vast extent of their home market, creating an unlimited demand for all the commodities of daily use and stimulating the energy and ingenuity of producers? Sir, I confess to you that in my mind this one view of the union—the addition of nearly a million of people to our home consumers—sweeps aside all the petty objections that are averred against the scheme.”

Nicholas Godwin

About the Author: Nicholas completed his Master’s studies at UCalgary’s School of Public Policy in 2020. Originally from Ontario, Nicholas began working in an environmental capacity in Western Canada’s energy industry after graduating from Queen’s University, where he holds an undergraduate honours degree in Earth system science. In his spare time, Nicholas enjoys camping and skiing throughout the Rockies.