Whenever Canada is thrown into chaos, a certain policy meme makes familiar rounds. “Remove interprovincial trade barriers,” it goes. The most recent wave, you’ll know, was triggered by President Donald Trump’s now-paused 25-per-cent tariffs. But, beyond enthusiastic nods of approval from the commentariat, it’s unlikely we’ll see barriers broken down at scale.
Why? It just takes too much compromise, and too much centralization of power with the feds.
Understand what an interprovincial trade barrier is: it isn’t a simple matter of repealing tariffs, because internal tariffs don’t exist — provinces aren’t allowed to impose them. Instead, barriers take the form of red tape that differs in shade by province; if there are 10 provinces that each regulate, say, what shape of toilet seat is required to be used on a construction site, expect 10 different rules on the matter (Ontario requires a gap at the front of the seat; Alberta doesn’t care).
For Canada’s toilet seat manufacturers, that’s another level of complexity that can complicate production and make it costly to expand to new jurisdictions.
Now repeat the mental exercise for every other provincially regulated product: food, alcohol, pesticides, lumber and so on. And again, with all the other provincially regulated things you can buy but not hold: massage therapy, legal services, hair and aesthetic services, provincially regulated securities.
It adds up to a lot, and that’s by design: in 1867, the Constitution explicitly handed authority over most sectors to provincial governments. Provincial regulations, and by extension, interprovincial trade barriers, are central to provincial autonomy.
Theoretically, rule consolidation is a good deal. It would be far easier to do business in Canada if it worked more like one country with one set of rules, rather than a heterogenous group of 10 micro-states packed into one.
On the taxpayer side, there are savings to be had, too: regulatory bodies use public funds and there are (theoretically) savings to be had by centralizing the offices of 10 different sheriffs into one. Estimates vary, but lifting barriers is thought to add a boost of $80 billion (International Monetary Fund) to $200 billion (Canadian Federation of Independent Business) to the economy.
But standing in the way of free-trade utopia are the practical considerations, the big one being protectionism. Making its case in the Journal de Montreal, William Rousseau put it well: “The abolition of these barriers can even be economically harmful, because for each barrier that blocks a company from the rest of the country, there is a Quebec company that benefits from it and whose business model takes this barrier into account.” The exact same can be said for any province.
More abstractly, it’s a collective action program. Describing it in a Scotiabank paper, Jean-François Perrault wrote in 2022 that “even if all jurisdictions stand to benefit from free internal trade, any one province may nevertheless be reluctant to agree to the elimination of barriers, fearing the loss of sector-specific employment and tax revenues that liberalization might entail.” Even if there are big-picture gains to be made, the immediate political loss (namely, the wrath of the province’s X-sector lobby) favours trade barriers.
It’s not always about business, as Perrault says. Sometimes it’s about placating activists that have the government’s ear: see Manitoba’s “cosmetic pesticide” ban (2014-2023), which for nearly a decade complicated lawn maintenance. (Similar bans remain in place in Eastern Canada, but not in the West.)
Other times, it’s about leverage (or self-defence) against other provinces: for example, Alberta has blocked B.C. wine before, in retaliation for B.C.’s restrictions on Alberta bitumen.
Finally, it can be about control. Quebec wants to maintain the French language in its service sectors; most provinces want a hold on the liquor trade, etc. And even though the Constitution has a free-trade provision, the Supreme Court ruled in 2018 that trade restrictions are OK as long as “their primary purpose is not to impede trade, but some other purpose.”
That’s a low bar: the court added that rules primarily geared to “enable public supervision of the production, movement, sale and use of alcohol” within a province are just fine. (Another unlisted, but important, factor is tax revenue, which provinces stand to lose if its people are permitted to buy next door.)
What, realistically, can be done? Scotiabank Economics (among others) has recommended that the federal government offer money to provinces that remove barriers. Provinces can drop protectionist exemptions they secured under the exemption-ridden Canada Free Trade Agreement (as Alberta and Manitoba have done in recent years). Conservative Leader Pierre Poilievre supported both in a video released Monday, along with the idea of one nationwide set of trucking rules, and a unified certification system for doctors, engineers and nurses.
A Senate committee from 2016 recommended a common securities regulator, “national corridors” (i.e. more pipelines, railways, fibre optic cables, transmission lines, etc.). Economist Trevor Tombe has suggested more “mutual recognition” policies, in which goods and services can be deemed in compliance if they’re following the rules of their home province.
And heck, if the feds really wanted to be hardcore, they could unify the property and civil laws of Ontario, New Brunswick and Nova Scotia (and potentially all provinces aside from Quebec) with their consent, as the Constitution allows, or attempt a constitutional amendment to bring more sectors under federal control. It’s hard to imagine that going over well, though.
All solutions come with hiccups. If provinces maintain autonomy, they will always be able to swap free-trade measures for protectionist ones — that’s just democracy.
If the power to regulate a sector is ceded to the feds, that just bolsters the reach of whoever is in Ottawa at the time — right now, that’s an unattractive pursuit for conservative provinces, given that the federal Liberal government is one of inefficiency and identity politics. Take the Canadian Food Inspection Agency, for example: after the BLM crisis of 2021, it instituted mandatory diversity training for its staff, along with special race-based mentorship programs and “targeted recruitment.”
Now imagine what the Liberals would have done if the feds could tamper with nationwide doctors and engineer certification. Provinces are at least insulated from the worst federal obsessions.
The push to break down provincial trade barriers is an honourable one, going purely by the math — especially now that Trump threatens Canadian trade. Even so, it’s a solution that can’t be counted on: there are reasons that free internal trade has been kept at bay, and overcoming them is going to take a lot more than patriotic-sounding news conferences and “We’re all in this together!” cheers.
National Post