Ironic? The word is weak. As Canada struggles to get Donald Trump to drop his threat to impose 25% tariffs, the provinces seem to forget that they themselves have erected barriers that hinder trade within the country.
Published at 5:00 a.m.
Restriction on the sale of food and alcohol. Costs, deadlines and paperwork for obtaining permits. Lack of harmonization in trucking rules, labeling, etc.
A host of provincial rules hamper the free movement of products and workers. All of this amounts to a 21% tariff barrier in Canada, on average.
In Quebec, it’s even worse.
We hardly question them, but our trade barriers stand at 25%, exactly the same level as that of the customs duties brandished by Donald Trump for which we are rightly stepping up.
It is absurd that Canada has not been able to remove barriers to trade within its own borders, when it has managed to conclude 15 free trade agreements with 51 different countries covering 1, 5 billion consumers worldwide.
This leads to an absurd situation.
In many cases, foreign companies find themselves with better access to Canadian markets than Canadian companies themselves, lamented this week the economist and chief strategist of the National Bank, Stéfane Marion, in a very appropriate note.
In this context, it is not surprising that internal trade has melted like snow in the sun. Interprovincial trade now represents only 18% of our economy (GDP), almost 10 points below the level of the 1980s (27%).
With the protectionist aims of our neighbor, we realize today that Canada has become too dependent on the United States, which buys three-quarters of Canadian exports.
It would be desirable to diversify our exports. But this is easier said than done, especially for small businesses.
In the short term, there is a 100% Canadian solution to the crisis triggered by Donald Trump: eliminate our own trade barriers to stimulate our internal trade.
To the Americans who are fueled by protectionism, Canada could respond: do you want to trade with each other? We can do it too! And we have great potential.
-Eliminating our internal trade barriers could increase our gross domestic product (GDP) by 4% (even more in Quebec), which represents a contribution to our economy of 90 billion dollars per year, according to a study by the International Monetary Fund. We are talking here about a gain of $2,300 per person or $6,000 per household.
The best thing about it? This replica would cost nothing! No need for costly investments: you just need to harmonize regulations. Only positive things, unlike the retaliation that the federal government and the provinces were considering this week and which will inevitably hurt our economy.
By lowering our internal barriers, we would reduce prices for consumers who have suffered from the surge in inflation. And we would hit business productivity which leaves so much to be desired.
Because current barriers dissuade businesses from doing business in other provinces, which limits their growth and slows down competition across Canada.
Do you want to sell processed meat in another province? This is prohibited if the manufacturer has been inspected by a provincial official, not a federal one.
Want to order a case of Okanagan Valley wine bottles? Courage, it’s a real obstacle course.
The federal government cannot twist the arms of the provinces which have the right to respect their field of jurisdiction. And we must recognize that their rules are based on good intentions: protecting consumers, language, the environment, pedestrians, etc.
But each time a province adds or modifies its rules, without harmonization with its neighbors, obstacles to interprovincial trade are added. By allowing this internal protectionism to grow, we are collectively shooting ourselves in the foot.
In 2017, the federal government and the provinces concluded the Canadian Free Trade Agreement. But the agreement did not give the hoped-for results, because of numerous exceptions that the provinces do not want to eliminate. They fear suffering the economic and political repercussions without benefiting from the advantages, if the other provinces do not follow suit.
Instead of getting lost in endless negotiations to harmonize the rules, product by product, we could adopt a “mutual recognition” approach.
Basically, a product that had obtained all approvals in its province of origin could be sold across Canada without further formalities. It is the same principle that allows a motorist to cross Canada with only one driver’s license, that of his province.
It is time for the provinces to move. Let the prime ministers themselves sit down around the table to overcome the resistance that harms east-west trade.
This would be a 100% productive way for Canada to build a balance of power in the face of Donald Trump’s threats.
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