According to a recent report by the International Monetary Fund (IMF), Canada stands to gain nearly 7% in real GDP, amounting to approximately $210 billion, by fully eliminating internal trade barriers. This economic boost could occur over a gradual period if the country removes these barriers between its 13 provinces and territories.
Significance of Removing Trade Barriers
The IMF report, co-authored by Federico J. Diez and Yuanchen Yang, along with contributions from University of Calgary economist Trevor Tombe, highlights that regulation-related barriers resemble a national tariff of about 9%. This figure dramatically increases in service-oriented sectors like healthcare and education, reaching over 40% due to stringent professional mobility regulations.
Impact on Smaller Provinces
- Smaller provinces and northern territories face a disproportionate impact from these internal trade barriers.
- Higher costs hinder their economic opportunities compared to larger provinces with diverse economies.
The report emphasizes that the Atlantic provinces, particularly Prince Edward Island, could experience significant economic improvements. Removing internal trade costs might increase GDP per worker in Prince Edward Island by nearly 40 percentage points.
Current Economic Fragmentation
The trade barriers contribute to Canada functioning as “10 economies” rather than one unified market. Alicia Planincic from the Business Council of Alberta points out that smaller provinces rely more heavily on interprovincial trade, making them more susceptible to the inefficiencies caused by these barriers.
Progress Towards Trade Agreements
Efforts to remove trade barriers gained momentum after U.S. tariffs on Canada led to increased focus on domestic trade opportunities. Provincial agreements, such as those between Ontario and Manitoba, have begun to emerge.
In November 2023, an agreement among the federal government and provincial territories aimed to eliminate interprovincial trade barriers on most goods by December. However, the agreement largely exempts services, which constitute a substantial portion of trade costs.
Future Implications
The sectors most affected include finance, telecommunications, transportation, and professional services. These areas are crucial for economic connectivity and can significantly influence business operations across Canada.
While the agreement marks progress, the complexity in aligning thousands of regulations across provinces poses a challenge. As noted by Planincic, political will and cooperation among provinces will be essential for effective progress in removing these trade barriers.
