Small steps toward freer interprovincial trade

Although only Canada's tiny interprovincial trade community noticed, in last month's budget the federal government committed to working on reducing internal trade barriers and outlined concrete next steps that could have a tangible effect.

Provincial protectionism, regulatory capture by interest groups, intra-governmental turf wars, collective action problems and humankind's general default to inertia have plagued domestic trade liberalization since Confederation. Strong central leadership has always been key to reform, and Ottawa finally seems to be rolling up its sleeves on one of the most intractable issues facing our economic union.

New vocabulary in what has become an obligatory interprovincial trade section of the budget is finally aiming at the right goal: “national regulatory alignment.” Intercolonial tariffs and border agents monitoring the passage of goods between Upper and Lower Canada are long gone, of course. Today, the main barrier is differing regulation across Canada. From occupational health and safety to workers' compensation to truck weights and dimensions, a lack of either consistency or mutual recognition across Canada introduces inefficiencies, inflates business costs and reduces overall productivity. Regulatory misalignment is therefore bad for affordability, competitiveness and prosperity.

The budget also contained a federal commitment to champion “mutual recognition,” that is, provinces recognizing each others' standards for goods, services and labour, without trying to change them. The alternative is harmonization, which does require common standards across governments. Mutual recognition first surfaced in last year's budget with a pledge to “explore” it. That has now moved to “committed” to “advancing” it. Small steps in language but a giant leap for interprovincial trade officials. It would not be surprising to see the topic squarely addressed by the premiers at their meeting this summer.

Officials have been studying how to introduce mutual recognition for several years now. Consensus remains elusive on whether cross-economy or sector-specific agreements would be better. And recognition often requires trade officials to liaise with departments throughout their home governments, seek advice and input from technical regulatory experts, and reach agreement by consensus. Even after agreement, changes in laws and regulations may be necessary. Although one study indicated mutual recognition could increase GDP by up to 7.9 per cent, the Regulatory Reconciliation and Cooperation Table has yet to agree on a path forward, which is where federal guidance will help. Details were lacking, but the budget's backing of the idea is important.

Another helpful initiative was the launch of the Canadian Internal Trade Data and Information Hub to gather internal trade and labour mobility data that will further reform efforts. Public discussion about trade barriers has long focused on governments' various optouts from the Canadian Free Trade Agreement (CFTA), which went into effect in 2017. These exceptions do impose drag on the economy, but the real mischief is in regulatory misalignments not mentioned anywhere in the agreement.

For instance, it's estimated that reconciliation of building codes across the country would yield on the order of a billion dollars in savings within the first five years of implementation, and then annually thereafter. The trade data hub will guide officials in focusing resources on issues like this with the greatest potential to unlock Canadian growth. It will also help people both inside and outside government build compelling cases for reform in the face of entrenched resistance. Name-and-shame has a long history as an effective political tool.

A forthcoming survey of interprovincial trade announced in the budget should raise the profile of entrenched barriers. Researchers routinely meet small and medium-sized business operators grappling with “bureaucratic red tape” that may in fact be veiled trade barriers — the balkanized system for overweight/oversized vehicle permitting, for instance, or highly variable rules for workers' compensation registration. Trade barriers need to be recognized as such before they can be removed. This survey may even lead to more cases being launched under the CFTA's dispute mechanism, which would be good for the agreement and therefore for liberalization.

Canadians don't have to be told that interprovincial trade barriers are stubborn and harmful. The barriers started going up almost as soon as we got provinces, in 1867. If we're going to be serious about economic growth, Ottawa needs to assume leadership in the exacting technical work of regulatory reconciliation.

Ryan Manucha is a research fellow at the C.D. Howe Institute. His book Booze, Cigarettes, and Constitutional Dust-Ups: Canada's Quest for Interprovincial Free Trade won the 2022 Donner Prize for best book in Canadian public policy.

OFFICIALS HAVE BEEN STUDYING HOW TO INTRODUCE MUTUAL RECOGNITION FOR SEVERAL YEARS NOW.