Time for internal free trade in Canada
Murray is vice-president of research at the Frontier Centre for Public Policy and an adjunct professor of political science at the University of Alberta. Bedi is an intern at the Frontier Centre.
Since taking office in 2006, the Harper government has negotiated more than 40 international trade agreements and championed the idea of free trade around the world as a means of economic and political liberalization and progress.
While Canada’s approach to free trade internationally is well known, its internal trade policies are anything but free. During a recent six-city tour, Industry Minister James Moore focused on trying to unite various economic stakeholders in an effort to reform the current internal trade mechanisms among provinces within Canada.
Under the current regime, Moore argues that many of those living outside the country have more access to the Canadian economy than Canadians, saying, “It’s just patently ludicrous for us to continue and to not make sure that we are taking full advantage of all of Canada’s economic opportunities for Canadians.”
The inception of the World Trade Organization and the gradual lowering of tariffs have allowed protectionists to find new, creative methods of discouraging trade. This is true not only of countries around the globe, but also for Canadian provinces.
As explicit duties were outlawed, provinces enacted nontariff barriers with the intent of shielding their domestic industries from provincial competition. This is exactly the line of thinking Ontario’s provincial government has taken on wine imports: It doesn’t want Ontario’s wine industry to lose market share to British Columbia’s wine industry, and is unwilling to alter its trade policies to bring them in line with the rest of the country.
When international firms are looking at countries in which to invest, they engage in detailed analysis meant to unearth everything from political risk to regulatory hindrances. A key aspect they also look at is a country’s trade barriers.
It is enough that a firm has to navigate the obstacles to trade at the national level, but when those barriers are abundant at the interprovincial level as well, it creates a major disincentive for foreign investment. The Canadian government, the premiers of the New West Partnership (NWP) and the four Atlantic premiers understand this, which is precisely why they want a Canadian free trade zone.
Economically, the numbers speak for themselves: It is estimated that internal trade barriers cost Canada approximately $50 billion a year, and in 2013 Industry Canada estimated that these barriers amount to a seven per cent tax on all goods going through provincial borders. At a consumer level, it is easy to see the effects, particularly when an Ontarian is unable to order wine from B.C. without having to go through Ontario’s Liquor Control Board.
The other major areas affected by the lack of trade freedom are significant to the provincial and national economies — energy, labour and procurement.
In light of Canada’s recent surge in bilateral trade agreements with the European Union and South Korea, and the historical legacy of NAFTA and the primarily positive response toward them from consumers and businesses, it is tempting to believe that the country as a whole has embraced free trade like never before. Unfortunately, this simply isn’t the case.
On the contrary, protectionist sentiment remains staunch across the country, headed by the governments of Manitoba, Ontario and Quebec, which either have been reluctant to pursue internal free trade or have demonstrated their intent to protect their provincial industries. Yet, when posed with questions about free trade with other nations, these same governments appear more than willing to engage in negotiations, as if they only understood free trade as an international concept.
What provincial leaders should do is follow the lead of the NWP premiers in Alberta, B.C. and Saskatchewan, and overhaul the entire internal trade system. The beauty of the NWP proposal is that it is the start of a new conversation in the hopes of reforming the current system, rather than putting forward a defined framework.
According to Premier Brad Wall, the NWP group is working from one central assumption: “We start from the premise that everything is open.”
The same benefits that Canada would gain from free trade with another country should apply domestically as well. Premiers Wall, Dave Hancock and Christy Clark deserve credit for initiating a dialogue whose time has come, but any hope for progress will require support from all of the provinces as well as significant involvement of the federal government.
If history is any indication, the outlook for internal free trade is bleak but hope springs eternal that Canadians get the national economic benefits and opportunities they deserve.