August 23, 2016
The many barriers to interprovincial trade could lessen
with the new Canadian Free Trade Agreement
Despite the Agreement on Internal Trade (AIT) that went into effect in all provinces and territories in 1995, numerous
non-tariff barriers continue to hamper the interprovincial trade in goods and services. Meanwhile, Canada’s international
trade agreements have proliferated in recent years, going a long way to foster exports outside the country. Many
businesses say it may now be easier to sell their products and services abroad than in another province. As a result,
Canada’s interprovincial trade has lost ground to international trade. Clearly, there is a need for greater harmonization of
regulations and freer trade between the provinces. In July, the provinces and territories reached an agreement in principle
on a new Canadian Free Trade Agreement (CFTA), offering strong hope in that area.
International trade has played an important role in
Canada’s economy for a long time. According to the
World Bank, Canada’s openness1 to international trade
was 65.4% in 2015, one of the highest rates among
industrialized countries (graph 1). Canada has also entered
into multiple free trade agreements in the last few years.
After the North American Free Trade Agreement (NAFTA),
which went into effect in 1994 2, further accords were ratified
with Israel, Chile, Costa Rica, Iceland, Liechtenstein,
Norway, Switzerland, Peru, Columbia, Jordan, Panama,
Honduras and Korea. More recently, Canada entered into
agreements with the Ukraine and European Union, as well
as the members3 of the Trans-Pacific Partnership.
Graph 1 – The Canadian economy is quite open to
international trade
% ratio
% ratio
Total exports and imports in relation to GDP
90
90
United
States
Japan
20
Australia
30
20
China
30
OECD
members
40
United
Kingdom
50
40
Italy
60
50
France
70
60
Canada
80
70
Germany
80
Sources: World Bank and Desjardins, Economic Studies
Meanwhile, trade within Canada, i.e. among the various
provinces, remains hampered by various barriers. This
leaves us in a surprising position: it is sometimes easier for
some businesses to sell goods and services outside Canada
than in another province. Yet, since 1995, the provinces and
territories have had the Agreement on Internal Trade (AIT),
which is intended to foster better interprovincial trade by
dealing with the obstacles to the free flow of people, products,
services and investments within Canada. Clearly, the scope
of this accord has become too limited over the years, given
the increasing liberalization of international trade.
1
The rate of openness corresponds to the total value of exports and imports
in relation to nominal GDP.
MANY OBSTACLES TO INTERPROVINCIAL TRADE
Although no duty is applied to the goods and services traded
between two provinces, there are many different kinds of
roadblocks to such trade according to a report released
in June by the Senate’s Standing Committee on Banking,
Trade and Commerce4. Most of the time, the barriers arise
from the difference in provincial regulations, particularly
on transportation, alcoholic beverages, food and drugs. The
NAFTA was preceded by the Free Trade Agreement (FTA) between
Canada and the United States in 1989.
2
3
The members of the Trans-Pacific Partnership are: Canada, Australia,
Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,
Singapore, the United States and Vietnam.
4
“Tear down these walls: Dismantling Canada’s internal trade barriers,”
Report of the Standing Senate Committee on Banking, Trade and
Commerce, June 2016.
François Dupuis
Vice-President and Chief Economist
Benoit P. Durocher
Senior Economist
514-281-2336 or 1 866 866-7000, ext. 2336
E-mail: [email protected]
Note to readers: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.
I mportant: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that
are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group
takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are
provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein
are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2016, Desjardins Group. All rights reserved.
August 23, 2016
Economic Viewpoint
barriers are so numerous and differ so much from province
to province that it is difficult to compile a complete
list. That being said, figure 1 contains some aberrant
examples of interprovincial trade barriers. Obviously,
such provincial distinctions generate additional costs for
businesses, substantially harming interprovincial trade.
Figure 1 – The most absurd interprovincial trade barriers
according to the Senate Committee
In British Columbia, some types of trucks can only be driven at
night, but can only be driven during the day in neighbouring
Alberta.
In some provinces, truck weight limits differ depending on the
tires used, forcing truckers to install different tires when they
cross some borders.
Unpasteurized Quebec cheese cannot be exported outside the
province.
The standards on beer bottle sizes differ from province to
province.
The size of creamers and milk containers differ from province to
province.
While British Columbia and Alberta have a carbon tax, Quebec
and Ontario (and shortly Manitoba) have a cap and trade
system, increasing the costs for operating in more than one
jurisdiction.
Companies often have to register in each province and territory
in which they do business.
Provincial standards on maple syrup categories differ.
The standards on organic foods vary, restricting access to some
markets.
Source: Report of the Standing Senate Committee on Banking, Trade and
Commerce, June 2016.
www.desjardins.com/economics
INTERPROVINCIAL TRADE HAS LOST GROUND
Given the many ongoing barriers to interprovincial trade,
it is not surprising to note that it has lost ground since the
early 1980s. The provinces’ exports can be divided into
two categories: exports to other provinces, and exports
outside Canada. This makes it possible to isolate growth by
interprovincial trade within the provinces’ total exports. The
ratio between exports to other provinces and total exports
has declined from just over 50% in the early 1980s to less
than 38% in 20145 nationwide (graph 2). This means that,
on average, the provinces were exporting $1.02 to other
provinces for every $1 in exports outside Canada in 1981.
In 2014, the provinces were exporting only $0.61 to other
provinces for every $1 in exports outside Canada. As
graphs 3 and 4 (on page 3) show, most of the provinces and
territories have the same profile for the movement by the
interprovincial export ratio. Newfoundland and Labrador
differs somewhat, as the relative weight of its interprovincial
exports is similar to what it was in the early 1980s. This is
not necessarily good news: Newfoundland and Labrador
has a very low ratio compared with the rest of the provinces,
due to the magnitude of oil sales outside Canada. Alberta
and Saskatchewan also have fairly low ratios, for the
same reason.
Graph 2 – The relative weight of interprovincial trade has fallen in
the last 35 years
In %
55
All of Canada – Ratio of exports to other provinces and territories in
relation to total exports
In %
55
50
50
45
45
40
40
35
35
30
30
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Statistics Canada and Desjardins, Economic Studies
HEADING FOR A NEW TRADE AGREEMENT?
Restrictions also exist in the area of labour. There are
currently a multitude of exceptions to reciprocal recognition,
affecting certain professions. For example, Quebec lawyers
cannot practice outside the province due to the country’s two
distinct legal systems. Nurses are also subject to restrictions
as the field of practice differs by province. Differences in
the regulations on worker training also create obstacles to
the interprovincial movement of labour.
The good news here is that the provinces and territories
seem determined to tackle the issue of interprovincial
trade barriers. On July 22, the Council of the Federation
announced that the provincial and territorial premiers
had reached an agreement in principle on a new domestic
trade agreement. The new Canadian Free Trade Agreement
(CFTA) should, among other things, feature broader
5
The 2015 data for the provinces’ economic accounts will not be released
until November 9, 2016.
2
August 23, 2016
Economic Viewpoint
www.desjardins.com/economics
Graph 3 – The movement by interprovincial trade is similar across
the country (1)
In %
80
In %
Ratio of exports to other provinces to
total exports
In %
In %
Ratio of exports to other provinces to
total exports
40
35
35
30
30
30
30
20
20
25
25
NL
PEI
NS
Quebec
55
2015
2000
1985
2015
NB
2010
40
2005
40
1990
40
1995
50
1980
50
2010
45
2005
50
45
2000
50
60
1995
70
60
1990
70
1985
55
1980
80
Ontario
Sources: Statistics Canada and Desjardins, Economic Studies
Graph 4 – The movement by interprovincial trade is similar across
the country (2)
In %
In %
65
100
60
60
90
90
55
55
80
80
50
50
70
70
45
45
60
60
40
40
50
50
40
40
35
35
30
30
30
30
20
20
25
25
10
10
MB
SK
AB
BC
Yukon
NWT
2010
BETTER INTEGRATION WOULD BE A GOOD THING
If the provinces manage to wrap up the CFTA, there is
room for hope that it will eventually lead to an increase
in interprovincial trade within Canada, thanks to cost
decreases, in particular. It goes without saying that
consumers and businesses could benefit. Many think that the
heightened competition among the provinces could prompt
some businesses to become more competitive and efficient,
which could also be beneficial in their international trade.
Easier access to the entire Canadian market, in conjunction
with the free trade agreements with the United States,
Mexico and the European Union, could also attract more
investment to Canada.
In %
100
Benoit P. Durocher
Senior Economist
2015
2005
1995
2000
1985
1990
Ratio of exports to other provinces to
total exports
1980
2015
2010
2005
2000
1995
Ratio of exports to other provinces to
total exports
1990
1980
65
1985
In %
wine sales. Under this agreement, consumers from all
three provinces can buy wine online from Quebec, Ontario
and British Columbia.
Nunavut
Sources: Statistics Canada and Desjardins, Economic Studies
coverage of Canada’s economic sectors. Unlike the
current AIT, CFTA will be determined based on a negative
list approach. In other words, by default, all measures
will be included unless an exception is mentioned during
negotiation. This should make it a lot easier to apply.
The negotiations between the provinces, territories and
federal government should get underway shortly. Clearly,
there is no set schedule for eventually implementing the
new agreement.
Some provinces have nonetheless jumped in with
bilateral and sometimes even multilateral agreements to
deal with some shortcomings in the AIT. For example,
the New West Partnership (between British Columbia,
Alberta and Saskatchewan) enables collaboration on trade,
investment and workforce mobility. Quebec and Ontario
have two agreements on workforce mobility, as well as on
trade and cooperation. New Brunswick and Nova Scotia
have a partnership agreement on regulation and the economy.
There is also the Atlantic Procurement Agreement. Quebec
and New Brunswick also have an agreement on the opening
of public procurement. More recently, Quebec, Ontario
and British Columbia entered into an agreement on online
3