Five key steps to get to ‘one Canadian economy’

In recent months there’s been a flurry of activity around one of the most long-standing economic irritants in Canada — interprovincial trade barriers.  

Memorandums of understanding are flying back and forth between provinces eager to free up internal trade and labour mobility, and the federal government has vowed to do away with any federal restrictions by Canada Day under its proposed ‘one Canadian economy’ legislation. 

“It’s a whole new ballgame on internal trade,” economist Trevor Tombe said on a recent episode of PPF’s WONK podcast.  

Along with this sudden momentum, however, there has also been no small amount of eye-rolling. Everyone agrees so-called non-tariff barriers are a huge productivity drag, but when the rubber hits the road, progress has been hard to come by. Free trade and mutual recognition of labour standards will create winners and losers — and provinces all have industries, jobs and interests to protect.  

Recent MOUs (seven of them as of late June) outline a desire to create ‘one Canadian economy’ but they don’t necessarily hammer out the hard details about how it will happen. These new agreements go much farther than previous efforts like 2017’s Canadian Free Trade Agreement (CFTA), which only aimed to harmonize regulations.  

Through a roundtable discussion event in Halifax focused on Atlantic free trade and insights from two of Canada’s top experts on interprovincial trade barriers —  Tombe, the Director of Fiscal and Economic Policy at the University of Calgary’s School of Public Policy and a PPF Fellow, and Ryan Manucha, a legal scholar specializing in interprovincial trade  — we’ve identified five key steps that will be needed to help turn recent momentum into real results. 

1. Prepare for economic rebalancing

Removing trade barriers will create winners and losers in the short term, particularly in the labour market. Governments should be ready to manage short-term disruptions while focusing on long-term gains years into the future.  

What has happened with international trade liberalization will also happen within Canada, Tombe told PPF. “There will be firms that go bankrupt if we increase internal trade liberalization, but there will be other firms that grow larger and become more prosperous and serve a larger market and increase their employment. It’s a process of reallocating where the jobs are rather than reducing the total number of jobs that exist.” 

“We should think of the role of government here not as trying to prevent the competition itself and the creative destruction that occurs in that process,” he added, “but in a targeted way, helping facilitate the adjustment through education and training …maybe even targeted kind of income support for a certain period of time for displaced workers.”  

2. Act now, not later

Nova Scotia’s aggressive efforts to remove trade barriers have been cited as a model for action. In June, the province announced an agreement to immediately remove trade barriers with Alberta and P.E.I. Earlier in the year, it moved quicky with groundbreaking legislation to free up trade and to make it easier for Canadians from other provinces to work there. 

It represented “the most important drive towards interprovincial prosperity we might have ever seen,” Manucha told lawmakers at the time.  

There has been, not surprisingly, pushback from some professional licensing bodies, like social workers and veterinarians. Nova Scotia has since amended its legislation so that licensing bodies still have authority, but it added a tight 10-day approval deadline so applicants won’t be left waiting months.  

Nova Scotia’s efforts won’t be perfect, but other provinces are following the example.   

3. Revitalize trade institutions

An accessible and effective internal trade court could strengthen interprovincial free trade by holding Canadian governments accountable to their trade-liberalizing commitments, argues Manucha. He highlights three potential reforms:  

—A faster dispute resolution process with shorter wait times at each step. 

—A more accessible court, particularly for workers and small businesses, that includes the ‘loser-pays’ principle for operational costs, and that allows SMEs to tap into funds to help defray legitimate legal costs if successful. 

—Strengthening the teeth of the court by allowing private parties (and not just CFTA member governments) to enforce CFTA decisions in the traditional Canadian court system.  

4. Treat Ottawa’s deadline as a starting line

With the federal government aiming to eliminate its own internal trade barriers by July 1, experts warn that this milestone should mark the beginning — not the end — of reform efforts. 

After all, the remaining federal restrictions are really the low-hanging fruit of internal trade barriers. “What we can do on our side is have legislation very quickly that will remove the existing federal barriers. They’re small,” Dominic LeBlanc, the minister of intergovernmental affairs, told PPF in a recent WONK episode. The harder work will come at the provincial level. “As we get to the final steps they will be politically and operationally amongst the most contentious,” he said.  

Again, Nova Scotia serves as an important example of the kind of leadership that will be required.  

5. Foster a culture of mutual recognition

As Manucha explains, mutual recognition must go beyond policy. “It’s more of a culture,” he said, stressing the need for trust and understanding between provinces. 

Thus far, provincial leaders have shown an impressive amount of goodwill toward each other. As Alberta Premier Danielle Smith said, after signing an MOU with Ontario: “It’s time to stop letting outdated rules hold us back and show Canadians what real economic leadership looks like.”  

Importantly, policymakers need to keep in mind that the stakes are extraordinarily high. By most estimates addressing internal trade barriers could boost Canada’s GDP by as much as 4 percent, which ultimately improves living standards.

And in some regions, much more. In a recent PPF report focused on free trade in the Atlantic region, Tombe concluded that the full removal of interprovincial trade barriers there would increase real per capita GDP by between 4.4 percent and 22.4 percent.  

Internal trade is almost certainly the most important policy lever governments have to fix Canada’s productivity problem. The provinces have the power to act. They’ve shown they can find common ground and initiate agreements; the real work lies in moving from memorandums of understanding to action.