Breaking down interprovincial trade barriers won’t generate billions as billed: report

Prime Minister Mark Carney, left, speaks to media. THE CANADIAN PRESS/Liam Richards

While Ontario and Alberta signed memoranda of understanding aimed at breaking down interprovincial trade barriers on Monday, a new report states internal free trade may not be the economic boon the federal government has promised.

The report — released Monday by the left-leaning think tank Canadian Centre for Policy Alternatives — states “barriers to interprovincial trade, investment and labour mobility are significantly overstated,” and calls the government’s publicly stated motivations for increasing internal trade “largely political theatre.”

“The alleged costs of interprovincial trade irritants have been vastly overstated, as virtually all goods, services and investment flows freely across provincial borders,” the report states.

“New mutual recognition legislation and the removal of important policy exceptions in the 2017 Canadian Free Trade Agreement (CFTA) will further reduce governments’ capacity to protect the environment, spur domestic economies, promote workplace health and safety, and stop predatory behaviours against consumers,” it also warns.

Amid U.S. President Donald Trump’s ongoing global trade war — and his slate of stacked tariffs on Canadian goods — Prime Minister Mark Carney and the federal government have promised to diversify trading partners and eliminate interprovincial trade barriers in order to insulate Canada’s economy.

The Liberals’ Bill C-5, aimed at removing the federal barriers to internal trade and labour mobility, was passed nearly unanimously by MPs on June 20, shortly before the House rose for the summer break. It moved onto the Senate and was passed late the following week.

Internal Trade Minister Chrystia Freeland then announced on June 30 that the federal government is taking steps to eliminate the interprovincial trade barriers under its jurisdiction, by removing all 53 federal exemptions in the CFTA.

The federal government, meanwhile, has previously cited studies — namely by University of Calgary economics professor Trevor Tombe in a 2019 report for the International Monetary Fund and a 2022 report for the Macdonald-Laurier Institute — claiming that scrapping all internal trade barriers could add $200 billion to the economy.

Monday’s report from the Canadian Centre for Policy Alternatives, however, disputes that number.

“This internal trade agenda does little to compensate for major economic losses attributable to the Trump tariffs, as promised by the federal and several provincial governments,” the report states. “Quite the opposite.

“While any benefits are limited to a small subset of the economy, the real cost is that they leave both federal and provincial governments with fewer tools to navigate the economic and environmental uncertainty ahead.”

In an interview with CTV Question Period last month, pressed several times by host Vassy Kapelos on the $200-billlion figure, Freeland conceded there are “different estimates” from economists on how much a Canada-wide free-trade deal could generate.

“For me at the end of the day, we don’t know for sure, but everyone is agreed this is going to be a good thing,” Freeland said, pointing to a roundtable she held with leading economists the previous week. “It will make our economy stronger. It will make us richer at a time when Canadian businesses are struggling to export their goods to the U.S.”

A statement from Freeland’s office on Monday called internal trade an “essential driver” of the economy, and a “key tool” for countering U.S. tariffs.

Not an economic ‘magic wand’: Tombe

In an interview with CTV News on Monday, Tombe said he stands by his analysis of the economic impact of removing internal trade barriers, but added, “context is necessary.”

“These are very, very long-run gains, potentially taking years or maybe even decades to fully materialize,” Tombe said. “We’re not talking about an economic magic wand where removing internal trade barriers suddenly increases the size of Canada’s economy by $200 billion, not at all.”

“Some of the political communications have left that impression, I think, with the public,” he explained, adding his estimates point to “relatively modest” growth over “many, many years,” which would eventually accumulate to “pretty meaningful change in overall productivity in the country.”

Tombe also said the $200-billion figure is at the upper end of his estimates, which is important to bear in mind.

The economist added that while there’s been progress eliminating internal trade barriers in the last several months, especially spurred by Trump’s trade war, the gains to the Canadian economy will stay relatively low until all obstacles are removed.

Ontario and Alberta sign deal

Some provinces have been taking action to remove some internal trade barriers themselves by signing agreements and memoranda of understanding to do so.

Monday’s deal between Ontario and Alberta, for example, will see Alberta prioritize made-in-Canada vehicles for its government fleets, while Ontario has agreed to purchase more alcoholic beverages from Alberta.

“We’re doing this because we need to unlock the full potential of our economy,” Ontario Premier Doug Ford said in a joint press conference with Alberta Premier Danielle Smith on Monday. “We need to tear down the barriers and red tape that have held us back for far, far too long.”

He added, “We need to make Canada more competitive, more resilient and more self reliant.”

Despite several premiers signing agreements with other provinces in recent months, some sticking points remain in place and many interprovincial trade barriers continue to exist, such as geographic restrictions on the sale of certain goods, regulatory and policy differences across jurisdictions, and hurdles to labour mobility.

The committee on internal trade — made up of provincial ministers and premiers representing all of Canada’s provinces and territories — is also set to convene in Quebec City this week. Members are expected to lay out any progress individual jurisdictions have made to scrap their own exceptions under the trade agreement.

With files from CTV News’ Rachel Aiello and Colton Praill