Why is it so hard to do business between provinces?

UofT political economy professor Mark Manger discusses the different types of restrictions that prevent trade among provinces, and why they exist.

With Donald Trump’s tariffs and a simmering trade war straining international trade, some Canadian businesses and consumers are shifting their priorities closer to home, but doing business across provincial boundaries has its own challenges.

Interprovincial trade barriers range from differing health and safety regulations and inspection obligations to the basics of what ingredients a product needs to meet each province’s definition of that product.

All of these factors can get in the way of business between provinces, but can anything be done to help?

Mark Manger, a political economist at the University of Toronto, says dismantling the barriers between provinces would require them to work together on a solution – a tall order, at the best of times.

“In many cases, the reason is simply that these things … are provincially regulated, and that we don’t have a federal regulator to enforce the same rules across the whole country,” he told CTV Your Morning in an interview Wednesday.

A key example: Many professions, such as nursing or teaching, require workers to register with a provincial college. That means if someone is looking to work in a different province, they’ll likely first have to get re-licensed, often a difficult process that can complicate their efforts to look for work across the country – even if other provinces desperately need them.

Manger notes that this regional system also means it’s not within Ottawa’s power to break down barriers on its own. That, too, is up to the provinces.

“What’s required is a very difficult … negotiation among all the provincial governments that are still maintaining these regulatory barriers,” he said.

The benefits of doing so could be substantial. In a January press release, the federal Committee on Internal Trade (CIT) wrote that eliminating interprovincial barriers could add as much as $200 billion to the Canadian economy, lowering prices and expanding productivity.

“These benefits are now more important than ever, as Canada positions our domestic economy in the face of tariff threats from the United States,” the release reads.

Speaking of tariffs, an estimate cited by the Business Council of Alberta (BCA) in 2021 found that interprovincial barriers equated to a 6.9 per cent “tariff” on goods traded across Canada, and similarly to the CIT, the BCA projected billions in potential GDP growth as a result of breaking those barriers down.

But those benefits likely wouldn’t be universal, according to the BCA. Removing some would require provinces to, for example, deprioritize businesses within their boundaries – a hard sell, politically. More generally, the 2021 release notes that freer trade often means small benefits for many, but steep losses for some, dis-incentivizing change for those already enjoying the status quo.

Manger agrees that resistance is likely.

“The provinces think it’s a good idea until it actually comes to the concrete examples,” he said.

Harmonizing rules across the country would force provinces to give up bureaucratic power and would impact public service workers who administer the system, to say nothing of the work involved in actually agreeing on what the unified rules should be.

The bottom line: interprovincial free trade is both a complicated challenge and a longer-term goal.

“Provinces don’t like to easily give up this regulatory authority. Otherwise, they would have agreed to this long ago,” Manger said. “It’s not going to be something that any federal government could just implement, although it really should be kicked off.”

But even if domestic free trade were achieved on the scale of a $200-billion GDP bump, Manger notes that it doesn’t cancel out the losses brought by a faltering trade relationship with the United States, amid new tariffs. TD Bank estimates that $800 billion in goods crossed the Canada-U.S. border in the first three quarters of 2024 alone.

“This has been talked about for decades,” Manger said. “[Breaking down interprovincial barriers] would be fantastic to do, but it’s not something that is a short-term solution to addressing our problems with our relations with our southern neighbour that we have at this moment.”

With files from The Canadian Press