Forget Ottawa. Only the provinces can dismantle their trade barriers

Mosquitoes. Icy roads. Lineups at Tims. These are just a few things that most Canadians hate but have learned to tolerate. Annoying but inevitable.

Maybe we need to add to this list the barriers to interprovincial commerce. Going all the way back to Confederation, provincial governments have made various overtures at reducing these barriers to trade, investment and labour flows. Progress has been underwhelming.

In 1994, the provincial and territorial leaders hammered out the Agreement on Internal Trade (AIT), which sought to eliminate once and for all barriers to provincial trade. The agreement was seemingly a great achievement – everyone shook hands and photos were taken. It was heralded as an astounding accomplishment that would usher in a new era of prosperity. Then all of the premiers went home and proceeded to ignore the whole thing.

Fast forward to 2014 and the recent premiers’ summit in Charlottetown. Leaders renewed their calls for tearing down barriers between provinces. Will anything change? Not likely.

A certain myth needs dispelling before we spiral too deep into a pit of cynicism. When economists start raging against the lunacy of internal trade barriers, it’s often said that doing business with a foreign country is easier than doing business province to province. That’s a gross overstatement. There are examples of crazy impediments, such as the rule about coloured margarine in Quebec. But those are exceptions.

Federal Industry Minister James Moore, in a speech this week in Calgary, spoke passionately about the need to tear down barriers to provincial trade. He pointed to the fact that in 2013, four provinces were in no mood to talk about it. But now all 10 provinces and three territories appear to be avid supporters. That’s encouraging. Still, we had the same level of support in 1994 when the original agreement was signed. What’s different today that would make us believe that progress is imminent?

A major problem in weeding out the remaining barriers is that, at least technically, none exist. The AIT got rid of them all in 11 sweeping categories ranging from procurement to environmental protection. The document is 106 pages long, mostly of incomprehensible definitions and principles. But also contained in the garbled text are hundreds of exemptions, special considerations, and phrases like “unless just cause dictates otherwise.” There’s lots of opportunity for a province to find a special escape hatch to appease some industry group. There are no barriers to interprovincial trade, just exceptions to the rules.

The problem with rooting out and permanently eliminating barriers to trade is political, not economic. Political support for eliminating trade barriers is only modestly positive and thinly spread. No one has ever rioted on the steps of their legislature demanding better access to Ontario-brewed beer.

Opposition to provincial free trade, however, is concentrated among a few determined and often angry industry groups. They feel their livelihoods are threatened and aren’t afraid to give their elected officials their opinions. They organize protests and vote in blocks. And because they need political support, governments back down and enact exceptions to the free-trade agreement, claiming “just cause dictates otherwise.”

This is why perhaps we need to make peace with the fact that we will always have some silly, annoying and costly barriers to provincial trade. Our political system makes them inevitable.

The best hope we have at chipping away at them over time comes from bilateral and regional agreements between individual provinces. Alberta and B.C. have paved the way with the Trade, Investment and Labour Mobility Agreement (TILMA), which later morphed into the New West Partnership Trade Agreement when Saskatchewan joined in 2010.

The premiers of Ontario and Quebec have also been talking about improved trade flows and commercial agreements. That’s encouraging – but once again, talk is less impressive than actual action. Staring down industry groups and refusing special exceptions is difficult in economies and labour markets that are struggling.

Mr. Moore’s words on trade were welcomed, but what precisely can the federal government do that hasn’t been done before? Real action will have to come from the provinces themselves. And in the meantime, barriers to provincial trade may have to be like mosquitoes – unwanted but inevitable.


This column originally appeared in The Globe and Mail on September 12, 2014.