Removing Internal Trade Barriers: A Path to Productivity for Canadian Businesses

In 2024, an overwhelming 88% of small businesses in Canada believe that eliminating trade barriers should be a top priority for Canadian governments. These barriers hinder the free flow of goods, services, and labour across provinces and territories, posing significant challenges to businesses wanting to growth and expand within the country. Half of Canadian businesses report that navigating the regulatory requirements across different Canadian jurisdictions deters them from entering new domestic markets. Due to this, many small businesses report finding it easier to conduct business in the U.S. than within Canada.

CFIB’s 2024 edition of Canada’s Interprovincial Cooperation Report Card evaluates the progress of federal, provincial, and territorial (FPT) governments in reducing interprovincial trade barriers seven years after the signing of the Canadian Free Trade Agreement (CFTA). Unfortunately, progress has been slow, and the report card reveals that significant work remains to remove unnecessary barriers that are still hindering the movement of goods services and labour across Canada.

The Urgency of Eliminating Domestic Trade Barriers

Canada is facing a productivity crisis. In 2022, Canada ranked second to last in productivity among G7 countries and in 2024, half of Canadian small businesses tell us that adhering to interprovincial trade barriers hurts their businesses’ productivity.

Source: 6 Organisation for Economic Co-operation and Development. OECD data explorer.

Internal trade impacts productivity by affecting how business owners allocate their resources. Instead of goods and workers flowing freely to where they are most needed, cumbersome fees, paperwork, and restrictions impede their movement. While many internal trade barriers don’t make trade impossible, they create regulatory hurdles that many small businesses cannot afford to navigate. As a result, investment and hiring decisions often end up being influenced more by government red tape at the margin than the pursuit of higher productivity.

Furthermore, there is increasing urgency to eliminate domestic trade barriers due to several pressing economic challenges: soaring business costs, inflationary pressures, sky-high interest rates, ongoing labor shortages, and low levels of national productivity growth. By removing internal trade barriers, businesses and consumers can benefit in several ways:

• Increased choices in goods and services: Businesses can grow and branch out to different jurisdictions, while consumers gain access to a broader range of products and services from across the country.
• Improved security of supply: Businesses can source goods more efficiently from across Canada, leading to more stable supply chains.
• Greater affordability: Competition increases, leading to lower prices for goods and services.
• Bigger job market and efficient labour allocation: Less restrictions on skilled professionals, fostering increased labour mobility across Canada, helping address labour shortages.

Eliminating these barriers can boost economic growth by addressing Canada’s lagging productivity. It is estimated that such actions could boost Canada’s economy by as much as $200 billion per year, or $5,100 per person.

2024 Report Card Highlights

The 2024 edition of the report card grades federal, provincial, and territorial governments on their efforts towards interprovincial cooperation and provides an overview of the work done to reduce barriers to internal trade over the past year. It offers a snapshot of the progress made and highlights the challenges governments continue to impose.

2023-24 Internal Trade in Review

The federal government demonstrated strong leadership in internal trade by introducing the Canadian Internal Trade Data and Information Hub, a central repository of Statistics Canada data from all jurisdictions on internal trade and labour mobility. Additionally, they have made significant progress by removing 14 CFTA exceptions.

The Regulatory Reconciliation and Cooperation Table (RCT) also made strides by launching an online portal for Canadians to identify regulatory barriers and suggest improvements. This move enhances transparency and cooperation among FPT governments.

The Atlantic provinces have shown commendable commitment to internal trade. Nova Scotia introduced a portable registration model for health care professionals in Canada, facilitating easier movement and practice. Furthermore, the Atlantic provinces all entering the Atlantic Technical Safety Agreement, as well as commissioning a report to identify trade barriers between the provinces in their Atlantic Trade and Procurement Partnership (ATPP) Working Group.

Lots of room for improvement

This year’s report card grades three major areas of interprovincial/territorial cooperation: CFTA exceptions, select barriers to trade, and the status of items from reconciliation agreements. The report also includes a new bonus indicator section highlighting government leadership. Manitoba received the highest overall score of 8.7 (A- grade) in the report card, followed by Alberta with a score of 8.6 (B+ grade). Quebec received the lowest overall score of 4.3 (D grade).

No jurisdiction received a perfect score, indicating there is still much more work left to do and barriers to eliminate.

For instance, jurisdictions have shown minimal progress on the ease of doing business; particularly on mutual recognition on registration for Workers’ Compensation and Occupational Health and Safety rules, all receiving zero points. Direct-to-consumer interjurisdictional shipment of Canadian wine/craft beer and spirits is also where a lot of jurisdictions received low scores, with Manitoba being the only province to receive full points. Additionally, progress on implementing timelines for professional certification approval of workers certified in other Canadian jurisdictions has also been slow for many jurisdictions.

Key Recommendations for Governments to Foster Small Business Success

CFIB strongly urges governments across Canada move quickly to adopt mutual recognition. This means, for example, that if a business meets health and safety standards in their home province, those standards should be recognized by any other province or territory.

Some other recommendations that jurisdictions can move forward with are:

• Address CFTA exceptions: Review and reduce the scope of exceptions within the CFTA to enhance its effectiveness.
• Liberalize interprovincial alcohol trade: Remove barriers to the interprovincial trade of alcohol, allowing direct-to-consumer shipment of all Canadian alcohol products.
• Enhance the ease of doing business: Simplify procedures, prioritize waiving extra-jurisdictional business registration fees, and mutually recognize workers’ compensation programs and OH&S rules across the country.
• Facilitate labour mobility: Streamline processes for recognizing professional qualifications and certifications across provinces and territories.
• Utilize the Regulatory Reconciliation and Cooperation Table (RCT): Identify and address regulatory discrepancies between jurisdictions and quickly implement reconciliation items.
• Facilitate the interjurisdictional movement of Canadian food products: Create pathways to allow the free movement of Canadian food products between provinces and territories.
• Be a leader: Be bold, lead by example, engage in regional partnerships, and move unilaterally to eliminate remaining barriers to internal trade.

By addressing these recommendations, Canada can pave the way for a more productive and integrated economy that benefits businesses, workers, and consumers alike.