Statistics Canada’s new report reveals the high cost of trade barriers between provinces, says Brian Lee Crowley. The government has the constitutional, moral and economic duty to tear down these barriers.
By Brian Lee Crowley, Sept. 30, 2017
When I appeared before a Senate committee last year studying the issue of what to do about barriers to trade erected by the provinces, there was a distressingly common theme from many of the other presenters. That theme was best summed up by a gentleman from the trade union movement who denied that such barriers even exist and that no action was therefore required to root them out.
By contrast I was there making the case that such barriers exist, that they matter a lot and that Ottawa had the constitutional, moral and economic duty to tear them down.
Governments have to spend some political capital to tackle barriers, because the barriers exist for a reason: to protect powerful provincial economic interests from competition from Canadians in other provinces. Naturally, then, politicians want strong evidence that the barriers exist and are causing real harm before taking up the cudgels on behalf of Canadians’ right to exercise their trade and sell their goods and services in every part of Canada.
I think I gave the senators lots of good examples of persistent and destructive barriers that impoverish Canadians while undermining their economic rights. But now we have new and compelling evidence of the damage barriers do from one of the most authoritative sources in the country. Statistics Canada has just published a report that offers no comfort to national leaders who think that a token nod in the direction of free trade within Canada is all that is required because the barriers are the stuff of myth.
The barriers to trade within Canada were equivalent to roughly a seven percent tariff.
StatsCan intelligently didn’t go looking to compile a list of barriers. That’s a mug’s game. Barriers are often subtle and buried in complex regulations. Nor is any list ever likely to be complete, because the premiers are always inventing new ones, like recent claims to have the power to stop pipelines crossing their territory. The justified fear that a successful business will cause neighbouring provincial authorities to obstruct them with new barriers may be just as trade-dampening as the list of ones already in place.
Instead StatsCan looked for evidence that there is less trade across provincial boundaries than one would expect given the kind of economy and infrastructure and other factors we enjoy. And they found plenty of such evidence. In fact they found that the barriers to trade within Canada were equivalent to roughly a seven percent tariff.
That’s a shocking number. Just to make clear what StatsCan was trying to say, their research says that obstacles to trade within the country were so great it was equivalent to erecting customs booths at every provincial border and charging a seven percent tax on all goods arriving at their final destination. Naturally that’s a tax that local producers wouldn’t face serving their domestic provincial market. It’s also an average: StatsCan estimates the effective tariff on wine and brandy at 56 percent.
What many people don’t realise is that in 1867 when we created Canada there were precisely such customs booths at the borders between colonies and Confederation was in large measure justified by the desire to tear them down and create a unified, barrier-free, national marketplace. Ottawa was given the power and responsibility to tear down those barriers. One hundred and fifty years later we are still waiting as the provinces continue to exact their seven percent bounty.
Ottawa was given the power and responsibility to tear down those barriers. One hundred and fifty years later we are still waiting.
In a compelling comparison, the StatsCan paper underlines that in similar studies of the US economy, literally no effect could be found of the existence of state boundaries on trade. In other words, the US states charge the equivalent of a zero percent tariff. Put another way, Washington’s power to dismantle barriers to Americans buying and selling anywhere is used to great effect. So it can be done.
The premiers like to put about the idea that they are heroically tearing down the barriers themselves, including through the Canadian Free Trade Agreement that came into operation on July 1st. Don’t be fooled. The list of exemptions is over 100 pages long and the really tough areas, like liquor, financial services and regulatory harmonisation, were punted. Don’t expect open markets in marijuana, dairy products or electricity any time soon. And if you’re trying to build a pipeline expect to meet a po-faced premier with a stop sign at several provincial borders.
StatsCan doesn’t think for a moment that they’ve fully documented the damage these barriers do nor have they calculated the cost to Canadians in terms of a needlessly lower standard of living. That’s to come. But count on the news getting worse, not better. And remember: as long as these barriers are allowed to persist, the promise of Confederation remains unfulfilled.
Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.mli.dev.pcomms.ca.