A stunning $7,500 per household is the annual cost of unfree provincial trade
NationalPost.com – FP/FP Opinion
March 28, 2016. Trevor Tombe
Among the first words in Finance Minister Bill Morneau’s recent budget speech were “Today, we begin to revitalize the economy.” A worthy goal, although the Liberals evidently hope that their increased spending (largely for current consumption) will do the trick. It won’t. Whatever one thinks of the merits of all the budget’s individual initiatives, economic growth will be largely unaffected.
If the government truly wants to revitalize the economy, it should address some of Canada’s structural problems and increase our overall productivity. The list of policy options to do this is long, but some of the lowest-hanging fruit is freer trade.
Trade barriers aren’t mere nuisances. They do significant damage to our economy
The Trans-Pacific Partnership and the Canada-EU free trade deal are important initiatives, to be sure, but there’s a Canada-sized hole in our approach to freer trade, with much more to do right here at home.
Roughly $165 billion of goods and nearly $200 billion of services are traded within Canada, between provinces — that’s roughly one-fifth of Canada’s economy. Big as these flows are, they could be larger.
A myriad of costly trade barriers gets in the way. Different regulatory standards, certifications, inspections, and other non-tariff impediments make interprovincial trade more costly than necessary.
Want to move a car from one province to another? You’ll likely need an out-of-province inspection first. Want to transport freight from Vancouver to Ottawa by truck? You’ll have to conform to a wide variety of regulations along the way.
For businesses, requirements to separately register and report in each province, the lack of a national securities regulator, or biased government procurement all make it difficult for businesses to be truly national in scope. In Ontario, for example, companies bidding on infrastructure projects must meet strict “local knowledge” requirements, making it difficult for competent firms from other provinces to compete. In so many other ways, red tape abounds.
Workers hoping to make a move also face costs. Professional licensing is often provincial, with credentials in one province considered insufficient for employment in another, despite professional skills and standards being essentially equivalent in every province. Differences in apprenticeship programs are particularly troublesome.
Over the years, governments have tried to address this obviously silly situation. Various “Agreements on Internal Trade” have been signed, though they are mostly toothless. Most recently, the premiers agreed in the summer of 2014 to “an ambitious plan to address barriers in Canada” and “to complete a comprehensive renewal of the Agreement on Internal Trade by March 2016.” Nearly two years later, with the self-imposed deadline upon us, they have made no clear progress.
This matters. These trade barriers aren’t mere nuisances. They do significant damage to our economy. There is plenty of research that shows it.
In the February issue of the Canadian Journal of Economics, I published with my co-author Lukas Albrecht a comprehensive analysis of Canada’s internal trade costs. Roughly speaking, we find internal trade barriers add somewhere between eight to 15 per cent in costs to goods and services that cross provincial boundaries.
We find that the overall gains from removing internal trade costs are substantial. Canada’s national productivity could grow by between three to seven per cent — adding roughly $100 billion dollars to Canada’s economy, the equivalent of a remarkable $7,500 per household per year, and cutting the Canada-U.S. productivity gap by a third. The economic consequences are particularly acute when trade barriers fall on business inputs.
In a country perennially concerned about its low relative productivity, leaving interprovincial trade barriers to fester is not a wise move.
So what can policy-makers do? Plenty.
Consider Australia. State and territorial leaders there have long agreed to the principle of Mutual Recognition. Essentially, if a product is good enough in one region, then it is good enough in all. If a worker is certified to practice an occupation in one region, then he or she can do so in all. Almost all internal barriers were wiped away with the stroke of a pen. The entire agreement is only 18 pages long! Simple. Clean. Effective.
Australia has had this agreement in place for close to 25 years, yet we have not followed. What’s stopping us?
A cynic might say that provincial leaders are more concerned with their own narrow self-interest than with Canada’s. Alberta, for example, appeals to the national interest when promoting various pipeline projects, but rejects a national securities regulator out of hand.
In fairness, provinces are making some progress. B.C., Alberta, and Saskatchewan created their own barrier-reducing New West Partnership. This ambitious deal should be applauded, although nationally we can do much more.
To lower costs for business, to provide more and cheaper choices for consumers, to improve labour mobility, to discipline provincial regulators, and to increase Canada’s overall productivity and international competitiveness, our governments must make a deal. Despite the missed deadline to overhaul the Agreement on Internal Trade this month, Canada’s federal and provincial governments can — if they choose — create a truly national market. Canada is one country; it should be one economy too.
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Tags: economy, featured, globalization, ideology, jurisdiction, standard of living
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