Several readers were surprised to hear that Canada imposes provincial “tariffs” or trade barriers that simply act as tariffs. Canadian politicians have been promoting a marketing campaign against US-imposed tariffs, but must recognize that their own domestic policy is hurting the Canadian economy in a massive way. Canada’s tariff rate on international imports averages 1.4%, utterly disproportional in comparison to domestic trade barriers. Estimates believe that current domestic trade barriers cost the Canadian economy $32 billion annually, but these interprovincial trade taxes can surpass 14% on domestic goods.
It is quite difficult for provinces to conduct business with one another; in fact, it is often more cost-efficient to work with international companies. Section 121 of the Constitution Act of 1867 implemented by the British Parliament states:
- All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The March 1867 stated:
- All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
The act should have prevented tariffs between provinces and has been amended, but the current framework fails to prevent excessive regulation. The Supreme Court attempted to address the matter in 1921 and stated that “free” meant tariff free, but did not address regulation which in itself acts as a tariff. The wording is the only aspect that changed but it is indeed a tariff.
The Canadian Free Trade Agreement (CFTA) of 2017 attempted to reduce trade barriers between provinces but it ultimately failed to address the root issue. Certain sectors were exempt from the rules, but individual provinces could choose to opt out. It is an absolute nightmare for businesses that are often required to obtain licenses, labor certifications, and meet an array of requirements from environmental to health and safety. One province may not meet the requirements, and there are many, of another and it causes mass confusion. Transportation costs alone for interprovincial trade cost $1.6 billion annually, and we all know how well the last administration treated the nation’s truckers.
Prime Minister Mark Carney plans to eliminate these tariffs on July 1, Canada Day, amid widespread nationalist sentiments. Estimates that reducing interprovincial trade barriers could increase GDP by at least 4.4%–a massive uptick as one-third of Canadian trade is interprovincial.
