Canada takes on internal trade barriers

Torys’ Canadian and New York offices will be providing regular briefs on the legal ramifications of the tariffs and other cross-border policy developments on the horizon.

President Trump’s proposed tariffs—now paused for 30 days—have provoked discussion in Canada on other ways to spur economic growth. One potential area that has often been raised but lacked sufficient action is reducing barriers to domestic interprovincial trade. An International Monetary Fund paper estimates that complete liberalization of internal trade in goods may increase Canada’s GDP by 4%¹. Another estimate indicates that these non-tariff barriers act as a 6.9% “tariff” on goods traded across Canada². The federal government has announced its commitment to working to eliminate barriers to interprovincial trade.

What are the barriers to interprovincial trade?

In contrast to broad-based tariffs, barriers to interprovincial trade are diffuse and exist in many forms. Often referred to as “non-tariff barriers” to trade, they usually arise from differing provinces’ laws, regulations, standards or certifications.

A few examples include:

• Health and safety regulations, including inspection requirements, vary across provinces, resulting in inefficiency. For example, commercial vehicle drivers may require multiple duplicative inspections across provinces, or may be required to change vehicle signage at each provincial border.
• Different packaging and labelling regulations across provinces increase cost and regulatory compliance burdens for fruit and vegetable producers.
• Various provincial restrictions on the sale of alcohol to customers in other provinces, including through provincial liquor monopolies, limit the purchasing of alcohol produced in one province by authorities in another.
• Provincial marketing boards control supply of dairy and poultry products, which both affects price and increases the regulatory and cost burden of selling across multiple provinces.
• There are more than 600 professional credentialing bodies across Canada. They often impose different certification requirements for individuals practicing the same profession, and often do not adopt mutual recognition of other provinces’ certifications. This issue limits inter-provincial labour mobility and correspondingly increases costs.

The result of these non-tariff barriers is that, in practice, it may be more efficient for a Canadian company in one province to trade with another free-trading country than another Canadian province.

Does Canada’s constitution guarantee free trade between provinces?

No. Section 121 of the Constitution Act, 1867 (the Constitution) prohibits provinces from enacting barriers to trade when goods cross a provincial boundary (e.g., tariffs). But, the courts have interpreted this narrowly. In 1921, the Supreme Court held that that “free” meant free from tariffs—not free from any regulation. In the Comeau case in 2018, which involved the purchase of beer in Québec and brought into New Brunswick, the Supreme Court declined to reconsider its earlier interpretation.

Who has jurisdiction to address domestic trade barriers?

Provinces are in the best position to address domestic barriers to trade because most barriers to interprovincial trade result from provincial regulations. Using their “property and civil rights” power in section 92(13) of the Constitution, provinces have enacted a wide variety of provincial regulatory regimes including labour and certification standards, technical standards, health and safety rules and licensing. Provincial governments, working in coordination, can revise these regulations to facilitate interprovincial trade.

What can the federal government do?

Failing provincial cooperation, the federal government has several potential constitutional routes to take, but faces headwinds. The federal government has the power under section 91(2) to regulate “trade and commerce,” but courts have narrowly circumscribed this power to matters of a “genuinely national scope” that must be “regulated federally or not at all”. The “peace, order and good government” clause of the Constitution has been limited to providing the power to deal with time-limited national emergencies or problems that the provinces are unable to address, even acting together. However, in the absence of provincial cooperation, either of these powers may permit the federal government to insert itself into areas that have historically been matters of provincial jurisdiction. It is possible that the current climate will permit federal intervention to withstand constitutional challenges by both provinces and the interests that interprovincial trade barriers protect.

The federal government can also convene meetings with provincial governments, and use its spending power to help encourage cooperation. For example, to the extent there is any temporary dislocation or disadvantage flowing from reducing barriers to interprovincial trade, the federal government may see fit to help fund programs serving to smooth the transition.

What liberalization steps have been taken and what are the limitations?

Canada’s intermittent efforts to eliminate these barriers have included: the 1995 Agreement on Internal Trade; the 2010 New West Partnership Trade Agreement between BC, Alberta, Saskatchewan and Manitoba; and the 2017 Canadian Free Trade Agreement (CFTA). However, those agreements are incremental steps that leave intact substantial barriers to trade.

The CFTA—Canada’s most recent attempt to address barriers to internal trade—implements domestic free trade rules across most areas of economic activity in Canada, on an “opt out” basis (rather than the previous “opt in” basis whereby provinces chose what sectors to liberalize). The CFTA included the energy sector for the first time, and applied free trade rules to trade in services as well. The provinces also agreed to establish a “regulatory reconciliation” process to address regulatory differences that act as a barrier to trade.

But in practice, provinces’ lists of exemptions from free trade under CFTA remain significant. The “regulatory reconciliation” process that was contemplated has not seen meaningful progress. And while disputes may be resolved by a panel constituted under the CFTA, proceedings are lengthy and costly, and barriers to pursuing dispute resolution are themselves significant. Since 2017, only a handful of proceedings have been commenced.

What efforts are currently underway?

Prime Minister Trudeau has called a “Canada-U.S. Economic Summit” to be held on February 7, 2025. A key theme will be barriers to interprovincial trade. On January 31, 2025, the federal government announced its renewed focus on eliminating barriers to internal trade, encouraging free movement of labour, pursuing mutual recognition of goods and services and standardizing regulations across Canada. Anita Anand, Minister of Transport and Internal Trade, has suggested that with commitment, barriers to internal trade could be overcome in under one month³.

 
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