Opinion: The opportunity for Canada to grow faster is now — by unlocking our internal trade market

As Canada Day approaches, Canadians are anxiously waiting to see what we might be able to celebrate.

On the trade front, July 1 marks a deadline of sorts for the renewal of the Canada-U.S.-Mexico trade agreement, CUSMA. I say “of sorts” because negotiators are hinting at a longer haul in these talks and we can never be quite sure what is on or off the negotiating table or if Canada will actually pay a price to enter the room.

In the meantime, Prime Minister Carney has been very busy over the past year pressing a big reset button in Canada’s commercial relations with the world.

By far the most prominent relationship in need of attention is our trade relations with the U.S., which Carney has characterized as being in a state of rupture. That being said, if we remain in a dangerous state of trilateral trade limbo on July 1, what else can we aim to celebrate?

How about a vital trading relationship that is entirely within our control. How about the actual and final elimination of internal trade barriers?

Now emboldened with a majority government, what might the prime minister be prepared to do to reset commercial relationships within Canada? Can the same ambition to forge bold new trade partnerships globally find purchase in boosting our own internal economy? And can this effort help buttress Canada after a rupture in our major trading relationship?

Welcome to this season’s edition of the “One Canadian Economy” show or how to jolt our crawling quest for free trade within Canada into action.

First, lets have a quick refresh on what is at stake here.

The estimated value of internal trade in goods and services in Canada is over $530 billion a year — representing almost 20 per cent of our GDP. No small change.

The campaign to eliminate barriers to this trade has been plodding along for decades. Currently the issue is being managed by an intergovernmental committee of ministers of internal trade working under the purview of the Canada free trade agreement. Signed in 2017 and updated in 2019 and 2024, the first third of the CFTA text rings with declarations of the benefits of internal free trade and pledges about setting the rules of the road to get there.

The remaining two-thirds constitutes a rapid about-face in detailing a wide range of exceptions to this goal as claimed individually by federal, provincial and territorial governments. While some progress is being made on recognizing professional credentials and product standards, it seems that the off ramps from the agreement are better paved than the free trade road ahead.

Interestingly, the world has taken notice. When I worked as a trade adviser with the European Union in the 1980s, the EU was already claiming that it had achieved freer trade among its member states than Canada enjoyed within its internal market. More recently a report released in January by no less than the International Monetary Fund (IMF) says it all with its title: “Canada can grow faster by unlocking its own market”.

Using trade data and models, the IMF’s calculations and conclusions are interesting indeed.

The report estimates that trade barriers within Canada represent the equivalent of a nine per cent tariff applied to internal trade in goods and services. These costs are mainly concentrated in services — which account for the majority of interprovincial trade — with barriers in some sectors, including educational and health-care services, exceeding the equivalent of a 40 per cent tariff.

The report delicately and diplomatically notes that “such a level (of tariffs) would be prohibitive in most international trade agreements.” To be blunter, the IMF’s estimated nine per cent “internal” tariff is almost double the average tariff rate currently facing Canadian exports in the volatile U.S. market. That rate, as cited in last week’s federal economic statement, is 5.2 per cent — “the lowest rate among all major U.S. partners.” To be blunter still, one could conclude that we’re charging ourselves more than the Americans are.

The IMF report goes on to estimate that fully eliminating internal trade barriers could raise Canada’s real GDP by nearly seven per cent over the long run — roughly $210 billion in today’s terms.

“Even modest reductions in internal trade costs could help offset sizable adverse shifts in external trade conditions, underscoring the role of domestic integration as a resilience buffer. The evidence is clear: Internal barriers remain large, economically costly, and increasingly out of step with the needs of a modern, vibrant, service-intensive economy. Removing them offers one of the most powerful — and least fiscally costly — levers to raise productivity, strengthen resilience, and support inclusive growth. The opportunity is now.”

But how? Notwithstanding a new majority government status, the need to sustain a high level of good old cooperative federalism these days prevents the federal government from wielding the heavy constitutional hammer available to it to smash barriers to trade within Canada.

However, the IMF’s report and references to “levers” did not go unnoticed by the Canadian Chamber of Commerce, which represents 200,000 businesses nationally. In its presentation before the standing committee on trade last month, the chamber said, “We cannot politely accept that we’ve come this far only to settle for ‘good enough.’ If momentum slows, the federal government should consider applying conditions on major federal transfers to provinces and territories requiring the elimination of specific barriers to interprovincial trade and labour mobility.”

Intriguing. With a raft of new Canada Strong expenditures about to be rolled out across Canada, maybe Ottawa should venture beyond the traditional approach of seeking matching financial commitments from provincial/territorial partners for these projects. It could require, as a condition of funding, a full and complete elimination of trade barriers maintained by these partners. If provinces and territories resist, they should be obligated to defend their claimed exceptions before a CFTA tribunal and prove that their domestic businesses would be injured if protection was removed. A combination of approaches like these could accelerate the erasure of CFTA exceptions and build a fast-track to free trade to replace an off-ramp-ridden slow trail.

As the IMF report concludes, “the prize is large. Turning 13 economies into one is no longer just an aspiration — it is an economic imperative.”

Surely this could this be something to celebrate this Canada Day.

In the meantime, good luck finding an Ontario wine at the B.C. LDB for such a celebration. Over the past year, the number of Ontario table wines listed at the LDB has fallen from three to one. B.C.’s wines have been rewarded with the same treatment in the Liquor Control Board of Ontario. Sour grapes indeed.

Stuart Culbertson is a former deputy minister in the B.C. government. He served as B.C. trade representative during the Canada-U.S. Free Trade Agreement talks.