Freer trade within Canada would benefit Ontario
Protecting free trade in the NAFTA negotiations is important, but Ontario can also strengthen its economy by lowering trade barriers between Canadian provinces.
This week, an intensive round of negotiations surrounding the North American Free Trade Agreement commences. Protectionist rhetoric from Washington has caused many in all participating countries (Canada, the United States and Mexico) to worry about new restrictions on trade that could disrupt supply chains and cause economic damage.
It’s vitally important for all Canadian provinces, including Ontario, that Canadian negotiators do everything in their power to help ensure the free flow of goods across North American borders.
Ontario has a large manufacturing sector that relies heavily on exports to the U.S. and so any disruption to that trading relationship would be a serious problem. Manufacturing firms also rely heavily on imports for their production processes.
Consider that in 2015, the U.S. was the destination for approximately 80 per cent of Ontario’s international exports and the source of more than half of Ontario’s imports. So there’s no doubt that new trade barriers at our border with the U.S. would hurt our economy.
However, we should also consider the negative economic impact caused by trade barriers within Canada, which restrict the flow of goods, services and investment across provincial lines, and renew our commitment to lowering those barriers.
Crucially, between the provinces there are thousands of small variations of various rules and regulations, professional certifications and so on.
For example—the standards for beer bottle sizes differ from province to province. This forces some brewers to run parallel systems of production if they want to sell their product in different provinces. This completely unnecessarily regulation raises costs/prices and reduces choices for consumers.
Another example—cheese, or more specifically, unpasteurized cheese, which can’t be shipped out of Quebec due to differences in regulation among provinces.
None of these rules may seem like a big deal on their own, but all of these little sources of trade friction add up, with negative consequences for Canadian productivity and for the international competitiveness of firms doing business here. In fact, one recent study estimates that completely eliminating international trade barriers could boost Canada’s overall GDP by $50 billion—on the low end. Of course, a substantial share of those benefits would flow to Ontario, where 40 per cent of the Canadian population resides.
A recent agreement between Canadian governments (the Canadian Free Trade Agreement) improved the situation and has created processes to identify and rectify unnecessary sources of trade friction. But substantial barriers to trade still exist and much more work remains to be done.
Ontario can only reach its full economic potential if its people and businesses are able to buy and sell freely across borders—provincial or international. Trade creates bigger markets for our businesses to sell to, cheaper goods for Ontarians and their families, and cheaper goods for Ontario businesses to use in the production processes (the auto sector, for example).
This week, with NAFTA negotiations heating up, much attention will focus on possible barriers to international trade. But the negotiations should also serve as a reminder that comprehensive trade liberalization within Canada remains an elusive goal that deserves immediate attention.