New internal trade agreement a (very small) step forward

By Justin Hatherly
AIMS on Campus Fellow

Under the various Liberal and Conservative governments that have ruled us since time immemorial, Canadians have been enthusiastic trade liberalizers.  Since 1974, the Federal government has negotiated numerous free trade agreements with nations big and small.  Yet despite eschewing protectionism internationally, Canadians perversely, still practice it domestically.

Though confederation was meant to allow create a seamless economic union, unfortunately, at present numerous internal barriers to trade exist.  These barriers range from licensing requirements, for instance, in which a fully qualified electrician in New Brunswick might be unable to ply his or her trade in Alberta, to procurement restrictions in local government.  Whatever their nature, the insidious effects of internal trade restrictions is the same: they inhibit specialization, productivity and consumer choice.

Given the debilitating effect of internal trade restrictions, many Canadian economists responded enthusiastically to recent provincial attempts to liberalize internal trade.  Unfortunately, while the recently released interprovincial agreement on free trade makes some progress, it still maintains multiple prevailing restrictions that undermine Canadian prosperity.

There are aspects of the agreement that do represent an improvement on its predecessor (the 1995 Agreement on Internal Trade). Unlike this agreement, which only applied to 11 stipulated sectors, this agreement includes all sectors not specifically exempted.  This would be something to be truly lauded, if there were not almost as many exemptions to the rules as there are rules themselves.

That is, despite attempting to free internal trade across the board, the numerous exemptions effectively mean that there will be only a small increase in the number of industries that are not strangled by the dead hand of the state.

Additionally, the agreement seems to suggest that whole areas of economic exchange (such as financial services) are to be completely barred from consideration in future negotiations on internal trade.  Provinces will still effectively be allowed to pursue zero-sum economic warfare in terms of providing subsidies.  While ostensibly the agreement will bar provinces from instituting “overtly discriminatory” subsidies, this distinction is meaningless.  By definition all subsidies are discriminatory.   Subsidies distort resource allocation and arbitrarily transfer wealth from taxpayers to the group receiving government largesse.  They do not add to total economic output, but simply transfer resources in a manner that is normally suboptimal.  It will be amusing to see governments pander to all forms of rent seekers as they try to enforce the subsidy provisions.

At its core, the case for free domestic trade is no different than the case for free international trade.  Any individual, given the limits on his or her time and resources, can ill afford to attempt to produce all they wish or need to consume.  Thus, we all benefit from the existence of other individuals who produce goods and services, for that allows us to specialize, increase our own production, and consequently, consume more than we otherwise would.  Internal restrictions on trade are estimated to cost the Canadian economy up to $50 billion annually in lost output.  They also run counter to the spirt of national unity as they divide the country into isolated economic segments.

As such, while the new trade agreement should be lauded for expanding the scope of goods and services that can freely be traded among the provinces, it is still inadequate and Canadians should remain dissatisfied until they enjoy unhampered trade throughout our nation.