A new report from the International Monetary Fund (IMF) suggests that Canada’s economy could see a substantial boost of about $210 billion, equivalent to nearly seven percent of real GDP, through the gradual elimination of internal trade barriers among the country’s 13 provinces and territories. The report, co-authored by IMF researchers Federico J. Diez and Yuanchen Yang in collaboration with University of Calgary economist Trevor Tombe, estimates that regulatory obstacles currently impose a national equivalent of a nine percent tariff on average.
The impact of these barriers is particularly pronounced in service-centric sectors such as healthcare and education, where restrictions on professional mobility between provinces result in tariffs exceeding 40 percent. This level of restriction is notably higher than what is typically seen in international trade agreements.
Smaller provinces and territories, as well as northern regions, bear a disproportionate burden from these internal trade barriers, facing elevated costs compared to larger provinces with more diversified economies. The report highlights the Atlantic provinces as the primary beneficiaries of barrier removal, with Prince Edward Island potentially saving nearly 40 percentage points in real GDP per worker.
Alicia Planincic, director of policy and economics at the Business Council of Alberta, underscores the fragmented nature of Canada’s economy due to interprovincial trade barriers, emphasizing that the country effectively operates as ten distinct economies. The inefficiencies caused by these barriers hinder job mobility and business expansion within Canada.
While efforts to address internal trade barriers have gained traction, particularly in light of U.S. tariff actions, progress has been made at both provincial and federal levels. Some provinces have signed bilateral agreements, and a national agreement was reached in November to eliminate barriers on most goods, though exclusions remain for alcohol and food.
Services, which constitute a significant portion of internal trade costs and potential GDP gains, were largely untouched by the recent agreement. The report underscores the importance of addressing sectors like finance, telecom, transportation, and professional services to unlock substantial economic benefits. Planincic emphasizes the need for political will and a concerted effort to navigate the complexities of aligning regulations across provinces to facilitate barrier removal.