If Canada were to fully eliminate its internal trade barriers, it could increase its real GDP by about seven per cent in the long run, the International Monetary Fund says in a new report.
The report, published Tuesday, said such a move could mean roughly $210 billion in GDP, with the IMF saying the gains per province and territory “reinforces the case for reform.”
“These frictions are economically consequential,” the IMF report says.
“Goods, services, and workers face significant barriers when moving across provincial and territorial lines — a fragmentation that affects productivity, competitiveness, and overall resilience.”
The IMF notes the interprovincial trade barriers that remain in place equate to about a nine per cent tariff nationally, using “widely accepted trade analysis methods.”
It says the costs are mostly concentrated in services, which make up the majority of trade between provinces. But the report adds barriers in some sectors, such as health-care services and education, amount to a tariff of 40 per cent.
Provinces and territories also face “uneven” barriers, the report warns, with smaller provinces facing costs that are “multiples higher” in sectors like health, retail trade and professional services.
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“The result is a patchwork economy where geography and regulation jointly shape opportunity —and where advantages that normally come with scale are muted,” the report says.
Interprovincial trade barriers have been a topic of discussion in the past year amid tariffs imposed by U.S. President Donald Trump since he took office in January.
Some individual provinces signed various deals to drop the barriers on certain products.
In November, the provinces, territories and federal government signed an agreement to allow the trade of tens of thousands of goods to be free.
The agreement, which took effect in December, applies to most products, though it excludes food, beverages, tobacco, plants and animals.
While the agreement was applauded by some, most services were excluded from the deal — a sector that the IMF notes makes up the majority of GDP gains.
“Roughly four-fifths of the total GDP gains would come from liberalizing services sectors,” the report notes. “This reflects their growing weight in the economy and their role as inputs into nearly all other activities.”
It adds barriers in finance, telecommunications, transportation and professional services “ripple through the economy” and raise costs beyond the sectors they come from.
The impact that could come from fully eliminating the barriers would be felt differently by jurisdiction. The report says the smaller provinces would gain the most in percentage terms as companies gain larger market access. For example, Prince Edward Island would see a nearly 40 per cent point change in GDP per worker.
Ontario and Quebec, the two largest provinces, would see a smaller change of about four to six per cent GDP, but the report says they will still benefit “substantially in absolute terms.”
“Internal integration is not a zero-sum reallocation — it is a national productivity dividend,” the report says.
The IMF notes such a change will take time, with challenges around implementation and co-ordination, but said the country’s economic future will be “shaped” not only on a global level, but also how it changes its domestic markets as well.
“The opportunity is now. The prize is large,” the IMF says. “Turning 13 economies into one is no longer an aspiration — it is an economic imperative.”
— With files from The Canadian Press
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