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New interprovincial trade agreement: Big talk, little change

Montreal, April 7, 2017 – After several years of difficult negotiations, the federal government is on the verge of announcing a new agreement to liberalize trade between the provinces.

“This is good news,” says Mathieu Bédard, Economist at the MEI. “With the free trade agreement between Canada and the European Union set to come into effect, we couldn’t very well allow European companies to have better access to the Canadian market as a whole than Canadian companies themselves.”

Yet even though the new agreement will harmonize rules in the trucking and construction industries, many obstacles to trade remain. This is the case for the alcohol, energy, forestry, and financial services sectors, among others.

“The agreement certainly does not go far enough,” argues Mr. Bédard. “A real common market entails the complete liberalization of interprovincial trade. It’s pretty counterintuitive, but in certain regards, it’s more difficult for a Montrealer to do business with a supplier in Toronto than with a supplier in San Francisco.”

Artificial obstacles between the provinces are a drag on business investment, and cost the Canadian economy as a whole between $50 billion and $130 billion a year. A recent study published in the Canadian Journal of Economics estimates the potential productivity gains at $100 billion, or the equivalent of $2,700 per Canadian.

The existing agreement between the provinces was signed over twenty years ago and did little to liberalize internal trade. And yet, over this same period, Canada signed no less than ten free trade agreements with other countries.

“It might be time to apply Section 121 of Canada’s Constitution Act of 1867, which stipulates that a Canadian province does not have the right to prevent the purchase, transport, or shipping of goods from another province,” concludes the economist. “This is especially true given that greater trade liberalization would be beneficial for Canadian consumers and companies alike.”

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Pascale Déry, Senior Advisor, Communications, Department of Current Affairs, MEI / Tel.: 514-273-0969 ext. 2233 / Cell.: 514-502-6757 / Email: pdery@iedm.org

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