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Interprovincial trade barriers: The same thing as customs tariffs

Montreal, September 15, 2017 – Studies have already established that interprovincial trade barriers considerably reduce economic activity in Canada, causing tens of billions of dollars of losses a year. A study published yesterday by Statistics Canada sheds new light on this question by putting a number to the effect of provincial borders (including regulatory barriers, but also other factors that can have an influence) on trade, as if they were customs tariffs.

According to the agency, from 2004 to 2012, the level of trade observed between the provinces corresponds to the level that would be expected if a 6.9% tariff were imposed on interprovincial trade.

“These obstacles to trade represent the equivalent of a tax for the Canadian economy. In addition to raising the prices of certain goods, like dairy products, alcohol, and many other goods and services, these barriers slow down the growth of wages and the economic integration of the provinces,” says Mathieu Bédard, economist at the MEI.

The borders between Canadian provinces are much less porous than those that exist between American states, since the tariff equivalent that is observed here is nonexistent over there.

The Statistics Canada study is particularly timely given that the Supreme Court of Canada is getting ready to hear the Comeau case, in December of this year. Gérard Comeau, a New Brunswick resident, is contesting the fine he received for bringing back too many bottles of beer and alcohol from Quebec. The Supreme Court will have to determine if the New Brunswick law that imposes these limits respects Section 121 of the Constitution, which states that all products of a province must be “admitted free into each of the other provinces.”

The legal debate concerns the scope of section 121. The famous 1921 Gold Seal decision interpreted it as prohibiting only the imposition of customs tariffs. A wider interpretation would call into question other kinds of interprovincial barriers.

“What this study shows today is that from the perspective of economic logic, there is no real difference between a tariff and a regulatory or other barrier,” explains Mathieu Bédard.

The artificial obstacles that exist between the provinces are a drag on business investment, and cost the Canadian economy over $50 billion each year. A recent study published in the Canadian Journal of Economics estimated the potential productivity gains at $100 billion, or the equivalent of $2,700 per Canadian.

“These barriers should simply be eliminated, either through political action or following a decision by the Supreme Court. After 150 years, it’s high time to remove the obstacles that keep Canadians from trading with one another,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.

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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, Vice President, Communications and Development, MEI / Tel.: 514-273-0969 ext. 2233 / Cell.: 514-502-6757 / Email: pdery@iedm.org

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