There’s been a lot of talk about free trade lately. This is due in part to the renegotiation of NAFTA, and to the Trans-Pacific Partnership that many governments are trying to resuscitate. In Canada, a long-awaited inter-provincial free trade deal was also signed in the spring, and a case before the Supreme Court this week could potentially lead to even freer trade within Canada.
Why do such agreements and court cases matter? Quite simply because freer trade makes us all richer.
Two hundred years after the discovery of the law of comparative advantage, economists have had time to measure the effects of free trade, and studies leave little doubt: Free trade increases competition, as the number of companies in a given market goes up, which leads to better products; it increases consumer choice; it increases the size of markets, which makes economies of scale possible; and it forces companies to become more productive.
All of these phenomena reduce prices and raise salaries. The purchasing power of households thus increases, as they have more to spend and can buy more with each dollar.
But while international free trade gets a lot of attention, we forget that free trade between Canada’s provinces is far from perfect. The Comeau case is being heard this week by the Supreme Court of Canada.
In 2012, Mr. Comeau was stopped for having brought back home to New Brunswick fourteen cases of beer and three bottles of spirits purchased in Quebec. He contested his fine and won his case before the Provincial Court. Now, the Supreme Court will have to decide if Canadians have the right to transport legally purchased goods, including alcohol, from one province to another.
This case is important because it highlights the fact that the Canadian provinces do not practice free trade among themselves. And we want free trade. A poll conducted by Ipsos on behalf of the Montreal Economic Institute shows that 89% of Canadians think they should be allowed to bring any legally purchased product from one province to another.
Specifically regarding alcohol, 78% think they should be allowed to bring any amount of beer or wine from one province into another, while 84% think they should be allowed to order wine directly from a winery in another province.
And Canadians don’t buy the justifications that provinces offer for blocking inter-provincial free trade. Only 16% think that governments should be allowed to impose restrictions against goods from other provinces to protect their own industries, and only 12% think they should be allowed to do so to collect more revenues.
A Statistics Canada study calculated that the many restrictions on internal trade in Canada correspond to an average tariff of 6.9% on goods traded between provinces. This rate is much higher than the average Canadian tariff on international imports (1%) and even the average global tariff (2.9%). Indeed, it is often easier to export to another country than to another Canadian province.
The Supreme Court has an opportunity to correct this provincial protectionism by reaffirming the vision of the Fathers of Confederation, who wanted to create a vast common market. When we understand the advantages of free trade, we cannot help but cheer for the possibility that the Court could bring down provincial trade barriers, to the great benefit of all Canadian consumers.
Germain Belzile est chercheur associé senior à l’IEDM. Il signe ce texte à titre personnel.