IMF says Canada's interprovincial trade barriers are costing billions

The International Monetary Fund (IMF) estimates that barriers between provinces amount to an internal tariff of about nine per cent.

Restrictions on services moving across provincial borders account for much of the impact, with effective tariffs reaching as high as 40 per cent in sectors such as health care and education.

In the report released Tuesday, IMF economists Federico Diez and Yuanchen Yang said removing these barriers could significantly boost the economy.

“The Canadian economy remains much less integrated than its global footprint would suggest,” they said.

“Goods, services and workers face significant barriers when moving across provincial and territorial lines, a fragmentation that affects productivity, competitiveness and overall resilience.”

The authors estimate that eliminating interprovincial trade barriers could increase Canada’s gross domestic product by about roughly $210 billin.

Much of that growth would come from reducing service barriers in sectors like finance, transportation and telecommunications.

“This reflects (services’) growing weight in the economy and their role as inputs into nearly all other activities,” the report said.

Díez and Yang noted that easing restrictions would make it easier to start and expand businesses, improve labour mobility, and encourage investment in higher productivity industries.

Weak productivity has been a long-standing issue in Canada. The federal government has taken steps to address the issue, including passing Bill C-5 last June to recognize goods, services and workers approved in one province at the federal level.

However, provinces retain control over licensing and procurement rules. “These frictions are economically consequential,” the report said, calling barrier removal a “gift that keeps on giving.”