Taking steps towards internal free trade: The Canadian Free Trade Agreement

Posted by: Kaitlyn Mason on June 28, 2017

With the CFTA coming into effect on Canada Day 2017, our Economic Policy Analyst, Franco Terrazzano, has broken down the details of the agreement, along with its merits and shortcomings.

As a city with a relatively small market, many businesses must sell outside of Calgary and Alberta to be successful.   

Given our reliance on external markets, there is no wonder that calls for protectionism across the globe are becoming very concerning. And while policymakers should continue to promote international cooperation and seek new markets for Canadian businesses abroad, international trade issues often lie outside Canada’s influence. 

We can, however, address the many barriers deterring trade at home.   

While the Canadian Constitution prohibits provinces from imposing tariffs on goods sold within Canada, provinces have been able to implement regulations that significantly increase the cost of internal trade. Economists suggest that an open and free Canadian market would benefit Canadians by up to $130 billion per year.  

The Canadian Free Trade Agreement 

The Calgary Chamber applauds the work done by the federal and provincial governments to implement the Canadian Free Trade Agreement (CFTA). The CFTA will come into effect on July 1st, replacing the Agreement on Internal Trade (AIT) as the governing set of rules to identify and harmonize regulations that deter Canadian trade. As such, the CFTA represents a step in the right direction towards freer trade in Canada, albeit, a small one.  

Let’s break down the details of the Agreement, along with some of the business pros and cons.

Government procurement

Thanks to the CFTA, construction companies, electrical contractors, architecture firms, and advertising firms are just a few of the many Canadian service providers that will now have easier access to government contracts.

With the Comprehensive Economic and Trade Agreement with the EU coming into effect on July 1, 2017, the CFTA will ensure that Canadian businesses will be on equal footing with their international competitors.   

New rules that open procurement in the energy sector could greatly benefit Calgary’s economy. By providing open procurement rules in the energy sector (for the first time), an additional $4.7 billion in new procurement opportunities could be achieved.    

Making free trade the rule not the exception through a “Negative List”

A significant addition to the CFTA is the use of a negative list approach to removing trade barriers. Under a negative list, a trade deal allows for free trade throughout the entire economy, unless specifically negotiated out of the agreement.

In theory, this is a good approach and the Chamber has been urging Canadian policymakers to use a negative list for quite some time.  

However, what’s not so great is that there are close to 160 pages devoted to exemptions – or half of this three-hundred-plus-page-agreement is devoted to what cannot be traded freely within Canada. 

Reconciling red tape and harmonizing regulations

Very little red tape will be cut come July 1, 2017, but provinces have made significant commitments to work with each other on regulatory harmonization. A committee – Regulatory Reconciliation and Co-operation Table – has been established to recommend governments where red tape should be removed, and regulations harmonized.

However, the recommendations are just that – recommendations. Governments can opt out from these recommendations if they decide that “reconciliation is not a desirable option for their jurisdiction.” 

Through these types of “public interest” provisions, provincial governments retain the ability to erect trade barriers to promote local economic or consumer interests. And, while these may sound like desirable objectives, these types policies often benefit a specific industry, or group of people, while spreading costs among other businesses and consumers. 

It was these same provisions in the last agreement, the AIT, that allowed provincial governments to erect the current regulatory barriers. While the AIT had limits in scope (did not apply to all industries), it was the public interest provisions that led to its inability to liberalize trade in Canada. Even in the industries that the AIT specifically covered, such as the alcohol industry, internal trade barriers are still widespread.  

Wrapping it up

While policymakers should continue to look for new market opportunities for Canadian businesses, there are many opportunities to improve market access right here at home. Canadians many not be able to influence what happens around the rest of the world, but we can address the internal trade barriers that cost our economy billions of dollars each year.  

While the CFTA is a step towards reducing internal trade barriers, policymakers still have much more work to do in terms of cutting red tape and harmonizing regulations across provinces. The Calgary Chamber urges government officials to immediately begin working with businesses to address these barriers.  

The CFTA represents a step towards free trade in Canada. Many more steps are still needed.

Franco Terrazzano is an Economic Policy Analyst at the Calgary Chamber.