Canada’s Broken Trade System: Why It’s Easier to Do Business with the U.S. Than Between Canadian Provinces
Canada and the United States enjoy one of the most open and prosperous trading relationships in the world. With a shared border stretching over 8,891 km (5,525 miles), trade between the two nations reached $1.2 trillion CAD in 2022. The Canada-United States-Mexico Agreement (CUSMA), combined with a highly integrated economy, ensures a smooth flow of goods, services, and investments across the border.
Yet, paradoxically, Canadian businesses often face greater hurdles when trying to expand across provincial borders than when exporting to the U.S. This phenomenon raises an important question: Why does Canada have more internal trade barriers than it does with its southern neighbor?
North-South Trade: A Model of Efficiency
Since the signing of NAFTA in 1994 (and its modernized version, CUSMA, in 2020), trade between Canada and the U.S. has flourished. This agreement eliminated most tariffs, standardized regulations, and provided dispute resolution mechanisms to resolve trade conflicts.
Key factors that make U.S.-Canada trade relatively seamless include:
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Harmonized Regulations: Canada and the U.S. have aligned many product safety, environmental, and transportation regulations, reducing bureaucratic obstacles.
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Efficient Logistics Infrastructure: Major trade corridors like the Windsor-Detroit crossing and the Vancouver-Seattle corridor facilitate the rapid movement of goods.
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Ease of Business Expansion: Canadian companies often find it easier to set up shop in the U.S. than in another Canadian province due to streamlined regulatory environments.
The Internal Trade Paradox: Canada’s Fragmented Market
Despite Canada being a single country, businesses face significant barriers when trying to expand from one province to another. These barriers stem from a patchwork of provincial regulations, licensing requirements, and inconsistent taxation policies that create unnecessary hurdles.
Some key challenges include:
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Inconsistent Licensing and Certification – A contractor licensed in Ontario cannot automatically work in Quebec without reapplying and meeting different standards. Similarly, food producers must meet varying provincial health standards rather than a unified national one.
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Restrictive Alcohol Trade – Canadian provinces impose strict regulations on alcohol sales, making it easier for a winery in British Columbia to sell its products in the U.S. than in Alberta.
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Interprovincial Trade Costs – Research from the Bank of Canada estimates that interprovincial trade barriers add between 7-10% in extra costs for businesses operating across provinces, reducing economic efficiency.
These internal restrictions prevent Canada from realizing its full economic potential. A study by the Canadian Federation of Independent Business (CFIB) found that removing interprovincial trade barriers could boost Canada’s GDP by up to $100 billion annually.
The Impact on Canadian Businesses
Because of these regulatory and logistical challenges, many Canadian businesses prefer to expand into the U.S. rather than into another province. For example:
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Tech companies find it easier to register and operate in U.S. states like Delaware than to deal with different provincial corporate regulations in Canada.
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Manufacturers often set up distribution centers in the U.S. because of clearer and more unified business rules.
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Agricultural businesses struggle with interprovincial restrictions, pushing them to export instead of serving domestic markets.
The result? Lost economic opportunities, slower business growth, and a competitive disadvantage for Canadian businesses compared to their American counterparts.
What Needs to Change?
To unlock Canada’s full economic potential, interprovincial trade barriers must be dismantled. Some proposed solutions include:
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A National Trade Agreement: A binding agreement that standardizes trade laws across provinces. While Canada has the Canadian Free Trade Agreement (CFTA), it lacks strong enforcement mechanisms.
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Regulatory Harmonization: Provinces need to align their licensing, transportation, and professional certification requirements to reduce unnecessary bureaucracy.
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Federal Intervention: The federal government could use its constitutional powers to ensure free movement of goods and services across provinces, just as the U.S. government does with interstate commerce.
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Public Pressure and Business Advocacy: Businesses and consumers must push provincial governments to prioritize interprovincial trade reform.
Conclusion
The reality is stark: Canada has made it easier to trade with the United States than within its own borders. While Canadian businesses benefit from free trade with the U.S., they continue to struggle with artificial barriers when trying to expand domestically.
If Canada is serious about fostering economic growth, innovation, and business expansion, then fixing its fragmented internal trade system should be a top priority. Until then, Canadian businesses will continue to look south—because, ironically, it’s just easier to do business there.
