Trade barriers: Red tape between provinces costing London area $1.4B

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Barriers to trading goods between provinces could be costing the wider London area as much as $1.4 billion in lost production a year, a national economist says.

The tariff war brewing between Canada and the U.S. could cripple trade between them, forcing business and industry to look to new markets for growth. Those markets may be as close as another Canadian province, but it can be tough to sell to our national neighbours, said Pedro Antunes, chief economist with the Conference Board of Canada.

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“We’ve been talking about interprovincial trade barriers since the dawn of time and nothing has been done,” he said. “The problem is, no one really knows what barriers there are. We need a detailed look at this to see what’s going on.”

A 2019 study by the International Monetary Fund (IMF) found that internal trade barriers in Canada cost the equivalent of a 21-per-cent tariff on goods. The Canadian Federation of Independent Business then issued a study declaring that breaking down such barriers could boost the national economy by $200 billion.

The IMF found that trade barriers within Canada cost about four per cent of gross domestic product (GDP), or the value of all goods or services goods made, for any region. The London region – that includes London, St. Thomas and portions of Middlesex and Elgin counties – has about $35.6 billion in GDP, and that translates into a $1.4-billion loss, said Antunes.

“It gives us a sense of how big this is. If we can reduce barriers, what we could gain,” he said.

The fallout also extends into Southwestern Ontario’s farm belt, one of the richest in the nation but where interprovincial trade barriers also hold back business. Cheesemakers are one example.

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At Montforte Dairy in Stratford, Ruth Klahsen knows sales of her award-winning cheese would increase if she could ship to other provinces. Cheesemakers need a federal licence under the Canada Food Inspection Agency to sell to other provinces even though they’re licensed in Ontario by the Ministry of Agriculture. That federal licence requires a series of applications and inspections, but it’s not worth it, she said.

Klahsen used to have the federal licence, but let it expire.

“The most important thing we can do is to drop trade barriers between provinces. I don’t know why we’re restricting growth in our country,” she said. “In Italy, they buy Italian first and then import. They support their own.”

Klahsen makes about 20,000 tonnes of cheese a year. Working with the provincial ministry, unlike the federal requirements, she said she believes she gets support to help her succeed. 

“There are too many layers of bureaucracy. I think the provincial inspectors are very good. With the federal regulations, they make it harder. It was profoundly different,” she said.

A 2024 study out of Queen’s University estimated trade barriers within Canada add anywhere from eight to 15 per cent to the cost of goods, said Mahmood Nanji, who teaches government relations at the Ivey Business School at Western University and is a former Ontario associate deputy minister of finance.

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In total, there are more than 600 provincial bodies regulating goods and services.

“Talk about a regulatory burden. This is huge,” Nanji said.

The barriers between provinces aren’t tariffs or fees but regulations and standards that make it difficult to buy and sell. As an example, food inspection is different between provinces, so milk, chicken, eggs or cheese processed in Ontario for sale in the province have to be inspected at a federal level to be sold in other provinces. Sales also have to be approved by marketing boards in other provinces.  

While fruits and vegetables aren’t restricted, packaging can be so those labels may have to be changed between provinces, he said.

There’s also the question of labour. From financial planners to construction workers, seeking employment in another province can be difficult.

“It’s very disruptive and costly,” Nanji said of border barriers. “But I’m optimistic. There’s a saying about never letting a crisis be a missed opportunity. There’s a lot of talk now about fixing the problems.”

That’s not always been the case, he added. There have been talks about easing trade between provinces since 1940, but it has never been a priority because there hasn’t been a real need. Now there is, said Nanji.

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“I think we will see change. The provinces have made this a priority. They’re motivated.”   

The trucking industry is one of the hardest hit by provincial trade barriers. Different provinces have different regulations around shipping goods, from the weight allowed, to safety measures on vehicles and what goods can be carried by certain trucks, said Stephen Laskowski, president of the Ontario Trucking Association.

The bottom line is that goods are taking longer to get to where they’re needed and that means lost production, he said.

“There are a number of interprovincial trade barriers impacting the supply chain. We can improve productivity. The trucking industry touches on every supply chain in Canada. If we can fix trucking, we can help a lot of industries,” Laskowski said.

For example, different provinces require different permits for certain sized loads and those permits aren’t easy to get.

“It’s very difficult and inefficient. We can have million-dollar projects held up for days or even weeks. It’s a regular occurrence,” he said.

Double trailers, for example, can’t be used to carry paint or bleach in Quebec, so such a load in Ontario has to switch trucks if it crosses the border.

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Axle configurations are also different in provinces. In one famous example, double trucks aren’t allowed on Hwy. 85 between Quebec and New Brunswick as it narrows to two lanes. So for the 10-kilometre stretch another truck has to be brought in, the freight uncoupled and then attached to a new truck making for a single load, driven 10 kilometres and then recoupled to its double truck. A simple solution would be to widen the road to four lanes.

“Everyone has to roll up their sleeves and focus on this,” Laskowski said.

At Gunn’s Hill Artisan Cheese in Woodstock, another award-winning Southwestern Ontario cheesemaker, owner Shep Ysselstein is content to sell only in Ontario, making about 100,000 kilograms of cheese a year, but would like the option to sell more without needing a federal licence.

“I’d like to see growth, but I don’t want to double in size. I hope with all this talk right now, maybe, some of those (interprovincial trade) barriers will go away. It will make it easier to sell outside Ontario,” said Ysselstein.

At Forked River Brewing Co. in London, partner David Reed can’t ship beer to another province if a customer wants to send a case to a friend or family member. In fact, if he wants to sell his beer in another province he has to sell to the government agency overseeing beer sales in that province.

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“It’s obviously a hindrance, but the funny thing is I’ve shipped beer to Japan” without an issue, said Reed. “A lot of the rules are antiquated and go back to prohibition. It would be nice if a customer could send beer as a gift. It seems bizarre I can ship to Ottawa but not across the river” into Quebec.

Reed said he’s heard on occasion his beer may hit the mail headed to another province, with a description of “marinade” or even “energy drink” on the label.

The standards for alcohol were originally put in place to protect craft wineries and brewers, “but now (come) at the cost of the free movement of goods,” said Nanji.

At Montforte, Klahsen said she’s has had enough talk about business and trade. She just wants to get back to making really good cheese. “We have to trust in our country. I can’t sell in Alberta and I ask why. Why?” 

ndeboo@postmedia.com

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