(Version française disponible ici.)
Interprovincial trade has taken on greater significance in recent months, particularly in response to the tariff dispute with the United States. The federal government frequently reiterates its commitment to a single Canadian economy.
However, while many barriers to trade fall within provincial jurisdiction (such as labour mobility or transport regulations), the federal government also has tools at its disposal to reduce them. The tabling of the federal budget November 5 offers an opportunity to give renewed momentum to liberalization.
The benefits of interprovincial trade are spread across the country, while the costs may be concentrated in specific provinces or sectors. The provinces are not required to take a holistic view of the national interest. The federal government is.
So far, Ottawa has stuck to measures that are relatively easy to implement and inexpensive. They have been largely symbolic, and their impact on trade limited. If it truly wants “one Canadian economy,” the federal government cannot sit idly by.
Why barriers are difficult to remove
Despite the initiatives launched in several provinces since the winter of 2025, progress has slowed and barriers remain. In his contribution to our series Barriers and Bridges: Rethinking Trade within the Federation, published in October 2025, former Quebec premier Philippe Couillard rightly pointed out that, following this initial wave, the remaining barriers “will be particularly difficult to resolve because they involve issues that are politically sensitive and objectively necessary for the provinces and the exercise of their prerogatives.”
Several factors stand in the way of full liberalization of trade between the provinces. The first is primarily political, as public opinion often favours protectionism. ‘Buy local’ policies make for a more appealing electoral proposition than the more diffuse benefits of greater economic integration.
Also, regulatory barriers can arise from rules specific to certain professional regulatory bodies, which remain difficult to navigate. And one significant barrier will always remain: the vast size of the country. Investing in transportation infrastructure is undoubtedly one of the best ways to improve the movement of goods among provinces, but investments are costly and take time to build.
Options for Ottawa
This does not mean we should simply resign ourselves to the situation. But Ottawa must act within its constitutional powers and respect for provincial autonomy. In our view, a coercive approach is undesirable. Two principles guide our thinking.
First, while growing the Canadian economy is a legitimate objective, pursuing it cannot come at the expense of the autonomy of provinces, which must be able to legislate within their areas of jurisdiction. Canadian federalism comes at a cost that cannot be ignored.
Second, this constraint does not prevent action. It can help shape public policies that are more realistic in the current context.
Rethinking internal trade: the urgent need for a harmonized approach
Thus, measures that preserve a certain degree of provincial autonomy might be more readily accepted and more likely to increase the country’s wealth. Liberalizing trade would have little tangible or lasting effect if relations between the federal government and the provinces soured in the process.
Tools to promote the liberalization of interprovincial trade
Here are five public policy instruments the federal government could use to promote the liberalization of trade among the provinces. This list is not exhaustive and none of the options is perfect, but they show that solutions exist even within the constraints we have outlined. Some have already been implemented elsewhere. Our objective is to show that Ottawa has options beyond removing federal exceptions to the Canadian Free Trade Agreement (CFTA) and the measures provided under the Canadian Free Trade and Labour Mobility Act.
The approaches we propose vary according to their budgetary implications for the federal government and the need to negotiate with or involve the provinces. Figure 1 shows where these policies are roughly situated along these two axes.
1. Establish an annual progress report
The federal government could publish an annual report detailing the progress made by each province in meeting its commitments. This report could set out, for example, the median processing times for recognition of professional qualifications by province and by profession, the number of exceptions to the CFTA that have been retained or withdrawn, and trends in interprovincial trade by sector. The report could draw on data from Statistics Canada and existing tools, including the Canadian Internal Trade Data and Information Hub.
The value of such an exercise lies in going beyond announcements. The Canadian Federation of Independent Business (CFIB), which publishes an annual report on the state of domestic trade, points out that while several governments score highly for stated commitments, progress on the ground remains slow.
The CFIB also plans to modify its methodology to place greater emphasis on measurable results and the practical experience of small and medium-sized businesses. But any government progress report should remain independent of interest groups.
2. Impose conditions on federal project funding and public procurement contracts
Making major fiscal transfers to the provinces conditional on reforms relating to domestic trade, as proposed by Trevor Tombe, economics professor at the University of Calgary, would risk exacerbating intergovernmental tensions.
One approach that would be more readily acceptable to the provinces – and which was also raised by Tombe – would be to include provisions in projects partly funded by Ottawa to facilitate the movement of workers, materials and certified professionals from other provinces. This would become a new condition for future agreements and renegotiations without requiring any amendments to existing intergovernmental agreements.
In practical terms, when a province receives federal funding for an infrastructure project, it would have to allow workers from another province to work on the project on the same terms as its own workers.
3. Provide adjustment assistance to ‘losers’
Although liberalizing domestic trade may have positive effects for the Canadian economy as a whole, it will inevitably lead to losses in certain sectors and for certain businesses. This is one of the obstacles to liberalization: the fact that its benefits are not distributed fairly. The federal government could create sector-specific, time-limited funding packages to support businesses that would suffer short-term losses following the removal of a trade barrier.
Ottawa has already used this type of compensation mechanism in the context of international trade agreements. Ottawa has committed more than $4.8 billion to compensate supply-managed sectors for market access granted to foreign competitors under recent international trade agreements. This includes $2.95 billion in direct payments to dairy farmers.
4. Create a liberalization fund that rewards good performance
The federal government could set up a fund that makes payments to the provinces based on measurable progress rather than the passage of legislation alone. Economists Daniel Teeter and Christopher Cotton describe how such a fund would work in our series.
Furthermore, this fund would depend on the establishment of an annual progress report based on verified and credible information, as proposed above. This type of fund already exists to some extent elsewhere. Australia, for example, used this type of payment during the 1990s and reintroduced it in 2024 with a fund that rewards the implementation of reforms.
5. Establish an internal market commission with provincial participation
An independent commission tasked with identifying and prioritizing barriers to internal trade could complement several of the previous instruments, as illustrated by Teeter and Cotton. Its remit could include monitoring and evaluating government commitments.
The mechanism would be co-operative, and its main strength would lie in its ability to subject political commitments to regular public scrutiny – something the CFTA does not currently offer. Its governance could draw inspiration from other examples, such as the Canadian Institute for Health Information.
The federal government can do more to accelerate progress
The federal government has tools to reduce barriers to interprovincial trade, but it must be creative. It can do so by acting within its own areas of jurisdiction, without encroaching on those of the provinces.
Ultimately, the federal government must go beyond the measures adopted so far to ensure that the liberalization of interprovincial trade has a positive impact across the country. Ottawa must fulfil its role as a unifying force and take a holistic view of the Canadian economy.
