Canada’s Inter-Provincial Trade Nightmare

How provincial bureaucracy created a confusing and expensive mess for business to navigate

One might assume that doing domestic business in Canada would not only be a preference of Canadian companies looking to encourage economic growth, but also the cheaper and simpler option over conducting business abroad.

And yet, a July 8 meeting of provincial trade ministers from across the country revealed how, over the years, the provincial governments of Canada—left by the feds to write their own regulations for inter-provincial commerce—have created a tangled web of trade regulations that rivals that of any international bureaucracy.

One of the many local industries affected by complex provincial regulations, often created in the name of local protectionism, is Canada’s craft beer industry.

“[Lawmakers] may say that they’re trying to protect their local craft but that’s bullshit. What they’re actually doing is increasing their tax base,” says Darryll Frost, president and founder of Central City Brewers.

Central City Brewers is a Surrey-based craft brewer that distributes their product to every province except Quebec and imports ingredients from Alberta. The company also retails beer, wine, and spirits from around the country and abroad, and managing this inter-provincial business has left Frost frustrated with the prohibitive tax levies and regulations imposed by the provinces.

“The last time I checked, we all live in Canada,” says Frost. “We should have one tax across provinces and they should all be open borders.”

It’s not difficult to see where the frustration comes from. From province to province and industry to industry the rules for doing business vary wildly. For example, in Ontario, the Liquor Control Board of Ontario forces brewers to use it’s own provincial carrier, which Frost claims costs Central City Brewers twice as much as it would if they could use their own. Meanwhile, Alberta is preparing to raise its levy on external craft beer from 25 cents per litre sold to $1.25—a decision Frost says will cost his company $800,000 per year.

“It’s really short sighted given that ten per cent of our market goes to Alberta but 100 per cent of our grain comes from Alberta,” says Frost

These issues are by no means exclusive to Central City Brewers or the craft beer industry. Businesses all over Canada are restricted by provincial regulations, providing incentive for many to take their business elsewhere.

“It’s easier to sell your product abroad than it is to sell your products within Canada, and that’s a pretty negative indictment of our inter-provincial trade barriers,” says Dr. Ross Pink, professor of political science at KPU.

Each province’s unique web of provincial regulations is the result of decades of provincial lawmakers looking to show support for their local industry by enacting protectionist policy. Historically, this has been very popular among local voters as it promotes local jobs. The result is regulatory frameworks that are unfriendly to outer-provincial business and a very divided Canadian marketplace.

“This whole notion of trade liberalisation had not taken off until about the 1970s and 80s,” explains Pink. “So it’s very difficult to dismantle that [protectionism] in a relatively short period of time, which is what we’re trying to do now in Canada.”

Free and open commerce across the country is mandated in the Canadian constitution, so theoretically, it would be within the federal government or court system’s power to override provincial trade laws and create a single countrywide system. However, the courts in Canada are highly reluctant to interfere with political issues.

As for the feds, making changes in favor of free trade would be a politically dangerous proposition. The loss of protection means the loss of jobs. When Pierre Trudeau’s Liberals rolled out their National Energy Program in 1980—which removed local protections for the Alberta oil industry—the result was catastrophic for the Albertan economy and it created disdain for the party in Alberta that lasts to this day.

“You can imagine what would happen to the federal Liberal government now if they forced the provinces to open up their laws,” says Pink.

Still, change could be in the air. The recent meeting of provincial trade ministers signifies that there is political will to reform the system. The dismissal of a court case against a New Brunswick man who went to Quebec to buy cheaper alcohol could set new precedence in the matter as well.

We could be closer to a single trade system for a single country than it seems.