The Case for Ending Interprovincial Trade Barriers in Canada

By Jacob Friesen (AIMS On Campus Student Fellow) 

The arguments for ending interprovincial trade barriers are clear and decisive. It is estimated that reducing interprovincial trade barriers would add 3-7%, or $50-$130 billion, to Canadian GDP. Increased GDP brings new jobs, higher living standards, and more revenue for public services and tax relief. Additionally, economically struggling regions have the most to gain from interprovincial trade liberalization, and bear the worst of the costs of current interprovincial trade barriers. This essay will make the case for ending interprovincial trade barriers with reference to one particular industry: consumer health products. While the benefits of interprovincial trade liberalization have been assessed for a variety of industries and products, this essay will focus on consumer health products because the interprovincial barriers these products face are good examples of how interprovincial trade barriers are imposed, these products are immediate in the lives of many consumers, and the consequences of current interprovincial policies and the potential benefits of liberalization are clear in the case of these products.

Discussing and tackling interprovincial trade barriers can be difficult from the outset because explicit barriers such as tariffs are not in use. Rather, interprovincial trade barriers consist of a variety of provincial regulations which restrict the movement of goods and services between provinces. Such restrictive regulations include provincial licensing requirements for various professions, different regulations for freight transportation, and different product safety standards.

 

One important aspect of the regulatory treatment of consumer health products—the process through which products can be reclassified from prescription drugs to non-prescription drugs—is a prime example of an interprovincial trade barrier. The current process for drug reclassification is as follows. First, a company seeking to make one of its products more accessible to Canadians proposes the reclassification of its product to Health Canada.5 Next, Health Canada determines whether to allow the product to be reclassified. This process usually takes at least 17-21 months.6 Health Canada’s decision has no immediate impact on the availability of the product. Its availability only changes after provincial processes following Health Canada’s decision. For every province other than Quebec, the decision to allow reclassified drugs to be sold behind the counter or in front of the counter in pharmacies, or to disregard Health Canada’s reclassification of the product, depends on an assessment by the National Association of Pharmacy Regulatory Authorities (NAPRA). Whether a drug is sold behind the counter or in front of the counter is important, as consumers are often less aware of behind the counter products.

NAPRA usually takes up to four months to complete its assessment. The provinces of Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Prince Edward Island automatically implement NAPRA’s decision, and allow for the product to be reclassified and sold differently in their provinces. In British Columbia, a separate process, which can take up to 2 years to complete, determines whether NAPRA’s assessment will be implemented in the province. Quebec automatically moves drugs reclassified by Health Canada behind the counter. For a company to have its product sold in front of the counter, a separate process, which on average takes 4 years to complete, must be initiated. Thus, drug companies wanting to improve access to their products in Canada face a complicated, uneven regulatory environment and great uncertainty. Canada is unique among most major economies in having different orders of government independently involved in the regulation of consumer health products, among other products and industries. The consequences of these interprovincial barriers are severe. On average, products are made more accessible to Canadians 7-9 years after the same products are made more accessible to consumers in the US and EU. Within Canada, consumers in BC might receive greater access to a product 2 years after consumers in other provinces, and consumers in Quebec might never learn of the changed accessibility of a product. Additionally, because of provincial regulations Canadians are forced to use public health resources to gain access to drugs which a globally respected regulator, Health Canada, has deemed safe to consume without a prescription. This means that public health resources are diverted to appointments to fill prescriptions for safe products and away from more urgent needs.

This is an illustrative example of how interprovincial barriers can disadvantage Canadians. It also illustrates the challenges and opportunities presented by liberalization efforts.

 

Beyond the normal challenges of liberalization, such as confronting vested interests and persuading the public, efforts to tackle interprovincial trade barriers will need to address complex networks of regulations in multiple jurisdictions. However, the benefits of tackling interprovincial trade barriers—the greater accessibility and affordability of many products and services, higher growth rates, and the more efficient use of resources, to name a few—are too great to pass over. Canada’s interprovincial barriers to trade must end.

The USMCA and Nova Scotia

By Samuel Kirsh (AIMS On Campus Student Fellow) 

While the media space of the past two years has generally been taken up by the shenanigans of the Trump presidency and the perceived havoc that has been wrought on the global political order, recent developments have pertained to a more pressing matter for Canadians: the renegotiation of North American Free Trade Agreement, or NAFTA. The new, immodestly titled United States-Mexico- Canada Agreement has been published for approval through the legislatures of its respective signatories. Trump’s vow to “get a better deal” for America has started with one of the most well-received trade deals ever implemented, however the result is a document that bears a remarkable resemblance to the document it is replacing. There have been some considerable concessions made on the part of Canada, but overall the real story lies in the shredding of amicable diplomatic relations through a heavy-handed process dominated by the United States.

NAFTA provides security and trade rights to the three major economies of North America, and improved Canada’s ability to challenge the US through dispute arbitration guaranteed in Chapter 19 of NAFTA. In fact, over the course of NAFTA’s lifespan, Canada has used this clause disproportionately more frequently than the other partners, to combat illegal American trade policies, as well as to protect Canadian lumber industry. Keeping independent dispute arbitration is a key win for the new agreement. Further, the other industries that are protected under the new treaty stand to benefit Nova Scotian industry, particularly the tire industry. Of the $2 billion in tires exported to the US last year, Nova Scotia accounted for just over half, or just below a third of Nova Scotia’s overall exports. The protection of automotive parts and equipment is crucial to protecting one of Nova Scotia’s most lucrative exports. This is reflected in the agreement by guaranteeing that 62.5% of car parts must be manufactured by USMCA partners, ramping up to 75% over the next several years. Another major export from Nova Scotia is lobster and shellfish. Driven by growing Chinese demand and the Comprehensive Economic and Trade Agreement between Canada and Europe, Canadian lobster fishermen benefit in the near term as the China-US trade war heats up: Maine lobster fisheries have been subjected to exacting retaliatory tariffs. As such, Nova Scotian stands to benefit in the foreseeable future while instability temporarily lends them the upper hand. On the systemic level, however, changes appear minimal for the major exporting sectors of Nova Scotia.

Despite the clear positive aspects of USMCA, the manner in which it was negotiated and portrayed has been flawed. Primarily, this was through the campaign promises of Donald Trump to renegotiate a “better deal” for the United States, a premise that is empirically flawed through the economic benefits that the US has reaped from the agreement. Additionally, the new document is not such a far cry from the original NAFTA treaty, and new provisions do not, at first glance, have the potential to radically redistribute income in anyone’s favor. The obtuse process instigated by the United States also undermines the complexly intertwined diplomatic relations with Canada and will likely accelerate Canada’s intention to diversify its trading partners. The Trans-Pacific Partnership is one example, and a bilateral trade deal with China might also be tempting considering the current uncouth resident of the White House. The blunt superseding of American desires and the refusal to discuss existing Section 232 tariffs on Canadian steel and aluminum (both valuable to the US industrial sector) should dampen future economic cooperation without a reevaluation of Canadian foreign policy objectives and mores.

The United States-Mexico-Canada Agreement is sure to cause hair-pulling and head scratching in the near future as the federal government tries to sell its merits to the Canadian public. Despite minor wins in specific sectors, the quid pro quo remains unchanged going forward, likely to no one’s surprise, despite grandiose promises of change to the South. For now, the future of the Canadian automotive, lumber, dairy, and fishery industries can breathe a sigh of relief as dispute arbitration is retained and the US has tied itself in a web of tariffs with an intractable economic adversary. Despite the dairy lobby’s attempt to cry foul of the expansion of import quotas, the real damage will be seen in the years to come as Canada’s foreign economic engagements pay dividends while its biggest trading partner squanders a mutually beneficial relationship.

 

 

 

Growing Nova Scotia’s Tech Startups: Lessons from Estonia

By Ainslie Pierrynowski (AIMS On Campus Student Fellow) 

“I’ve got a lot of friends back in Toronto and Waterloo and every time I go back it’s like, what the heck is going on up there in Sydney?”

These words were spoken by Nova Scotia-based entrepreneur Brian Best, while discussing Cape Breton’s emergent technology sector. Indeed, on Cape Breton Island and elsewhere in the province, a growing number of fledging technology businesses are attracting buzz, customers, and investments. From a company working to preserve the history of the Sydney Steel Plant to a Halifax firm enabling Internet users to collaborate with each other in real time, Nova Scotia has become host to a diverse array of new technology startups.

 

To provide some context, a startup means a small, recently founded business. startups generally seek to meet a particular marketplace need through a product, service, platform, or process. To grow their business, startups often rely on venture capital (VC). This term refers to investments from established firms or funds to a startup which they deem to have high potential for growth. As AIMS On-Campus fellow Samuel Hammond noted, a series of financial reforms helped to expand VC in Nova Scotia–and lay the foundations for a growing startup sector. In 1993, the provincial government introduced a tax credit for those who invest in small and medium-sized enterprises. The years 1994-1995 saw the creation of Innovacorp, a crown corporation tasked with investing in promising Nova Scotia startups. Later years brought a privately-managed $30 million Atlantic Investment Fund (AIF), intended to fuel investment in Atlantic Canada’s startups.

 

In addition to this recent expansion of VC, technology-oriented business incubators, including Cove Ocean and Volta, have aided the province’s prospective entrepreneurs in sharing their knowledge, networking with investors, and refining their technological skills. The resultant rise of technology startups has been heralded as a much-needed path to economic growth and diversification. For all the technology sector’s successes, however, unemployment, seasonality, and outmigration remain pressing concerns in Nova Scotia. As well, the closure of Sydney’s Uhma Institute of Technology, a training program for technology entrepreneurs, suggests that Nova Scotia’s technology startups are not immune from setbacks. While local journalists and policymakers seem largely optimistic about the province’s technology startups, some commentators are grappling with how to sustain and expand the industry in the long term. If Nova Scotia is searching a model for how to grow the number of startups and render existing technology startups larger and more profitable, the province should turn to Estonia.

 

In terms of population size, GDP per capita, and government budget, Estonia seems comparable to Nova Scotia. Estonia’s technology start-up field, however, represents a vastly different landscape from that of Nova Scotia. The relatively small state on the Baltic coast ranks third in Europe for the number of startups per capita. Technopol, a business hub in the Estonian capital of Tallinn, hosts more than 150 startups. Estonia is home to numerous, internationally successful technology startups, including Skype, software firm Teleport, and Skeleton Technologies. In fact, the technology sector accounts for 15% of Estonia’s GDP.

 

Estonia is a leader in e-government. Voting, maintaining official health records, and paying for parking all take place online. Filing an online tax return online, like 95% of the Estonian population, takes only five minutes. The process of building this vast online infrastructure could offer insight to Nova Scotia, in terms of how the province could make accessing government services and filing reports faster and easier for technology startups.

 

After achieving independence from the USSR in 1991, less than half the population of Estonia had a telephone line. Therefore, Estonia embarked on nationwide project to equip classrooms across the nation with computers. By 1998, all schools were online. Starting in 2000, when Tallinn declared internet access a human right, Estonia’s government helped to spread free, quick wi-fi throughout the country.

 

Estonia’s online government services notably reject legacy thinking, or in other words the needless replication of the formats used in the old, paper-based system in the new, online format. For instance, rather than simply reproduce a paper-based tax filing process, Estonia’s tax forms take advantage of the online medium. They are pre-filled, so the tax paper only needs to verify the calculations rather than re-enter tedious information. As this piece from AIMS concludes, Estonia makes government services simple as possible.

 

This technological boom was facilitated by Estonia’s tech-savvy, goal-driven political leadership. With government officials and business organizations that appear to recognize the importance of technology education and competing in the global marketplace, Nova Scotia would do well to follow Estonia’s lead. As well, the country’s imitable simplified, competitive tax system has proved appealing to technology start-ups.

 

In the words of Estonian tech entrepreneur Taavet Hinrikus, “In the 80s every boy in high-school wanted to be a rock star…Now everybody in high-school wants to be an entrepreneur.” There is hope that Nova Scotia and its growing technology start-up sector can foster a similar culture of technological entrepreneurship.