02/27/2013 12:51 EST | Updated 04/29/2013 05:12 EDT

Why Free Trade Within Canada Is an Illusion

Free trade within Canada remains an illusion. In its report, "Top 10 Barriers to Competitiveness", the Canadian Chamber of Commerce estimates that obstacles to internal trade cost the economy at least $14-billion a year. Right on cue, this report was ignored, joining a long and distinguished list of excellent studies that gather dust.

Getty Images
NORFOLK, VA - FEBRUARY 21: In this handout provided by the U.S. Navy, tug boats assist the Nimitz-class aircraft carrier USS Dwight D. Eisenhower (CVN 69) as it pulls away from the pier February 21, 2013 at Naval Station Norfolk in Norfolk, Virginia. Dwight D. Eisenhower departs for a deployment to support maritime security operation and theater security cooperation efforts in the U.S. 5th and 6th Fleet areas of responsibility. (Photo by Mass Communication Specialist 2nd Class Ryan D. McLearnon/U.S. Navy via Getty Images)

Free trade within Canada remains an illusion. It doesn't exist. Which makes Ottawa's self-righteous homilies

to the European Union on the evils of trade protectionism an even more unqualified hypocrisy.

In its report, "Top 10 Barriers to Competitiveness", the Canadian Chamber of Commerce estimates that obstacles to internal trade cost the economy at least $14-billion a year. Right on cue, this report was ignored, joining a long and distinguished list of excellent studies that gather dust.

Recurring admonitions usually conclude the same: Our economic union is weak. The collaged system of regulations within Canada structurally impedes our country's productivity and competitiveness. They limit growth, innovation and asphyxiate investment. The inattention of federal and provincial parliamentarians costs us tens of billions annually.

Integration within domestic markets is a precondition to being a competitive player in the world economy. Canada's economic health is not only at issue; the very unity of the nation itself depends on a closer and stronger open market within Canada.

The free mobility of goods, services, labour, capital, and technology is central. To do that, Ottawa must lead the drive to coordinate and harmonize policy instruments. By its very nature, federalism can enhance Canada's ability to manage a complex economy. It can also provide an effective way of securing the benefits of economic integration while responding to local needs and aspirations.

We're lucky. The federation has the institutional tools to think and act both locally and globally. But we have seldom used them effectively. Petty politics and jurisdictional rivalries have restricted a coherence of action in the national interest.

The genesis of many of the weaknesses of our highly decentralized federation came in the period following 1867. To a large degree it stemmed from judicial rulings in favour of the provinces. The built-in conflict between the federal role, especially in the making of international treaties and trade and commerce, on the one hand, and the provincial role in property and civil matters on the other hand, has simmered for decades.

Canada has not been able to deal with a wide range of internal market barriers that prevent the economic union from functioning effectively. These barriers include:

- Barriers to goods and services, including discriminatory government procurement, agricultural marketing boards, product standards and regulatory barriers;

- Barriers to labour mobility, including discriminatory hiring, licensing, and accreditation, incomplete portability of pensions, varying labour standards, varying education standards and residence requirements for access to welfare and other public services;

- Barriers to capital mobility, including discriminatory limits on ownership of land, federal, and provincial influence on investment decisions, tax incentives and other locational incentives.

A critical role for Ottawa is to ensure that the domestic marketplace is conducive to innovation and investment, through for example, modern market framework laws. Government can also provide the support for economic activity through modern physical infrastructure such as pipelines, electricity grids, transportation, communications, and financial services. Improved performance for the Canadian economy over the longer term will also require sustained improvements in productivity and the transfer of economic resources into the production of higher value goods and services which are able to compete successfully in the domestic and international markets.

The quality of the labour force is a key determinant to our international competitiveness. There are no minimum standards of education achievement in the basic skill areas that are relevant to the labour market. Wide variations in achievement levels among provinces adversely affect labour mobility. Skill standards also vary and certifications are a deliberate barrier and parochial regional protectionism. This comes at a time of looming skills shortages that could put a break on the economy.

The provinces have generally given lip service to these questions and Ottawa has been AWOL on them for years. Yet, there's nothing more important to our cohesion as a nation and our standard a living than dealing with these structural impediments to our future unity and prosperity. This isn't an area where the market can solve the problem. This requires political leadership.

Chamber president and former Mulroney cabinet minister, Perrin Beatty, told me this week: "At the end of the day, it's all about political will. Only when politicians start putting the broader public interest first will we see change."

Photo gallery World's Most Competitive Economies See Gallery