How Canada is rewiring its supply chain

While the global supply chain continues to grapple with the latest round of tariff rollouts for products imported into the U.S., markets across Canada are being forced to revisit previous supply chain demands and pivot where possible. Though Canada will not face new tariffs on USMCA-compliant products, many industries are actively seeking new trade partners—not only domestically, but also in European markets.

Much remains uncertain about how long the tariffs will last, as the latest round took effect April 2. One thing, however, is clear: the need to remain fluid as we navigate the latest supply chain storm is here to stay.

One recent solution, as Canadians adapt to the shifting supply chain landscape, is the February removal of more than half of the federal exceptions to the Canadian Free Trade Agreement. The move aims to boost interprovincial trade and counteract the impact of tariffs. According to the federal government, these changes are intended to strengthen the domestic economy and alleviate some of the pressures from the ongoing trade dispute between Canada and the U.S.

In 2023, more than $530 billion worth of goods and services moved across provincial and territorial borders, accounting for nearly 20 per cent of Canada’s GDP.

The Free Trade and Mobility Within Canada Act is the first of its kind in the country. Under the act, goods manufactured in a reciprocating province or territory will be treated the same as locally produced goods. Similarly, service providers and professionals who are properly certified or licensed in a reciprocating province will be recognized as if they were certified locally.

By removing these barriers, companies are expected to save money and labour that would otherwise go toward meeting different interprovincial regulatory standards—such as processing or technical requirements at manufacturing plants—savings that could translate into lower prices. Atlantic provinces, which typically import more goods from Quebec, Alberta and Ontario, are likely to benefit most from these changes.

Other changes include the removal of procurement restrictions, opening the market for government contracts. While this could promote competition, it may also limit the ability of smaller companies to win bids in their local areas. Additionally, loosening regulations could reduce safety or technical standards in some of the stricter provinces.

Removing these barriers also limits the ability of specific provincial governments to build, own and regulate critical infrastructure in the public interest, making it more difficult to construct the publicly owned infrastructure that is desperately needed.

Canadian businesses have long said that the biggest hindrance to interprovincial trade is not regulatory differences, but rather transportation costs and availability. That suggests investment in public infrastructure may be a more effective solution for a reliable east-west trade corridor than reducing regulatory requirements.

On March 19, the Canadian Union of Public Employees (CUPE) raised concerns over the lifting of interprovincial trade barriers. The union argued that such barriers are essential protections for workers and public services, including workplace safety standards, environmental regulations, and the delivery of vital services such as child care and health care. CUPE warned that the mutual recognition approach promoted by advocates of deregulation could pressure provinces with higher standards to lower them in order to compete with jurisdictions that have fewer protections.

Unlike tariffs, which increase the cost of goods, interprovincial trade barriers restrict the sale of goods across borders due to differing regulations, licensing and safety standards. One of the most notable restrictions recently lifted involves alcohol sales. Until the Free Trade and Mobility Within Canada Act came into effect, alcohol could not be freely sold between provinces.

This change comes alongside recent decisions by some provinces to remove U.S. alcohol products from store shelves—an impact that will certainly be noticed. All provinces, except Prince Edward Island and Newfoundland and Labrador, have agreed to remove the obstacles that previously prevented their alcohol from being sold in other jurisdictions. Participating provinces are expected to finalize the arrangement in April.

Restrictions on alcohol movement were initially put in place to protect local jobs when breweries and wineries were primarily Canadian owned. But times have changed. With companies like Labatt and Molson under foreign ownership, the larger players already ship across borders. As the industry consolidates, smaller, domestically run breweries and wineries are being squeezed out.

While the “buy local” movement helped these small producers during the COVID-19 years, open national borders present a new challenge—shipping fees.

The federal government is also pinning hopes on a new trucking pilot program to improve the movement of goods between provinces. Participating provinces and territories will recognize each other’s regulatory requirements, including those for oversized vehicles, to allow trucks to move more efficiently across the country. This initiative—unprecedented in scale—could potentially boost Canada’s economy by $200 billion annually.

Provinces are now working to identify additional exceptions to the Canadian Free Trade Agreement, with the goal of removing as many as possible by June 1.