Canada: The Canadian Free Trade Agreement

On April 7, 2017, federal, territorial and provincial governments jointly released the text of the Canadian Free Trade Agreement (CFTA), which establishes new free trade rules that will apply within Canada effective July 1, 2017.

The CFTA seeks to improve trade, investment, and worker mobility within Canada, by reducing, and in some cases eliminating, existing interprovincial barriers. Regrettably, comprehensive free trade within Canada continues to be elusive 150 years after Confederation. The CFTA provides for numerous exceptions within its 335 pages, thus achieving only a partial removal of obstacles to trade and investment.

CFTA will replace the Agreement on Internal Trade (AIT), which has been in place since 1995. Unlike AIT, CFTA adopts a "negative list" approach such that any remaining barriers have to be specifically expressed in the agreement by the governments. This approach is an improvement over the AIT's "positive list" approach, and will significantly increase the transparency of remaining barriers to interprovincial trade.

Furthermore, one of the main goals of the CFTA is to ensure that Canadian businesses receive the same benefits as do foreign businesses that can rely on Canada's international trade agreements such as CETA.

A 75-page dispute settlement mechanism includes both government-to-government and person-to-government provisions. Monetary penalties for violation of the CFTA will range from $250,000 to $10 million.

The benefit of the CFTA is projected to be significant. Interprovincial trade accounts for roughly 20% of Canada's annual GDP and almost 40% of provincial exports. According to the Bank of Canada [PDF], removing internal trade barriers could add up to 0.20% to Canada's annual output, which is comparable to the expected benefit of CETA.¹

Footnote

1. Agreement on Internal Trade, Highlights of Canada's New Free Trade Agreement [PDF] (April 7 2017).

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