Jonathan Kalles:
These are things that we're trying to remove between the provinces, and the federal government is doing its part. But I will throw this out right now, the majority of these barriers remain between provinces and they're not at the federal level, so there's still a lot of red tape to be cut.
Anne-Marie Henson:
Hello, and welcome to Accounting for the Future. I'm your host, Anne-Marie Henson, and today we're going to talk about a big change for Canadian businesses. The federal government is removing all remaining exceptions from the Canadian Free Trade Agreement, so the CFTA, which started in 2017. And there have been 53 federal exceptions, and now they're all being taken off the table, which could open up opportunities and challenges for businesses across the country.
To help us understand what this means in practical terms, I'm joined by Jonathan Kalles. Many of you might know him as Jono, he's worked really closely with government as the Quebec Advisor to the Prime Minister Justin Trudeau, and has also advised three federal ministers. You may have seen him on CBC's Power in Politics, or heard his analysis on CTV News and CJD Radio. Jono, welcome to the show.
Jonathan Kalles:
Thanks for having me, excited to chat.
Anne-Marie Henson:
Me too, really excited to talk about this topic. I think just to start by setting the stage, timing is really important, and we've all seen very rapid, frequent changes in politics and policies over the past several months. So, perhaps important to note that we're recording this in about the middle of July, and there are a lot of things that have happened in the past several weeks, both with regards to our neighbors to the south and a few policies that our Prime Minister Carney has put forward.
So, let's just talk about something simple, basic interprovincial trade barriers. I've been in business for 20 years now in Canada, in Montreal specifically, and this is, I'll be very honest, not a topic that I heard come up often until last year in about towards the middle or end of 2024, and now it's all we're hearing about. So, let's start with that, Jono. Interprovincial trade barriers, what does this mean and how did we get here today?
Jonathan Kalles:
Thanks for having me. The timing is obviously a key factor in this. Interprovincial barriers in Canada have existed for forever. There are different types, it's different regulations for different industries and different sectors. Each province has different rules for how they deal with labor, how they deal with accreditation. There are all kinds of different things that each province deals with differently. And then there's the federal jurisdiction on a lot of these things, so you have an overlap there as well, creates barriers that some estimates say is probably worth $200 billion in the economy. That this kind of extra barriers to trade slows things down, makes it more difficult. And why are we talking about it now? Well, these are in a sense, some of them are tariffs, some of them are just red tape, but we are in a new reality where tariffs, red tape, and trade in general are being reassessed. We're thinking about them differently, and obviously the biggest reason is Donald Trump.
Donald Trump's impact on Canada, whether it's in the last couple of days, he's announced now from 25 to 35% tariffs. We're not sure on what it applies. That will come into force on August 1st. But in the meantime, Canada and the US are negotiating maybe to put an end to tariffs. We don't know where this is going to go, but Donald Trump's had an impact on our own politics. It's pretty safe to say that Mark Carney getting elected Prime Minister at the end of April, that happened because of Donald Trump. And seven, eight months ago, no one would've predicted a liberal government, so we're in this new reality where Canadians, guests felt, hoped that Mark Carney would be the person who could best handle this situation.
One of the things that he talked about in the election campaign during the spring was, how do we deal with these tariffs that are going to have a pretty negative impact on our economy? And one of them was to reduce the intraprovincial tariff barriers, those things that make it more difficult to trade amongst ourselves. He basically said very honestly, "I can't control what Donald Trump's going to do, so I'm going to see what I can do to at least make things smoother within Canada." And there are opportunities to just really allow the economy to grow more without dealing with the external factors.
Anne-Marie Henson:
That's really interesting, thanks so much for putting that into context. And I think to your point, there's been so many changes even over the past couple of days, it's hard to keep track of. But it does help us understand why this has become such an important issue for us, and definitely important for companies to understand what impact this might have on their business and what opportunities, what doors it might open for them to be able to trade more easily with other provinces. So, we've heard a little bit about Bill C-5, which includes these provisions about removing interprovincial trade barriers. So, could you tell us a little bit about what this bill is? At a very high level, what this bill means for companies.
Jonathan Kalles:
Again, we have a bunch of different regulations within provinces about trade between provinces, and then a bunch of regulations federally that again, make things more expensive, more complicated to do trade amongst all the provinces and across the country. So, the Prime Minister, when he got elected really made this one of his top priorities, C-5 being the fifth bill presented. The first one doesn't count, so really, the fourth bill, but the first one passed by the government, and it really contained two essential components.
One is, and we'll be discussing it throughout this session, is on interprovincial trade barriers. The other one is on speeding up approval processes, trying to build major national interest projects, trying to speed them up, trying to remove a lot of the red tape, trying to make the economy sort of unleash it. Because as I think everybody can say, there is just too much red tape, there is too much regulation in Canada. And the goal of this is to unleash a lot of our natural resources, projects that go really across the country. People talk a lot about pipelines, but this is also critical minerals, it'll be electricity, all kinds of things. There has been a whole lot of discussion about that, fair amount of controversy, but the interprovincial trade barriers, that again, was something that the Prime Minister talked about during the campaign and was able to get this pushed through very quickly. So, it's a bill that really pushes to speed up processes.
The process for this bill was sped up and really, it passed in a couple of weeks. And it is now the law of the land as of July 1st, which was the promise, the Prime Minister he said during the campaign, all these barriers would be gone by July 1st. So, here we are. I'll give you a quick sneak peek. Not everything is done, not everything is gone, not all of these measures come into effect immediately, but it is a really, really important first step.
Anne-Marie Henson:
Well, that's great to know, and it definitely was something that seemed to be an important promise for Mark Carney to be able to keep. Understanding that there might be things that are going to take a little bit more time to iron out and understand. I know you mentioned you're not necessarily a policy expert, nor do I want you to recite all of the provisions in Bill C-5, but if I were to ask you, especially when we're talking about interprovincial trade barriers and removing those, what would be the most important provisions of that bill? What exactly can the federal government do with regards to removing these barriers, which presumably have been put in place by provinces?
Jonathan Kalles:
So, you talked about off the top, 53 different regulations that would be removed or sort of exceptions to the Canadian Free Trade Agreement from 2017. Now, these were exceptions that were allowed to stay. What happened in 2017 is, okay, let's try to improve trade amongst provinces, let's aim to have free trade across Canada. But provinces still insisted on some exceptions, and so those were the 53. Those will be removed. Now, that's what the federal government is offering in this.
These are, they could require, I'll give an example, federal inspections of agricultural products when they cross a provincial border. Now, what they're saying is if those products are being inspected provincially, that's going to be enough. You don't have to duplicate the process. So, that's not necessarily a tariff, but that is a barrier. There's additional cost, there's additional time, it's trying to speed up the process. Another example, you could require a commercial vehicle to get a second inspection when across the border between British Columbia and Alberta. That will be gone. So, these are things that we're trying to remove between the provinces and the federal government is doing its part. But I will throw this out right now, the majority of these barriers remain between provinces and they're not at the federal level. So, there's still a lot of red tape to be cut.
Anne-Marie Henson:
I see, and that actually segues perfectly into my next question. It sounds like when you were giving some really great concrete examples of a few of these exceptions or these barriers that were put in place by the federal government, that added regulation, resource, time constraints to be able to do business across provinces. That a lot of those barriers, a lot of those regulations exist amongst the provinces themselves. So, beyond the federal government's efforts to reduce these barriers, what roles do our provinces and our territories play in being able to reduce themselves the barriers that are put in place? Especially that's it, given that they are the ones that have created many of these in their own provincial governments.
Jonathan Kalles:
That's right, and again, let's think about why these exist. When you live in a world of either free trade or a more tariffed type of trade, and that could be international amongst countries, but it's true within Canada as well. It's trying to balance out, how do you protect your local economy, your local workers, how to incentivize buying local, while at the same time opening up markets and having in a sense more people to trade with, more people to sell to? So that's always been the balance.
The federal government was always trying to, well, ideally they say they were trying to help, but they sometimes got in the, they were trying to make things a little bit more consistent, but often that created additional requirements. By taking out their own requirements, at least what they're saying is if the provinces, any province, has a comparable regulation, a requirement for any goods or services, then they can go with the provincial one and that way not duplicate, as I mentioned before. And that would be for any federal regulators, for licensing requirements, for laborers. And I would say in particular, you're going to see, of those 53, a big chunk of those are on procurement rules, and the idea was to help provinces give an equal opportunity on federal procurements. But when it comes to provinces, that's where you see a bit more digging in, where provinces are trying to protect their own industries or their way of doing things.
So, take a few examples. I think the examples are going to make it more easy to understand. The supply management system for dairy products in large part in Quebec, it's the biggest province that has it. There's a reason for it, and there's a reason why Quebec wouldn't want that removed. You also have in Quebec, use those two examples, Quebec has language requirements for labeling, for all kinds of things. They're not willing to give that up, they never have, but just because we're saying we're going to remove all these barriers, they're not going to remove the language barriers. You have issues where credit unions have complained that this new law is still not going to break down the barriers to their expansion between different provinces because each province is going to have different rules on how those credit unions can operate within the provinces.
And I think one of the most difficult and challenging areas or sectors is the interprovincial trucking regulations. Each province has trucking regulations, and the feds have trucking regulations. So if the feds have said okay, we're going to take off hours and we'll let the provinces where they have comparable regulations, that's enough. But what if each province has a different regulation for trucking? That is still the most popular way of shipping goods across the country. If you have different regulations, if you can harmonize them, you can create labor mobility, you can make it just easier for transportation in general. Those are things that still stick out, and it's something that the feds can't impose without cooperation with provinces and amongst provinces.
Anne-Marie Henson:
Wow. Okay, thank you so much for those examples. I think for me, it's really, really helpful to understand, and even for our listeners to be able to think about their own companies or the companies that they advise, and start looking at where the impacts might be. So, I was going to ask you about specific industries that stand to either benefit or face risks or significant challenges. You talked about trucking, agriculture, being major ones. Are there any others that come to mind that you think might be most impacted, whether in a good way or a potentially negative or more risky way?
Jonathan Kalles:
One of the sectors that actually has been discussed a fair amount and has come up is alcohol, if alcohol is a sector. It's I guess a subset in agriculture, but it's alcohol sales, and that's where there have been probably amongst the most complicated set of variables and of regulations about sales between provinces and across provinces. It has been up until now, technically illegal to actually transport alcohol between provinces. Now, it's not really enforced, but when it comes to sale, you cannot go online and order something in Quebec from the LCBO. They won't deliver it, it's just not allowed, vice versa amongst all provinces. That has been really a complicated sector. They have not solved that, but they're working to a pilot project for direct-to-consumer sales across the country. Nine provinces and one territory have signed onto an agreement that will allow for that by next spring. So there's still a lot to work out.
Also, remember, taxes and how that works with alcohol. The age is different amongst different provinces, the minimum age for alcohol consumption in purchase. So, those things need to be harmonized because if you have different rules, and it's really good example, is just simply the age to be able to buy alcohol is different between provinces. Then how do you have one uniform rule about how you purchase it online? So, except for Newfoundland and Labrador, all the provinces, plus Yukon, the plan is by next spring this will come into an extension into effect, and May 2026. There still needs to be a lot to be finalized, it's a pilot project. And we'll see what happens, but I think this is a good example of where what should be pretty simple becomes very complicated. And as you and I discussed offline, it's interesting that when you go into a liquor store in Quebec, you will find more French wines and Italian wines and European wines in general, than you will find other Canadian wines, and that's because of the complication in terms of selling alcohol across the country.
Anne-Marie Henson:
Yeah, that's a really great example. And we also discussed for a lot of clients that I've worked with and companies that I speak to, they often talk about the fact that it's easier to export north-south than it has been to export east-west or west-east. So hopefully, taking the first step with the federal government provides an example that the provinces will be willing to follow. And it's great to see alcohol, although perhaps important for consumers, isn't necessarily our most important industry in Canada, but can set an example to show when provinces are willing to come together, it can only be good for consumers at the end of the day, and it'll help sales because you have access to a larger market. So, it's great to hear that these conversations are starting.
Jonathan Kalles:
As they say, necessity is the mother of all invention. Again, we can thank Donald Trump, although it will put a big damper on our economy in general, all of the tariffs that he's imposed. It has forced us to reckon with some of our own barriers that we could be getting rid of and making life easier and actually more prosperous within Canada. So, I guess we'll take the small victories.
Anne-Marie Henson:
Absolutely. It does sometimes take a crisis to look inwards and try to fix things you said you were going to fix a while ago, so. I'd love to hear your thoughts about something. So I have read up on Bill C-5, and what I've seen, it hasn't been without controversy. There seems to be some opposition to the bill. And so knowing that, I'd like to hear about what sort of risks or uncertainties you foresee. As you said, the bill is in effect, it's been approved, but it's not necessarily all going to be applicable as of next week. So, what can businesses do to make sure that they're aware of what's happening and navigate some of these uncertainties, especially if you consider constitutional challenges or things like that in the future?
Jonathan Kalles:
Sure. So, C-5 was getting a lot of attention over the last month or so, as it was being debated and then finally passed. There were really two core parts of it, as I mentioned before. One on the internal barriers, and the other one on these major projects of national interest, and that's where the real controversy lay. With those projects of natural interest, if a priority is given by the federal government, encouraged by provinces to prioritize these projects, it could be a pipeline, it could be critical minerals, it could be a port, it could be infrastructure for roads to the Ring of Fire in Ontario. If those projects are given priority, what it'll mean is, is that the idea they would have to be given approvals within two years. The goal is to speed up the processes. It's not to ignore other considerations that are required, like the two most important environmental assessments and indigenous consultations.
But the goal is to try to allow for those consultations to be done quickly so that investors, business, they know that with some certainty that they'll get an answer quickly, and that's where they want to focus their investment. And that has not been the case historically, as we've seen with major projects in Canada, they take a long time. So, that's where a lot of the controversy has been. Are we ignoring environmental assessments? Will we be ignoring those consultations with indigenous peoples? It remains to be seen. We're going to see meetings next week that the Prime Minister will have with major indigenous leaders. Its First Nations will be next week, and then with Inuit and Métis later in the month. So, you're going to try to see if there's a way to move past that.
But when it came to the interprovincial barriers, what's really interesting is the Conservatives supported this bill. So you had the Liberals and the Conservatives who have been loggerheads for years and it's been a really, really nasty time the last few years. The Conservatives actually supported the Liberals on this bill, but you had opposition from the Bloc Québécois and from the NDP, not enough to stop it from passing, but they were opposed. And what the Bloc said out loud was, "If you pull out the interprovincial barrier component of it, we'll vote in favor, because everyone agrees that we need to remove a lot of these barriers. This is in everybody's interest." They were more concerned by the project's national interest component of C-5. So, you have a pretty large consensus that this is really needed and is going to be really helpful.
Where companies should be looking going forward. So now that we've passed this bill and July 1st came and went, again, like I said, not everything is, there's no more barriers, everything is fine. Since most of these barriers are provincial, I'll take Quebec for an example where I am right now. They tabled a in the spring to remove a lot of those barriers and to cooperate with other provinces on a whole bunch of reforms. But that bill hasn't passed yet. I suspect it'll pass pretty quickly in the fall, but it remains to be seen. Other provinces have done the same, and I would suspect that almost all provinces by the end of the year will have some law that comes into effect that modernizes and removes most of these barriers. Okay? But that means that between now and when those bills pass, companies, stakeholders, businesses, organizations, they can work with their provinces to say, here's where there's a problem. If you feel that the provinces are going too far and not protecting core interests of the provinces, the opportunity is there over the next few months to really make your case.
There's a lot that's going on. Last week you had a meeting with Minister Freeland, who's responsible for internal trade federally. She met with her counterparts across Canada, and they came out with basically they removed 30% of remaining PSEs from the Canadian Free Trade Agreement, so they confirmed that at the provincial side. You are seeing that by the end of this year, by December, they will remove, sorry, they'll advance mutual recognition for goods except for food, making it easier to sell, buy, across the country. They concluded a financial services deal in principle. Again, they're working on it and hope to have it come into force by the fall. Again, opportunity to influence that as it heads towards the finish line, but it's not there yet. We talked about trucking. They're working towards expanding a mutual recognition project. There's a pilot project in place. They'll be meeting next week, actors, stakeholders from across the country.
So, these things are really now happening, discussions, consultations. That's an opportunity for people to have their voices heard, work with their ministers, their local MPs, MNAs, make sure if they have concerns, either they don't want something included, they don't want something forgotten, they want to make sure that the nuance between one province and another is taken into account. Now is the time where really, people are listening. They want this to work. Ultimately, they want success, they want this to be a win-win. So stakeholders, I would say are being listened to. And alcohol, we mentioned it before, is a good example. They really sat down and had these discussions. Again, remains to be ironed out, it's not coming into effect immediately. We're talking about next spring, but they're moving forward and they're doing that in a bunch of other sectors as well.
Anne-Marie Henson:
So Jono, what advice would you give? A lot of our listeners and our viewers are in the finance function, so they could be CFOs. What could you provide to them if they want to best position their organization in light of all these changes?
Jonathan Kalles:
So, I mean, we're doing a lot of that in my firm at McMillan Vantage, as a public affairs firm, doing GR, we're working with our clients to strategize where to do the outreach. Again, we've said at the provincial level, which is where there's a lot of work that's left to be done. At the federal level as well, and as I said right off the top, this isn't a snap your fingers, it's come into effect. We have to wait and see what the regulations are to this bill at C-5. So there's still work to be done at that level, and that means engaging with ministers offices, finance ministers, ministers of economy, whoever is in each province is probably a little different, but whoever is managing the file of internal trade. I would say that five, 10 years ago that didn't exist as sort of a position in different governments, but clearly, to show the priority that's been given, there are ministers in each province, in each territory, and certainly federally that either have that in their job title or at least have that as part of their responsibilities.
It could also mean working with the local member of Parliament or the local member of the legislature where your office is located or your head office or where you have the most employees because, these are the people who are going to be impacted the most. And so, that's where you're going to have leverage when you go talk to elected officials, senior officials in departments. It's making the case of why something makes a lot of sense or why there should be a little bit of a tweak or why a little nuance is required, why something should be included, why it should not and where. There needs to be again, certain exceptions or exclusions. I don't think anybody is going to be eager to have tons of them, but like I said, when it came to Quebec, Quebec's not doing away with its language laws. So, clearly each province is still going to keep some. The point here is to minimize them.
And I would say when you're engaging either with your internal experts on government relations, with your consultants that do your GR, your goal here is to make this a win-win, where both the federal government and the provincial government you're engaging with, see that you're trying to work to improve the situation, that you're coming with solutions, not just don't do this, don't do that. A more positive approach is going to be more well received, and that would be my sort of overall strategy. You're trying to be a constructive partner, and you're not trying to be a naysayer. That's generally, I wouldn't say always guaranteed success, but you're less likely to have success if you simply say no without coming up with an alternative or why something is really egregious and that secondary effects sometimes aren't taken into consideration.
You will find, and I think people who work in the business world who don't engage regularly with government, know that government doesn't always understand how business works, how the business world works. And so it helps to explain to them what those sort of secondary consequences may be. I think really, that's the goal, is to try to come with solutions. And like I said, this is the opportune moment. Right now, this is when they're working on coming up with the solutions, implementing them, and they need guidance in terms of how this will I impact day-to-day operations of companies across the country.
Anne-Marie Henson:
Thanks for that, Jono. Really helpful advice for companies looking to stay ahead of things. And maybe just one last question for you. There's so much going on and so many changes happening as we've spoken about. Where can I go or where can our listeners go to read up on what is going on and really just stay up to date?
Jonathan Kalles:
I think that things are changing at warp speed. I've never seen anything like it. By March of this year I had said it's been a very, very long year, but now that we're in July, I guess I was hoping for a bit of a slowdown. I should have realized with Donald Trump that that's just not likely.
I would say just generally keep an eye on news and have news alerts, because never before in my mind has politics intersected with business so obviously. We live in stable democracies, we're used to things. The economy has its ups and downs but we're not dependent on who's in government. Yeah, they change policies, but it doesn't impact us in the same day-to-day perspective. Now it is, certainly Donald Trump and tariffs are just impossible to ignore. They're impacting everyone either directly or indirectly, but really, all of us are dealing with it. I think over the next, well, weeks, we saw that Donald Trump announced these 35% tariffs that will come into effect apparently on August 1st, which is now the new deadline for a deal between Canada and the US. So I think that that's what we have to keep an eye on over the next three weeks is, do we get to a deal? Do we get to reduction of certain tariffs, or do things get worse? And what can we do internally in Canada to improve the situation?
And I think the other thing to focus on is pivoting towards other markets. I think everybody is realizing that we can't be as dependent on the US, especially for exports, but that's not easy to just turn a light switch on and off and we pivot to different markets, but that's where we need to be looking. You're going to see a lot more outreach between the Canadian government and governments across Europe in particular, but probably across Asia as well. These are things that I would be focused on, especially from a trade perspective and how it trickles down to business here.
But yeah, keep an eye on Donald Trump because I guess that's where I've gotten out of the business very quickly trying to predict what he's going to do, because I'm not sure he can predict what he's going to do. So, we're a little dependent on that and reactive to it but the next few weeks I think will be very telling in terms of where we go the rest of the year.
Anne-Marie Henson:
Yeah, absolutely. No, and thank you so much for that. You're absolutely right in saying it's been really difficult to predict anything. So at least just reading up on what's happening and trying to explore different options and doing scenario planning, I think for business leaders is key today.
Jono, thank you so much for sharing all of your insights with us today. I'm confident that our listeners gained a lot from this conversation and I'm looking forward to maybe having another one in a year to see how things progressed with this bill. If you enjoyed episode, please take a moment to leave us a rating and review. It really helps us reach more people and bring you even better content. And don't forget to hit follow or subscribe so you never miss an episode. A big thank you to all of our listeners for tuning into BDO's Accounting for the Future. I'm Anne-Marie Henson, and we can't wait to have you join again next time. Thank you.