Canadian shoppers will have more freedom to take advantage of lower prices across the border, as Ottawa quadruples the limit on how much they can buy on a one-day U.S. trip without having to pay duties or taxes.
Thursday’s budget raises the limit to $200 from $50 for residents who been out of the country for 24 hours. The exemptions for longer trips are going up as well – doubling to $800 for those who have been away for 48 hours. Retailers anticipate a surge in cross-border shopping starting in June, when new rules are slated to take effect, a move they say will squeeze them hard unless the government also drops import taxes imposed on merchants.
“Our reaction is one of concern for retailers located close to the U.S. border,” said Diane Brisebois, president of the Retail Council of Canada. “It will put some retailers in Canada out of business. It’s serious enough.”
The issue of cross-border shopping has been a flash point for Canadians and for the Harper government as the loonie has remained close to parity for most of the past two years, prompting budget-conscious consumers to flee to the U.S. to find better deals. Finance Minister Jim Flaherty has been critical of retailers for charging consumers as much as 20 per cent or more for the same product in the U.S.
Last year, he asked a Senate committee to study the pricing disparities and is now awaiting its report.
Still, government officials said the higher exemption limits have nothing to do with resolving price disparities or forcing Canadian retailers to cut prices, but are aimed at putting them at the same levels as those in the United States.
Even so, the provisions are a green light to cross-border shoppers who already spend billions of dollars in the U.S. annually, retailers said.
“It’s going to have an impact,” said David Russell, co-owner of sporting goods and fashion chain Sporting Life. “People will spend more in the U.S. ... That will take some money out of the hands of Canadian retailers.”
He said his hands are tied because he – and other Canadian retailers – are forced to pay up to 18 per cent higher import taxes on goods shipped to Canada from China and other overseas manufacturing centres compared with U.S. retailers.
“The government is tying my hands behind my back – I’m paying higher duties,” said Mr. Russell, who is also chairman of the retail council. “They’ve rendered me less competitive.”
As well, retailers are charged up to 30 per cent more by U.S.-based global suppliers, such as Nike and Reebok, for the same products that they ship to their American counterparts, Ms. Brisebois said.
“Consumers have to understand that retailers are not gouging them,” she said. “There is not a level playing field.”
And items such as chicken, eggs, butter and milk are pricier in Canada than in the U.S. because of marketing boards that control their prices, setting them higher than those south of the border, she said.
She called on the government to address disparities in regulations for retailers. “If we lose money, the government loses money if no one is collecting tax,” she said. “Everyone is affected, directly or indirectly.”
The budget documents note that Canadians take about 30 million overnight trips outside of Canada, often returning with goods purchased abroad. “Modernization of the rules applied to these purchases is long overdue.”
The new rules would represent the most significant increase in the duty- and tax-free travellers’ exemptions in decades, Ottawa said. It estimates the changes would reduce federal revenues by $13-million in the first year and by $17-million in the following year.
But the new measures will also serve to underline price differences on many items, including those purchased from online shopping sites.
U.S. fashion chain J. Crew drew much attention last summer when it launched its first store in Canada with prices that were 15 per cent higher than those in its U.S. outlets, plus fees for e-commerce purchases to cover duties. The chain quickly retreated and dropped the online duty charge.
But prices differences are easy to spot for many items, ranging from cars to household staples.
Mr. Flaherty has challenged businesses to explain their higher prices and asked the Senate national finance committee to study the price gap. “Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border,” Mr. Flaherty wrote to the committee in September. “I share their irritation.”
A recent Statistics Canada report confirmed long-held views among economists about price differences between countries, owing to differing cost dynamics between two markets, including transportation, population density and trade barriers, different domestic market dynamics and industry standards, and even bilingual labelling requirements.