New Duty-free limit increases cross-border shopping?

April 10th, 2012 by Comment button No Comments »

Cross Border Shopping Duty-free

As CTV News reported last week, there are going to be some big changes in the world of cross-border shopping. The 2012 Federal Budget, released by Finance Minister Jim Flaherty on March 29, proposes increases to the dollar limit of goods cross-border shoppers can bring into Canada. If everything goes according to plan, these increases will take effect on June 1st.

So what’s changing? After a 24-hour trip, the current $50 duty-free limit will become $200. After a 48-hour trip, the limit will be $800, double the current rate. There is no current change to the no-exemption policy on same-day trips.

The increase is great for cross-border spenders, but on the other hand, retailers aren’t feeling so great.

“It isn’t good news for retailers on the border,” said Sally Ritchie, vice-president of Communications and Marketing at Retail Council of Canada. “It’s in fact, very bad news.”

Ritchie said they weren’t surprised at the increase proposal because they had observed President Obama’s and Prime Minister Harper’s talks about harmonization across the border. However, this change is not what they wanted to hear.


“We were hoping that this would be done in conjunction with an announcement about the reduction of tariffs, so that our retailers would still be able to compete [with U.S. retailers],” said Ritchie. “As it stands right now, they are unable to compete. The playing field is not level.”

Ritchie explains how to fix the problem. “The solution is to remove those tariffs, to remove that burden. The tariffs were put in place many years ago to protect Canadian manufacturing. At that stage, it made sense. It no longer makes sense,” she said. “The Americans recognized this a long time ago and removed their tariffs. The Canadian government should be following suit.”

She explains Canadian manufacturers no longer really require those same tariffs because they are not producing goods at the same rate as when they were put in place.

“We are going to be appearing before the Finance Committee that is looking into the price disparity between U.S. and Canadian goods,” said Ritchie. She expects this to be scheduled within the next month.

“We hope that the Canadian government sees fit to remove those tariffs to protect Canadian retailers,” she said.

Ritchie emphasizes this is a legislative issue, not an issue with consumers.

“Our problem is not with shoppers, our problem is with the tariffs that make it impossible for retailers to compete,” she says.

According to Ritchie, retailers aren’t happy about the limit changes.

“We’re hearing from members in border communities who are really upset. They’re struggling as it is, and this is just going to make it more difficult for them.”

The best possible situation for cross-border shopping, Ritchie says, is for the tariffs to be removed and for Canadian retailers to be able to offer competitive prices.

“They’re not asking for an advantage, they’re asking to be able to compete on a level playing field.”

Ritchie pointed out other disadvantages to the exemption changes. One, the Canadian government loses money when consumers spend their dollars across the border. Two, people who buy electronics in the U.S. may not have their warranties covered in Canada.

Ritchie pointed another factor that people may be unaware of.

“Consumers need to recognize that retailers are at the mercy of many other people when setting prices, and in some cases have absolutely no choice,” she said. This is in the case of popular cross-border purchases like chicken, butter and milk, where Canadian market boards set the prices for those products.

“Retailing is a complex game and it’s not surprising that the Canadian consumer wouldn’t understand everything – we understand that it’s complex. We’re just trying to ensure that they have the benefit of knowing the facts.”

Stephen Fine, Founder and Director of Business Development at Crossbordershopping.ca, sees this change in a better light.

“I think this was a positive step in the right direction. There really haven’t been any changes in the exemptions for quite a while.”

He notes, however, that something was missing from the proposal.

“What really would have helped them [cross-border shoppers] would have been the creation of a same-day exemption. And in the U.S., they’re entitled to a same-day exemption of $200 when they come across the border.”

He notes that the majority of Canadian trips to the U.S. are same-day car trips.

Fine said this will lead to an increase in cross-border shopping, but he doesn’t see it as detrimental to Canadian retailers. He recognizes that they will be affected, but in the grand scheme of things, he thinks the amount of cross-border shopping is relatively small.

“Yes, it does hurt some retailers, but more so in the border towns, and even then, I don’t know that this will really make a change. People who are gonna shop across the border will still continue to shop. I don’t think that there will be that much of an increase and a rush.”

Fine hopes this will lead to more competitive pricing in Canada.

“Consumers are savvy. They know where to go. They do their homework,” he said. “If items weren’t less expensive in the United States, they wouldn’t go.”

Fine said this change will also enable Canadian Border Services Agents to focus more on national security.

“Right now, they spend so much of their time checking cars for people who are over their limit and collecting taxes, when really they shouldn’t be spending most of their time doing that,” he said.

Fine provided some 2010 statistics. Statistics from 2011 were not yet available.

In 2010,

  • Canadians made more than 24 million same-day car trips to the U.S.
  • Canadians spent more than $5.5 billion in U.S. states bordering Canada.

For more information on cross-border shopping, read this CBC article.

By Sarah Munn

[Image: Flickr user richmondsquarephotos]

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