Opinion

Here's why we pay more for everything in Canada — and always will: Neil Macdonald

Raising the de minimis would be a savage disruption. And Canadians aren't big on creative destruction or competition theory.

The Retail Council of Canada wants things to remain as they are, preferably forever

Raising the de minimis would be a savage disruption. And Canadians aren't big on creative destruction or competition theory. (CBC)

Part of being a Canadian – along with telling each other at dinner parties how compassionate and lucky we are – involves gazing at computer screens, morosely taking in the dazzling choice and competition-driven prices in the American consumer marketplace.

In the old, pre-internet days, Canadian consumers didn't realize the extent to which they were being hosed, and the business sector could collude in peace, and the government could collect taxes and protectionist duties to its heart's content without disturbing the bovine quiescence of the consuming public.

Now, though, it's in your face every time you Google a price for something you need: consumer life on the other side of that high border customs wall, the one topped with the Canadian-installed concertina wire and guarded by ferocious uniformed tax collectors, has the unattainable allure of the Tuscan countryside. You can visit it, but you can't live it.

Your own government won't let you. Because Canada.

It's awfully easy to take that view; I just did, didn't I?

It's easy to ask why, if Canada and the U.S. are supposed to be a trading bloc, American consumers can buy from Canada easily and with virtually no government-imposed costs or interference, while our government sees to it that purchasing from an American retailer quickly becomes impossibly expensive for Canadians.

It's easy to ask why our government spends a lot more to collect taxes and duties at the border than it actually collects.

And it's easy to side with the business lobby that's pushing for Canada to unblock the border and raise the threshold under which purchases can be imported exempt from duty and taxes – the so-called de minimis.

The American de minimis is $800 US, which gives American consumers the right to import pretty much whatever they please from anywhere. Canada's de minimis is $20 Cdn, which denies Canadians the right to bring in pretty much anything without big, punishing fees.

There is a ferocious struggle going on in Ottawa right now over the de minimis; American companies regard the Canadian market as ripe, unpicked fruit, and want reciprocal treatment. The issue is on Trump's NAFTA renegotiation agenda. The Americans also have the support of Canadian businesses that import from the U.S., and are sick, as are many of us, of our sclerotic border and the taxes and the duties.

On the other side of the issue is the Retail Council of Canada (RCC), which wants things to remain just the way they are, preferably forever. So far, the RCC has won the day.

Why? Because Canada, basically.

That may sound flip, but it is the simplest possible way of stating reality. Here, in part, is the case made by Canadian retail against pulling down any border walls. I cannot really argue with much of it.

Jobs

This is the big one. According to a study by PricewaterhouseCoopers, commissioned by the RCC, the Canadian retail sector "generates and facilitates" almost 3.4 million jobs.

That many of those jobs exist because of protectionism is beside the point; they are facts on the ground. The report estimates that raising the de minimis to $200 US – just a quarter of the level Trump is demanding – would shift about $70 billion worth of Canadian purchases a year to the U.S., and wipe out 286,000 jobs within three years.

That's about all the government needs to hear.

Economies of scale

Because Canada is a comparatively tiny market, Canadian retailers, according to the study, must pay between 10 and 50 per cent more than U.S. retailers for the same products.

Add to that the fact that manufacturers increasingly insist on setting prices at different levels in Canada, and bully retailers into playing along.

The result, says Price Waterhouse Cooper, is that even with all the expenses Canada imposes on cross-border commerce, even factoring in higher shipping costs Canadians must endure, and parasitic customs brokers' fees, U.S. "e-tailers" still enjoy a price advantage of about 12 per cent over their Canadian competitors. That gap, says the study, would grow to a bankrupting 25 per cent if the de minimis were to be raised.

Taxes

In Canada and in the United States, governments force merchants to work as tax collectors, charging sales tax and remitting it to state treasuries.

But Canada demands a lot more sales tax, and our federal and provincial tax departments co-operate. The combined federal-provincial HST is about 13 per cent, and it's imposed on all incoming shipments.

The Americans, by contrast, have no federal sales tax at all, and the U.S. federal government doesn't collect sales taxes for state governments, and even the states don't collect taxes on most out-of-state shipments.

So, argues the Retail Council of Canada, a higher de minimis would put Canadian retailers at a further  disadvantage of at least 13 per cent.

Yes, it is true that Canadian e-tailers can ship tax- and duty-free to, say, a customer in New York City, whereas brick-and-mortar retailers there must charge both state and city sales tax on purchases made in their stores.

But in the real world, why would anyone in New York City order from a Canadian retailer? (Or, for that matter, why would anyone who has a choice?)

See the earlier bit about economies of scale and price-fixing. Plus, Americans don't like ordering from outside their country. That's sort of understandable. They have the best deals in the world right at home.

The study goes on. And on. The main takeaway is clear: raising the de minimis would be terrifically disruptive to the Canadian economy.

So what to do?

Well, that depends on whether you want Canada to remain sealed off from the largest, deepest, richest economy in human history, and how much you're willing to pay for that isolation.

Because the cost is all the foregoing data, flipped around.

The sensible solution is more integration with the U.S. economy – a great deal more. A customs union, and perhaps a currency union, too, and if that means giving up our pretty polymer money, well, fine and dandy. European nations did. And anyway, physical cash is being replaced by digital money.  I'm even fine with using the U.S. dollar; yes, yes, we would lose control of our monetary policy, but reality forces our central bank to track the Fed's anyway.

Who isn't sick of the yo-yo value of our dollar? Who doesn't want to see our money go further? Who cares if Porky Pig's picture is on a $10 bill if it buys more? Protectionism, so long the Canadian way, leads to complacency and uncompetitive behaviour.

But I suspect that is hardly the majority view.

In the here and now, in Canada as it is, the Retail Council is correct. Raising the de minimis would be a savage disruption. And Canadians aren't big on creative destruction or competition theory.

Which is why the Trudeau government hasn't the faintest intention of raising our de minimis.

The more Canadian solution would be to block consumers here from being able to see all those lower prices on U.S. websites. You know, for our own good.

Some companies, I notice, do that already.

This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.

About the Author

Neil Macdonald

Opinion Columnist

Neil Macdonald is an opinion columnist for CBC News, based in Ottawa. Prior to that he was the CBC's Washington correspondent for 12 years, and before that he spent five years reporting from the Middle East. He also had a previous career in newspapers, and speaks English and French fluently, and some Arabic.

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