Want cheaper access to American e-commerce? Better tell it to the feds: Neil Macdonald

Canadian lawmakers could raise what's known as the de minimis level and make it dramatically cheaper for their constituents to buy goods online from the U.S. The trouble is, Neil Macdonald writes, the most obvious upside would be for Canadian consumers, and they don't lobby.

Canadian retailers are making their case to keep the expensive status quo

An American-led coalition of retailers is lobbying the Canadian government to make it cheaper for Canadian citizens to shop online for goods from the U.S. (Ralph D. Freso/Reuters)

In Florence, it can be exceedingly difficult to find a taxi.

This is unsurprising, given that Italy allows its taxi drivers to control the number of taxis on the streets of Italian cities.

To them, there's a fixed pie of revenue, and allowing more taxis would merely ensure every driver a smaller slice.

The notion that more taxis might lead to more business, and more employment for taxi drivers, and more convenience for shoppers, and therefore more money being spent in Florence's economy, never enters their heads. They aren't terribly interested in the benefits of competition.

Similarly, Canadian retailers want to make damned sure their privileged access to Canadian consumers remains undisturbed by competition from outside the country. And, like the Italian taxi drivers, they're counting on government to ensure that.

There is a hot fight going on at the moment in Ottawa over Canada's so-called de minimis level – the threshold below which goods can enter the country tax- and duty-free. Since 1985, it has been $20 Cdn, the most restrictive level in the developed world. It might as well be zero.
If a Canadian buys something worth more than $20 Cdn from a U.S. website, a federal customs agent will intercept it, open it, delay it, add federal and provincial sales taxes, and, depending on the origin of the merchandise, perhaps pile on some duty charges. (Andrew Harrer/Bloomberg)

By contrast, the de minimis level in the United States, our largest trading partner and a nation with which we nominally have free trade, is $800 US.

That means an American consumer can order an expensive piece of clothing from Canada, or anywhere else in the world, and expect it to sail unimpeded through U.S. Customs and arrive a few days later, without a cent added to the purchase price.

But for anyone living on this side of the world's longest undefended economic barrier … sorry, border ... the prices on American and other foreign websites are just imaginary.

If a Canadian orders something priced at $100, it's entirely possible the actual cost will be double that or more once taxes, duty, and parasitic customs broker fees are tacked on.

Pros and cons

The Retail Council of Canada, which represents Canadian merchants, is anxious to preserve that state of affairs.

The council actually makes a compelling argument about fairness. Canadian retailers must impose 13 per cent in federal-provincial sales tax on any purchase, so why should businesses based outside Canada have the huge advantage of shipping into Canada tax-free?

The council's opponents, a coalition of American and Canadian businesses and e-commerce players, have a pretty compelling reply.

First of all, there is no consistency at the Canadian border. Make a quick shopping trip to an American border town, and you will be charged only sales tax on your return, or just waved on through with no charge at all, if customs agents are busy.

If you've been out of the country 24 hours, you can bring back $200 worth of goods without paying anything. If you've been gone 48 hours, the limit goes up to $800. (The Retail Council issued dire warnings about changes to those limits when they were raised in 2012, too.)
There are fewer charges for Canadians who actually cross the border to shop in the U.S. (John Fitzhugh/Associated Press)

Furthermore, they argue, while couriers like FedEx observe the letter of the law, turning all shipments over to customs brokers and passing on taxes and fees to the customer, Canada Post often simply ignores the rules, because following them is too much expense and fuss.  

Then there's the fact that the government actually loses money collecting taxes and duties on smaller purchases. A study published by the C.D. Howe Institute last spring concluded that by not raising the de minimis level to, say, $80, Ottawa is effectively spending about $166 million to collect $39 million in revenue.

Which means the government is actually paying to discourage cross-border commerce. That affects not only consumers, but Canadian businesses that order supplies from the States. It makes the border more sclerotic, and navigating the rules an expensive pain.

Ultimately, any decision on raising de minimis is up to Finance Minister Bill Morneau, who at the moment is making a big show of consulting and listening to "stakeholders."
Finance Minister Bill Morneau will ultimately decide whether to raise the de minimis. (Paul Chiasson/Canadian Press)

The American-led business coalition, knowing there is no chance of raising the Canadian de minimis to match the $800 American level, is now lobbying for $200.

Upside for consumers 

But an Ottawa insider with extensive government experience in fiscal matters says the government has no interest in raising the threshold for now.

It would "create a tax hemorrhage, and build in a bias to go online instead of buying retail. It would cause a shift in (Canadian) consumer behaviour, and nobody knows how to model that. Nobody can predict the revenue consequences … What's the upside, other than the obvious one for the consumer?"

A very Canadian question, that one. In the U.S., where consumer spending drives the entire economy, that would be the upside.

Besides which, isn't everyone moving to online shopping? Aren't governments encouraging it, as a means of growth?
A worker gathers items for delivery from the massive warehouse floor at Amazon's distribution centre in Phoenix. (REUTERS)

eBay Canada, a major player that lobbies on its own, seems to have lowered its de minimis target to $80.

Free traders in the Liberal caucus seem more comfortable with that figure.

But the Canadian Retail Council wants the current $20 engraved in iron, in perpetuity, and is maximizing pressure on members of Parliament.

"We need to stand firmly against this threat," it told its members in a recent communiqué.

Says Conservative MP Dan Elbas, who sits on the Commons finance committee: "I think it needs a lot more study. I've been getting a tonne of emails from constituents" on the issue.

15,000 signatures

The American-led coalition has put up a website asking the Canadian public to support a $200 de minimis, and has managed to gather more than 15,000 signatures on an e-petition to Parliament.

It has also commissioned a poll suggesting 58 per cent of Canadians favour such an increase.

But really, Canada's consumers are notoriously supine, and the coalition hasn't generated much of an uproar.

Meaning that if the protectionist door is indeed ever opened, it will likely be only by the thinnest of cracks.

This, as the song says, is not America.


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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