An Introduction to Tariffs
How big a problem is cross border shopping and why is it bad?
In 2012, $8 billion Canadian dollars were spent in retail in the U.S. According to Stats Canada, this represents a 76% increase since 2006 in cross border shopping. If we can lower Canadian prices by cutting unnecessary costs out of the system, we could give Canadians a good reason to keep their money in Canada.
This is why RCC has been working with the government to lower tariffs that no longer protect domestic manufacturing.
RCC has also been active on the Regulatory Cooperation Council which is working towards harmonized regulations between Canada and the U.S.
RCC was also a key driver in encouraging the government to address country pricing strategies and has been working closely with officials to examine the issue. The recent Price Transparency Act was supported by RCC and is a positive step towards exposing and dealing with pricing strategies that drive Canadian prices up unjustifiably.Will tariff elimination actually have an impact on consumer pricing?
Not only will tariff elimination have a positive impact on the economy, it will also impact consumer prices. Wherever retailers can cut costs out of the system, they can offer more competitive pricing. Why – because the retail landscape is fiercely competitive in Canada. Consumers will go out of their way to find the best deal to ensure that their hard earned dollars are stretched as far as possible and retailers understand that.
High tariffs are an added cost which are charged at the border when a product comes into Canada. Eliminating this charge will cuts costs out of the supply chain, resulting in lower prices for consumers where those savings are passed on to retailers from their suppliers who most often handle importation.Has the government gone far enough on tariff cuts?
RCC members are pleased that the government has recognized that tariffs are a key component of the Canada – U.S. price gap and the last round of tariff cuts was a step in the right direction.
There is obviously more work to be done as trends towards cross border shopping rise and lower prices continue to remain the key driver. We are optimistic that the government will continue to cut useless tariffs to bring us closer to price parity.Won’t the dropping Canadian dollar take care of cross border shopping?
Many products are so significantly cheaper in the U.S. that is makes the trip worthwhile even if the Canadian dollar drops in value.
The issue of cross border shopping is systemic. Canadians will continue to shop in the U.S. for as long as price disparity exists. This is why we need to work towards a more structural solution to bring prices back in line in order to keep Canadians shopping on this side of the border.The government hired Nielsen researchers to determine if consumers benefitted. What does the study say?
The report that was completed by Nielsen monitored retail prices in the post tariff elimination period. Unfortunately the scope of their monitoring exercise did not include pre-tariff elimination prices. Therefore, they have no benchmark against which to compare the post-tariff elimination prices. This fundamental flaw in the monitoring will render Nielsen unable to draw any meaningful conclusion as the impact of tariff elimination on consumer prices.
Fortunately, RCC has collected both pre and post tariff elimination prices from retailers who carry sporting goods and baby cloths. Our analysis revealed that consumers saved millions of dollars since the tariffs were eliminated. See section “Why Reduce Tariffs”.
This data proves that tariff elimination works and that consumers do benefit from the removal of this added tax.Why did you suggest gloves/mitts, linens, footwear and children’s clothing as the product categories for the next round of tariff elimination?
RCC selected these categories based on the following criteria:
- Limited domestic manufacturing
- Goods that Canadians use on an everyday basis
- Subject to high tariffs
RCC has focused its request for further tariff reduction in those areas where, according to government statistics, there is minimal manufacturing.
The benefit from tariff relief for mitts and gloves, linens, footwear and children’s clothing will provide significant economic benefit to the Canadian economy.Why is the government raising the tariff rates for 72 countries in January 2015?
On January 1, 2015, 72 countries were reclassified in the tariff system from General Preferential Tariff (GPT) status to Most Favoured Nation (MFN) status. This decision was made by the government in Economic Action Plan 2013 to reflect the economic evolution of countries that were previously receiving a reduced tariff rate to stimulate exporting activity.
RCC understands that this reclassification is appropriate, but unfortunately the list of 72 countries includes many of Canada’s largest sourcing partners, like China and India. The result is that products coming into Canada from these countries will be subject to higher tariff rates, which will translate into higher prices for consumers. The government projects that it will collect an additional $333 million in revenue as a result of this change.
It is even more critical for the government to continue reducing tariffs on targeted items in the next federal budget to offset the increase of the above measure and ensure that Canadian retailers can compete with their American competitors.Won’t free trade agreements deal with the problem of high tariffs?
Retailers support free trade agreements in principle if the conditions of the agreement help to facilitate reciprocal access to another market. However, free trade agreements take a considerable amount of time and it is unlikely that an agreement will be struck for all of Canada’s sourcing partners in the near future. Tariff elimination will help to close the price gap in the meantime.What is country pricing and can you provide examples of this practice?
Country pricing is the practice of wholesalers charging one price in a particular country and a different price in another for the same product. Some of these differences can be justified by different costs of doing business between markets - e.g. labour rates, tax structure, labeling - but the majority of the discrepancy can only be attributed to the market power of the wholesale company to charge a significant difference.
As part of RCC’s testimony to Senate Finance Committee in 2013, several examples of country pricing were provided, ranging from tires, to electronics, to everyday goods like coffee makers.
The practice of higher prices being charged to Canadian retailers was identified by the Senate as an issue and the recent Price Transparency Act announcement is a step in the right direction.Back to top