Traffic headed through the Peace Arch border crossing into Blaine

Traffic headed through the Peace Arch border crossing into Blaine

Cross-border shopping may rise with higher limits

Merchants want federal reforms to fight flow of cash south

B.C. retailers are bracing for the loss of even more business to cross-border shopping starting June 1, even though more generous duty-free allowances that start then apply only to overnight stays.

The duty-free limit for visits to the U.S. longer than 24 hours rises from $50 to $200 Friday.

Stays 48 hours or longer will qualify for $800 in duty-free purchases, up from $400 previously for visits up to a week.

Day trippers or those just nipping across the border for gas and groceries won’t notice a difference, ShelfSpace executive director Mark Startup said.

“If you’re going to go down for 25 minutes and spend $80 to fill up your car with bread, milk and cheese, the duty-free allowance change will have no impact on that behaviour,” he said.

Nor, he suggested, is it likely many will stay overnight to save an extra $150 in duty.

“Where we might see some increases are from the bigger 48-hour exemption,” Startup said. “Some of our members have expressed concern over that.”

Bank of Montreal economist Douglas Porter warned in a report issued this month the drain of Canadian shoppers heading south is weighing heavily on retail sales here.

He said official estimates that cross-border shopping accounts for less than two per cent of consumer spending likely “vastly understate” the size of the problem.

Porter suggested cross-border spending may actually account for eight to 10 per cent of goods that can flow across the border, since half of all consumer spending goes to rent and other captive services.

Startup said Porter is likely right, since many people who cross don’t declare what they bring back and therefore aren’t counted in official figures.

Startup said ShelfSpace would like the Conservative government to reduce import duties retailers here must pay on goods they bring in to help level the playing field.

That differential is a prime reason why many products cost less in the U.S. than Canada, even though the two dollars now trade at close to par.

There are also different costs here related to labeling and packaging, and higher distribution costs across a Canadian market that is smaller but more spread out.

Another factor are marketing boards that result in significantly higher prices in Canada for everything from poultry and eggs to milk and cheese.

“U.S. retailers do not have that constraint,” Startup said, adding he understands the federal government is considering reforms to Canadian marketing boards that might lead to more competitive pricing.

“They protect local industry but at a cost in terms of price,” added Ray Hudson, Surrey Board of Trade policy development and communications manager.

The Surrey Board of Trade is supporting a resolution to the Canadian Chamber of Commerce pressing Ottawa to investigate cross-border shopping impacts and help find solutions.

Removing import tariffs is a key concern, Hudson said, noting retailers here are charged an 18 per cent tariff on imported sports equipment that U.S. competitors don’t pay.

Another issue is that many manufacturers or wholesalers simply charge Canadian retailers more money for the same product than in the U.S.

Hudson said Ottawa could help offset the higher limits for overnight stays by tightening enforcement by Canada Border Services Agency officers on same-day shoppers.

“I think the bigger concern is the people who go for the day,” he said. “It seems people can shop the same day and come back with all kinds of goods – hundreds of dollars – and they’re not being challenged.”

Porter compared various goods and found they currently cost 14 per cent more on average here than in the U.S., before taxes and adjusted for exchange.

That’s down from a 20 per cent differential a year ago, due to a slightly softer Canadian dollar.

For some products Porter surveyed there’s virtually no price difference, while others can cost more than 30 per cent extra on this side of the border.

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