Canada-U.S. price gap report calls for import tax cut

Senators who studied why Canadians pay more than Americans for many products are calling on the government to review the taxes on imported goods.

Consumers may see that happen: Finance Minister Jim Flaherty echoed the senators' concern about tariffs before they even tabled the report.

Members of the national finance committee spent more than a year hearing from 53 experts, including consumer groups, manufacturers and Bank of Canada Governor Mark Carney, as they studied why Canadian prices differ from American when the dollar is close to equal. The committee's final report says it "cannot offer an explanation as definitive as it would have liked."

The committee says factors influencing price include transportation costs, the relative size of the Canadian market — and tariffs, or taxes on imports.

The report recommends:

• A "comprehensive review of Canadian tariffs … with the objective of reducing the price discrepancies for certain products between Canada and the United States."
• Looking at increasing value of how much can be shipped in Canada tax- and duty-free.
• Continuing to integrate safety Canadian standards with those in the U.S.
• Having Heritage Minister James Moore study the costs and benefits of reducing a 10 per cent mark-up that Canadian-exclusive distributors can add to U.S. list prices of American books.

The report says there are 8,192 tariff categories in Canada and that each category has 18 tariff treatments.

The tariffs generated $3.6 billion in tax revenue in 2010-2011, representing 1.5 per cent of the total government revenue collected that fiscal year. That same year, about 60 per cent of tariff revenue was collected on apparel and textile products, autos and auto parts, and footwear.

Flaherty wants tariffs cut

Flaherty, speaking to reporters before the report was released, said the government "would like to eliminate tariffs going forward."

"We've been looking at our tariff situation carefully, particularly with respect to consumer goods in Canada, to see what we could do. Tariffs are obviously sources of revenue as well and I have revenue concerns as finance minister," Flaherty said after a speech in Ottawa Wednesday.

The senators took on the study after Flaherty wrote them about the issue of price discrepancies.

Senator Joseph Day, the committee's chair, welcomed Flaherty's comments at a press conference in Ottawa Wednesday afternoon with deputy chair Larry Smith and JoAnne Buth, one of the senators on the committee.

"If the minister wants all tariffs to be removed, that'll be a lot easier than what we've recommended in the study, [a review] to be conducted to determine what industries might be impacted that still exist in Canada," he said.

The senators noted hockey equipment as one area where it doesn't make sense to have tariffs, including an 18 per cent mark-up on hockey pants imported from China. Americans face only a tariff of 2.9 per cent, Day said.

Consumers need to be informed

"Maybe we were trying to protect a Canadian manufacturer years ago, but they're all coming from outside now," Day said.

The senators said they don't believe any Canadian company still makes hockey pants.

Another issue the senators touched on is country pricing, a practice where some manufacturers charge Canadian retailers as much as 50 per cent more than they charge American retailers.

Retailers say they've been told it's because Canadians are used to paying more, the prices subsidize the cost of operations in Canada, and the prices are necessary to compensate distributors and wholesalers for the higher costs of operating in Canada.

Asked whether Canadian consumers are condemned to pay higher prices, Day says they need to be informed of the reasons so they can make better decisions and possibly force change.

"The government does not fix prices in Canada. We have the marketplace that determines the price. What we want to do is make sure that there aren't any unnecessary government regulations that segment our economy here in Canada from the United States and from other areas unnecessarily," Day said.