Consumers feel ‘ripped off’ by Canada-U.S. price gaps

Canadian consumers feel “ripped off” by higher prices of goods on this side of the border compared to the U.S., according to a report published on Wednesday by a Senate committee that analyzed price gaps between the two countries.

In many cases, the higher costs in Canada were linked to factors such as transportation costs, the relative size of the Canadian market and tariff rates, or taxes on imports. But the committee could not pinpoint any one reason for the price differences.

The report comes as price gaps remain a growing concern with more Canadians heading south of the border to shop, given the lofty Canadian dollar.

"Canadian consumers are feeling ripped off. When the Canadian dollar is at parity with the U.S. dollar, Canadian consumers notice that prices here are typically higher than in the United States," the report says.

"Naturally, Canadians wonder why these price gaps exist when the dollar is at parity, and wonder: 'Are we being gouged?'"

Solutions?

But the report also concludes that there is no one solution to the problem of price differences. Instead it made four recommendations including the need for Ottawa to review Canadian tariffs.

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

The customs tariffs generated $3.6 billion in 2010-2011, representing 1.5 per cent of the total government budgetary revenues collected that fiscal year, the report showed.

The committee also recommends the federal government continue to integrate safety standards between Canada and the U.S., as well as study the costs and benefits of reducing the 10 per cent mark-up that Canadian distributors can add to the U.S. list price of American books imported into Canada, adjusted for the exchange rate.

As well, Ottawa should analyze the costs and benefits of increasing the de minimis threshold -- referring to the value of postal shipments that can be imported duty- and tax-free into a country -- for low-value shipments in Canada.

"We believe the Senate has identified many of the root causes that are causing products to be priced higher in this country than we find in the United States," said David Wilkes, senior vice president at the Retail Council of Canada.

"The next step now becomes the vital one. It's the so-what step."

The council has argued reasons behind price gaps include tariffs, along with the fact that their multinational suppliers charge Canadian retailers more than U.S., or so-called country pricing.

While all recommendations are important, Ottawa has an near-term opportunity to "address some of the cost differences to eliminating tariffs" in the upcoming budget, added Wilkes.

Finance Minister Jim Flaherty, who spoke to reporters before the report was released, said the government "would like to eliminate tariffs going forward," according to the CBC.

"I know that one of the issues are tariffs … tariffs are obviously a source of revenue as well," the broadcaster reported Flaherty as saying after a speech in Ottawa Wednesday.

Flaherty asked the Senate to look at the price gaps in the fall of 2011, and the committee examined prices of numerous products, from ice skates and jeans to automobiles and books.

The committee held meetings from October 2011 to June 2012 and heard from 53 witnesses.

Strong loonie a complication

Clearly, part of the challenge is a strong Canadian dollar, said Douglas Porter, chief economist at the BMO Capital Markets.

"On a number of measures we've argued that the currency is roughly 10 per cent overvalued give or take a little bit, and that's almost exactly the price gap between Canadian and U.S. consumers prices," said Porter.

"If the currency was closer to what we believe is fair value, which we think is about 90 U.S. cents, then this really wouldn't be much of an issue."