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Ottawa to introduce U.S.-Canada price gap legislation: report

Fin - Balance Sheet - CA
Ottawa to introduce U.S.-Canada price gap legislation: report

Ottawa appears ready to deliver on its promise of trying to narrow the price gap between the same goods sold in Canada and United States, but some wonder how far the market-friendly Conservative government can and will go to regulate the industry.

A report from CBC News says the proposed legislation could come out this fall, quoting Industry Minister James Moore’s press secretary as saying the government intends to “move forward on it in due course.”

The federal government announced its consumer-friendly budget in February that it planned to tackle the issue by giving the country's competition watchdog more power to stop this type of  “unjustified” price discrimination, and impose fines where identical goods are selling for less south of the border.

Consumers have long been frustrated by paying higher prices in Canada for the same goods sold in U.S., especially when the dollar has been at, near or above par, which was the case between 2010 and 2013. In some cases, even goods made in Canada could be found cheaper in the U.S.

Regulate how?

Critics say the government, which has been more focussed on cost cutting instead of spending, would need to ramp up staff at the Competition Bureau to try to enforce the price discrimination, while others wonder whether enforcement is even possible.

“The possibility of price regulation for consumer goods raises a variety of practical concerns, related to compliance and enforcement uncertainty,” states a recent commentary published by the McMillan law firm.

It notes tests of "legitimate higher costs" require the government to have a “defensible comparator of cross-border prices and operating costs,” which changes the role of the Competition Bureau.

“It will have to carefully walk the fine line between challenging anti-competitive conduct and regulating market prices, notwithstanding earlier Bureau protestations that it is not a price regulator,” says the piece from antitrust lawyer James B. Musgrove and associate Monica Podgorny.

Bank of Montreal chief economist Doug Porter, who has studied the cross-border price differences, told Reuters back when the budget promise was made that the idea “raises more questions than it answers. It's very difficult to imagine how they would enforce this.”

A Senate committee has analyzed the price-gap issue looking at factors such as transportation costs, the relative size of the Canadian market and tariff rates, or taxes on imports. But the committee could not point to a single reason for the price differences. It also didn’t recommend ramping up the consumer watchdog’s powers which is why some have been scratching their heads at the Conservative’s budget promise.

A C.D. Howe report released this spring says Ottawa does have a role to play, but it states that government policy is driving the Canada-U.S. price gap.

“The easiest thing Canadian governments can do if they want to reduce the Canada-U.S. wholesale price gap is to eliminate existing tariffs and supply management policies that are responsible for the largest price gaps,” states the report, titled, Sticker Shock: The Causes and Consequences of the Canada-U.S. Price Differential written by University of Toronto economist Nicholas Li.

Li’s report included price comparisons from a major grocery retailer operating in both the U.S. and Canada. He found gaps in wholesale prices played a much greater role in the price difference than retail margins.

His report says “ill-advised government tariffs” and policies such as supply management are responsible for the varying prices between goods sold in Canada versus the U.S.

“If the federal government is serious about reducing prices for Canadians, it might want to first look at some of its own policies before tasking the Competition Bureau with investigating companies charging higher prices in Canada relative to the U.S.,” Li states.