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Duty free limit increase to batter Canadian retailers

Canadian retailers look to be in for a rough summer, as new cross-border shopping rules go into effect Friday, allowing more goods to be brought back duty free.

Travellers outside of Canada for 24 hours now have a $200 allowance, and anyone out of the country for 48 hours can bring back $800 worth of goods without custom taxes.

For Canadian storeowners already challenged by the triple whammy of dollar parity, lower price points in the U.S., and the steady march of blockbuster American retailers northwards, the new rules could not come at a worse time.

The reason for the change is to harmonize regulations with the U.S. and to streamline processes at the border. For Canadian consumers, the vast majority of whom live within a 90-minute drive of the border, the new rule will undoubtedly be well-received. But for anyone not immediately bound for Buffalo, Bellingham or Plattsburg, it spells more bad news.

Even the instigators of the changes, the Federal Government, stand to lose. The loss in taxes will cost Ottawa $13 million this year, and $17 million next year, according to the Canadian Press.

Price disparity to drive Canadian south

Those numbers are unlikely to alter any shopping plans. Indeed, Douglas Porter, BMO deputy chief economist, predicts Canadians will switch their shopping to U.S. in numbers not seen in the last 20 years, reports Moneyville's Francine Kopun.

The flow will only be stoked by the glaring disparity in sticker prices between Canada and the U.S. As Kopun notes, Porter has been charting the price gap between identical items in the two countries for the past five years.

Canadians pay, on average, 14 per cent more for everything from books and diapers, sneakers, shirts, appliances and cosmetics — in short, all the kinds of items people would happily take a short drive to save on. A quick trip is all it takes. Seventy-five per cent of Canadians live with 90 minutes of the border.

Of course, the opposite isn't true. Nor is there much incentive, in terms of price or selection, for American shoppers to come north. And they aren't. There are now 2.7 Canadian visits to the U.S. for every U.S. visitor to Canada. Seven years ago, the ratio was 1:1, according to Kopun's article.

In many respects, the border changes are only the latest round of headaches for local storeowners. This time last year, much of the anxiety centred around the expansion ambitions of superstores Target, J. Crew, Anthropologie, Nordstrom and Marshalls on Canadian soil. While hardly a boon to retailers here, any hope that their presence might slow the traffic south was soon dashed when it became apparent how much more Canadians would have to pay for their products here versus in the U.S. or online.

J. Crew in particular saw their much ballyhooed arrival in Canada last summer almost immediately derailed by complaints that local shoppers would now have to pay 15 to 30 per cent more for the same goods, in stores and online.

Canadian retail fights back

Now seemingly besieged on all sides, Canadian retailers are fighting back. Diane Brisebois, CEO of the Retail Council of Canada appeared at Senate hearing in April and called on Ottawa to reduce import duties and eliminate government regulations that require Canadian retailers to buy from Canadian distributors, rather than going direct to the U.S.

She argued that local distributors of American manufacturers charge inflated prices, partly to compensate for the deep discounting that has to be done in the U.S. to remain competitive, but also because they know that Canadian retailers here have few other buying options; thus the price gap for shoppers.

Toronto Member of Provincial Parliament Mike Colle believes the solution may be a "Buy Canadian" campaign to promote shopping at home. As Kapun reports, he is seeking to introduce a private member's bill that would subsidize Canadian retailers and people who shop locally.

It's a well-intentioned initiative but would surely be mired in administrative complexities, not the least of which is what constitutes a Canadian business? And given that some of this country's most successful manufacturers — Lululemon, Canada Goose, Roots, to name a few — are also some of the most premium providers in their categories, it's unclear how much traction a buy local campaign could hope to gain.