OTTAWA - Cross-border shopping is costing the Canadian economy much more than believed and new rules raising duty-free limits will only make matters worse, says a new report by the Bank of Montreal.
The assessment of costs comes from the bank's deputy chief economist Doug Porter in his latest price gap comparison between consumer goods in Canada and the U.S.
Porter said Thursday that although the price gap has narrowed to 14 per cent on average from the 20 per cent he found in last spring's survey, the phenomenon appears to be intensifying.
"A culmination of factors is likely to unleash a wave of Canadians cross-border shopping this summer in numbers not seen in two decades," he said.
"There are already more than 50 million visits to the U.S. by Canadian residents annually ... (and) those numbers are poised to swell when Ottawa increases the duty-and-tax free limits on June 1."
As part of March's budget, next month will see the duty-free limit on stays longer than 24 hours rise to $200 from $50, while the limit on stays longer than 48 hours rises to $800, from the current two-tiered levels of $400 and $750, depending on the length of stay.
Porter takes issue with the Bank of Canada's recent testimony before the Senate banking committee that estimated cross-border shopping at less than two per cent of total consumer spending.
He says that doesn't taken into consideration that Canadians don't always report everything they buy in the U.S. when they return. He says a better estimate is up to 10 per cent of spending for items that can be transported.
"Even at a conservative estimate of five per cent, we are talking over $20 billion a year," he said.
"If correct, that represents a real drain on domestic retail sales, employment and government revenues — a drain that looks (likely) to deepen."
The Senate banking committee is expected to report later this year on the causes of the persistent price gap between the two countries, despite near parity in the value of the U.S. and Canadian dollars in most years since 2007.
In recent testimony, the Retail Council of Canada blamed multinational distributors that charge Canadian retailers more than those in the U.S. for brand items as the main reason for the gap. Other factors that have been cited include federal duties, less competition in Canada and higher transportation costs.
The new survey of consumer goods by the Bank of Montreal suggests the gap has narrowed, in part because this week the Canadian dollar has been trading slightly below par, while during last spring's survey the loonie was worth $1.02 US.
But Porter said with few exceptions, prices have become more competitive in Canada over the past year.
Among the items sampled:
— Magazines were on average 17 per cent more in Canada, and running shoes as much as 37 per cent more.
— The survey also found significant discrepancies with a Toro lawn mower, 32 per cent more; Pottery Barn backpack for kids, 26 per cent; a sample of seven cars, 11 per cent; and a Gap Kids T-shirt, 19 per cent.
— At the lower end of the scale, a sample of four books were only seven per cent more costly in Canada, a Canon Rebel T3 camera, five per cent, Blu-Ray movies, eight per cent, and Barbecues (four sampled) were on average priced slightly lower in Canada than in the U.S.
"There hasn't been a big change, but the gap has narrowed somewhat," he said.
Porter cautioned that with only 18 items sampled, his findings are not necessarily representative of the average price difference between the two countries.
But the dramatic appreciation of the Canadian dollar toward parity since 2007 has had a drastic impact on shopping patterns, tourism and trips from residents on both sides of the border, he points out.
Porter said there are now 2.7 Canadian visits to the U.S. for every visit the other way, whereas in the 1995-2005 period, the ratio was one-to-one.
"There has never been more Canadians heading south than now. On the flip side ... overall visits by Americans (to Canada) are now running at the lowest level in more than 40 years," he said.
Canada and the U.S. are each other's largest trading partners. More than $1.5-billion in goods cross the border each day. The "Action Plan on Perimeter Security and Economic Competiveness" is a road map, not a formal agreement, aimed at making trade and travel across the border easier and more efficient. The plan focuses on four key areas. 1. Addressing threats early 2. Trade and economic growth 3. Building on existing border enforcement programs 4. Emergency and cyber infrastructure
Canada and the U.S. will be making a number of changes aimed at addressing security threats as early as possible and reducing the impact on trade and travel. The two countries will: 1. Begin tracking and recording entry and exit of travellers across the border and verifying the identity of foreigners for the purposes of immigration decision making. 2. Begin conducting joint threat assessments and sharing core information. 3. Working together on developing best practices to counter threats from violent extremists. 4. Begin aligning ground- and air-cargo security to reduce the need for re-screening. Canadian travellers will no longer have their bags screened twice when transferring flights in the United States.
Canada and the U.S. will be making a number of changes aimed at facilitating trade and economic growth The two countries will: 1. Expand programs for low-risk travellers, such as NEXUS, to make border crossing more efficient. 2. Upgrade infrastructure at key crossings to ease congestion. 3. Begin using radio frequency identification technology to read documents automatically as vehicles approach the border. 4. Create a unified approach for preclearing goods crossing by rail, sea or road. 5. Set up a single window for companies to send required info only once. 6. Make it easier for low-value shipments to clear customs
Canada and the U.S. will make a number of changes to existing border enforcement programs. The two countries will: 1. Make Shiprider a permanent program. The Shiprider program allows U.S. and Canadian maritime law enforcement officials to operate independent of the border to help combat crime. 2. Begin testing the Shiprider model for land enforcement. This means Canadian officials may work on the U.S. side of the border and vice versa. 3. Begin using voice-over-Internet technology so law enforcement officials can communicate across the border with greater ease.
Canada and the U.S. will be making a number of changes aimed at enhancing emergency and cyber infrastructure. The two countries will: 1. Work together more closely on international cyber-security efforts. 2. Enhance joint readiness for health, chemical, biological, radiological and nuclear events. 3. Jointly develop strategies for managing traffic on the border in the event of an emergency.
Both governments are stressing the all the initiatives in the plan were developed under two principles. 1. That each nation has the right to act independent of the other in accordance with their own laws and interests. 2. That both countries will endeavour to promote human rights, privacy, the rule of law and civil liberties.
The iconic American upscale retailer is in talks with Hudson's Bay Company to become a "store within a store" at HBC locations in Canada. The move is seen as an attempt by The Bay to fight off the possible arrival of Nordstrom's (see next slide).
One of the most prominent competitors to Bloomingdale's, Nordstrom announced in September, 2012, that it plans to open locations in Cadillac Fairview-owned malls in Calgary, Ottawa and Vancouver. The stores will open in former Sears locations.
Discount retailer Marshalls entered the Canadian market in March, 2011, and recently announced an expansion of six new stores in Ontario. At least a dozen of its 750 stores are now located in Canada.
The home improvement retailer began moving into the Canadian market in 2007, with a store in Hamilton, Ontario. It has since expanded to 31 locations in Ontario and Alberta.
Ritzy fashion chain J. Crew opened its first Canadian location in the summer of 2011, and immediately ran into public anger about the U.S.-Canada price gap. Shoppers complained that J. Crew's Canadian prices were about 15 per cent higher than in the U.S.
The arrival of Target to Canada in 2013 is easily the most hotly-anticipated retail arrival since Walmart came north of the border in 1994. The discount retailer is planning more than 100 stores across the country, having taken over a significant number of Zellers locations. But the store is currently engaged in a labour dispute, as it tries to keep former Zellers employees from unionizing in the new stores.