The Department of Homeland Security had wanted the U.S. Congress to authorize the study of a fee that could be collected from everyone entering the U.S. at land crossings bordering Canada and Mexico.
But the Senate's judiciary committee on Thursday voted to amend the Immigration Reform Bill to ban the fee altogether.
Vermont Senator Patrick Leahy, who chairs the committee, said a fee would stop Canadians from visiting the U.S. and could threaten trade and the economy.
On his website, Leahy has pointed out "the harm that a border fee on the northern border would cause to Vermont’s economy and to the historic cultural ties that Vermonters have with Quebec."
Leahy said a border crossing fee would make U.S. border patrol agents “toll collectors instead of law enforcement.”
"There are many steps remaining [before it becomes law], but this was probably the most important step," Leahy's spokesperson David Carle said in an email to CBC News.
The bill still has go to the senate floor. If passed there, the House will have to act on its own immigration reform bill, Carle said.
In Ottawa on Friday, Government House leader Peter Van Loan said he is "very pleased that the Senate committee in the U.S. has rejected the proposed border fee."
"A border fee like this would have been very damaging to both the American and the Canadian economy as we work to ensure our economic recovery, continued job creation and economic growth," Van Loan said. "The importance of movement of goods and people across our border to facilitate trade and growth is critically important."
International Trade Minister Ed Fast also applauded the move. "With this decision... the committee has recognized that free and open trade, rather than protectionism, is the way forward to create jobs and prosperity for workers in both our countries," said Fast in a statement.
Canada's Department of Foreign Affairs and International Trade said last month that a fee to simply enter the U.S. would be bad for business between the two countries.
Department spokeswoman Emma Welford told CBC News in an email that Canadians spend more than $21 billion annually in the U.S.
For example, in Windsor, Ont., Chrysler alone makes more than 1,600 customs entries in Windsor-Detroit every day.
Windsor West NDP MP and border issues critic Brian Masse praised Leahy's efforts Friday.
"It’s not quite done yet. For me, it’s a great opportunity to get this issue put down," Masse said. "I wasn’t surprised to see some of the American politicians raise objections to it right away."
The U.S. Senate's judiciary committee also voted Thursday against a fence proposed to be constructed on the Canada-U.S. border.
Masse said a fence would be the beginning of the “militarization of the border.”
"There are several of these nonsensical proposals that keep emerging all along the northern border," Masse said.
He called the U.S. Department of Homeland Security "one of the biggest bureaucracies on the planet."
"There needs to be a balance here," Masse said. "Senator Leahy points out the cultural, economic and historic need to have an open and friendly border."Suggest a correction