04/05/2013 03:12 EDT | Updated 06/06/2013 05:12 EDT

Budget Tariff Hikes Will Drive Cross-Border Shopping, Dorel CEO Martin Schwartz Says


MONTREAL - Ottawa's decision to increase tariffs on hundreds of products will drive increased cross-border shopping, the CEO of bike manufacturer Dorel Industries said Friday.

However, Martin Schwartz said he's not concerned that his company will be hurt because it sells bikes and juvenile products on both sides of the border.

"Like everything else, the increase in tariffs is going to be passed on to the consumers... and I think it's just going to force more people across the border to shop," he said in an interview.

The Conservative government announced in its March budget that effective Jan. 1, 2015, tariffs will increase on 1,290 product classes from 72 countries, including China, South Korea and India that previously enjoyed general preferential tariff status.

The change is expected to cost consumers $333 million a year, or more than $1 billion through 2018.

The move will protect some domestic manufacturers, including bike makers in Quebec, where production recently suffered a blow with Raleigh's decision to close its plant in the community of Waterloo, east of Montreal.

Dorel manufactures its line of bikes, including Schwinn and Cannondale, in China, Taiwan and Indonesia.

Schwartz said Canada accounts for less than 10 per cent of its overall bike sales. Revenues in its recreation and leisure segment were US$928.4 million of sales in 2012.

Finance Canada says this is the first time the tariffs have been reviewed in 40 years, and was revised to eliminate "unilateral preferential access" that some countries, including those with GDPs higher than Canada, were still receiving.

Although the government is increasing tariffs on bikes, it is piloting a program to permanently eliminate all tariffs on baby clothes and sports and athletic equipment (excluding bicycles).

The Retail Council of Canada hopes to convince the government to add other products to that list by showing that savings are passed on to consumers.

"I think this is just the beginning of the story," said council vice-president Karen Proud.

"We were successful in the baby clothes and sporting goods and I really do believe that there's still some room to negotiate with the government for another round of cuts come budget 2014."

She said tariffs from preferential status country are expected to increase an average of three percentage points depending on the product.

Proud said the council will meet with its members to determine which products it will seek to have tariffs removed. However, she conceded that a stumbling block to getting tariffs eliminated on bicycles is the existence of domestic manufacturers.

Schwartz said the European Union has a tariff, which it calls a dumping duty, on imports from countries such as China once they exceed one million bikes.

He said the higher tariffs on other products will also give Canadians another reason to seek lower prices in the United States.

"There are going to be a lot of tariffs that are going up and a lot of Canadian consumers are going to end up paying for it."

On the Toronto Stock Exchange, Dorel's shares closed down $1.05 at $41.75 in Friday trading.

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