New Limits, Same Issues

Well, nearly a year after the topic was  discussed here on Worthwhile Canadian Initiative, the Canadian government has loosened the rules on how much Canadian can bring back from the United States. 

Until today, a 24-hour stay was required for a waiver on up to $50 (not including tobacco and alcohol). That amount rose to $400 for a 48-hour stay and $750 for a week long visit.  Effective today, new rules mean that for an overnight stay up to $200 worth of merchandise can now be brought back.  For Canadians returning after two to seven days, the limit has doubled to $800 from $400.  However, for those individuals gone for more than a week, the limit increases only from $750 to $800.

This has naturally drawn the attention of Canadian retailers particularly in border cities.  However, retailers in Canada are not likely to get alot of sympathy given the price differences between similar goods across the Canada-US border.  If anything, more attention does need to be paid as to why Canadians often pay more for the same good with the reasons for any cost difference not immediately obvious.Indeed, the Retail Council of Canada says that there are still tariffs on imported finished goods that raise their costs and that the government needs to lower those tariffs.

However, I suspect that these changes will not be that dramatic in their effect.  Despite the rule changes, Canadians are still not allowed to bring back any duty free goods on a same day trip to the United States.  It was same day automobile trips that were the great concern of cross-border shopping.  People going for longer visits can be considered to be engaged in tourism rather than shopping per se even if they are bringing more back.   Not that the low exemption mattered that much during the cross-border shopping spree of the late 1980s and early 1990s anyway.  That phenomenon saw same day trips soar and peak in 1991 but have since dropped back to just a bit more than where they were in the late 1980s (see the graph on my May 11, 2011 post via the link above).  While our dollar is worth more than it was during the 1988 to 1992 period, it still has not sparked the same torrent of same day trips that it did in the late 1980s.  It is actually longer cross border trips that have grown in number over the last few years.  True, this spending is a leakage out of the Canadian economy and away from Canadian retail and internal tourism but this is a preference that Canadians have developed.  Do we want to force Canadians in border cities like Windsor, Vancouver or Thunder Bay to take their vacations in Winnipeg, Ottawa and Charlottetown?

A reason why Canadians are not crossing the border on same day trips to shop as much as they used to despite the favorable dollar is that Canadian retail is much different than it was in the early 1990s.  There has been the arrival of U.S. style discount retailers such as Price Club and Costco as well as the massive incursion by Walmart and soon Target into the Canadian retail environment.  In addition, the rise of internet shopping means that Canadians are already cross border shopping more even without physically crossing the border.  If anything, crossing the border in your vehicle to same day shop has a fairly high transaction cost and is not a terribly cost effective way to shop once you factor in time, gas, etc...It only makes sense to shop if it is part of an excursion to get away - in other words, it is more a tourism activity than foraging for consumer goods.

On the positive side, raising the limits could actually ease congestion at the border for Canadians returning from visit to the United States as the increase in the limits means less need for shorter term visitors to declare and therefore shorter line-ups on the way back. My experience has been that Canadians are often very dutiful in reporting even the smallest amounts that they have spent over their limit and this inevitably would take up time and energy on the part of border officials for very minor amounts of duty.  These changes might free up some border resources for more important border security issues.

Comments

[ianlee]

But from Doug Porter, BMO, Canada/U.S. Price Gap & Cross-Border Shopping:

""And you thought the line-ups to get into the United States were
long before. A culmination of factors is likely to lead to a notable
upswing of Canadians cross-border shopping this summer, in
numbers not seen in two decades. There are already more than 50
million visits to the U.S. by Canadian residents annually (or about
1.5 a year for every man, woman and child).""

This policy - part of what Coyne called the emerging economic agenda of the government - is designed to force greater competition in the Cdn retail sector, which has been notoriously higher priced than equivalewncies in the US retail sector.

If the GoC implements the 2008 Compete to Win Report and end protection of telecom (that gives us the highest mobile fees in the world), airlines (50% higher on average than US per Globe cover story a month ago), we may find that the dreaded productivity gap of now 30% will start to diminish.

Which I believe is the "secret, deeply hidden Harper agenda".

[Livio Di Matteo]

While there may indeed be a competition agenda, the increase in the limits for Canada was in part a response to US pressure. I suppose the Americans recognize good retail growth potential when they see it - and Canadians have been crossing the border for years to shop. The Americans have higher limits for their returning citizens but their citizens do not venture across the Can-US border in the same numbers that ours do as either tourists or shoppers.

[Shangwen]

Livio, is there data on near-border US stores shipping into Canada for Canadian customers, to spare them the travel hassle? I know that stores like Menard's and Lowe's now ship building products directly into places like Lethbridge or Winnipeg, so that customers pay for a very low shipping but get drywall, patio materials, etc., at vastly lower prices than at Canadian-located retailers.

[Livio Di Matteo]

Shangwen: I've heard of similar practices but I'm not aware of any data.