U.S. – Canada Price Discrepancies Focus of Senate Inquiry
Speculating about why consumer goods cost more when purchased in Canada has become something of a national pastime for some Canadians. For the past several years, Canadian media outlets and blog posts have regularly asked why, despite the influx of American retailers in Canada, and the sustained strength of the Canadian dollar, Canadian costs are significantly higher than in the United States.
For example, a well known U.S. fashion retailer charges 15 percent more for merchandise sold in its Canadian stores and on its Canadian website. (Online shoppers were infuriated to realize that duties and taxes pushed the price discrepancy to as much as 50 percent higher in Canada). The Retail Council of Canada reports that automobile tires in Canada cost $169.69 in Canada, but sell for $128.21 in the U.S. And a 2012 survey by the Bank of Montreal found that retail prices in Canada are about 14 percent higher.
The issue became so infuriating, that a senate finance panel launched a 16-month investigation, the results of which were released in February 2013. The panel’s report, “The Canada-U.S. Price Gap” examined the underlying causes of the price discrepancies, and offered recommendations for alleviating those pressure points. Noteworthy though, is the way in which the report begins: “Canadian consumers are feeling ripped off. When the Canadian dollar is at parity with the U.S. dollar, Canadian consumers notice that prices here are typically higher than in the United States. When buying books or magazines, they notice two prices on the covers, and usually the price in Canada is higher.”
The report heard testimony from hundreds of experts and found several contributing reasons for the price discrepancies:
- Customs Tariffs. Tariffs were cited as a significant cause of the price discrepancies. The Retail Council of Canada said that Canada imposes rates of tariffs that are consistently higher than rates imposed by the U.S. In one example, the Council cited ice hockey pants, which are subject to an 18 percent tariff rate in Canada, but a 2.9 percent rate in the U.S.
- Product Safety Standards. Different standards imposed by the Canadian government force U.S. manufacturers to revamp products before they can be sold in Canada. For example, the Canadian Apparel Federation told the committee that Canada imposes a different testing process for garment flammability, which means that items approved for sale in the U.S. must endure a second review in order to be sold in Canada.
- Relative Size of the Canadian Market: Canada’s small size relative to the United States means that importers pay a higher price for smaller shipments of goods. Canada’s small market size also contributes to a lack of competition in certain retail categories, which results in higher prices.
- Country Pricing. Country pricing refers to the practice by some manufacturers of adopting different price structures for different countries. The Retail Council of Canada told the senate committee that some manufacturers charge Canadian retailers 10 to 50 percent more than U.S. retailers for identical products. Three reasons were cited:
- Canadians are used to paying higher prices
- Higher operations and supply costs in Canada
- Higher prices are necessary to compensate Canadian distributors and wholesalers
The study recommended that steps be taken to address each of these contributing factors. Speaking specifically about the culpability of tariffs, Finance Minister Jim Flaherty said that while the government has reduced tariffs on a number of products in recent years, “I expect more tariff reductions” down the road.
Senator Joseph Day, chairman of the senate committee, urged Canadian consumers to be more price conscious and savvy as a way to control prices. Day’s comments reflect the fact that price discrepancies are largely driven by market factors. “There is no one answer,” he said in releasing the report. “The government doesn’t determine prices. The marketplace determines prices.”