Trump asked Ottawa to drop duties on e-commerce under NAFTA. Canadians should cheer, say experts
Canada has been fretting over U.S. President Donald Trump’s objectives for the upcoming NAFTA renegotiations. The administration published its wish list on Monday, ahead of the Aug. 16 date set for the start of the trade talks.
But at least one of those asks should have Canadian consumers cheering.
The U.S. requested that Ottawa raise the value of goods that Canadians can buy online without paying import duties and taxes to US$800 (C$1,011 ), up from its current level of C$20.
That would be “unambiguously good for consumers,” Daniel Schwanen, vice-president of research at the C.D. Howe Institute, told Global News.
It would save them money and time, he added.
As many online shoppers in this country already know, if their purchases shipped from the U.S. are one penny over $20, they will likely be hit with import duties and sales taxes, not to mention being delayed at the border for customs processing.
In other words, if you order a $20 book from the U.S. version of Amazon, you’re OK. But if your book is worth $20.50, you might end up paying twice as much for it and wait weeks before it actually lands on your doorstep.
Granting the Trump administration its wish on this issue would allow Canadians to buy goods worth US$800 that ship from America or Mexico without the familiar hassle.
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Especially good for Canadians in remote communities
The move would be a boon for Canadians who live far from the border and can’t simply use a quick shopping trip to the U.S. to get supplies and products they can’t find in Canada, said Maryscott Greenwood of the Canadian-American Business Council.
Canadians can currently bring back $200-worth of U.S. goods without paying taxes or duties from cross-border shopping expeditions of between 24 and 48 hours. The limit for longer trips is $800. Why not extend the same thresholds to online shoppers, asked Greenwood?
Doing so would be especially beneficial for Canada’s remote communities, where people “don’t have a giant big box store just down the street,” she noted.
Iqaluit residents are already turning to Canada’s version of Amazon to fetch basic necessities that cost twice or three times as much at the local supermarket, despite government programs designed to help northern retailers offset their shipping costs.
Good for some Canadian small businesses, too
A higher threshold for e-commerce imports would also benefit many small- and medium-sized Canadian businesses, said Christine Mcdaniel, who co-authored a report last year about Canada’s e-commerce import duties.
It would lower costs for small companies that occasionally buy products and supplies from the U.S. online, she noted.
But it would also help Canadian entrepreneurs expand their international client base. Although Americans can buy from Canada online without worrying about taxes and duties, as long as the purchase is worth US$800 or under, they might hit a snag if they have to send the products back.
“Customers don’t want to have to deal with expensive returns,” and that puts Canada’s small businesses at a disadvantage, Mcdaniel told Global News.
WATCH: How will the U.S. NAFTA wish list impact Canada?
Not necessarily a revenue hit for the Canadian government
Raising the duty-free threshold could be a win for the Canadian government, too, according to the study conducted by Mcdaniel, which was commissioned by eBay Canada and published by the C.D. Howe Institute.
The report modelled the impact on public revenues of raising the limit from $20 to $80, $100 and $200 and found that all three scenarios would have a negligible effect and might even result in a small boost for government coffers.
That’s because assessing small parcels that might be subject to duties is very expensive. By holding the threshold at $20 instead of $80, for example, “the government collects $39 million in additional revenues, but at a cost of $166 million,” the authors noted.
But is it likely to happen?
Canada’s duty-free limit on Internet imports is one of the lowest in the world. But the U.S. threshold is one of the highest.
Both Greenwood and Mcdaniel told Global News it seems unlikely Ottawa will go as high as a $800 limit. A $200 threshold, in line with that for cross-border shoppers, seems more realistic, they said.
However, both seemed optimistic that Canada may cede at least some ground on the issue.
Raising the e-commerce duty-free limit has been a longstanding U.S. request, and the Trump administration can count on strong backing for it in Congress, Greenwood said.
Given the benefits to Canadian consumers, this U.S. NAFTA request is “one of those potential win-wins,” said Schwanen, of the C.D. Howe Institute.
But the idea faces fierce opposition from Canadian retailers.
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“The U.S. has been pushing this for years – unsuccessfully,” said Karl Littler of the Retail Council of Canada.
How would it affect Canadian retailers?
Littler maintains acquiescing to U.S. demands on e-commerce duties would make “absolutely no sense, economically, for Canada.”
“It would be a tax incentive for Canadians to shop literally anywhere else but here.”
The average Canadian sales tax is 12.25 per cent. That would be enough for price-sensitive online shoppers to routinely opt to buy from the U.S. rather than local retailers, which employ over two million Canadians, Littler said.
The measure would also deter Canadian retailers from investing in technology, warehousing and distribution networks to create a Canada-based online offering when they are faced with foreign competition with a tax advantage, he added.
That advantage is not unlike the one Amazon used to enjoy in the U.S. compared to brick-and-mortar retailers, Littler noted.
For years, Amazon avoided collecting sales taxes in most U.S. states because, under U.S. law, online retailers don’t have to do so in jurisdictions where they don’t have a physical presence, such as a store front or a distribution centre.
After a strenuous battle with revenue-hungry states and embattled traditional retailers, though, the online retail giant started charging sales taxes in all the U.S. states that collect them in March of this year.
Australia, too, has had second thoughts about its generous duty-free online limit. The country will eliminate its current $1,000 threshold in July of next year.
Still, Schwanen argues the heightened competition that would come from increased e-commerce imports under a revised NAFTA would spur Canadian retailers to innovate.
Ottawa could also use the cost savings from not having to process very small parcels at customs to provide support for local businesses, he added.
Most importantly, though, more online bargains for consumers would leave more money in Canadians’ pockets – money they would likely spend at the local store, too.
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