BUSINESS

The border battle

Ottawa fights to stop U.S. shopping

BARBARA WICKENS February 24 1992
BUSINESS

The border battle

Ottawa fights to stop U.S. shopping

BARBARA WICKENS February 24 1992

The border battle

Ottawa fights to stop U.S. shopping

The Lee family of Vancouver has been doing it regularly for the last five years: driving down to Washington State about once a month to stock up on items ranging from milk to gasoline. And despite new measures announced last week in Ottawa designed to deter the Lees and millions of other Canadians like them, the family’s shopping trips across the border are unlikely to stop.

According to Wayne Lee, a 36-year-old display advertising manager and his wife,

Patty, 36, the savings available in U.S. stores will remain too attractive to resist. On their most recent trip earlier this month, the Lees bought, among other things, milk at 31 cents a litre, compared with 93 cents a litre in Vancouver, and gasoline for 29.5 cents a litre, compared with 55.9 cents at home. According to Wayne Lee, those price differences will not shrink as a result of the new measures, which include lifting import duties on such imported consumer items as video-cassette recorders and aluminum baseball bats. Said Lee:

“They are attacking the symptoms, not the problem.

With the recession and the tax situation in Canada, I have to spend the best way I can.”

Many Canadian retailers shared Lee’s judgment of the federal counterattack on cross-border shopping. Said Alasdair McKichan, president of the Retail Council of Canada, which represents more than 5,000 Canadian retailers: “It’s progress, but it’s not the end of the road.” For one thing, Revenue Minister Otto Jelinek’s announcement that Ottawa will drop its duty on 25 different consumer goods does not apply to many of the most popular items that Canadians buy in the United States, particularly groceries and gasoline.

Still, Canadian retailers, who have watched in alarm as shoppers flooded south in everlarger numbers, generally welcomed Jelinek’s package. Said Donald Beaumont, president of Kmart Canada Ltd., which has 126 stores across the country: “The whole thing is a favorable step in the right direction.”

In fact, Jelinek’s announcement was pointedly timed. On Feb. 12, he unveiled a package

of steps that includes a $5 surtax on mail-order purchases from abroad and a lowering of the limit on the value of mail orders that can enter Canada duty-free, to $20 from $40. Jelinek also repeated an offer to the provinces that he has made before: to have federal customs agents collect provincial sales taxes on all

goods entering Canada—but only if provinces align their taxes with the federal Goods and Services Tax.

Just two days later, the urgency of the problem that Jelinek’s measures were designed to address was dramatically underscored when Statistics Canada announced that Canadians set a cross-border shopping record in December—with 5.3 million visits. Overall, the agency reported, one-day automobile trips to the United States, mainly for shopping, increased last year by 14 per cent from 1990, to 59.1 million.

Against that backdrop, Jelinek said that his announced tariff reduction would save consumers as much as $100 million on purchases made

in Canada. But retailers said that those savings could be as much as a year away—if they are ever passed on to consumers at all. The reason: it will take at least that long to sell off older stock on which the duty has already been paid. Even then, some store owners may decide to keep extra profits for themselves rather than pass on any savings to their customers. Still, some retailers said that the measure would help them compete with their U.S. counterparts. Declared Phillip Moore, manager of Rackets ’n’ Runners, a Vancouver sportinggoods store: “As long as the wholesalers that we buy from have lower costs and pass them along to us, our prices will be more competitive.” Added Moore: “The end result will be that we feel a little stronger.” Operators of Canadian mail-order companies expressed similarly guarded optimism both about Jelinek’s addition of the $5 handling fee on packages mailed to Canada and his reduction in the value of duty-free orders. According to John Gustavson, president of the Torontobased Canadian Direct Marketing Association, which represents about 700 companies, Canadians imported more than $260 million worth of goods duty-free under the former rules during 1990—costing his members more than 4,000 jobs and millions of dollars. “We are glad that the government finally took some action,” Gustavson said of Jelinek’s measures. He added: “Over time, it will help us recapture that market.”

Meanwhile, only a few provinces seem ready to take up Jelinek’s offer to have customs agents collect their sales tax at the border on I goods that are subject to the ? GST. The main reason for o their reluctance is that many ^ provinces do not currently tax clothing and other articles subject to the federal tax. So far, only Quebec has harmonized its provincial taxes with the federal levy. But last week, spokesmen for three other provinces that previously had rejected the offer—Manitoba, Ontario and New Brunswick—indicated that they are reconsidering Jelinek’s proposal. For his part, B.C. Finance Minister Glen Clark rejected the offer. Declared Clark: “We don’t agree with that. We won't do that.” For Vancouver’s Lee family, that undertaking was one more reason not to abandon what has become a family tradition.

BARBARA WICKENS

HAL QUINN

PATRICIA CHISHOLM