Canada:Amid the Trump administration’s list of NAFTA demands, at least one potential concession could feel like a win to Canadian consumers: a lift in the duty free limits for online shoppers.
American businesses and online retailers have fought hard to get Canada and Mexico to raise their “de minimis thresholds” — the value of postal and courier shipments that can be imported without duties or taxes.
Fact sheets released by the United States Monday suggest Mexico agreed to do just that: doubling its duty free threshold on courier, though not postal, shipments. The U.S. wants to see some movement from Canada too — requesting a new threshold that would match the American level, currently set at US$800.
That would be significant for Canada — where the duty free threshold of $20 hasn’t budged in more than three decades and is now among the lowest in the industrialized world, according to Michael Smith of RBC Capital Markets. It would also be too much for Canadian bricks-and-mortar retailers, who could be flooded with competition from their online counterparts.
“But if they raised it to $200 or even $300, I think it could work,” Smith said. “It would be a give to Canadian consumers and it would play to our Prime Minister’s stated goal of modernizing NAFTA, because it’s a rule that was put in place before the advent of the internet.”
An increase to the de minimis threshold could be a handy bargaining chip at the NAFTA negotiating table and would undoubtedly be popular with most consumers. A 2016 Nanos poll found that 76 per cent of Canadians are in favour of the limit being lifted to $200. It could benefit small and medium sized businesses that must pay more for imported business inputs than their competitors in other countries.
And it would also level the playing field among shoppers. In a separate report on the issue, Scotiabank noted that Canadians able to take a trip across the border — and stay at least 24 hours — can qualify for a $200 duty and tax-free limit. Stay for 48 hours and that limit jumps to $800.
“Canadians who live far from the U.S. border would be the most immediate beneficiaries of an increase,” the report states.
But the proposition has come up against fierce opposition from Canada’s bricks and mortar retailers who argue it would put them at significant disadvantage and result in lost jobs and government revenue.
“The only country that would benefit from this, — the only country —, is the U.S.,” said Diane Brisebois, president and chief executive of the Retail Council of Canada. “It would literally provide an incentive for consumers to shop anywhere else but Canada. That’s before you talk about lost government revenue on sales taxes that pay for roads and schools.”
To mitigate the problem of lost revenue, the government could continue collecting Canadian sales taxes, while only lifting the de minimis on duty alone, Scotiabank notes. To ensure a level playing field, the federal government could also consider eliminating tariffs on items that generate little revenue but add to costs for Canadian businesses. Indeed, many products sold by Canadian retailers and wholesalers are subject to customs tariffs and can represent a significant cost.
Though Brisebois is in favour of the way such an approach would eliminate some tariffs elimination and maintain sales taxes, she says a $200 limit de minimis is still far too high. After raising their limits, countries like Australia have actually brought them back down in the face of the rapidly expanding pressure from ecommerce, she said.
“We think there are very good arguments for keeping the level at $20,” Brisebois said.
While premium shopping malls like Toronto’s Sherway Gardens would likely continue to do well, secondary malls and outlets would be hit harder, said Smith of RBC Capital Markets.
“Yes it’s one more competitive force to be factored in, but if they can’t compete with a $200 limit then we have a much deeper problem,” he said.
