EBay Inc., has convinced tens of thousands of its Canadian customers to petition Ottawa in favour of higher online duty-free limits.Andrew Harrer/Bloomberg
The U.S. push for a major increase in duty-free limits for online shoppers would eliminate hundreds of thousands of Canadian jobs and shave more than $10-billion from Canadian government revenues, according to new research from Canadian retailers.
In negotiations on the North American free-trade agreement set to resume next week in Montreal, U.S. Trade Representative Robert Lighthizer is urging Canada to raise its tax and duty-free limit for cross-border shipments to $800, on par with the U.S. level, from the current $20.
The request is supported by U.S. online retailers, including eBay Inc., which has convinced tens of thousands of its Canadian customers to petition Ottawa in favour of higher online duty-free limits.
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But a detailed study conducted by accounting firm PwC – commissioned by the Retail Council of Canada and provided to The Globe and Mail ahead of its Friday release – warns of major consequences for Canadian businesses and governments if the U.S. proposal goes ahead.
More than 300,000 jobs would be eliminated by 2020 and Ottawa and the provinces would lose more than $10.8-billion in annual revenue if taxes and duties were waived for all cross-border shipments worth $800 or less, the analysis concludes. It also found similar results if the amount was set at $200, resulting in the loss of 286,224 jobs and $10.2-billion in government revenue.
The report acknowledges there would be a major benefit to consumers, as many products could be purchased online from the United States at prices that would be about 25-per-cent less than Canadian prices.
While that may sound appealing to many Canadians, retailers are challenging the logic of allowing Canadians to avoid paying any taxes or duties simply by shopping through a U.S. website, rather than from a Canadian company.
"It would be a bizarre public-policy choice to incentivize people to shop anywhere but here," said Karl Littler, the Retail Council of Canada's vice-president of public affairs. "This would be an incentive not to invest here. It would, in fact, be an incentive to invest elsewhere in order to gain access to the tax and duty advantage."
The PwC report suggests the change would contradict the Liberal government's focus on reducing income inequality, by benefiting high-income Canadian shoppers and hurting lower-paid retail workers.
The current $20 limit is called the de minimis threshold, a term used to describe something that is too trivial to consider. Mr. Littler said the report's findings show that raising the threshold to $800 – or even $200 – would be have substantial economic consequences.
"This is the very furthest thing from being trivial," he said. "Item by item, it might appear so to some people. But when you look at the impact in aggregate, it is potentially pretty catastrophic for our industry."
Mr. Lighthizer, the U.S. Trade Representative, has listed the call for an $800 de minimis threshold as a specific negotiating objective in the NAFTA negotiations.
Advocates for the U.S. position point to a 2016 study by the C.D. Howe Institute that looked at the potential impact of raising the threshold to as high as $200.
That report concluded that such a change would be fiscally neutral for the federal government or even positive – by saving on border screening costs – and would help consumers and small businesses.
"The facts are that the government spends more to go after de minimis than they collect," said Maryscott Greenwood, chief executive of the Canadian American Business Council, who added that a higher threshold would benefit Canadian exporters and consumers.
"The public wants to be able to buy things for convenience online," she said.
The PwC report challenges the findings of the C.D. Howe paper, saying it makes the "unrealistic" assumption that the flow of goods would remain the same if the threshold were raised. It also claims the C.D. Howe report overestimates the potential savings of reduced inspection costs.