Online shoppers will get price breaks on some products they buy from websites outside of Canada as a result of new e-commerce rules in the new proposed trade agreement, although retailers here could be pinched if more consumers start to switch their purchasing to foreign retailers.
Under the new rules, what is called the de minimis threshold – the amount that can be imported to Canada without duties or taxes – would rise to C$150 for customs duties. That includes C$40 for sales taxes. Currently under NAFTA, the threshold is C$20, while the United States wanted Canada to raise it to US$800.
For example, an Ontario shopper buying a pair of C$100 China-made cotton pants from a U.S. online retailer would pay a total of C$113 under the new United States-Mexico-Canada Agreement (USMCA) – including $13 in tax – while under the North American free-trade agreement (NAFTA), the consumer would pay C$132.21 in all, including C$17 in duties and a C$15.21 tax.
“In some cases, it can provide quite an incentive for Canadian consumers to buy from a foreign retailer as opposed to a Canadian retailer,” said Andrea van Vugt, a spokeswoman for Canadian Tire Corp. in Toronto, which also owns the Marks clothier and sporting goods chains such as Sport Chek.
U.S. online retail giants such as eBay Inc. and Amazon.com Inc. have been pushing for higher de minimis thresholds, similar to those that the United States has for items bought outside of that market, while Canadian merchants have strongly opposed raising the threshold for fear of losing business.
The difference would be most marked on items made in markets without a trade agreement with Canada, such as China, and items in categories with heavy duties, such as apparel and footwear, said Karl Littler, a senior vice-president of Retail Council of Canada. Duties that retailers pay on the wholesale price of rubber boots, for instance, run as high as 20 per cent, Ms. van Vugt said.
Other items have much lower duties, with the average being about 2 per cent, Mr. Littler said.
Still, Andrea Stairs, general manager of eBay Canada and Latin America, said consumers will get few breaks from the latest trade deal. That’s because the threshold changes only apply to foreign online purchases that are shipped across the border by courier rather than by a postal service – and most goods are delivered by post, Ms. Stairs said.
“It’s a huge missed opportunity,” she said. A study a couple of years ago found that 77 per cent of e-commerce orders from other markets were shipped by post, she said, citing research by think-tank C. D. Howe Institute. She estimated that 90 per cent of eBay.ca’s shipments are handled by Canada Post.
“Canadian consumers who are reading these great headlines about duty thresholds going to $150 are going to be sorely disappointed,” she said.
Even so, Pierre-Olivier Herbert, press secretary to Finance Minister Bill Morneau, said most imported e-commerce shipments are done by courier.
Larry Rosen, chief executive of luxury men’s wear retailer Harry Rosen, said the new threshold reforms will hurt some retailers, particularly those carrying some lower-end apparel products. But upscale retailers such as Harry Rosen, whose customers are less price-sensitive, will feel less pain, he said.
He gave the example of a C$39.50 t-shirt made in China: Under the new agreement, consumers who bought that T-shirt online from a U.S. e-retailer would pay no HST while they would pay an extra $5.13 in HST for the same T-shirt purchased at a Canadian online or bricks-and-mortar retailer.
“A U.S. retailer of online goods selling the exact same product at the exact same price would have a fairly significant advantage,” Mr. Rosen said.
Still, Mr. Rosen, who was active among a group of domestic retailers that fought any de minimis threshold increases, said Canadian trade negotiators faced a tough battle. “It could have been a lot worse,” he said.
Added Ms. van Vugt: “We would love to be able to offer tax-free, duty-free products to our customers. … It just seems unfair that the federal government would incentivize Canadian consumers to shop from foreign retailers.”
Over all, the changes would not affect most retailers too much, Mr. Littler predicted. “It’s certainly far, far better than what the U.S. has been asking for. … We got a far better deal than the Mexicans.” But the retail council is calling on Ottawa to reduce and ultimately eliminate retailer duties. “They’re essentially hidden taxes on consumer goods,” he said.
In its deal with the United States, Mexico agreed to a threshold of US$100 for both taxes and duties.