Nuance in New U.S. Trade Pact Eases Fears for Canadian Retailers

(Bloomberg) -- The devil’s in the details and the just-clinched U.S.-Mexico-Canada Agreement includes a nuance on cross-border shopping that could make the deal more palatable for Canadian retailers.

Canada bowed to U.S. pressure to raise the de minimis threshold -- the value at which Canadian customers must begin paying duties and taxes on products shipped from outside the country. The threshold was raised to C$150 ($117) for duties and C$40 for taxes, up from C$20 for both previously.

The distinction between the two levies, an approach similar to that of the European Union, may minimize the pain for Canadian businesses because it makes the cross-border purchase only moderately cheaper, according to the Retail Council of Canada.

The average duty on consumer goods is about 2 percent when stripping out duty-free products, while the average sales tax is 12.25 percent, according Karl Littler, the industry group’s vice-president of public affairs. It means that for a C$150 purchase, consumers will save C$3 on duties, but still pay C$18.40 in sales tax.

“It is of significantly less impact to us than a sales-tax exemption,” Littler said in a phone interview Monday. “We’re pretty comfortable with where it ended up.”

Other countries didn’t make the distinction. The de minimis level was raised to $100 from $50 for Mexico.

That’s not the end of worries for retailers though as enforcing the rules, even at the C$20 limit, has been uneven, keeping overseas purchases attractive. While levies get collected when orders arrive by courier shipments, they rarely are under C$100 when coming through the postal service, Littler said.

“It was like a Swiss cheese except there was more holes than cheese,” he said.

©2018 Bloomberg L.P.