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Senate report cites barriers at border for price gaps (Pawel Dwulit For The Globe and Mail)
Senate report cites barriers at border for price gaps (Pawel Dwulit For The Globe and Mail)

Rigged marketplace at the heart of U.S.-Canada price gap Add to ...

Behold your government at work.

Nearly two years after Finance Minister Jim Flaherty urged the Senate to get to the bottom of the often-vast gap between what Canadians and Americans pay for the same consumer products, the official answer is that it’s a conundrum.

And don’t grab for an Aspirin to ease your headache. A bottle of pain reliever could cost you twice as much as in the U.S., as last week’s much-anticipated report by the Senate committee on national finance pointed out.

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Maybe you want to get away from it all in a Canadian-made Chevy Camaro? The list price on that is nearly $5,000 more on this side of the border than in the U.S.

Across all products, the average Canadian retail price premium was 11 per cent when the committee began its work in 2011, according to a Bank of Canada estimate.

“There is no one answer,” acknowledged committee chairman Joseph Day as he released the report last week. “The government doesn’t determine prices. The marketplace determines prices.”

Senator Day is only partly right. Crucial parts of the economy remain protected by decades-old government policies, many with obsolete economic rationales in the 21st century.

The federal government intentionally shields telecom services, such as Internet and telephone; airlines; banking, and the dairy and poultry industries from the full weight of foreign competition.

Stealthily, these policies cost Canadians thousands of dollars a year and sap the economy’s productivity.

Prices in these special industries are set in the marketplace, but it’s a rigged marketplace.

The committee sidestepped these awkward questions.

And the Conservative government continues to vigorously defend its consumer-unfriendly policies in trade negotiations, without clearly justifying to Canadians why they’re still necessary in 2013.

The committee’s unsatisfying conclusion – that there is no easy solution to high prices – is the product of six months of hearings, 54 witnesses, a dozen written submissions and tens of thousands of dollars in expenses.

The committee’s equally unsatisfying prescription – including lowering tariffs and harmonizing product safety standards – doesn’t get to the heart of the matter.

It’s about competition, and there is significantly less of it in Canada, across a broad range of consumer products and services.

Consumers, and small businesses, pay dearly for this dearth of choice. And that’s unlikely to change, even if the government acts on all of the report’s recommendations.

During the committee’s hearings, Bank of Canada Governor Mark Carney bluntly told senators that the retail industry is significantly more concentrated in Canada than in the United States. The top four retailers in Canada control nearly one-third of the market, compared to only 11 per cent in the United States. That’s huge market power at the top.

That suggests local governments may be failing to create a healthy competitive environment for developers, leaving too much land and retail space in the hands of the few. The committee chose not to go there.

Why, one might ask, would governments ignore policies that could have a powerful effect on consumer prices? That was, after all, central to the committee’s mandate.

Senators heard from 65 witnesses, in person and in writing. Only two groups spoke on behalf of consumers – the Consumers Association of Canada and the Public Interest Advocacy Centre.

The consumer voice is far too timid in the Canadian political system. Too often major policy debates, including trade agreements, are played out as battles between industry groups.

A case in point is the pending Canada-European Union free trade deal. Canadian negotiators are trading off the interests of auto makers and cattle ranchers against the desires of dairy farmers. One group loses, another wins.

Or consider bank customers. Last year, Mr. Flaherty announced a controversial plan to overhaul the regime that lets consumers seek compensation through an outside arbitrator when they believe they have been wronged. Ottawa is bowing to industry pressure by allowing individual banks to hire their own private dispute resolution company, bypassing the quasi-independent Ombudsman for Banking Services and Investments now used by most banks.

Politicians may express outrage about the plight of consumers. But their actions suggest otherwise.

It’s tough for consumers to be heard when they’re sitting at the kids’ table.

Follow on Twitter: @barriemckenna

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