The Harper government is resisting U.S. efforts to slash customs duties dramatically on both sides of the border - a behind-the-scenes battle with real consequences for the growing ranks of Canadian cross-border shoppers.
The persistently strong Canadian dollar is providing northern U.S. states with a rare source of economic good news as Canadian shoppers increasingly head south to spend their cash. The concern in Ottawa, however, is that making these trips any easier on Canadian wallets will hurt retailers at home and mean less sales-tax revenue.
U.S. President Barack Obama's trade representative, officials at the U.S. embassy in Ottawa, the Senate and Congress are all pressing the federal government to loosen the rules so that fewer Canadians have to stop and pay duties as they return from a trip to the United States.
The issue could be on the agenda in the perimeter-security talks under way between the countries.
"The personal exemption issue has been formally raised by the United States trade representative," an official with the U.S. embassy told The Globe and Mail on Wednesday. "The message is that the U.S. believes that both countries have a lot to be gained by reducing trade barriers in general. And there is work to be done on both sides to achieve that goal."
The official said the United States is still looking at a range of issues for the Beyond the Border and Regulatory Cooperation talks that Prime Minister Stephen Harper and Mr. Obama announced in February in Washington. The U.S. official said duties are among "any number of issues that we could be raising."
While the Americans are clearly interested in boosting the domestic economy, the issue of tariffs also raises questions of whether border guards' time is better spent collecting taxes or enforcing security.
A report by the Senate national security committee warned in 2007 that Canadian policy does not strike the right balance.
"Border inspectors need to spend less time looking for extra bottles of duty-free whisky and more time trying to identify people who might be a genuine threat," stated the report, which called for Canada to harmonize its duties with those of the United States.
Legislation recently reintroduced in Congress calls for the United States to raise the amount Americans can bring back customs-free from Canada - even on a day trip - to $1,000 from $200. In contrast, Canadian law does not waive any taxes or duties for items purchased on a day trip. A 24-hour stay is required for a waiver on up $50 (not including tobacco and alcohol). That amount rises to $400 for a 48-hour stay and $750 for a week-long visit.
Preliminary data from Statistics Canada show Canadians spent $18-billion in the United States last year - a 14.5 per cent jump from 2009 and nearly 40 per cent more than in 2006. With the loonie consistently hovering above parity with the U.S. dollar, there's no reason to expect that trend to curb.
According to a letter obtained by The Globe under an access-to-information request, U.S. Senator Kirsten Gillibrand and Congressman Bill Owens wrote a joint letter to Finance Minister Jim Flaherty and Public Safety Minister Vic Toews last July informing them that they were both supporting legal changes to U.S. duty laws that would raise the $200 limit to $1,000 for short trips.
"We are writing to urge you to consider raising the personal exemption value for Canadian citizens who purchase goods while visiting the U.S.," they wrote. "We believe that raising the customs de minimis value in the United States should be met with reciprocal measures by the Canadian government raising its personal exemption value by a comparable amount."
An official with Mr. Owens's office provided The Globe with Mr. Flaherty's response, and said the Congressman and others continue to pursue the issue.
Mr. Flaherty responded that Canada expanded the provisions for stays of 48 hours or more in 2007, but expressed concern about the potential harm to the Canadian economy of going any further.
"Increasing the travellers' exemption thresholds raises additional competitiveness issues for Canadian retailers, who must collect the GST/HST on their taxable sales in Canada, that are not germane in the United States," he wrote. A Finance Canada official said Wednesday that Canada's position has not changed.
By the numbers
$18-billion: Amount Canadians spent in the United States in 2010
40: Percentage increase from 2006
$20.2-billion: The U.S. goods trade deficit with Canada in 2009, down $58.2-billion from the year before.
$200: Amount Americans can bring back from a day trip to Canada (a bill currently before Congress proposes to raise this to $1,000)
$0: Amount Canadians can bring back duty free from a day trip to the United States
Source: Statistics Canada, Canada Border Services Agency and the Office of the U.S. Trade Representative