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Retailers warn of price hikes as Ottawa budget boosts tariffs

Danier Leather CEO Jeffrey Wortzman estimates the new tariff will cost his company $1.2-million a year.

Kevin Van Paassen/The Globe and Mail

Retailers are worried about increases to tariffs on a wide array of imported products – from canned tuna to leather coats – that they say will boost prices for consumers and reduce their competitiveness.

While Thursday's federal budget put a spotlight on lower tariffs for sports gear and baby clothes – a potential $76-million annual break for consumers – it also included proposals for steeper tariffs on goods imported from 72 countries, which could cost Canadian shoppers $330-million.

That tariff hike also stands in contrast to Ottawa's recent action, and rhetoric, on costs for consumers. The federal government recently increased limits on the value of goods that Canadians can bring back from the United States, and the Senate released a report on U.S.-Canadian price disparities, putting pressure on domestic retailers to close the gap. The new tariffs could send prices in the other direction, forcing many retailers to raise prices on some goods about 3 per cent, industry representatives warned on Friday, and widening the competitive gap with U.S. retailers.

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"It's essentially a new tax," said Bob Kirke, executive director of the Canadian Apparel Federation. "When you take it all together, they're increasing the duties being paid by importers and consumers."

For instance, tariffs on leather jackets from China would increase by five percentage points, costing retailer Danier Leather Inc. an estimated $1.2-million a year, with the price of its leather jackets rising between $10 and $20, chief executive officer Jeffrey Wortsman said.

U.S. duties on leather jackets are just 6 per cent compared with Canada's proposed 13-per-cent duty. The gap "will put us at a real disadvantage compared to our U.S. competitors," Mr. Wortsman said.

"Canadians have complained about prices being higher in Canada. We think it is important that the government work with retailers and importers to lower duties."

In an interview with The Globe and Mail, Finance Minister Jim Flaherty defended the increase on tariffs, but recognized that he may face questions during his planned visits to Hong Kong and Thailand next week.

The higher duties would be applied to 72 rapidly developing countries, including China, India, Brazil and Russia, that Ottawa argues don't need a special discounted duty rate any more. Since 1974, Canada has granted developing countries a break on the barriers to selling products here as a means of promoting their economic growth and helping to diversity their exports. These shipments enjoyed a so-called general preferential tariff, which was about three percentage points lower – $3 per $100 of value – than that applied to imports from major industrialized countries.

The government said it expects many companies will respond to the tariff change by sourcing their product from other countries that still enjoy a discounted duty rate in Canada.

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Karen Proud, vice-president of federal government relations at the Retail Council of Canada, said tariffs would rise by an average of 3 per cent, which would probably result in 3-per-cent higher prices. But she said she's optimistic there's room for negotiations with Ottawa to eliminate higher tariffs for consumer staples such as canned tuna. The higher tariffs aren't scheduled to come into effect until 2015.

Mr. Wortsman said about 50 per cent of his production is in China. He said he has moved some to Pakistan and India, while hoping to pump up domestic production, particularly to sell premium Canadian goods to China. "But the current tariff does not help stimulate that situation but only puts pressure on it."

Some locations that have a discounted duty rate in Canada, such as Pakistan, can be risky places to do business, Mr. Kirke added.

He said the budget would increase tariffs on imported silk dresses and blouses from China by six percentage points – to 16 per cent from 10 per cent.

Tariffs would change on a range of items imported into Canada from such powerhouse economies as Brazil and China, but also from other countries that export nothing or negligible amounts of goods to Canada such as Gibraltar, Bermuda, Namibia and the Mariana Islands.

A notification in the Canada Gazette posted late last year said the general preferential tariff applied to such items as coffee makers, vacuum cleaners, stoves and ranges, some car headlights and esoteric items such as rocket launchers, flame throwers and parachutes.

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There is no tariff, for example, on bayonets and mortars from countries with general preferential tariff status, but it's 7 per cent on those items from countries with most-favoured-nation status.

Rates on coffee makers imported from most-favoured-nation countries are 9 per cent, but just 5 per cent from those with general preferential status.

It appears the tariff increases will not affect imported cars.

The Finance Department would not provide details Friday on what products are imported from countries whose tariff status will change because of the budget. The Department of Defence did not respond to questions about whether rocket launchers, flame throwers and other military items are purchased from countries that are losing general preferential tariff status.

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About the Authors
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


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