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U.S., Canadian politicians taking new look at tariffs

As retailers in Canada battle Ottawa over import duties, their U.S. counterparts are fighting to gain ground on a similar front.

This week, the U.S. House of Representatives passed a bill that renews a duty-free trade program that retailers say saves them – and ultimately consumers – millions of dollars a year. But the program, which has yet to get the nod from the Senate, doesn't go far enough because it doesn't cover the key categories of clothing and footwear, nor key markets of China and Vietnam, National Retail Federation officials say.

On both sides of the border, retailers are looking for a better model, even as Canadian retailers turn to the U.S. as an example of lower tariffs. On Thursday, Finance Minister Jim Flaherty said he will look into lowering duties here after expressing earlier this week his "irritation" over the high cost of consumer goods compared with prices south of the border, at a time when the loonie is above parity with the U.S. dollar.

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Tariffs are just one factor in the difference in retail prices, which a survey in the spring found were 20 per cent higher in Canada than in the U.S. The issue became a flashpoint last month when the high-profile U.S. fashion retailer J. Crew opened its first store in Canada with prices that were 15 per cent higher than in the U.S. – and even steeper online, although the retailer quickly backed down and lowered its e-commerce rates.

Retailers and their suppliers blame each other for higher prices here, underlining the complexity of the issue in a country with a 10th of the population of the U.S. and, as a result, fewer efficiencies.

This week, the Finance Minister asked a Senate committee to study the price gap – a process that could run into the new year.

"Among other things, I'm responsible for tariffs and sometimes people in the retail business blame tariffs [for higher prices]so I want to see … what the facts are and I'm looking forward to the Senate committee getting to the facts," Mr. Flaherty said. "We'll take whatever steps we need to take. Part of it, quite frankly, is just making sure that the participants in the retail economy come clean about how they price."

Diane Brisebois, president of the Retail Council of Canada, said she welcomes the probe and the opportunity to reduce tariffs, which on items such as imported fleece blankets and Halloween costumes are 18 per cent, compared with zero in the U.S. Other tariff differences aren't as stark, and government officials say overall the rates are similar.

Ms. Brisebois said U.S. retailers have been successful in winning lower duties on some imports because they have fought harder for them, which her group is now aiming to do here. She said the matter is urgent because so many apparel and other products are sourced overseas and carry a tariff.

Still, a Department of Finance official countered that Canada already has a duty-free trade program for importing goods from developing countries, similar to the one being renewed in the U.S.. He said more than 90 per cent of all Canadian imports are duty-free and, overall, Canada's import tariffs are much the same as those in the U.S.

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Apart from higher tariffs, retailers in Canada complain that their multinational suppliers charge them up to 40 per cent higher on wholesale prices compared with their U.S. counterparts; suppliers say major retailers charge them stocking fees for placing their products on store shelves that are higher than those of U.S. merchants.

And the U.S. tariffs aren't necessarily the best model for retailers here. Erik Autor, a vice-president with the National Retail Federation in Washington, said the U.S. duty-free import bill has shortfalls.

The federation backed the program although it doesn't cover two key categories – footwear and apparel – nor products coming from China and Vietnam. A similar program in Europe encompasses those areas, and would be an even better scheme to emulate – in the U.S. and Canada, he said.

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