U.S. duty-free exemption for online purchases now more than 40 times Canada’s

Americans are now allowed to spend more than 40 times as much as their northern neighbours without paying duty on products shipped from abroad, as a result of a new law.

Last week President Barack Obama signed a bill vastly expanding the duty-free exemption for products imported by mail – the new US$800 limit quadruples the previous amount, which was already multiple times higher than Canada’s C$20 exemption.

There’s pressure on the Canadian government in the runup to Prime Minister Justin Trudeau’s trip to Washington to narrow that gap, with the pressure coming from pockets of the U.S. government and industry.

One business group has even sought to enlist Canadian customers by circulating an online petition asking people to add their names if they want to stop paying what it calls an unfair duty.

“The gap is unsustainable in our integrated economy,” said Maryscott Greenwood of the Canadian American Business Council, which started the petition.

“Canadians we hear from see it as a fundamental issue of fairness. Why should Canadians pay duty on the very same items Americans buy duty free?”

She and a U.S. federal source said American officials are raising the so-called “de minimus” issue with their Canadian counterparts as they prepare for Trudeau’s state visit next month.

The Canadian government has grappled with the issue before.

As the House of Commons Finance gathered advice for the 2014 budget it received a submission from eBay – one of the biggest potential winners of a relaxed duty exemption.

The online retailer said Canada’s standard was far stricter than most other countries and was due for a revision, given that the $20 amount hadn’t been revised since 1985.

It said an increase would boost mail delivery, save Canada Post millions in administrative costs, and spare consumers from the sticker shock that occasionally comes with online imports.

The government received similar advice from the Senate Finance committee in 2013, which recommended a review of the de-minimus threshold.

The committee pointed to claims from the Canadian Association of Importers and Exporters, which said the average fee charged by most courier companies or customs brokers is $25, and that Canadians paid more than twice their American neighbours for a $21 online imported product back when the dollar was at par.

Canadian retailers have fought the change. They warn that it would come with a cost.

The Retail Council of Canada identified several potential negative consequences of a de-minimus increase, and expressed relief that last year’s federal budget avoided such a change.

“(It) would lead to massive increases in cross-border orders, with the obvious negative consequences for Canadian retailers and their employees,” the council said in reaction to the budget.

“Even a seemingly small increase could have a major impact.”

It said the federal and provincial governments would suffer a substantial revenue loss. It also argued that such a move would be a disincentive for Canadian companies to hire IT workers and invest in bricks-and-mortar businesses at home.

“(We do) not understand the political or economic calculus that would confer a tax and duty advantage (as high as 33 per cent in some cases) on a U.S. warehouse seller who employs few if any people in Canada, at the cost of a Canadian employer who does create jobs and economic activity here.”

Greenwood suggested a phase-in period might be a reasonable idea, if there’s concern in Canada about introducing the measure amid economic uncertainty. However, she added: “I don’t think it’s anti-stimulative to lower the costs of goods that Canadians are already buying.”