U.S. governors want increase in Canada’s online duty-free limit codified in NAFTA
The Retail Council of Canada says this demand should be yet another non-starter, because a higher limit could create an uneven playing field to the detriment of domestic vendors forced to charge federal and provincial taxes
WASHINGTON—Canada is being pressed for freer trade in online goods by a number of American states, with eight state governors writing a letter seeking an expansion of Canada’s low limits for online, duty-free purchases.
Their letter to Foreign Affairs Minister Chrystia Freeland and U.S. trade czar Robert Lighthizer says the NAFTA talks are an opportunity to review the $20 limit for what Canadians can buy online without paying duties on foreign goods.
Canada has one of the strictest duty-free limits in the world for online goods—a mere fraction of the $800 Americans can spend on sites like Amazon and eBay without paying an import fee.
“Canada’s … threshold remains among the lowest in the industrialized world,” says the Nov. 21 letter, signed by the governors of Connecticut, Massachusetts, Maine, Maryland, Montana, Oregon, Utah and Virginia.
“Canada’s low threshold for the collection of duty and tax creates unnecessary price increases for Canadian consumers and hinders North American manufacturers’ supply chains on both sides of our shared border …a modernization of the Canadian de minimis level would be beneficial to both countries.”
Changing Canada’s limit is a high priority for the U.S. side in NAFTA talks.
An American source familiar with the talks tells The Canadian Press that’s one reason the U.S. mentions the issue in its published list of negotiating objectives, which sets a specific $800 target.
The source says it’s no accident that other U.S. demands are vaguely worded and devoid of hard numbers to leave negotiating room; the demand to change the limit known as “de minimis,” on the other hand, is clear and unequivocal.
The change is being fought by retailers within Canada.
They say it would not only send customers abroad, damaging domestic vendors while they’re making investments in new online platforms. But they say it’s also patently unfair _ foreign competitors would get tax advantages not enjoyed by vendors in Canada.
The Retail Council of Canada says a higher limit could create an uneven playing field to the detriment of domestic vendors—who are stuck charging federal and provincial sales taxes which average 12.3 per cent across the country.
They say the U.S. doesn’t have similar concerns—the U.S. has no federal sales tax.
“There is no comparison between Canada and the U.S.,” the council says on its website.
“The United States does not have a federal sales tax, so there is no tax advantage created for inbound shipments. The U.S. also does not collect state and local sales taxes at the border or for interstate shipments.”
The U.S. also dominates the online retail space, the council notes: only 22 per cent of U.S. customers report having made a purchase from a foreign seller, compared with 67 per cent of Canadians.
The Canadian retail council also points to the experience in Australia.
The government there had raised the duty-free limit to $1,000 and is now backtracking in dramatic fashion. Next year it will move the tax-free limit down to zero and apply the GST on all imports. The reason cited on an Australian government website: “Removing a distortionary tax advantage to foreign businesses … to close down loopholes and prevent tax avoidance.”
The U.S. push for changes is not new—raising Canada’s de minimis level was also a priority of the Obama administration.