Why do identical TVs cost more in Canada?
Shoppers walk past a sale sign in a mall in Ottawa on December 21, 2010. Canada's retailers are blaming their suppliers for the large gap between their prices and identical goods for sale south of the border, despite the nearly equal value of the two dollars.THE CANADIAN PRESS/Pawel Dwulit
OTTAWA - Identical widescreen TVs, bottles of hair conditioner and even painkillers cost Canadian shoppers more than their American neighbours despite the near equal value of the dollar, and retailers say suppliers are to blame.
Still, Canadian merchants are being unfairly singled out for having higher prices than their American counterparts, Diane Brisebois of the Retail Council of Canada told a Senate committee Tuesday.
She said because Canada's population is so small in comparison, large multi-national vendors can enforce a special Canadian price for brand name products and it can be anywhere from 10 to 50 per cent higher than in the United States.
"There are price differences between Canada and the U.S., but they are not always determined at the retail level," Brisebois told the committee.
In an interview afterwards, Brisebois said Canadian retailers have no choice but to buy from the Canadian distributors of American manufacturers because they are restricted from going into the U.S. and buying there.
Canada is not the only country affected, she said. Others outside the U.S. also face the same challenge, called "country pricing."
"There are a lot of people who believe that American multi-national manufacturers use their secondary markets to ensure they can remain competitively priced in the U.S.," she said.
Canada's retailers have been hammered in the media and by politicians for "gouging" their customers, but she said that is simply not the case.
In a price comparison by the Bank of Montreal last spring, economist Douglas Porter calculated Canadian shoppers paid on average about 20 per cent more than U.S. consumers for identical goods.
Porter, who is planning a follow-up survey in the next few weeks, said he has no difficulty believing that Canadian retailers may be at a disadvantage.
"That may well be the lion's share of the explanation," he said. "A lot of companies will fight tooth and nail for that important U.S. market. It's extremely high profile and influential around the world, so to gain market share in the U.S. is gold."
To back up her case, Brisebois presented her own list of 15 consumer items contrasting what Canadian retailers must pay their suppliers compared with the amount paid by their counterparts south of the border. Although she did not give the brand names, Brisebois said the comparison was for exactly the same item.
Some typical examples:
— Hair conditioner (1.18 litres) cost the Canadian retailer $10 and the U.S. retailer $6.23, for a 43 per cent markup, she said.
— A 46-inch LED TV was $1,001 in Canada and $888.75 in the U.S., a 13 per cent difference;
— An automobile tire cost $169.69 for the retailer in Canada and $128.21 in the U.S., a 32 per cent difference.
The biggest differential on the list was for an over-the-counter painkiller, which cost Canadian retailers more than double the U.S. price.
"We are not saying this is the case for all suppliers, but there is enough evidence to suggest this is very serious," Brisebois said.
She told the senators that other factors also played a role, including import duties as high as 18 per cent, government regulations, transportation costs and Canada's protectionist supply management system on eggs, poultry and dairy products.
Two subsequent witnesses — Eric Levert of Reebok-CCM Hockey and Lisa Zajko, a tax lawyer with Deloitte & Touche — told the committee that Ottawa should eliminate duties on finished goods unless there is a competing Canadian producer.
That may be the case on more consumer items than the government believes. Ottawa last looked into the issue in the 1990s.
Levert said his company now outsources 90 per cent of the hockey equipment it makes to Asian factories.
The Canadian operations only produce sweaters and hockey sticks for professionals, yet heavy duties remain on imports of hockey equipment, he said.
"What we are showing is that Canada, supposedly known as the hockey country, is paying 18 per cent (duty) on hockey skates, 15.5 on all protective equipment and 8.5 per cent on helmets, while the U.S. is paying zero," he said.
Levert said his firm would have no objection to the removal of all duties, even on products Reebok is manufacturing in Canada.
When he testified last fall, Finance Minister Jim Flaherty said he would be willing to look at duties, although his officials told the senators such a move would have a minimal impact on the price gap.
But Brisebois disagreed and Levert also suggested government levies for importing finished goods were significant. He said a $15 duty on a product in his business ends up costing consumers up to $35.
The committee has yet to hear from major foreign manufacturers and it is not clear whether it will do so before presenting its findings later this year.
Committee chairman Senator Joseph Day said individual automobile manufacturers have refused an invitation to attend, but the committee will hear from the association that represents them on Wednesday.