Canada move to cut retail price gap with U.S. seen ineffective

Wed Feb 12, 2014 6:05pm EST
 
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By Louise Egan

OTTAWA (Reuters) - Proposed legislation to crack down on companies that unjustifiably charge more for goods in Canada than in the United States has raised eyebrows among experts on the issue as it is seen as being ineffective in lowering prices.

In Canada's federal budget on Tuesday, Finance Minister Jim Flaherty promised to give the country's competition watchdog more power to prohibit this sort of price discrimination, which has long frustrated consumers.

The news came as a surprise, particularly as it was not one of the recommendations made by a Canadian Senate committee that studied the trend at Flaherty's request and reported back in February 2013.

"To me it raises more questions than it answers. It's very difficult to imagine how they would enforce this," said Doug Porter, chief economist at BMO Capital Market. Porter has led studies showing items such as running shoes and barbecues are much more costly in Canada than the identical products are in U.S. stores, even when the two currencies were worth the same.

Flaherty's measure targets a practice called "country pricing", in which manufacturers, wholesalers or distributors may charge Canadian retailers more than U.S. retailers for the same goods.

Often the higher price is justified by higher operating expenses in Canada. But there are also cases of big brands using their market power to demand a higher retail price, which Flaherty said is "unjustified".

Just how the Competition Bureau would identify which prices are unjustified is murky.

Dan Kelly, president of the Canadian Federation of Independent Business, a small business lobby group, said the bureau needs years to mount an investigation and build a case against a company. Even then, it cannot necessarily impose penalties, as revealed by a recent case against the fees credit card companies charge merchants.   Continued...

 
A woman holds a Hudson's Bay shopping bag in front of the Hudson's Bay Company (HBC) flagship department store in Toronto January 27, 2014. REUTERS/Mark Blinch