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Pricing gaps investigated

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OTTAWA—The average automobile tire sells for $128.21 in the U.S., but the identical tire costs $169.69 in Canada, despite the U.S. and Canadian dollars being at near parity today.

This was the information provided by the Retail Council of Canada to Canada's Standing Senate Committee on National Finance in the committee's investigation of price discrepancies for consumer goods between the U.S. and Canada.

In many cases, across a wide swath of consumer goods, Canadians are the victims of “country pricing,” the committee said in its report, “The Canada-U.S.A. Price Gap,” issued Feb. 6.

Tariffs also play a role in higher prices for goods in Canada, although only 10 percent of consumer goods have tariffs levied on them in Canada, the committee said.

Some manufacturers charge Canadian retailers 10- to 50-percent more than U.S. retailers for identical products, the council told the committee.

Manufacturers give Canadian retailers three reasons for the discrepancies, the report said:

1. Canadians are used to paying more for goods than Americans;

2. Higher prices in Canada subsidize the cost of maintaining suppliers' offices and operations in Canada; and

3. The higher prices are necessary to compensate Canadian distributors and wholesalers, which face higher costs in Canada than in the U.S.

As for tariffs, Canadian Customs collected $3.6 billion in 2010-11, the report said.

Often the differences between U.S. and Canadian tariffs aren't that great, the council told the committee. The tariffs on vehicles, aircraft and transportation equipment imported into Canada is 6.7 percent, compared with 1.9 percent in the U.S., it said.

But the council also told the committee that the small size of the differences can be misleading. “The spikes in duty rates for certain products can contribute significantly to the price discrepancies for some products,” the report said.

Fifty-three Canadian government officials, corporate executives and association officials testified or submitted testimony to the committee between October 2011 and June 2012, the report said.

Many different factors contribute to the U.S.-Canada price gap, said Ted Mallet, vice president and chief economist for the Canadian Federation of Independent Business. He testified before the committee in February 2012.

“The Canadian market is considerably smaller than the U.S. market—only one-tenth the size,” Mr. Mallet said.

The cost of distributing and transporting goods in Canada also is a factor, according to Mr. Mallet, noting, “Canadian markets are strung out along a long, narrow border.”

Neil McKenna, vice president of transportation for Canadian Tire Corp., submitted testimony to the committee. Mr. McKenna could not be reached for comment at Tire Business' deadline, and his testimony was unavailable.

The committee, meanwhile, has pledged to undertake a comprehensive review of Canada's tariff policies and other factors that raise consumer prices for Canadians. There was no word from the committee as to when it would begin the review.



To reach this reporter: mmoore@crain.com; 202-662-7211.
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