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Canada’s customs threshold: out of step and out of pocket

Andrea Stairs is managing director of eBay Canada.

Ahead of next week's North American Leaders' Summit, the C.D. Howe Institute is releasing a report Thursday that examines an area of trade policy where Canada is significantly out of step with its North American Free Trade Agreement peers. The report evaluates the economic effects of increasing Canada's de minimis threshold – the value below which international shipments are exempt from customs processes, duties and taxes.

Originally set three decades ago, Canada's de minimis is $20 (Canadian), making it one of the lowest in the world, and among the lowest of industrialized countries. Both the United States ($800 U.S.) and Mexico ($300 on postal shipments) have significantly higher thresholds. It should come as no surprise then that the C.D. Howe report clearly shows benefits from increasing the threshold in Canada.

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Under every scenario the authors evaluated, they have found that Canadian consumers and small businesses, as well as the federal government, all stand to benefit from even a modest increase in the threshold. Most notably, the authors highlight that it currently costs the federal government close to $170-million to collect roughly $40-million in duties and taxes (including provincial taxes) for shipments valued between $20 and $80. Plainly stated, Canada's de minimis threshold is a money-losing endeavour for taxpayers.

This trade topic has received attention as of late, with those opposed to a threshold increase arguing that giving consumers and businesses more access to foreign goods will hurt the Canadian retail sector and, consequentially, the overall economy. It's argued that we must maintain costly border frictions to "protect" Canadian retailers from increased competition. However, given that small, independent retailers figured out long ago how to compete with both domestic and foreign goliaths, the current de minimis mainly protects larger retailers who haven't updated their business models to address changing consumer demands. If the low de minimis, and associated brokerage fees, provide the only raison d'être for the Canadian arms of multinational retailers, then perhaps it is time that those resources be better deployed. We are a trading country, after all.

Consumer choice and benefits aside, what is also missed in opposing arguments are the frictions and disadvantages the de minimis creates for Canada's small and medium-sized businesses (SMEs) – the backbone of our diversified economy. In a country of our size, SMEs must seize opportunities beyond Canada's borders if they are to survive and grow. As a result, trade and border policies – such as the de minimis – play a vital role in facilitating business success.

For example, a low de minimis makes importing business inputs far more expensive for Canadian SMEs than for competitors in key markets such as the United States. When a Canadian business pays more for its business inputs than its global peers, it can only compete for buyers by reducing margins. And when sales to foreign customers account for a majority of a company's revenue – which is often the case for the SMEs that trade on platforms such as eBay – then this competitive disadvantage can be the difference between success and failure.

To bring these issues to the attention of government, a group of Canadian eBay SMEs sent an open letter this week to Prime Minister Justin Trudeau, commending him for his commitments to promote Canadian small business, but also encouraging him to modernize trade policies to ensure businesses like theirs can benefit from the global economy. The letter referenced eBay research that found that technology-enabled SMEs (such as the ones who signed the letter) export at tremendous rates – 99.8 per cent of Canadian SMEs using eBay's marketplace trade internationally, and on average these businesses sell to 20 countries every year. Comparatively, less than 11 per cent of traditional SMEs trade with customers outside of Canada and, on average, they sell to fewer than three countries. In concluding their letter, the SMEs point out that while their thriving, export-driven businesses serve as proof points that the "face of trade" is becoming more inclusive, they cannot realize their full potential due to outdated trade policies that limit their reach.

As trade delegations meet next week for the North American Leaders' Summit, the agenda should include finding ways to promote intraregional trade. The leaders should consider how trade and customs policies – such as Canada's low de minimis threshold – affect small and medium-sized retailers looking to grow through e-commerce, and champion policies that truly promote small-business exporting. It's time we update our trade policies to reflect the modern economy and support small Canadian exporters.

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