The federal government should look at lowering tariffs and relaxing supply management restrictions if it wants to close the gap between U.S. and Canadian pricing, according to a study by the C.D. Howe Institute.
The higher prices that Canadians pay for everything from clothing to cars to cheese have been a major irritant for consumers and the falling loonie is helping to widen the gap this year.
Ottawa put forward legislation earlier this year saying it may pursue enforcement action against firms that charge more for goods in Canada than in the U.S.
But a study of the reasons for higher Canadian prices by the C.D. Howe Institute, a research think-tank, suggests there are a range of factors that affect the wholesale prices of goods, including the exchange rate and the lack of competition in Canada in both retail and manufacturing.
American consumers shop in a more competitive environment, with more goods on offer made by more manufacturers and that tends to keep prices lower, the study found.
Food and non-alcoholic beverages showed the widest gap between what Canadians pay and what Americans pay, with the Canadian prices about 28 per cent higher in 2011.
The price gaps on supply managed items, such as milk, cheese, eggs and ice cream, tended to be wider than on other goods. The C.D. Howe report estimates the average U.S./Canada wholesale price gap for all goods grew by 14 per cent between 2004 and 2007, but for supply managed goods, the gap grew 23 per cent.
The report acknowledges that "country pricing," the practice by some manufacturers of charging more in Canada than the U.S., does play a role in the price gap.
But its recommendations for federal action concentrate on eliminating tariffs and increasing competition, including:
- Reducing tariffs and taxes and eliminating supply management.
- Increasing retail level competition (possibly with higher customs allowances for Canadians who shop in the U.S.)
- Increasing wholesale level competition by fostering more manufacturing in Canada.
"If the federal government is serious about reducing costs of Canadians, it should first look at some of its own policies before tasking the Competition Bureau with investigating companies charging higher prices in Canada relative to the U.S.," the report said.
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