Three pro-consumer ideas for reducing US-Canada price discrepancies

Despite 22 years of free trade with Americans, consumers in Canada regularly pay more compared to the U.S. price tag on similar items. That fact has finally come to the attention of Ottawa: “Canadians are irritated when they see large price discrepancies on the exact same products being sold on different sides of the border,” stated Finance Minister Jim Flaherty, this in his recent letter to the Senate’s Finance Committee.

“I share their irritation,” wrote Flaherty, as he requested the committee study the matter.

It was nice of the Finance Minister to publicly acknowledge the problem, though in Ottawa, sending an issue to a committee can be code for “make it go away.” But, proceeding on the assumption the Minister was sincere and serious about allowing open markets to function, here are three suggestions for the federal and provincial governments on enacting consumer-friendly policy.  

First, eliminate “supply management boards.” For consumers unaware of what these entities do, here’s a description courtesy of the BC Egg Marketing Board: “Supply management creates an orderly marketing system through collaboration among Canadian farmers and the provincial and federal governments.”  

Translation: government-protected agricultural cartels limit the number of producers and also the supply of products. It’s why the honest non-Orwellian description of these boards is “government-sanctioned monopolistic cartels.”

For example, insofar as dairy producers are protected from new domestic and international competition, it’s no surprise eggs, milk and cheese are more expensive in Canada than in the United States. The very existence of supply management boards acts as a brake on competition and thus prevents lower prices; they are fundamentally anti-consumer.

It’s more than a little ironic that if businesses attempted to “collaborate” and form a cartel on their own—say, if supermarkets colluded and conspired to never engage in price wars—they’d be prosecuted. Instead, it’s somehow OK if governments first sanction and then actively protect monopolistic behaviour.

A second useful reform in pursuit of better prices for Canadian consumers is for Ottawa to unilaterally remove tariffs and duties at the border. When governments stop punishing consumers for bringing back goods from the United States, businesses here— including American-based corporations that can charge Canadians higher prices by virtue of that border—will need to match the prices on the American side. It’s that or lose customers.

From big-ticket items such as automobiles and down to books, the Canadian-American price differential will quickly shrink when the only border impost is the sales tax you’d anyway pay in Canada. Also, to level the playing field for business here vis-à-vis consumers, Ottawa should exempt businesses from paying duties and tariffs on goods to which they are now applied.

Third, the provincial governments should scrap their own cartels. For example, Prohibition ended in most jurisdictions in the 1920s. Nine decades later, most provinces still operate on the presumption that a government monopoly or a shared public-private duopoly in liquor stores (where private retailers are allowed but new entrants are restricted) is somehow beneficial.

Hardly. Such stores are the repository of monopolistic preferences by government unions, the only real reason such anti-consumer retailers exist.  Also, it’s technically illegal to even transport alcoholic beverages over provincial borders, including delivery by parcel. That’s thanks to a 1928 federal law.

The federal government could delete that 1928 law tomorrow. But at present, not only is free trade absent for consumers on the Canada-U.S. border, it’s not even allowed for us Canadians between provinces when it comes to alcohol. That antiquated law and provincially-sanctioned liquor cartels are both part of the reason why wine, beer and spirits cost consumers more in Canada than in the United States.

One last thought for Minister Flaherty and the Senate Finance Committee. If the obvious economic logic on government-created and protected monopolistic cartels—they punish consumers through higher prices—isn’t enough to move fellow politicians, here’s another angle: how higher prices hurt the poor.

While few in power may care whether beer is more expensive for consumers than it ought to be, food, clothes and transportation are a different matter.

When agricultural products are priced higher because of “supply management boards,” when tariffs are applied to clothes, and when automobile prices are kept high because of duties, it is the poorest of consumers who suffer most.

Those consumers/Canadians/voters are the ones who live paycheque to paycheque. They are the ones most hurt by artificially high prices as food, clothes and transportation form the largest part of their limited budgets. (The rich won’t care if milk is half its current price or double; the poor will.) That’s the best reason to enact consumer-friendly policies.