Canadian customs officers waive duties on U.S. goods

Briefing note for Prime Minister supports retailers' claims that Canada Border Services Agency is too lenient

Truck traffic

Three-hour delays snarl truck traffic along Huron Church Road in Windsor, Ont. in 2003 at the Canada-U.S. border. (Jason Kryk/The Canadian Press)

OTTAWA– Canada’s border guards routinely waive taxes and duties on goods bought by travellers in the U.S., says a briefing note for the prime minister.

The acknowledgment supports the suspicions of retailers that the Canada Border Services Agency is too lenient with cross-border shoppers, costing the economy millions of dollars in domestic sales.

The briefing note was prepared last June 25, when a Canadian dollar was worth 95 cents American, and the Harper government was concerned about a so-called Canada-U.S. price-gap that may have been encouraging cross-border shopping.

The note says the border agency waives duties and taxes when the value is below a certain threshold, an amount blacked out in the released document.

“This threshold was established in consideration of the cost to CBSA of processing a traveller through the collection process,” says the note, obtained by The Canadian Press under the Access to Information Act.

“Collections … may also be waived in cases where the volume in collections would result in unacceptable border processing delays, when interdiction activities are underway, or for reasons determined by local management.”

Canadians made 55 million trips to the U.S. in 2012 — 33 million of those completed on the same day — as a near-par dollar and newly raised limits on duty-free goods encouraged stateside bargain-hunting.

Border guards collect about $150 million in taxes and duties from travellers each year. But the note also says the agency doesn’t track the amounts it waives, so there’s no way to assess how much of a break cross-border shoppers are getting, or how much revenue the government is losing.

“Canadian retailers have raised concerns that CBSA has been too lenient … therefore providing an additional incentive to purchase goods in the U.S.,” says the note.

A spokesman for the Retail Council of Canada confirms the group has raised the issue with the Finance Department.

Vice-president Karl Littler says the council has no objection to the agency waiving amounts on goods valued below a $20 threshold long established by the federal government, but is concerned higher-value items are being waived as well.

“That definitely happens because I’ve experienced it first hand,” Littler said in an interview from Toronto. “People wave you through — so there’s no question that it happens, and we have raised it as a concern.”

The Harper government in 2012 raised duty-free limits for travellers coming back from a foreign country, to $200 worth of goods for trips of between one and two days, and $800 for longer trips.

Same-day trips enjoy no exemptions and the briefing note says those travellers — three out of every five U.S.-bound Canadians — get closer scrutiny at the border.

“CBSA indicates that they are stricter in enforcing the limit on same-day trips, as the potential for abuse is higher.”

An agency spokesman said border guards have to juggle many responsibilities, and local managers have the authority to adjust priorities.

“At the border we continually risk assess all priorities associated with our mandate that include revenue collection, service to the public (wait times), interdiction of inadmissible persons and goods, and the facilitation of legitimate trade and travel,” Luc Nadon said in an email.

“Management at CBSA ports of entry have several options available to them in order to meet these objectives, including opening more lanes, planning shift schedules, … scheduling overtime, etc.”

The Canadian dollar has recently fallen below 90 cents US, a level that BMO Capital Markets economist Doug Porter predicts will “put an abrupt and sizable chill into cross-border shopping.”

However, Littler notes that the drop in value may eventually drive up the cost of Canadian retail goods as importers pay more for U.S. products, helping to restore the U.S.-Canada price gap that is already partly driven by tariffs and corporate pricing decisions.

“So there are other factors at work, other than the dollar,” affecting cross-border shopping, he says.

The briefing note also says cross-border shopping does not necessarily move in lock-step with the dollar’s value.

“This correlation seems to be somewhat weaker — for example, trips to the U.S. have risen 20 per cent over the past two years, during which time the exchange rate has remained relatively stable.”
The government initially released a heavily censored version of the five-page briefing note last November, but restored much of the blacked out material this month after a successful complaint by The Canadian Press to the information commissioner of Canada.