Winnipeg Free Press - PRINT EDITION

Feds' changes to tariffs 'a bit of a shell game'

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OTTAWA -- Canadians will be paying hundreds of millions of dollars more on everything from food to bicycles because of a little-noticed change in tariffs Ottawa places on imports from emerging nations like China and India, say analysts.

The change comes from a notice in Thursday's federal budget that starting in 2015, Canada is "graduating" 72 countries previously classified as developing to full-developed status for the purpose of tariffs.

In essence, the move is the flip-side of the coin of the much-hyped removal of all import duties on sporting and athletic equipment for such things as hockey pants and gloves -- as well as baby clothes -- that Finance Minister Jim Flaherty said he hoped would help close the Canada-U.S. price gap.

The change in classification, which will increase import tariffs from emerging countries by an average of about three per cent, will dwarf any price drops Canadians are likely to see from the elimination of those on sporting goods and baby clothes.

The tariff relief affects a total of 37 imported goods, while the tariff penalty will raise prices on more than a thousand items, says Mike Moffatt, a professor at the Richard Ivey School of Business at the University of Western Ontario.

The impact on Canadians will likely be higher prices on a wide range of goods, including imported food. Some examples include an increase on the tariff on bicycles to 13 per cent from 8.5 per cent; venetian blinds to seven per cent from three per cent; table fans to eight per cent from 2.5 per cent; tableware to 6.5 per cent from three per cent; umbrellas to seven per cent from five per cent; and potato starch to 10.5 per cent from five per cent.

According to the government's own calculations, the elimination of duties on sports and baby clothes will cost it $76 million a year, but it will gain $333 million annually by its other measure.

"They are basically giving us a dollar and taking back five. It's a bit of a shell game," Moffatt said.

Bank of Montreal chief economist Doug Porter, who regularly tracks the U.S.-Canada price gap, says the changes may actually widen the differences between the two countries rather than narrow them.

"One wonders if this doesn't potentially lead to even more of a problem on the price gap. I have to wonder if this isn't taking from one hand and piling on to the other... aggravating cross-border shopping," he said.

In the budget, the government explained it is making the changes in how countries are treated to reflect the changing global economic landscape. The criteria is based on whether any country's share of world exports is greater or equal to one per cent for two consecutive years, or if they are classified as high income or upper-middle income economies by the World Bank.

The economists speculate one of the reasons behind the move may be to undo what Canada and other developed countries claim is a trade advantage being gained by fixed-currency economies such as China, which can adjust exchange rates to boost exports.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition March 23, 2013 A5

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