Canada-U.S. price gap measures coming in the fall

The federal government is poised to introduce legislation in the fall to try to narrow the consumer price gap between Canada and the U.S.

The proposal was a key part of the consumer-first agenda set out in the February budget, and was made in the face of warnings from industry groups that the idea was unworkable at best, and unenforceable at worst.

"It's a budget commitment," Jake Enright, press secretary to Industry Minister James Moore, told CBC News. "We intend to move forward on it in due course."

Enright refused to comment further, but sources expect the proposed legislation to be part of a second large budget implementation bill this fall.

That means it will be only one of a wide range of measures the opposition parties and public will have to wade through, making it more difficult to analyze in detail, let alone find reasons to oppose.

After all, consumers are us. And anyone who's spent any time in the U.S. lately knows that stuff is cheaper there, even the stuff that is produced right here in Canada.

Still, the Conservatives have done their best to downplay the price promise in recent months, as Moore focused most of his time on other hard-to-deliver consumer initiatives, such as promoting competition in the cellphone industry and convincing the provinces to scrap internal trade barriers.

But the plan does raise awkward questions of why this government, staunch believers in letting the market decide, is prepared to regulate how much more Canadian should pay than their American cousins for everything from food to cars to hockey equipment.

Critics warn the plans would force the Competition Bureau to hire more investigators, in order to probe every inch of the supply chain and determine where prices are higher than in the U.S. and whether those higher costs are justified.

Those concerns were raised last spring by industry groups in consultations with both Moore's department and the Prime Minister's Office.

Many of the people at those meetings left with the feeling that the government understood they had a problem and would re-think the plan to come up with a better option to close the price gap between the two countries, one they could sell not just to consumers but to business, too.

What is unjustified discrimination?

When the Conservative government made this commitment, the plan was to empower the competition commissioner to investigate complaints of "unjustified" cross-border price discrimination, and to impose fines in cases where consumers are being charged more for identical goods selling for less south of the border, unless that price difference reflects legitimate higher costs.

Just what qualifies as a legitimately higher cost isn't clear. Neither is how much higher the cost has to be to warrant intervention by a government regulator in the marketplace, where price is generally determined by how much consumers are willing to pay.

"What I'm worried about is the government setting up a system of investigation and fines that will only cost consumers more at the end of the day," says Jayson Myers, CEO of Canadian Manufacturers and Exporters, the country's largest industry association.

Myers's organization is not the only one wondering how this whole thing will work.

Retail groups and competition lawyers are equally perplexed.

"How do you decide what's unjustified versus a legitimate higher cost," asked Adam Fanaki, a partner with the law firm Davies Ward Phillips & Vineberg in Toronto.

Fanaki, who's a former senior executive with the Competition Bureau, said he worries a Canadian company trying to expand in the U.S. market could run afoul of the proposed law if it decided to charge lower prices in the States as a way of promoting its product.

"That would potentially disadvantage Canadian businesses."

Retail politics

The 2014 budget does recognize that there are higher operating costs in Canada because of some import tariffs on food, less competition in the retail sector and the relatively small size of the Canadian versus American markets.

But it doesn't set out how much more those factors should add to the cost in Canada.

There are other issues, too. How much variation in price is the government prepared to accept? How will the difference in the value of the Canadian and U.S. dollars be taken into account? How will the Competition Bureau determine who is responsible — the manufacturer, the distributor, the retailer — when instances of unfair price gaps are found?

The details, as they say, are the devil.

But for the Conservatives, a promise is a promise, whether it's to introduce income splitting for families with children when the budget is balanced next year, or to close the Canada/U.S. price gap.

Oh, and it's also retail politics at its best.

• A closer look at the Canada-U.S. price gap