New duty-free exemptions luring Canadians stateside: analysts

A U.S. Customs and Border Protection officer looks toward a car coming toward him at the border crossing between the U.S. and Canada, in Blaine, Wash. on Saturday, May 30, 2009. (Elaine Thompson/AP)

Higher duty-free exemptions for cross-border shoppers helped attract Canadians stateside in record numbers in June, analysts and retail groups said Tuesday as Statistics Canada reported 1.9 million overnight trips to the U.S. that month.

Paul Ferley, an economist at RBC, said the new exemptions -- which let those on an overnight trip to the U.S. declare $200 worth of purchased goods, up from $50 -- combined with a strong Canadian dollar have upped the incentives to shop south of the border.

"There was concern with the higher exemptions that it could prompt increased shopping trips into the U.S.," said Ferley.

"Certainly the recent data suggests that's what played out."

A Statistics Canada report released Tuesday says overnight trips to the U.S. rose 7.5 per cent in June compared to May, to 1.9 million. That's the highest level since 1972, when the agency began keeping records on such cross-border jaunts.

Most overnight travel was by car, with Canadians taking more than 1.2 million trips -- a 10 per cent increase month over month.

The new duty-free rules kicked in June 1.

David Wilkes, a senior vice president at the Retail Council of Canada, said the increase in overnight trips to the U.S. highlights the fact that extra costs, such as higher tariffs, leave Canadian retailers at a disadvantage when competing with American stores.

"There was a lot of attention in the media and elsewhere in respect to the increased border exemptions, so it's not surprising that there was increased activity at the border," said Wilkes.

"Until we address the root causes we are going to continue to see consumers going to the U.S. seeking the best value for their dollar."

Canadians on a jaunt to the U.S. for two and seven days are now allowed to declare $800 of goods, up from $400, while the limit for visits of more than a week increased to $800 from $750.

The retail council has said increasing duty exemptions on goods bought in the U.S. would be especially detrimental to Canadian retailers in border communities.

Local chambers of commerce across the country and the council have asked Ottawa to make changes that would help them combat cross-border shopping. They want the federal government to eliminate the tariffs charged on imported finished goods which, they say, add to the costs that Canadian retailers must deal with when they set consumer prices.

While StatsCan didn't specifically attribute the spike in visits to the new duty-free rules, the agency did note the two events coincided.

The total number of overnight trips -- including the U.S. and overseas destinations -- made by Canadians in June also hit its highest point in nearly four decades of record keeping. Statistics Canada says Canadians took nearly 2.8 million overnight trips abroad in June, up 5.7 per cent compared to May.

Statistics Canada says Canadians took 807,000 trips to overseas countries in June, an increase of 1.4 per cent from May and the first time that monthly travel to overseas countries topped the 800,000 mark.

Travel to Canada also rose 0.5 per cent to around 2.1 million trips in June.

Americans took 651,000 same-day car trips to Canada in June, down 1.7 per cent from May, while the number of travellers from other countries rose 0.8 per cent in June to 381,000 trips.

Some 26,000 residents of China visited Canada in June -- a 5.5 per cent increase from the month before and the highest monthly figure on record -- while the number Italian travellers also grew by 5.5 per cent.

But travel to Canada from India fell 5.4 per cent.