Canada Proposes Law to Cut Consumer Price Gaps With U.S.

Finance Minister Jim Flahertysaid his government plans to introduce legislation to try to stop companies from charging higher prices in Canada than they do in the U.S.

The proposed law will address “price discrimination that is not justified by higher operating costs in Canada,” according to budget documents presented today by Flaherty in Ottawa. The country’s Competition Bureau will oversee the law, to be introduced in the coming months, according to the budget.

Companies “better have some sort of explanation other than they’re targeting Canada because our people are relatively affluent and will pay,” Flaherty told reporters.

Prime Minister Stephen Harper’s Conservatives are shoring up consumer safeguards as they prepare for a federal election scheduled for October 2015 that will test their record on managing the world’s 11th largest economy.

Canadian prices for goods such as diapers, running shoes and cars are 10 percent higher than in the U.S. after adjusting for exchange rates, BMO Capital Markets chief economist Doug Porter said in an October report. The gap fell from 14 percent in May.

“This is going to extend their mandate into a very gray area,” said Avery Shenfeld, Toronto-based chief economist at CIBC World Markets. “Separating what’s justified from unjustified is going to be difficult.”

Consumer Protection

The budget includes other measures to protect consumers, including a cap on the rates that wireless phone providers charge each other when their customers “roam” on external networks and a code of conduct for financial services.

Canada will also give the Canadian Radio-television and Telecommunications Commission and the industry ministry power to fine companies that violate rules such as the government’s wireless code of conduct.

Canada’s Senate finance committee concluded in a February 2013 report there is “no single explanation” for the fact that prices in Canada can be higher than those in the U.S., even after adjusting for exchange rates.

The report cited factors for the discrepancy including the relatively small size of the Canadian market and customs tariffs levied by the federal government.

The budget said the new law is intended to address “country pricing strategies,” when companies use their market power to charge higher prices that aren’t reflective of “legitimate higher costs.” The documents don’t elaborate on how the Competition Bureau will determine whether higher prices are justified.

BMO Capital Markets chief economist Doug Porter said the price measure was the biggest surprise in the budget. “I have a hard time believing it would make a difference,’” Porter said in an interview in Ottawa. “Given the currency has dropped 10 percent in the last year, the gap becomes a non-factor.”

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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