OTTAWA - Federal Finance Minister Jim Flaherty is prepared to look at reducing tariffs and to use "informal persuasive powers" if needed to bridge the Canada-U.S. price gap on consumer goods.
The finance minister told the opening of Senate committee hearings on the issue Wednesday night that he regards the exercise as more than just posturing.
"If the committee recommends that we change this tariff or that tariff, we'll look very closely at what's feasible," he told reporters after his brief testimony.
"We've reduced, eliminated a lot of tariffs, they are protectionist and we're believers in free trade," he added.
In testimony, Flaherty said he has other tools, including persuading retailers to lower prices.
"We have ways of encouraging good behaviour through the tax system," he said.
The finance minister told the senators he did not have the answers as to why prices remain stubbornly higher in Canada -- on average about 20 per cent more according to an April comparison survey by the Bank of Montreal -- despite the fact the loonie has steadily risen against the U.S. dollar over the last five years.
The dollar has traded near or above parity for extended periods twice within than period, in 2007-2008 and for much of the past year. It closed at 98.02 cents Wednesday.
The Retail Council of Canada, which is expected to testify later this fall, has called tariffs a major factor in the persistent price gap, saying some duties are as high as 18 per cent.
Flaherty said he did not know if tariffs were a major issue, but in later testimony other government officials downplayed the impact.
"It certainly is an issue that merits looking at but in general the tariff rates are actually quite low," said Jim Haley, general director in the Economic and Fiscal Policy Branch. "Ninety per cent of goods enter the country duty free. In 2010, $360 billion of $400 billion in total imports came into the country duty free."
Officials also noted that tariffs apply on the landed price of goods, not the higher retail price.
Officials said the issue of pricing for a domestic market is complex and can involve manufacturers "exercising market power" by discriminating up or down in pricing in rich markets, or to maintain a market share.
Flaherty, who asked the Senate national finance committee to look into the issue in September, said Canadians are rightly annoyed when they see different prices for the same item.
He said he often gets complaints from Canadians about the gap for such items as DVDs. On average, he said, consumers are telling me the prices are about 20 to 30 per cent more in Canada.
"Canadians are rightly annoyed and perplexed," he said.
The hearings, which are expected to last for weeks, will look into a variety of issues, including the impact of tariffs, transportation costs and market size differentials between the two countries.
