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The Case for Eliminating Import Tariffs

Posted March 17, 2016

A provocative report titled “Making It Simple” released this week by the Mowatt Centre calls for the elimination of tariffs on most imports, arguing that the current regime costs billions to the private sector every year, and doesn't produce enough income for the government to justify it.

Author Mike Moffat says his paper “highlights the absurd, occasionally Kafkaesque, world of Canadian import tariffs and finds that while most tariffs raise next to no revenue for the government, they impose significant costs on Canadian businesses and consumers.”

Accordingly, the paper advocates reducing tariff burdens on Canadian businesses and consumers by setting tariff rates to zero on most goods. Examining past trade deals and, using the data in the World Bank’s World Integrated Trade Solution, the paper identifies tariffs with little obvious strategic value and suggests that by employing a process similar to past tariff reductions such as the removal of duty on manufacturing inputs by the Harper government in 2009-2010, nearly half of the country's remaining tariffs could be eliminated for a net cost to the treasury of $100 million per year.

The resulting “tax cut” from eliminating tariffs Moffat contends would go straight into the pockets of Canadian consumers and businesses. Additionally, the paper claims that “our businesses will become more productive through reduced regulatory barriers and our manufacturers in the clothing and food sectors (just to name two) will become more competitive through lowered input costs.”

In an article published in Canadian Business, Moffat summarized the case for selective elimination of low-revenue tariffs in ten point format that include reasons such as: the burdensome cost of compliance; the excessive paperwork involved; the high incidence of classification errors; and a lack of clarity that is often present concerning the interpretation of tariff nomenclature.

It should be noted that a similar proposal to that being made in the Mowatt paper was published in a 2014 study by the Canadian Council of Chief Executives (CCCE), which estimated that eliminating tariffs would generate $20 billion a year in economic activity, equivalent to a 1% increase in Canada’s GDP.