Bloomberg News

Canadians at $5.50 a Head Paying Price for U.S.-Colombia Deal

October 31, 2011

Oct. 28 (Bloomberg) -- Canadians will start paying a $5.50 tax when they arrive in the U.S. on planes and ships, a consequence of a new trade deal that is irking Canada’s trade minister and its biggest airline.

U.S.-Colombia trade agreement legislation signed by President Barack Obama last week eliminated a tax exemption for travelers from Canada, Mexico and the Caribbean. The fee, which will be added to tickets purchased after Nov. 4 and include U.S. citizens returning home, will compensate for revenue lost as a result of tariff reductions on Colombian goods.

The U.S. can’t afford to lose revenue from the Colombia trade deal as it wrestles with a budget gap, said David Jacobson, the U.S. ambassador to Canada. The fee, which doesn’t apply to travelers who arrive by bus or car, will raise about $1 billion over the next 10 years, according to the Congressional Budget Office.

“The elimination of the exemption was necessitated by the budget situation in my country,” Jacobson said in a statement on Oct. 25. “It is paid by American citizens and foreign nationals alike, just like Canadian citizens and non-Canadian citizens pay fees at Canadian airports.”

The new fee drew the ire of Ed Fast, Canada’s trade minister, and Air Canada, the nation’s largest airline. About 18 million Canadians visited the U.S. in 2009, with 6.1 million arriving by air, according to data compiled by the U.S. Commerce Department.

About 1.7 million Mexicans visited the U.S. by plane last year, according to the department. Officials at Mexico’s embassy in Washington didn’t return calls seeking comment.

‘Costs On Consumers’

“Raising taxes at the border just raises costs on consumers,” Fast said in a statement. “Canadian officials have raised concerns about the removal of this exemption at the highest level. We will continue to raise Canada’s concerns with U.S. lawmakers.”

Air Canada, based in Dorval, Quebec, said it was disappointed by imposition of the fee.

“This decision by the U.S. government comes at a time when initiatives should be undertaken to encourage economic growth, not burden consumers with additional costs,” the company said in a statement on Oct. 25.

Canada is the biggest U.S. trade partner, exchanging $525 billion in goods last year, or 16 percent of the U.S. total, according to data from the Commerce Department.

The Air Transport Association of America opposes the fees, saying taxes on airlines and passengers are already too high.

Alcohol, Tobacco

“Federal taxes and fees already account for $61, or 20 percent, of the cost of a typical $300 domestic round-trip ticket,” Victoria Day, a spokeswoman for the Washington-based association with members including United Continental Holdings Inc. and Delta Air Lines Inc., said in an e-mail.

Air travel is taxed at “a rate higher than alcohol and tobacco, products that are taxed to discourage use,” Day said.

Canadians are angered that the U.S. would use the Colombia free-trade agreement to rescind benefits, Laura Dawson, a public- policy scholar at the Canada Institute of the Woodrow Wilson International Center for Scholars in Washington, said in an interview.

“When it was connected directly to the Colombian FTA, it irks a bit,” Dawson said in an interview. “It’s not going to put any damper on Canadian travel; $5.50 is not that big a deal, it’s a cup of coffee on the way in to the airport. The optics of it aren’t very good.”

Relations between the U.S. and Canada are improving, Dawson said. Since taking office in 2006, Canadian Prime Minister Stephen Harper and the Bush and Obama administrations ironed out differences over lumber duties, won an exemption for Canada from “Buy American” provisions and agreed to negotiate measures to ease congestion at border crossings.

Harper is also pushing for U.S. approval of Keystone XL, a proposed 1,661-mile (2,673-kilometer) pipeline from Alberta to Texas. TransCanada Corp. forecasts 20,000 jobs will be created to build the $7 billion pipeline, Chief Executive Officer Russell Girling told reporters on Oct. 7.

--With assistance from Mary Jane Credeur in Atlanta. Editors: Steve Geimann, Larry Liebert

-0- Oct/31/2011 13:16 GMT

To contact the reporter on this story: Eric Martin in Washington at emartin21@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net


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