Market Scene : U.S. Prices Are Definitely Right for Canadian Shoppers : The torrent of business is devastating the economy north of the border and causing some surprisingly short tempers on the American side.

Last year, when Gilbert Little was trying to make a living running a gas station in this border city, he would watch in dismay as his fellow Canadians went zipping over the international bridge to fill up on cheap American gasoline. Some even carried red jerrycans with them, to bring home extra fuel.

“We had to subsidize the gas, the help and everything else” in last-ditch efforts to compete, he recalls. But to no avail: “Our business was all going across the border.”

Indeed, for the past year, and especially since January, Canadians who live anywhere near a U.S. border crossing have been flocking to the other side to shop. Gasoline is a favorite buy. In the Niagara Falls region, American pump prices have lately been about a third less than Canadian ones. And elsewhere along the 5,482-mile border, the longest undefended international boundary in the world, the price gaps have been even wider.

The consequences for Canadian retailing have been dire. Little, for one, decided he didn’t stand a chance and boarded up his gas station. Today, he runs a profitable car-repair shop in another Niagara Falls neighborhood.

“If the gas business had stayed good, we would have stayed where we were,” he says ruefully.

According to Statistics Canada, a government fact-gathering agency, Canadian motorists made more than 14 million border crossings for one-day trips in the first four months of this year, a 22% increase over the first four months of 1990.

The Canadians are certainly not going for the scenery. In the Niagara region, they cruise popular strip-mall developments in the shadow of smokestacks and landfill heaps, while to the west in Windsor, they cross with trepidation into crime-ridden central Detroit.

They go in hopes of saving money, especially since January, when the Canadian government imposed a hated new 7% tax on virtually all retail transactions. The levy is called the goods and services tax, or GST, but disgusted Canadians joke that the initials really stand for “go south tax.”

As the stream of Canadian shoppers has become a torrent, guidebooks have begun appearing in Canadian bookstores, instructing tax-evaders and bargain-hunters on where to find the best deals in U.S. cities. Small, once-tranquil Canadian border towns, such as St. Andrews, New Brunswick, are now finding themselves choked with border-bound traffic.

On the U.S. side of Niagara Falls, the congestion has grown so bad--and tempers so short--that the city visitors’ bureau has dispatched a public relations man to preach homilies in local churches on loving thy neighbor.

“People are open-minded and thinking good thoughts when they’re at church,” explains the bureau’s John Oliver, who adds that his office is trying to combat the image of Canadians as rude litterbugs and causers of endless lineups in supermarkets.

In southern Ontario, the Border Examiner, a new tabloid, offers detailed directions to American malls and ringing editorials on the free market. Toronto travel agents have found a rich opportunity in packaging overnight bus trips to Buffalo. And in the Ontario city of Oshawa, the local college has even added mini-courses on how to shop in New York to its curriculum.

While all this has been going on, Canadian retail sales for the first quarter of 1991 have fallen by 6% (12% if adjusted for inflation) compared to 1990--the deepest decline in 30 years.

The Ontario Ministry of Industry, Trade and Technology estimates the U.S. shopping craze will cost the provincial retailing industry nearly $2 billion this year. That would mean 14,000 jobs lost in Ontario alone. And analysts say a $2-billion loss for Ontario translates into a $4.5-billion loss for all of Canada.

“We used to think about (Canadian) border retailing being crippled,” says Tim Carter, vice president of the Canadian Council of Grocery Distributors. “Now, I think a better word is ‘decimated.’ ”

Retailers, financial analysts, politicians--practically everybody in Canada except the southbound bargain-hunters--are worried about the long-term effects of the cross-border shopping boom. They fear that if too many retailers founder, malls will then collapse, and the reverberations will spread through Canadian real-estate investment and banking.

“I’ve been here 20 years, I have 85 shopping centers, and I’m going to see a lot of them go down the drain,” says Jerry Sprackman, an embittered Ontario shopping-center developer.

“Where does this all stop?” adds John Winter, president of a retail-consulting firm in Toronto. Winter has already noticed the beginnings of a sort of retail redlining, as lending institutions refuse to put any more money into retail ventures near the U.S. border. “Once you get into a whirlpool, you can’t change the direction of it. We could lose a whole generation of retailers,” he says.

Winter recently quantified America’s competitive edge by studying retail prices and costs in the twin border towns of Ft. Frances, Ontario, and International Falls, Minn. Each town has a population of about 8,000, and each is about a three-hour drive from the nearest large city.

Winter found that just about everything was more expensive in Ft. Frances: Gasoline cost about 60% more, a case of soda was 150% more and film was going for 300% more than in International Falls.

Most glaring and inexplicable of all were the prices of lettuce. It cost 500% more in the Canadian town--an anomaly, since fresh produce is normally one of Canada’s better buys.

To find out why Canadian prices have soared so dangerously above the American numbers, Winter worked through the cost structures of various goods sold in each country. There turned out to be no single Canadian inflationary culprit; Canadian shoppers may blame everything on the GST, but in fact, Winter found countless small add-ons at just about every level of the Canadian economy.

Retail space was renting for 50% more in Ft. Frances than in International Falls, for instance. Municipal taxes in the Canadian town were five times the American rate. And at supermarkets in the two towns, unionized Canadian workers were earning at least three times the wages of their non-union American counterparts.

Across Canada, there are other cost factors, many of which shed light on the different societal values that distinguish this country from the United States.

Canada, for one thing, maintains marketing boards to regulate the supply of poultry, eggs and dairy products. Canadians generally think the boards are a neat way of protecting family farmers, while at the same time guarding against the avalanches of surplus butter and cheese that pour out of the subsidized American agricultural system.

But the price of such supply management inevitably shows up at the cash register. Torontonians regularly shell out $1.57 for the dozen eggs that can be found in Buffalo for just 99 cents. (The use of eggs, bananas, toothpaste and the like as loss-leaders has never really caught on in Canada, retail analysts note.)

Likewise, Canada’s vaunted system of nationalized medical coverage calls on employers here to pay hefty health-insurance premiums for their staff. These costs are ultimately passed along to consumers.

Some Canadian loyalists still argue that the nationalized health system is worth the extra cost. “If I go to a hospital, I walk in, I get the service, I give my number and I walk out--I never see a bill,” says John Morrison, owner of an Athlete’s Foot shoe store in St. Catharines, Ontario, about 10 miles from the Niagara Falls bridge to New York state. “We really do have something here that’s worth working for.”

Canada’s entire wholesaling system is structured differently than America’s--it has more layers of distribution--and the Canadian dollar is overvalued against the U.S. greenback. Canadian merchants also seem to have an un-American aversion to opening factory outlets and discount warehouses. Instead, they put up with protective pieces of social-welfare legislation that would make an American chafe: Ontario, for instance, forbids most stores to open on Sundays and makes it illegal for grocery stores to accept credit cards.

“I think Canada has the right attitude, and the United States is wrong,” says analyst Winter. “You can argue that the United States is not charging the right price for gasoline to promote conservation. You can make a case for (Canada’s) higher taxes on alcohol and cigarettes because of the high costs they engender to society.

“But unfortunately, we’re living beside the United States. In the middle of a recession, it’s like living next to a vampire.”

Indeed, while business people such as Morrison are still applauding Canada’s costly social safety net, other retailers are simply giving up on it. Another piece of social-justice legislation here requires retailers to stock their shelves with products labeled both in French and English. The measure is intended to ensure equal rights for French Canadians, but it also adds to retail costs--merchants can’t buy cheaper English-only wholesale goods. Steven Lundon, owner of a building-supply outlet in Ft. Frances, is having none of it.

Lundon’s store is stuffed with English-only products bought on the U.S. wholesale market, and he says that since he changed his purchasing techniques, his prices have compared favorably with American ones.

“If I had a person who came in and told me I had to have French labeling, I don’t think he’d be in my yard too long,” he scoffs.

The Canadian government is starting to react to the rising tide of citizen scofflaws, tax-evaders, smugglers and activist business people. Earlier this month, it announced plans to place more customs staff at border crossings and to stiffen up the penalties on smuggling.

Canadian shoppers are supposed to pay the GST, provincial sales taxes and various duties on their purchases when they return home, but many lie about what they bought when they come back across the border. A favorite practice is to wear old clothes to the United States, put on all new purchases and throw out the old clothes before going through customs. Mall bathrooms in upstate New York now carry signs warning Canadian quick-change artists not to flush their discarded apparel down the toilets.

Some border mayors and merchants are expressing relief at the Canadian government’s new countermeasures, but others say they aren’t nearly enough to get at the underlying price differentials and stem the cross-border shopping tide.

“It’s not the answer,” complains Sprackman, the shopping-center developer. “As long as things are 35% more expensive in Canada, people are going to say, ‘The hell with it. I’m going to go buy in America.’ The government, as far as I’m concerned, has sold out the Canadian businessman.”

Buying Along the Border: A Random Comparison

Based on a sample of prices posted in stores at either side of the border in the Niagara Falls region.

Prices in U.S. dollars.

One gallon of gas: Canada price: $1.77 U.S. price: $1.02

One gallon 2% milk: Canada price: $4.38 U.S. price: $2.29

Carton of 200 cigarettes: Canada price: $35.50 U.S. price: $19.32

One pound fresh chicken: Canada price: $1.74 U.S. price: $0.64

One pound cheddar cheese: Canada price: $3.91 U.S. price: $1.79

One six-pack low-price beer Canada price: $5.74 U.S. price: $2.39

One tube of toothpaste: Canada price: $1.90 U.S. price: $0.77

One bottle Scotch: Canada price: $34.75 U.S. price: $24.00