Border trade

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A gas station in Estcourt Station, Maine, caters to border shoppers from across the border with Canada, where gasoline is significantly more expensive. Gaz bar maine.jpg
A gas station in Estcourt Station, Maine, caters to border shoppers from across the border with Canada, where gasoline is significantly more expensive.

Border trade, in general, refers to the flow of goods and services across the border between different jurisdictions. In this sense, border trade is a part of the normal trade that flows through the ordinary export/import legal and logistical frameworks of nations and smaller jurisdictions. However border trade specifically refers to the increase in trade in areas where crossing borders is relatively easy and where products are significantly less expensive on one side of the border than the other – often because of significant variations in taxation levels on goods. Common items involved in border trade include alcohol, tobacco, medication, recreational drugs, automobiles, automotive fuel, groceries, furniture and clothing.

Contents

As well as border trade across land or sea borders, air travel with a low-cost carrier can be worthwhile for an international trip for the same purpose, although baggage restrictions can limit the effective savings to those for small high-value goods.

Where border trade is done for tax evasion, it forms part of the underground economy of both jurisdictions.

By region

Europe

Typical examples of this are the borders between Ukraine and Russia, between Norway and Denmark/Sweden/Finland/Russia/Estonia and between Denmark and Germany//Switzerland. For instance, the excise tax on alcohol is lower in Estonia than in Finland and much lower than in Sweden, thus it is common to buy large volumes of alcohol when returning from Estonia: there are shops in the Tallinn harbour that cater specifically to tourists. [1] In Finland, the best-selling Alko shop in proportion to local population is on the border to Norway, since even if the alcohol tax is high in Finland, it is lower than the one in Norway (and was lowered in order to decrease border trade with Estonia).

Border trading exists between Lithuania and Poland, as buying food is cheaper in Poland than in Lithuania.

Border trading exists between Northern Ireland and the Republic of Ireland; during the Global Financial Crisis, when the Euro rose against the British pound, so many from the Republic visited Newry—with lines of traffic four miles long—that the phenomenon became known as the "Newry effect". One in four households in the Republic in counties as far as Galway, four hours away from the border, shopped for groceries in Northern Ireland. [2] Petrol is cheaper in the Republic, and groceries, furniture and clothing are cheaper in Northern Ireland.

Between the United Kingdom and France/Belgium, the booze cruise is a trip made specifically, or at least largely, to purchase cheaper alcohol and tobacco, and also goods offering different rates of VAT: laundry detergent, perhaps surprisingly, is a common purchase. Similarly, there is an important number of French purchasers buying tobacco and alcohol in Spanish border towns such as Le Perthus. In Spain, these products are a third cheaper than in France. During summer, around 70,000 visitors cross the Spanish border daily to buy such products, occasioning severe traffic jams. Nearby Andorra, with a low VAT (4%), is also extremely popular with French customers residing in the area. [3]

There is a significant amount of border trade in marijuana between the Netherlands, where cannabis is essentially legal, and surrounding countries such as Belgium, Germany, and France. [4]

A more legal example of the Netherlands is the Limburg province, where citizens occasionally take trips to Germany and Belgium to buy commodities like: medicinal products, handcrafted furniture, fresh produce, alcoholic beverages or home appliances for lower prices due to the VAT. This is very easy as there are no border controls due to the Schengen Agreement. It is fully legal to buy products for their own need over the border in the EU, if VAT is paid when purchasing, except from some low-VAT areas.

Residents of Switzerland and Liechtenstein who are non-EU residents can purchase many items in nearby Germany from anything from two to seven times the price they would pay for the same products in their own countries. Austria is also somewhat cheaper than Switzerland. Residents of Switzerland usually qualify for a tax refund on purchases made in all of the surrounding EU countries making cross border shopping even more attractive, particularly in Germany where there is no minimum-purchase requirement for claiming the tax back. [5] [6] [7] [8] [9] [10] [11]

North America

Cross-border shopping between three countries in Canada, Mexico, and the United States has been robust. The North American Free Trade Agreement (NAFTA) has reduced barriers and tariffs, facilitating cross-border trade. Each day 2008, $2 billion of cross-border trade was conducted between Canada and the United States alone. [12] Consumers take part in cross-border trading to broaden their product selection, gain access to a larger market place, or take advantage of currency volatility. Online commerce has taken on a more prominent role in recent years and gives consumers a convenient platform for cross-border shopping. However, additional border costs such as duties, brokerage and shipping are not always disclosed up front or even known to the retailer, leading to a situation where the final cost of an item can greatly exceed expectations. Dedicated cross-border shopping solutions such as Canada Post's Borderfree program existed to mitigate these problems with varied success. [13] In the end, caution is necessary to determine the final cost of goods before purchase.

The consumer import of prescription drugs from Canada and Mexico into the United States can provide a large cost savings for the patient, and is sometimes even facilitated by insurance companies, and the quality of medicine in Canada is comparable to that in the United States

During the COVID-19 pandemic that began in 2020, the US–Canada and US–Mexico borders were closed to non-essential traffic, leaving merchants who normally catered to cross-border shoppers stranded with no access to their customers. Exclaves such as Point Roberts, Washington, were particularly hard hit. [14] [15] [16] Specific business categories, such as parcel shops, tourism, fuel and dairy incurred severe losses in many border communities; [17] [18] both US–Canada and US–Mexico trade incurred multi-billion dollar impacts. [14]

Between U.S. states and across city and county boundaries within states

Although not crossing a national boundary, residents of one state may often travel across a state line in order to shop for a variety of goods. In some cases, a larger city or metro area in one state may draw a population in from another state or people may travel outside of city limits to surrounding areas with lower taxes. In other cases, residents may cross boundaries to take advantage of more friendly legislation regarding restricted products, such as alcohol, tobacco, fireworks, firearms, gambling, etc. For example, a New York City resident may engage in illicit cigarette trade by purchasing products in a nearby state with lower taxes and re-selling them illegally in New York. Furthermore, states which have legalized recreational marijuana may experience a high-amount of out-of-state customers.

South America

Historically, trade between the Colombian-Venezuelan border consisted primarily of Colombian residents traveling to Venezuelan border towns to purchase fuel derived from Venezuelan oil and other items that were cheaper to obtain there. However, due to the crisis in Venezuela that began in 2013 and worsened in 2017, thousands of Venezuelan residents began to travel to Colombian border towns to mostly purchase basic necessity goods. [19] This has also brought with it the appearance of a black market and smuggling throughout the entire Colombian-Venezuelan border space, [20] in addition to some restrictions that have been imposed, such as the closure of the Venezuelan border with Colombia by Nicolás Maduro on August 2015. [21]

In the Chilean border towns, it is common for Chilean residents to go to make purchases in the stores of their neighboring countries, as well as to purchase medical exams and other health services at a lower cost. Notable cases are the commercial relationship between Arica and Tacna, on the Chilean-Peruvian border. [22] Likewise, despite the ruggedness of the relief when having to cross the Andes mountain range along the Argentinean-Chilean border, there is a high flow of trans-Andean buyers, being a notable case that of Chileans near the city of Mendoza. [23] [24] More to south, a similar situation occurs between the cities of Punta Arenas and Río Gallegos. [25]

Asia

Many Singaporeans also travel to Johor Bahru in Malaysia or Batam in Indonesia, to take advantage of price differences and differing product availability. The Singaporean government has a law that requires a car leaving Singapore to have the fuel tank filled by at least 75 percent, to prevent it from being filled with fuel from outside Singapore. [26]

Shenzhen, on the border of mainland China with the special administrative region of Hong Kong, also benefits from border trade.

See also

Related Research Articles

<span class="mw-page-title-main">Convenience store</span> Small store that stocks a range of everyday items

A convenience store, bodega, convenience shop, corner store or corner shop is a small retail store that stocks a range of everyday items such as tea, coffee, groceries, fruits, vegetables, snacks, confectionery, soft drinks, ice creams, tobacco products, lottery tickets, over-the-counter drugs, toiletries, newspapers and magazines. In some jurisdictions, convenience stores are licensed to sell alcoholic drinks, although many jurisdictions limit such beverages to those with relatively low alcohol content, like beer and wine. The stores may also offer money order and wire transfer services, along with the use of a fax machine or photocopier for a small per-copy cost. Some also sell tickets or recharge smart cards, e.g. OPUS cards in Montreal or include a small deli. They differ from general stores and village shops in that they are not in a rural location and are used as a convenient supplement to larger stores.

<span class="mw-page-title-main">Customs</span> Government agency which regulates the flow of goods and collects duties

Customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transports, personal effects, and hazardous items, into and out of a country. Traditionally, customs has been considered as the fiscal subject that charges customs duties and other taxes on import and export. In recent decades, the views on the functions of customs have considerably expanded and now covers three basic issues: taxation, security, and trade facilitation.

<span class="mw-page-title-main">Systembolaget</span> State-owned Swedish liquor store company

Systembolaget, colloquially known as systemet or bolaget, is a government-owned chain of liquor stores in Sweden. It is the only retail store allowed to sell alcoholic beverages that contain more than 3.5% alcohol by volume. Systembolaget acts as a portal for private companies selling alcohol on the Swedish market and as of 2023, it represents 1,200 vendors ranging from small local breweries to large scale importers and multinational companies, selling products from a total of over 5,000 producers from all over the world.

An ad valorem tax is a tax whose amount is based on the value of a transaction or of a property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries, a stamp duty is imposed as an ad valorem tax.

Recreational drug tourism is travel for the purpose of obtaining or using drugs for recreational use that are unavailable, illegal or very expensive in one's home jurisdiction. A drug tourist may cross a national border to obtain a drug that is not sold in one's home country, or to obtain an illegal drug that is more available in the visited destination. A drug tourist may also cross a sub-national border to do the same, as in cannabis tourism, or purchase alcohol or tobacco more easily, or at a lower price due to tax laws or other regulations.

<span class="mw-page-title-main">Indirect tax</span> Type of tax

An indirect tax is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., impact and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.

<span class="mw-page-title-main">Duty-free shop</span> Type of retail outlet

A duty-free shop is a retail outlet whose goods are exempt from the payment of certain local or national taxes and duties, on the requirement that the goods sold will be sold to travelers who will take them out of the country, who will then pay duties and taxes in their destination country. Which products can be sold duty-free vary by jurisdiction, as well as how they can be sold, and the process of calculating the duty or refunding the duty component.

Consignment is a process whereby a person gives permission to another party to take care of their property and retains full ownership of the property until the item is sold to the final buyer. It is generally done during auctions, shipping, goods transfer, or putting something up for sale in a consignment store. The owner of the goods pays the third-party a portion of the sale for facilitating the sale. Consignors maintain the rights to their property until the item is sold or abandoned. Many consignment shops and online consignment platforms have a set day limit before an item expires for sale. Within the time of contract, reductions of the price are common to promote the sale of the item, but vary on the type of item sold (usually 60–90 days).

<span class="mw-page-title-main">Booze cruise</span> British slang for travelling abroad to buy cheap alcohol or tobacco

In British slang, a booze cruise is a brief trip from Britain to France or Belgium with the intent of taking advantage of lower prices, and buying personal supplies of (especially) alcohol or tobacco in bulk quantities. This is a legally allowed process not to be confused with smuggling.

Tax-free shopping (TFS) is the buying of goods in another country or state and obtaining a refund of the sales tax which has been collected by the retailer on those goods. The sales tax may be variously described as a sales tax, goods and services tax (GST), value added tax (VAT), or consumption tax.

<span class="mw-page-title-main">Import</span> Good brought into a jurisdiction

An import is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade.

<span class="mw-page-title-main">Excise</span> Goods tax levied at the moment of manufacture rather than sale

An excise, or excise tax, is any duty on manufactured goods that is normally levied at the moment of manufacture for internal consumption rather than at sale. Excises are often associated with customs duties, which are levied on pre-existing goods when they cross a designated border in a specific direction; customs are levied on goods that become taxable items at the border, while excise is levied on goods that came into existence inland.

<span class="mw-page-title-main">European Union value added tax</span> EU-wide goods and services tax policy

The European Union value-added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt in national legislation a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.

<span class="mw-page-title-main">Alcohol law</span> Law pertaining to alcoholic beverages

Alcohol laws are laws relating to manufacture, use, being under the influence of and sale of alcohol or alcoholic beverages. Common alcoholic beverages include beer, wine, (hard) cider, and distilled spirits. Definition of alcoholic beverage varies internationally, e.g., the United States defines an alcoholic beverage as "any beverage in liquid form which contains not less than one-half of one percent of alcohol by volume". Alcohol laws can restrict those who can produce alcohol, those who can buy it, when one can buy it, labelling and advertising, the types of alcoholic beverage that can be sold, where one can consume it, what activities are prohibited while intoxicated, and where one can buy it. In some cases, laws have even prohibited the use and sale of alcohol entirely.

<span class="mw-page-title-main">Value-added tax in the United Kingdom</span>

In the United Kingdom, the value added tax (VAT) was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after income tax and National Insurance. It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994.

<span class="mw-page-title-main">Zona Franca of Iquique</span>

The Zona Franca de Iquique, known by the acronym Zofri, is located in the coastal port city of Iquique, in Iquique Province of the Tarapacá Region, northwestern Chile.

<span class="mw-page-title-main">Illicit cigarette trade</span> Trade in tobacco goods which fail to comply with legislation

The illicit cigarette trade is defined as "the production, import, export, purchase, sale, or possession of tobacco goods which fail to comply with legislation". Illicit cigarette trade activities fall under 3 categories:

  1. Contraband: cigarettes smuggled from abroad without domestic duty paid;
  2. Counterfeit: cigarettes manufactured without authorization of the rightful owners, with intent to deceive consumers and to avoid paying duty;
  3. Illicit whites: brands manufactured legitimately in one country, but smuggled and sold in another without duties being paid.
<span class="mw-page-title-main">Value-added tax</span> Form of consumption tax

A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. If the ultimate consumer is a business that collects and pays to the government VAT on its products or services, it can reclaim the tax paid. It is similar to, and is often compared with, a sales tax. VAT is an indirect tax because the person who ultimately bears the burden of the tax is not necessarily the same person as the one who pays the tax to the tax authorities.

A destination-based cash flow tax (DBCFT) is a form of border adjustment tax (BAT) that was proposed in the United States by the Republican Party in their 2016 policy paper "A Better Way — Our Vision for a Confident America", which promoted a move to the tax. It has been described by some sources as simply a form of import tariff, while others have argued that it has different consequences than those of a simple tariff.

<span class="mw-page-title-main">Import One-Stop Shop</span> Electronic portal in the European Union

Import One-Stop Shop is an electronic one-stop shop (OSS) portal in the European Union (EU) which serves as a point of contact for the import of goods from third countries into the European Union. The scheme aims to simplify the declaration and payment of value-added tax when importing goods into the European Union.

References

  1. ↑ "Third of Estonia's Alcohol Sales Attributed to Finnish Tourists". 22 April 2014.
  2. ↑ Quinn, Eamon (2008-12-18). "A Northern Ireland Town Is a Shoppers' Paradise". The New York Times. pp. A14. Retrieved 5 May 2015.
  3. ↑ "Shop frontiers: the rise of cross-border buying around the world". The Guardian. 2 July 2015.
  4. ↑ Rodriguez, Cecilia (2013-09-13). "Marijuana For Tourists, Discord for the Netherlands". Forbes. Retrieved 28 December 2015.
  5. ↑ "Einkaufstourismus ist im Schweizer Detailhandel eine feste Grösse | NZZ". Archived from the original on 2018-01-09.
  6. ↑ "Thurgau macht Druck gegen den Einkaufstourismus | NZZ". Archived from the original on 2018-05-02.
  7. ↑ "Keine Mauer wider den Einkaufstourismus | NZZ". Archived from the original on 2017-09-20.
  8. ↑ "Einkaufstourismus: Keine Entwarnung". 22 January 2018.
  9. ↑ "Ärger mit Einkaufstouristen: Ein politischer Dauerbrenner".
  10. ↑ "EINKAUFSTOURISMUS: Einkäufe im Netz und ennet der Grenze setzen Ostschweizer Gewerbe weiter zu".
  11. ↑ "HSG Startseite | Universität St.Gallen".
  12. ↑ "New Cross-Border Cooperation Will Strengthen Cargo Security". Archived from the original on 2010-03-17. Retrieved 2010-03-12.
  13. ↑ Canada Post sold "Borderfree" in 2012: https://www.borndigital.com/2012/03/02/canada-post-sells-off-cross-border-e-commerce-platform-borderfree-2012-03-02
  14. 1 2 "US border closure has caused big losses on one side, gains on the other". 13 July 2021.
  15. ↑ "Point Roberts' fire chief warns of 'humanitarian crisis' amid border closure". 22 June 2021.
  16. ↑ "Food crisis feared on Washington peninsula isolated by border as only grocery teeters on closure - OPB". Archived from the original on 2021-06-24.
  17. ↑ "What border closure means for Ogdensburg business".
  18. ↑ "You've got mail, overflowing U.S. post office near Canadian border tells Ontario customers". CBC News.
  19. ↑ "Miles de venezolanos cruzan la frontera con Colombia para comprar productos básicos". BBC News Mundo . 10 July 2016. Retrieved 25 April 2023.
  20. ↑ "Así es el contrabando que desangra a Venezuela y Colombia". El Colombiano . Elcolombiano.com. 10 September 2015. Retrieved 25 April 2023.
  21. ↑ Semana (2022-08-19). "Se cumplen siete años del cierre de frontera entre Colombia y Venezuela, así avanza la reapertura". Semana.com Últimas Noticias de Colombia y el Mundo (in Spanish). Retrieved 2023-04-26.
  22. ↑ Lu Torres, Ani (19 July 2022). "Tacna se encarece para los chilenos y el comercio en riesgo por depreciación del peso". Gestión . Gestion.pe. Retrieved 25 April 2023.
  23. ↑ Molina J., Tomás (13 April 2023). "Aluvión de chilenos en Mendoza: Repletan supermercados y hacen "explotar" el mercado del dólar blue". El Mercurio . Emol . Retrieved 25 April 2023.
  24. ↑ Pablo, Mannino (7 April 2023). "Sorprende en Mendoza la cantidad de turistas chilenos que llegaron para Semana Santa: qué productos y servicios buscan más". La Nación . Retrieved 25 April 2023.
  25. ↑ ""Tour de compras": viajan de Punta Arenas a supermercados argentinos". www.24horas.cl (in Spanish). Retrieved 2023-04-26.
  26. ↑ "Three Quarter Tank Rule". Singapore Customs. Retrieved 2 June 2021.
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