How Will New USMCA Trade Agreement Affect Small Business?

Nov 29

The United States, Mexico, and Canada finally wrapped up months of negotiations and finalized a new trade deal a few hours short of its Oct. 1 deadline. The US Congress still has to approve the deal but all signs point to its ratification, with the USMCA set to take effect by January 1, 2020. But how will this new agreement affect small businesses?

Key Changes Between USMCA and NAFTA

Taking away all the comparisons being made about NAFTA and the USMCA, the bottom line is that the new trade agreement does have several key changes. The first one deals with the automobile industry. Under the USMCA, 75 percent of a vehicle’s content should come from North America in order to avoid tariffs. This will cut down on the number of parts being imported from Asia. The agreement also states that by 2023, 40 to 45 percent of production should be made by workers who are receiving an average of $16 or more an hour. That hourly wage is definitely higher than conventional salary levels in Mexico.

There are also a number of vital agricultural concessions in the new deal. For instance, Canada will be giving American dairy producers access to 3.6 percent of its market. This change could potentially be worth around $70 million in trade. In return, the US will also give its neighbor increased access to its agricultural market, including peanuts and sugar and all its related products.

The USMCA also introduces a sunset clause. According to this, the countries involved will renew the agreement every 16 years.

How the New Agreement Will Affect Small Businesses and eCommerce

Online retailers and small American businesses will be affected by the deal’s enhanced trade policies. One change that the three countries have agreed on is the increase in their “de minimis.” This refers to the level at which imported products are exempted from taxes, customs documentation, and duty collection.   

Under the USMCA, Mexico will be doubling its de minimis from $50 to $100 and Canada from C$20 to C$40. The U.S’ threshold remains the same. This means Canadian consumers won’t have to pay duty for cross-border online orders that are less than C$150 while Mexican customers will enjoy duty-free online orders for products $117 or lower.

A fact sheet provided by the Office of the U.S Trade Representative shows that the new agreement will also make the processing of shipment orders across the three states go faster, allowing small and medium-sized businesses to engage in more cross-border trading.

SMEs usually don’t have the resources to pay for customs taxes and duties, but they shoulder the compliance costs that low de minimis have on low-value shipments. The policy changes will give SMEs and new traders to Canadian and Mexican markets the opportunity to reach more customers at lower costs. Express delivery carriers will also benefit since they carry the bulk of low-value shipments.

Groups like the National Retail Federation are supportive of the raised de minimis threshold as it can improve sales across the borders. But eBay says that the USMCA’s customs provisions are not enough. It claims that it could lead to confusion among small businesses since express and postal shipments will be treated differently and there’ll be different collection rules based on the value levels.

[Featured image via calendar.in.gov]

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