April 19, 2018

Higher De Minimis Thresholds in Canada and Mexico Would Bring Reciprocity for US Small Businesses

As the United States, Canada, and Mexico wrap up the current round of negotiations to update the North American Free Trade Agreement (NAFTA), raising the de minimis threshold (DMT) in Canada and Mexico should be addressed. A DMT is the monetary value under which an international shipment incurs no duties and has minimal clearance procedures and data requirements. The DMTs in Canada and Mexico are far too low. These thresholds can be a barrier for international trade, particularly global e-commerce, which is an important growth avenue for small and remote businesses.

The vast difference among these thresholds in the NAFTA countries reflects a lack of reciprocity in international trade. Correcting this imbalance will benefit US small businesses, who will then enjoy the same market access in those countries that Canadian and Mexican small businesses enjoy in the United States.

Under current rules, shipments valued under $800 from a Canadian or Mexican business incur no import duties and are subject to minimal clearance procedures and data requirements when entering the United States. But when a US firm ships to Canada or Mexico, any shipment above $16 and $50, respectively, is subject to duties, time-consuming clearance procedures, and burdensome regulations.

These costs tend to fall more heavily on small businesses because those businesses are more likely to ship in small batches and have fewer resources than large firms to expend on administrative tasks. Small businesses therefore face a disproportionately high cost of compliance with import procedures for low-value parcels.

Over 3.8 million US small businesses in retail trade, wholesale trade, and manufacturing stand to gain from higher DMTs across NAFTA trading partners. These small businesses exist all over America, in every state, and in urban and rural areas alike.

The table below shows the number of small businesses in each state that stand to gain from higher DMTs in US trading partners like Canada and Mexico. These businesses are in sectors—retail, wholesale, and manufacturing—that tend to ship tangible items (parcels) across borders that are affected by the DMT. For instance, 51,139 small retail businesses in Indiana face higher costs when exporting to Canada or Mexico than their counterparts face in those countries face when exporting to the United States. Similarly, there are over 75,000 such small businesses in Wisconsin, and many thousands more in other states.

As negotiators work to conclude the NAFTA update, a higher DMT in Canada and Mexico would be a big win for American small businesses. After all, they deserve reciprocity too.