International Trade and Global Business

 

New Trade Deal Promotes More Low-Value Exports, Deserves One-handed Applause

 
The best part about the new North America trade deal is that it raises the minimum amount subject to taxes and duties in Mexico and Canada. This is good for folks engaged in e-Commerce and who typically sell lower-cost goods.

The U.S. has had for almost two years an amount of $800 before tariffs kick in, probably the world’s most generous, at least for large market countries. When negotiators sat down to discuss replacing NAFTA, these lower-value goods were on the agenda. As a way to encourage smaller companies to export, U.S. negotiators wanted rates closer to the $800 set by the U.S.  But Mexico and Canada balked. In the end, Canada agreed on C$150; Mexico doubled to US $100—both substantial increases from their previous rates.

Canada also agreed to increase the minimum amount on an import before its national sales tax of five percent kicks in. That amount went from $20 to $40. The U.S. has no national sales tax. Mexico retains its policy of adding the national sales tax on imports valued at over $50.

This means that consumers in Canada and Mexico will pay a bit less for goods imported from the U.S., which did not change its already low rate. Canadian buyers will save $1 on the Goods and Services tax (GST).

There was considerable crowing about this and other achievements from promoters of the President’s trade agenda, but a buck a throw is not going to move the needle much. Canada should have been pushed to come closer to the U.S. mark, in which case we’d see a real uptick in these lower-value purchases from our northern neighbor. Mexico is in a more precarious financial position and needs the revenue. But their number seems more pro forma than, say, using GDP or some other established measure that still takes into consideration its lower economic output.

Exporters from Europe and elsewhere in the world will be able to take advantage of these new minimums as soon as the agreement is signed, probably next year unless one or more of the countries’ legislators nix it. The process will be acrimonious in the U.S. Congress, but in the end it will pass. Congress voted to give the president Trade Promotion Authority, to negotiate trade agreements without interference.

For exporters within the pact area, paperwork will be minimized for goods under the threshold. For goods over the amount that qualify under rules of origin, a certificate of origin is still required. If the goods are made in fourth country, say China, the new minimums will apply, beyond which the Most Favored Nation Rates apply, which differ somewhat in Mexico and Canada but are still relatively low.

WebPort Global always applauds actions by governments that reduce barriers to business and improve consumer choices. And while the applause for this outcome of the United States, Canada, and Mexico Trade Agreement is one-handed, it’s nevertheless sincere.
 
 
 

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