Online Retailers Eye NAFTA Talks as Make-or-Break Moment for Modernizing Trade

| OCT 9, 2017 | 9:01 PM
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President Donald Trump has an opportunity to prove to American business owners he has the dealmaking chops he claims he has this week when NAFTA negotiations enter their fourth round since the administration announced over the summer it would take steps to renegotiate the trade agreement.

Trade went digital years ago, and U.S. online retailers want trade policy to catch up. Giants like Amazon, Etsy, and eBay are calling for a modernized, level playing field abroad. One of their biggest demands of Trump's negotiators is to convince U.S. trading partners to raise their de minimis levels for international shipments.

De minimis thresholds are the set price levels below which countries exempt cross-border shipments from customs and taxes. For instance, goods shipped from Country A into Country B that are valued above Country B's minimum customs exemption are screened more extensively than goods below the threshold and are subject to taxes and fees.

The term originates from the Latin phrase “de minimis non curat lex,” which translates to: “The law does not concern itself with trifles.”

While the White House outlined its goal to encourage Canada and Mexico to raise their minimums when negotiations were just getting started, the long-sought change could end up on the chopping block in NAFTA talks that already appear to be on thin ice amid a slew of other more contentious protectionist priorities like curbing trade deficits.

All eyes are on Canada, where the minimum is a mere $15 (U.S.). For comparison, the U.S. threshold is $800, up from the previous $200 level after Congress raised it last year. Mexico's is $300.

In a hearing before the House Ways and Means Committee in July, Alethea Erickson, senior director of global policy for Etsy, an online commerce platform, told members of Congress the “single greatest opportunity to support microbusinesses” in renegotiating NAFTA would be to encourage trade partners to raise their de minimis thresholds.

“The upcoming NAFTA negotiations provide an opportunity to alleviate this burden that disproportionately impacts U.S. micro-exporters,” she said.

American retailers say Canada's low minimum can add to prices for consumers, slow down shipments, and complicate transactions for small business owners, many of whom don't have the resources to navigate the murky waters of international trade regulations.

“Canadian Customs officials can intercept, open, delay, and assign levies to my sales,” Nick Quade, general manager of the e-commerce division of Relay Networks, Inc., testified before the Joint Economic Committee during a hearing on digital trade in September.

“On the Canadian side, this policy amounts to a protectionist move that puts everyday consumers at a disadvantage,” he added.

But Canadian officials who previously resisted the Obama administration's pressure to raise Canada's duty exemption minimum during Trans-Pacific Partnership negotiations insist the 25-year-old policy is essential in protecting local retailers from international competition, as well as providing an additional source of tax revenue.

Economic Minister Marvin Hildebrand of the Canadian Embassy in the United States told attendees of the Congressional Hispanic Leadership Institute's sixth annual trade symposium last week that Canada's $15 minimum “is considered and exists for a reason.”

“Those kinds of policies take into account fiscal considerations and other related impacts on other groups. It has featured in other negotiations, and I don't know whether it will feature in this one or to what extent,” he said.

International trade, digital and otherwise, has grown significantly over the past decade. The U.S. Census Bureau estimates the number of American sellers shipping products to international buyers has risen by 50 percent since 1997, and Canada is the top foreign destination for U.S. goods.

Because of that close relationship, efforts to raise Canada's extra low minimum have been met with fierce opposition from local Canadian retailers who say the policy change would bring an end to their businesses.

“Raising the De Minimis threshold (DMT) for Canada will give an unfair tax advantage to foreign online retailers over Canadian retail businesses,” according to a resolution proposed by several border towns at the Canadian Chamber of Commerce's annual gathering last month. The resolution noted that one in eight Canadians is employed by the retail sector.

But the measure, introduced by the Sarnia Lambton Chamber and co-sponsored by the Windsor-Essex Regional Chamber of Commerce, Thunder Bay Chamber of Commerce, and the Greater Niagara Chamber of Commerce — all border towns that would be most impacted by a change in Canada's de minimis policy — did not pass.

Shirley de Silva, president of the Sarnia Lambton Chamber of Commerce, told IJR the group couldn't come to an agreement in the time frame they had available at the convention. She said a number of chambers felt that raising the threshold from one value to another may have merits. But representing businesses in a border town, she was adamant that any hike in Canada's de minimis would negatively impact local retailers.

“We felt a need as border towns to defend small retailers,” she said.

Recently, Canadians have become more open to raising the minimum. Part of their rationale is that the change would benefit Canadian consumers and would be in line with Canada's general goal of liberalizing trade policy.

Another consideration: a study last summer from the C.D. Howe Institute, a nonpartisan research organization based in Toronto, found that the Canadian government spends $166 million in the process of collecting duties from imports above the minimum exemption level, whereas it only takes in $39 million in tax revenue in doing so.

The paper also argued such a change would be helpful for Canadian consumers, customs workers, and small businesses.

“As the DMT increases, consumers save money by foregoing duties, sales taxes, or brokerage fees for parcels above [U.S. $15] and below the new DMT. Additionally, they no longer endure costly delays in transit times due to time- consuming import assessment procedures,” the report stated.

But Canadian retailers say such a move wouldn't level the playing field. Instead, they argue, it would exempt American goods from taxes while Canadian retailers would still have to pay them, creating an unfair price advantage for imported products. America's tax structure is different from Canada's, the Canadian Retail Council notes on its website, leaving no room for comparison.

NAFTA negotiators are holding their cards on the issue much closer: A spokesperson for the U.S. Trade Representative declined to comment.