Why NAFTA matters for your small business.
The North American Free Trade Agreement (NAFTA) has been getting lots of attention recently. With the Trump Administrations demand to open NAFTA for renegotiation and modernization, this is as exciting as trade policy has been in a long time. Most of the media attention is on the direction of the re-negotiations, as well as the potential implications for major export sectors of Canada’s economy like automotive and agriculture. The focus is on exporting sectors since a major function of trade agreements is to facilitate the movement of commerce in the form of goods and services across borders. However, although only nine percent of SMEs export goods or services, there are important aspects of NAFTA that matter for your business even if you do not export to the United States. Today’s blog explores two of these areas: labour mobility and the de minimis value.
Even if your company does not currently export to the United States, there may be a time when an employee of your company needs to visit the United States to perform work: perhaps to assist a new U.S. based client or to collaborate with colleagues in a U.S. company. The non-immigrant NAFTA professional (TN) visa allows citizens of Canada and Mexico to work in the United States in prearranged business activities for U.S. or foreign employers. The TN visa system is guided by a list of professional occupations to work in Canada, Mexico, or the United States.
It is unclear what the renegotiation process will mean for the TN visa system, however, there have been calls from industry in all three countries to update the categories to more accurately reflect the jobs and trades in our modern economy. With services comprising an increasingly important component of Canada’s overall trade balance, understanding the options and limitations of the TN visa system is important for any Canadian small business, including those not currently exporting to the United States.
No that’s not a typo and this is not meant to test you on the one Latin course from back in high school. De Minimis literally translates to “lacking significance or importance: so minor as to merit disregard”. On the contrary, this little area is getting lots of attention in the current NAFTA renegotiation, especially by retailers in both Canada and the United States and it probably impacts your business more than you realize.
In the trade context, Canada’s de minimis threshold, the value above which Canadians purchasing goods in Canada that are imported from outside of the country have to pay duty and sales tax, is CAD $20 (which, interestingly, is one of the lowest rates in the world and hasn’t changed in 35 years). On the other hand, the U.S. threshold is a whopping USD $800. De minimis impacts non-exporting SMEs in all sorts of ways, from higher product costs to increased customs and processing costs. At an individual level, if you have ever ordered a book from Amazon in the United States and the price was even a penny above $20, then the Canadian government has slapped on duty and sales tax, which is a cost ultimately born by the consumer.
Given the growth in online purchases and the dominance of U.S. online companies as a source of goods for Canadian SMEs, this aspect of NAFTA has an impact on a broad range of SMEs, whether they export or not.
As always, OTUS Group is committed to informing you about key policy developments that matter for your business.