At the end of September the U.S., Mexico, and Canada announced agreement on a new trade deal, the United States-Mexico-Canada Agreement, or USMCA. If passed, this new agreement would replace the 25 year old North American Free Trade Agreement(NAFTA). While free trade between these three countries is important for ecommerce, the USMCA misses an opportunity to improve cross border trade for low-value goods. Notably, the “de minimis” customs provisions in the agreement are inadequate, unnecessarily burdensome, and will likely cause confusion for small businesses and consumers.
If you are not familiar with the concept of de minimis, it is the threshold at which imports into a country are exempt from taxes, duty and some paperwork. De minimis thresholds are designed to make low-value cross-border transactions faster, easier and more predictable. Higher de minimis thresholds are:
- Good for small businesses allowing them to export with far less friction as well as accept returns easily, making buyers happy.
- Good for government and tax payers since de minimis rules often cost more for governments to enforce than they actually collect.
- Good for security as low value imports still go through the same screening process as all other goods.
In fact, U.S. Congress recognized the importance of higher de minimis thresholds for U.S. businesses and raised the U.S. de minimis from $200 to $800 in 2016.
The agreement not only creates a confusing system that treats postal and express (private courier) shipments differently and different collection rules for different value levels, it could also reverse the bipartisan decision to increase the U.S. threshold:
- $20 CAD for postal shipments (unchanged)
- $40 CAD for tax and duty relief for express shipments (new)
- $150 CAD for duty-only relief for express shipments (new)
- $300 USD for postal shipments (unchanged)
- $50 USD for tax and duty relief for express shipments (unchanged)
- $117 USD for duty-only relief for express shipments (new)
- $800 (unchanged), but the agreement contains a threat to potentially decrease the U.S. level
While the use of de minimis thresholds is designed for simplicity, the current de minimis provisions in the USMCA create a complicated new system that is bound to cause confusion and compliance issues for small businesses and consumers alike. Also, the de minimis levels agreed to by Canada and Mexico are still well below the U.S. level and are not commercially meaningful. Last but certainly not least, this is a step backwards for the U.S. as it could reverse the very important 2016 decision to raise de minimis to a meaningful level reflective of today’s ecommerce environment.
eBay firmly believes Congress should reject the de minimis provisions in this new agreement and we will be working hard to educate legislators on this important topic.