This summer marks one year since the groundbreaking United States-Mexico-Canada Agreement (USMCA) went into force. A dynamic free trade agreement that replaced NAFTA, the USMCA was engineered to boost the cross-border flow of goods and services by simplifying regulations, streamlining customs processes, and directly assisting traders.
What makes the agreement so unique and significant? For the first time, the USMCA has put the trade interests of small and medium-sized enterprises (SMEs) front and center. Specifically, the agreement is the first to include an entire section – Chapter 25 – dedicated to the challenges and needs of small business traders. In addition, the USMCA contains multiple additional provisions that target the barriers that have historically confronted smaller companies as they move to compete on a global stage. Ultimately, the agreement will create a dynamic – yet predictable– trade environment for SMEs.
The fact is, Mexico and Canada are among the most critical trade partners for U.S. companies. Trade with the two nations reached a combined level of nearly $1.2 trillion in 2019, and according to the U.S. Department of Commerce, more than one-third of U.S. merchandise exports goes to our North American neighbors. If you own or manage a small or medium-sized business here in the U.S., you’ll want to familiarize yourself with elements of Chapter 25, as well as other measures in the USMCA that are specific to SMEs, in order to position your company for international success.
Here is a closer look at some key elements of the agreement:
Chapter 25: Designed for Small Business
By committing the U.S., Mexico and Canada to finance-dedicated export assistance centers and other small business support programs, Chapter 25 aims to directly empower SMEs to engage in cross-border trade. The chapter also includes provisions requiring that each country explore initiatives improving access to capital and credit for SMEs, and it promotes the active exchange of information and best practices. Critically, the USMCA also creates a Committee on SME Issues to allow for ongoing collaboration and communication, and it establishes the SME Dialogue, a group created to allow government agencies and the business community to work together to improve SME trade.
Chapter 7: Facilitating Trade and Streamlining Customs
The Customs Administration and Trade Facilitation section (Chapter 7) calls for the simplified clearance of goods through customs, as well as the streamlined treatment of express shipments (a form of shipment often used by SMEs).
This chapter also contains an important increase alteration to the so-called customs de minimis, which allows for duty and/or tax-free treatment for goods under a certain threshold. The de minimis change will provide a competitive boost to companies that export lower value goods to North American neighbors – and many of these companies are SMEs. Under USMCA, de minimis levels are as follows:
- United States: US$800
- Mexico: US$117 for customs duties and US$50 for taxes
- Canada: C$150 for customs duties and C$40 for taxes (up from C$20)
Chapter 7 also aims to modernize trade between the U.S., Mexico and Canada by allowing customs declarations and related documentation to be submitted electronically. It allows for electronic payment of customs duties, taxes, fees or charges, and mandates a Single Window system, which simplifies trade operations by focusing all clearance of goods on a single electronic interface.
It should be noted that the U.S. Single Window system – comprised of the Automatic Commercial Environment (ACE) and the International Trade Data System (ITDS) – has proved beneficial to SMEs who now only have one process to go through – instead of multiple process depending on how many different agencies might regulate their product. USMCA calls for a similar system to be implemented across the North America region.
Chapter 13: SMEs in Government Procurement
For certain small and medium-sized businesses, the prospect of providing goods and services to government entities in neighboring North American countries is extremely appealing, and it could offer an excellent pathway to growth and success. However, government procurement – or government purchasing – can be difficult for SMEs due to size, scale, out-of-country location and relative lack of in-house resources, and so the USMCA addresses the challenge with specific provisions.
Chapter 13 of the USMCA is designed to facilitate the participation of SMEs in government tenders. It recognizes the contribution of small firms to economic growth and employment, directing that SMEs should be provided comprehensive procurement-related information in a single electronic portal. It requires that all tender documentation should be made free of charge, and that procurement will be made through electronic means (thus eliminating geographic advantages).
Resources: Giving Small Businesses the Tools to Trade under the USMCA
Comprehensive, hands-on assistance is available for U.S. SMEs as they develop and pursue trade strategies in Mexico and Canada. Online information, guidance from international trade experts, and technical advice from customs professionals are all easily accessible. Resources include:
By simplifying and streamlining regulations and customs processes, and by including mechanisms for the ongoing review of trade rules and laws as they pertain to small businesses, the USMCA affirms the value of North American trade, but it also represents a new approach to trade facilitation – one that recognizes the importance of SMEs and helping more companies go global. Going global opens new worlds of potential reach and improved revenue. This is the perfect time to expand your business’ international e-commerce footprint and customer base – and the first step to growth, profitability and success can begin with exporting to our close neighbors to the North and South.
Is your business considering trade with Mexico and Canada? Let us know on Twitter @DHLUS.