What the New NAFTA Means for Small Business
On September 30, 2018, the United States-Mexico-Canada Agreement (USMCA) was established after 13 months of negotiations. While the agreement is not currently ratified, the USMCA intends to replace the North American Free Trade Agreement (NAFTA), which has been in place since 1994. Ratification is expected to take place in early 2019.
The USMCA brings several changes to the economic relationship between the three North American countries. These include greater market access, inter-governmental cooperation mechanisms, and higher duty-free limits.
Everyone will feel these changes, not just major government agencies. Three provisions in the USMCA will particularly impact small businesses:
- The establishment of the Committee on Small and Medium Enterprise (SME) Issues
- The increase of the de minimis threshold
- Changes to the automobile industry
The Committee on SME Issues
Chapter 25 of the USMCA will establish a Committee on SME Issues. This committee will assemble within one year of ratification and will be comprised of government officials from the U.S., Canada, and Mexico.
The committee will assist SMEs in their transition to the USMCA, identifying strategies to boost their economic success and increase cooperation between markets. The committee will host an annual SME Dialogue, inviting experts, academics, employers, non-governmental organizations (NGOs), and other stakeholders to engage in conversation on SME issues.
Small business owners may benefit from the representation this committee will provide. However, this committee will only be comprised of government officials. Not implementing the committee effectively may cause the voices of small business owners to drown within a messy bureaucratic system.
The Increase of the De Minimis Threshold
The de minimis threshold refers to the quantity of product you can purchase online and import duty-free. The USMCA raises the de minimis threshold to $800 USD for United States products, $150 CAD for Canadian products, and $100 USD for Mexican products.
This increase can lead to significant benefits for small businesses, which often do not have the resources to pay customs duties and fees. This will increase sales volume, providing greater profits for small business owners.
The 75% Tariff-Free Threshold for Automobile Manufacturers
Under the USMCA, 75% of an automobile must be manufactured within North America to be exempt from tariffs. This is a significant increase from the 62.5% requirement under NAFTA.
This provides an incentive for automakers to decrease operations overseas. The new threshold holds the potential to provide more income for small, local auto parts manufacturers and to increase jobs for North American workers.
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