With the renegotiations of the North American Free Trade Agreement (NAFTA) almost at hand, various groups within the three members of the trading block– Canada, Mexico, and the United States– are already busy lobbying their diverging positions on anticipated issues to be discussed. One potential flashpoint in the coming talks, which commences this August 16, 2017, is the Trump administration’s proposal to increase the cap on duty-free online purchases, a move that is viewed to have a tremendous impact not only on the eCommerce industry but the American economy as a whole.
Currently, Mexico imposes a duty for online shoppers who buy more than $50 worth of goods, according to CNN. Canada, on the other hand, set the duty-free cap to a mere $16 worth of purchases. Canadians who make online purchases past that mark will have to pay a tax.
— CNN (@CNN) August 10, 2017
But If President Trump gets his way, online shoppers could purchase a lot more before they have to pay any taxes for their purchases. Under his administration’s proposal, buyers in both countries will no longer be imposed import taxes for purchases up to $800, a move that is seen to benefit not only the buyers but also American online retailers that currently dominate the e-commerce scene. While both companies declined to comment on the issue, American retailer giants Amazon and eBay are seen to ultimately benefit should the proposal push through.
Raising the duty-free threshold to $800 will not only be an economic triumph but a political one as well for the Trump administration. This is seen as a potential remedy to the U.S.’ massive $64 billion trade deficit with Mexico, a problem that Trump promised to resolve during his campaign. Economists believe that more foreign buyers making purchases through American online retailers could ultimately mean more jobs being created.
However, not everyone agrees with the implication that the current NAFTA agreement should be blamed for the trade deficit when US companies relocated their manufacturing activities to Mexico. Congressional research done in 2015 concluded that the NAFTA agreement is not the cause for the decrease in manufacturing jobs available in the U.S.
While Mexico and Canada have not yet revealed their formal responses, there are indications that the two trading partners will oppose the U.S.’ proposal for a $800 increase in the duty-free exemption, Reuters reported.
For instance, Mexican Economy Minister Ildefonso Guajardo fears that the proposed $800 limit could open a “completely unnecessary door” for goods manufactured outside the three-nation trading block. For instance, cheap shirts manufactured by a non-NAFTA country like Vietnam could be sourced through an American online retailer and compete with Mexico’ vulnerable textile industry.
— CBC News (@CBCNews) August 10, 2017
Meanwhile, Canadian business groups offer the same sentiment. There are fears that raising the duty-free cap too high could ultimately be problematic for the nation’s manufacturers. For this reason, the Retail Council of Canada urged their government to fend off such proposal as it would most affect books, clothes, consumer electronics, sporting goods, and toys locally manufactured.
Whatever the outcome could be, the upcoming NAFTA renegotiations would invariably affect the ever-increasing eCommerce segment. The talks would finally set a formal guideline for eCommerce within the 23-year old trading block. When NAFTA was created in pre-internet 1994, there were no provisions for e-commerce made.
[Featured Image by Michael Vadon/Flickr]