The Canadian de minimis level will increase once the USMCA deal is ratified, which should make American retailers very happy.
The new NAFTA agreement – now known as the United States-Mexico-Canada Agreement (USMCA) – will see the de minimis amount in Canada increase to CDN $150, while Mexico’s will increase to US$117.
“Increasing the de minimis level with key trading partners like Mexico and Canada is a significant outcome for United States small- and medium-sized enterprises (SMEs),” read a statement on the U.S. Trade Representative’s website.
“These SMEs often lack resources to pay customs duties and taxes, and bear the increased compliance costs that low, trade-restrictive de minimis levels place on lower-value shipments, which SMEs often have due to their smaller trade volumes.”
U.S.-based online merchants and couriers had been requesting an increase in the de minimis level for shipments into Canada for some time.
“The National Retail Federation believes the deal will boost sales across borders,” said Jonathan Gold, the trade group’s vice president of supply chain and customs policy, to digitalcommerce360.com. “The potential is there to produce strong gains. It’s too early to tell how large those gains could be.”
This lobbying by American merchants has the potential of hurting Canadian companies according to the Retail Council of Canada (RCC).
“Changes to the de minimis level could be devastating to retailer merchants in Canada and to our two million plus employees,” read a statement by the RCC.
The RCC states de minimis regimes are supposed to provide streamlined border clearance. The rationale is that the administrative burden and processing cost don’t justify collecting taxes or duties on very small individual shipments, which below $150 would typically yield about $40 in tax.
U.S. online merchants and courier lobby groups were pushing to raise the Canadian threshold from $20 to $200. That would mean any item costing under $200 could be shipped into Canada free of federal and provincial sales taxes and also duty-free. The de minimis level in the U.S. is $800.
In terms of taxation, the RCC estimates online U.S. companies would save on average 12.3% in sales tax. Since there is no federal tax in the U.S. and state and local taxes are not collected for interstate shipments the advantages for American companies are even greater.
Should the de minimis level increase, the RCC believes this would impact Canadian retailers’ bottom line, high wage jobs in IT, logistics, and distribution; create a reduction in American and international companies’ interests in establishing offices in Canada; and the loss of tax revenue to the federal and provincial governments would be substantial.
Not only does the U.S. have an advantage when it comes to taxes and de minimis, it also owns the lion’s share of online sales from Canadian shoppers (67%) compared to Canadians who shop with American online retailers (22%).