American business needs a free trade deal for the digital age
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A good deal has transpired since the North American Free Trade Agreement (NAFTA) went into effect more than 23 years ago. Back in 1994, the television in your home was likely a square, boxy device, as the first large, commercial flat screens weren’t sold until 1997. The cellphone of the era could boast only automatic redial as one of its most impressive features. The internet was in its infancy, with only about 600 websites available to the few people who actually had dial-up service. Given all that has changed in the last two decades and the degree to which trade has been transformed by technology, it makes sense that global trade agreements should be modernized to reflect our new digital reality.

The current effort to renegotiate NAFTA presents such an important opportunity. One of the most critical changes being discussed during negotiations is one that has received little attention, but could have enormously positive implications: the implementation of new rules relating to digital commerce. These potential new rules could make e-commerce transactions between the United States, Canada and Mexico easier, faster, safer and more reliable, which means more sales for U.S. e-commerce merchants and more fuel for the U.S. economy.

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Today, the number of cross-border shipments driven by e-commerce is growing at a dramatic clip. At the time that NAFTA was implemented, with the internet just beginning to find an audience, e-commerce was merely a concept. By contrast, in 2016, it was estimated to account for more than $1.9 trillion in worldwide trade, according to the research firm eMarketer. Given the rate of growth in e-commerce activity, it is clear that NAFTA needs to take some big steps to catch up and keep pace.

 

How does digital trade differ from traditional trade? Online transactions generally involve frequent, smaller and lower-value shipments, and the need for quick delivery. In addition, many e-commerce merchants are small or even “micro” businesses, with fewer resources available to negotiate complex border clearance processes. As a result, today’s NAFTA needs to address the delays, costs and complexities that can make it so challenging to move goods across the border to Mexico and Canada, especially for small businesses.

There is widespread agreement that some key changes to NAFTA can make big differences for U.S. online retailers, beginning with the introduction of digitized NAFTA product certification. Currently, the certificate of origin requirements under NAFTA such as the use of a specific form, are restrictive compared with newer free trade agreements. These requirements are time-consuming and costly for small businesses. By amending NAFTA certification rules to align with modern U.S. free trade agreements, including digital certificate of origin, U.S. negotiators can promote simplification and streamlining of processes.

Similarly, a move to eliminate duties and taxes on very low-value goods by raising the de minimis threshold will speed the movement of goods between the United States, Canada and Mexico, while also making e-commerce purchases more affordable for consumers. Currently, the U.S. imposes duties on items with a value of $800 or more, while Canada imposes duties on any single item that costs $20 or more, and Mexico taxes items with a value of $50 or more. That means almost any item shipped from our country to Canada and Mexico is subject to taxes and extra delays at the border.

U.S. companies of all sizes — not just small e-commerce merchants — are facing a significant burden due to the low de minimis thresholds in Canada and Mexico. Many established businesses, like General Motors and Boeing, for instance, ship small products and parts directly to consumers in Canada and Mexico. Many of these parts cost less than $800 but are still taxed. Similarly, many U.S. agricultural products are taxed, even though they are low-value items shipped in small quantities. A higher, uniform de minimis threshold under NAFTA will save time and money, create a more level playing field for U.S. merchants, and ultimately help consumers in Mexico and Canada as well.

Another proposed change to NAFTA would promote the streamlining of Customs and border clearance processes. By updating NAFTA to require partner countries to move quickly to harmonize and automate customs procedures, negotiators can help to increase efficiency and decrease the amount of time that goods are held at the border. E-commerce is all about rapidly moving items to customers who believe that goods should move at the speed of digitized information. The replacement of cumbersome paper documents with automated systems will move us quickly in this direction.

Finally, there has been a great deal of discussion about tightening current intellectual property rules under NAFTA. A renegotiated agreement could include more robust intellectual property protections, which will protect businesses and boost fair trade. E-commerce has transformed the way businesses operate, making it possible for the smallest organization to reach customers in the farthest corners of the world. When it comes to doing business with Canada and Mexico, now is the time to transform NAFTA so that digital commerce can take yet another step forward. By doing so, we can help U.S. businesses compete and grow on the global stage.

Greg Hewitt is chief executive officer of DHL Express USA.


The views expressed by contributors are their own and are not the views of The Hill.