Red tape at the borders stifles US small-business growth

Red tape at the borders stifles US small-business growth

Every generation experiences a transformation in global trade. From the discovery of new trade routes, to faster modes of transportation, to the advent of the shipping container, the relationship between businesses and consumers across borders is continuously reimagined by innovation. It’s up to policymakers to keep up. 

Twenty-five years ago, when the North American Free Trade Agreement (NAFTA) was first negotiated, the idea that consumers in Canada or Mexico could buy goods from U.S. small businesses with a few taps on a smartphone was a pipedream.

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Today, e-commerce is not only reality, it’s the central driver of retail growth, accounting for 42 percent of growth in U.S. retail last year, much of it coming from small sellers using platforms like eBay, Amazon and Etsy. 

 

Unfortunately, American exporters, who are uniquely positioned to capitalize on e-commerce are seeing their potential gains diminished because international trade policy hasn’t kept up. 

The chief roadblock to e-commerce export growth is red tape. These include antiquated, burdensome and costly customs procedures at our northern and southern borders that make it difficult for U.S. businesses to compete by slowing delivery times and raising transaction costs. NAFTA negotiations are an opportunity to change that. 

While countries around the world have taken steps to cut customs red tape by raising “de minimis” thresholds and providing more streamlined informal clearance procedures for low value shipments, Mexico and Canada have not kept pace.

Low and outdated de minimis and informal clearance levels hinder the flow of low-value shipments by subjecting them to lengthy and costly delays before they can get to consumers in Mexico and Canada.

Meanwhile, Mexican and Canadian exporters benefit from state-of-the-art customs procedures and a de minimis threshold of $800 for imports into the United States.

This imbalance creates three major problems that could quickly be transformed into opportunities if U.S. negotiators prioritize cutting customs red tape in NAFTA talks.

First, the imbalance creates an unlevel playing field for a single NAFTA partner: the United States. Instead of reciprocal access, the core tenet underpinning NAFTA, U.S. businesses get the opposite.

For example, a small business in Washington state using eBay to sell a piece of furniture to their neighbors across the border in British Columbia faces extra paperwork, duties, taxes and other bureaucratic barriers that keep their products from the customer. Goods coming the other direction are processed quickly and duty- and tax-free.

Second, the imbalance creates a fractured system of red-tape and regulations that puts the entire North American free-trade bloc at a disadvantage.

By harmonizing customs procedures and cutting red tape in NAFTA, we can create the largest e-commerce free-trade zone in the world, giving businesses and consumers from all three countries a leg up globally. At a time when China is engaging its regional partners to do the same, we shouldn’t wait to act. 

Finally, the imbalance stifles our No. 1 job creators: small businesses. As U.S. Small Business Administrator Linda McMahonLinda Marie McMahonThe Hill's 12:30 Report The Hill's 12:30 Report Small business chief touts early impact of tax cuts as other firms looks for benefits MORE recently pointed out, only 1 percent of small businesses export, even though they create two out of three new jobs.

That’s a lot of untapped potential being stifled by red tape, particularly when you consider that studies have shown that small businesses that export pay better, grow faster and can better weather fluctuations in the economy to stay in businesses.

There is no doubt that U.S. negotiators will face resistance from Canada and Mexico in the negotiations ahead. But signs that the out-of-date and out-of-balance customs policies our NAFTA partners employ should come to an end are abundant, even within their own borders.

In Canada, recent polling showed that 76 percent of consumers support raising the Canadian de minimis level, while a study from the CD Howe Institute showed that it costs Canadians four times more to collect these customs taxes and duties than the amount that is actually going into government coffers. 

One route our negotiators could take in convincing our NAFTA partners may be to simply appeal to the stated goals each country set out for negotiations. Because if there is a common thread, it is the fact that these renegotiations present the opportunity to update NAFTA to reflect the global economy of the 21st century. 

From what we’ve seen of the 21st-century economy thus far, innovation has put the power to export in the hands of even the smallest American businesses. We shouldn’t let last century’s trade policies hold them back.

Ambassador Rufus Yerxa is president of the National Foreign Trade Council. He previously served as deputy director general of the World Trade Organization (WTO) and deputy United States Trade Representative (USTR) under both a Republican and Democratic president.