Why NAFTA Matters Now
When it comes to the economy of the United States, a lot has changed in 23 years but one thing is clear: America has become more globally competitive because of the North American Free Trade Agreement (NAFTA).
The cross-border trade between America, Canada and Mexico is over $3 billion a day and the fact is we make more things together now – some 40% of the value of Mexican imports into the United States is American content, and it’s reported the average American automobile crosses the U.S.-Canadian border about 7 times during its production. Plus, Mexico and Canada are two of our largest agricultural export markets.
The NAFTA negotiations going on now give us an opportunity to update the agreement and adapt it to the huge technological changes that have occurred since the original NAFTA was signed.
Global e-commerce, which was in its infancy in 1994, is now growing at double digit rates and is projected to be a $4 trillion dollar market by 2020. Given that American companies lead the world in e-commerce infrastructure, including e-commerce platforms, e-retailing, electronic payments, telecoms, software, logistics and search engines, the U.S. stands to gain enormously from e-commerce growth. However, the huge potential of e-commerce in North America for U.S. exporters is challenged by the complexity, cost and unpredictability of moving low-value, single shipments across Mexican and Canadian borders.
This is why for FedEx the priority focus in the NAFTA negotiation is on customs and trade facilitation – especially the upgrades necessary for further growth of U.S. e-commerce exports. For the small or micro businesses of today, the high administrative costs at the border represent a real barrier to further trade.
This is where de minimis or duty-free levels, come in. In the U.S., the de minimis level is set by statute at $800. This makes customs clearance much faster and cheaper. But in Mexico, that level is only $50, and in Canada, 20 Canadian dollars, or $15. So American consumers and businesses can go to Mexican and Canadian websites, order products totaling $800 in value per transaction, without paying duties, taxes, or customs entry administrative charges. Contrast that with Mexican residents who incur such charges once their order reaches $50, or with Canadians once their order exceeds $15. The result? American e-commerce shippers have a much harder time selling to Mexico and Canada, as consumers in those countries pay a higher price for U.S. exports.
FedEx number one priority in the NAFTA negotiations is to press our two closest trading partners, Mexico and Canada, to raise their de minimis thresholds. We also want them to provide greater simplifications for clearing goods above the de minimis level, sometimes called informal, or low-value, clearance.
The good news is that we are not alone in this request; members of Congress, internet and e-commerce companies, manufacturers, service companies and even some parts of the agriculture industry have all weighed in forcefully in support of higher de minimis values in NAFTA. FedEx has been advocating for trade facilitation and higher de minimis values for years and NAFTA can be the breakthrough we’ve been waiting for.
Modern technology allows us to greatly simplify international transactions while at the same time making them more secure and more transparent. We must use this opportunity to bring our border procedures into the 21st century. We need a vibrant North American e-commerce market that will create jobs and economic growth here in the United States. That’s an outcome we can all support.