The ongoing discussions about tariffs between the U.S. and Canada have created confusion and uncertainty for businesses across the border. Recently, updates to the “de minimis” exemption are predicted to have a substantial impact on small businesses. This exemption, rooted in a Latin term meaning insignificant or minimal, designates a specific dollar value under which items do not incur duties or tariffs when crossing the U.S.-Canada border.
Historically, the U.S. de minimis exemption, established in the 1930s, allowed for the duty-free transfer of low-value items from Canada to the U.S., regardless of their origin. This provision facilitated small businesses and individual Canadians in shipping products, gifts, and care packages over the border without additional costs.
Professor Drew Fagan from the Munk School of Global Affairs and Public Policy at the University of Toronto explains that previously, items valued up to $800 could move freely without the hassle of customs clearance and related paperwork. However, this exemption is set to change. Following the U.S. administration’s decision to eliminate the exemption for items from China and Hong Kong in May, the suspension will extend to all other countries, including Canada, on August 29th. Under the new policy, only items with proven North American origin of 50% or more, in accordance with the Canada-United States-Mexico Agreement (CUSMA), will qualify for tariff-free trade, irrespective of their value.
Fagan points out that for small businesses producing unique goods, such as handmade jewelry, the impact of these changes could be severe. Now, items worth less than $800 could be treated as if they were worth a much higher amount, invoking extensive customs procedures and paperwork, which could deter small entrepreneurs from engaging in cross-border trade.
Tanya Walia Monteiro, owner of The Flamingo on Queen Street East, is already facing challenges related to shipping documentation before the exemption officially expires. She recounts a recent experience where her shipment was returned due to missing documents, requiring her to complete numerous forms for each item that was shipped. This complexity, alongside order cancellations and the loss of customer confidence, is driving her to rethink her cross-border shipping strategy.
Monteiro notes that her costs skyrocketed due to the bureaucracy associated with shipping to the U.S., leading her to offer store credits as a remedy for customers frustrated by delays. She expresses concern that, although Canadians are accustomed to duties, Americans are not, resulting in a decline in her U.S. sales, which previously constituted the majority of her online orders. In an attempt to mitigate the fallout, she has adjusted shipping policies for Canadian customers to maintain sales momentum.
Experts like Fagan emphasize that small businesses may find it increasingly challenging to justify the effort and expense involved in complying with the new regulations. Many may reconsider their operational strategies, with some potentially opting to establish a physical presence within the United States to streamline distribution and avoid the complications arising from international shipping.
Monteiro articulates the struggles that small businesses face amid these changes, emphasizing that the loss of the exemption places them in a precarious position since they lack the financial cushion to absorb such shocks. She calls for action from local politicians to address the implications of these trade policies, urging the need for tangible support for small enterprises that struggle under the pressure of rising costs.
As the Canadian government deliberates on possible retaliatory measures against the suspension of the de minimis exemption, Fagan anticipates that the issue could be included in future renegotiations of CUSMA. However, he acknowledges that such discussions are unlikely to provide immediate relief to businesses currently reeling from the new constraints.
In light of the escalating challenges, Monteiro warns that small businesses must advocate for themselves and their customers, stressing that without support, many may not survive the shifting trade landscape created by these recent policy changes.
