Cross-border trade between the U.S., Mexico, and Canada is thriving. Exports from the U.S. to Mexico rose by more than 10 percent between 2017 and 2018. Exports from the U.S. to Canada rose by about 8 percent during the same period.
John Costanzo, who leads Canada-based Purolator’s business outside that country, recently wrote in Parcel Magazine that much of that increase is due to “the surge of e-commerce shipments crossing the border, as Mexican and Canadian consumers are increasingly drawn to high-quality American goods, easily accessible from U.S. retailers’ websites.”
He points to Department of Commerce research that two-thirds of Mexican customers who shop online bought from American sellers. About a third of Canadian buyers made purchases from U.S. sellers.
That means American e-tailers who know how to ship internationally could be reaching tens of millions of customers abroad.
The key, of course, is knowing how to ship internationally. When packages cross borders, they must pass through customs. Shippers have to assume responsibility for whatever fees importing countries charge.
There’s good news, though: This is much easier than it used to be. Most cross-border shipping and billing systems are now automated, reducing the likelihood of human error. And there is plenty of expert support available for shippers who are seeking to grow their international markets or reach them for the first time.
What international shippers need to know
In his Parcel piece, Costanzo outlines six important considerations for shippers:
1. NAFTA Eligibility
In late 2018, the three North American countries reached a new agreement, the U.S.-Mexico-Canada Agreement. This trade deal has been signed by all three countries, but must be ratified by legislative bodies in each before it takes effect.
For now, the North American Free Trade Agreement still governs products moving between these countries. And customs agents don’t automatically apply NAFTA rules, like tariff exemptions. Every shipment needs to carry paperwork with detailed information about the products inside.
Specifically, NAFTA’s “rules of origin” can be very specific and often confusing. However, these spell out which products can receive NAFTA benefits and which can’t. International shippers must fill out NAFTA Certificates of Origin and submit them to customs agents with their shipments.
2. Tariff Classification
All three NAFTA signatories have their own tariff coding systems. These tariff codes specify parcels’ duty rates and treaty benefits, so it’s essential that shippers get them right. Tiny mistakes in tariff codes can lead to long delays and big headaches
3. De Minimis Threshold
The U.S. doesn’t bother taxing shipments worth less than $800. In Canada and Mexico, however, the bar is much lower: Just $16 in Canada and $15 in Mexico. This number is known as the “de minimis threshold.”
Part of this disparity can be explained by the U.S.’s lack of a federal sales tax, which means exporters shipping goods to the U.S. have to pay customs duties and taxes but not sales tax.
Further, according to the Peterson Institute for International Economics, both would change under the USMCA. In the new deal, Mexico upped its minimis tax-free threshold to $50 and its threshold for tariff-free and simple customs forms to $117. Canada’s rose to $31 and $117, respectively. (All figures are in U.S. dollars.)
4. Expedited Clearance for Low-Value Shipments
If shipments are worth less than given thresholds in Mexico and Canada, both countries are willing to process them faster. This is particularly valuable for e-commerce sellers, who often ship just one or a few items at a time directly to customers rather than sending large commercial bundles.
5. Trusted Trader Programs
All three NAFTA/USMCA signatory countries have “trusted trader” programs, which give faster service to exporters that clear certain parameters. Generally, international shippers must submit detailed applications and verify that their supply chains are very secure. In exchange, they get expedited clearance lanes, greater access to customs staffers and lowered risk of inspection.
6. Sales Taxes
Although the U.S. has no federal sales tax, American companies may find themselves paying hefty taxes at customs. Mexico assesses a 16 percent value-added tax to many goods that cross its borders. Canada tacks a 5 percent goods and services tax at the point of sale onto many goods sold within its borders. States and provinces may add their own sales taxes.
Shippers seeking to sell goods outside the U.S. need to know how taxes work in those countries — not just how much they might owe and when they’ll owe it, but how much their customers might be paying on top of sticker prices.
Why ship internationally?
Shipping internationally isn’t easy. It can be expensive, both in terms of third-party shipping carriers and of payments to foreign governments. But millions upon millions of customers in Mexico and Canada already have long-established habits of purchasing American goods, and hundreds of thousands more are beginning to do so every year.
Expert help can be enormously valuable in developing an international shipping strategy, especially as the North American nations prepare to adopt a new trade deal that will tweak many of these rules. At Reveel, we can help with that. Give us a call to start exploring the world as an international shipper.