Small business may be hurt by revised NAFTA
Canadian operators fear for future as U.S. makes push at NAFTA talks
For four years, Amherstburg shop owner Dorothy battled her own health issues along with an unfavourable exchange rate and a growing online shopping trend to keep the doors open.
She finally called it quits in June and closed Pied-a-Terre Home Decor and Gifts for good.
“The online ordering is killing small businesses ,” Kryworuchko-Languedoc said Tuesday .“You can’t keep up with the prices. If it’s going to affect somebody like Sears, it’s going to affect small business even more so.”
As a business owner, Kryworuchko-Languedoc kept an eye on the issues surrounding negotiations between Canada, Mexico and the U.S. regarding a new North American Free Trade Agreement.
One of those is increasing the duty-free and tax-free threshold for e-commerce purchases.
The United States has let it be known it would like Canada and Mexico to fall in line with its own threshold of $800.
Canadians are currently able to buy up to $20 online without paying duty or taxes. It’s a rate that hasn’t changed in more than 35 years and exposed the Canadian government to pressure from online retailers and express couriers to raise the threshold to $200.
“That $200 is going to kill small business even more,” Kryworuchko-Languedoc said. “You’re going to see more businesses closing.”
Her fears are shared by the Windsor-Essex Regional Chamber of Commerce, which has partnered with chambers in Niagara, Sarnia and Thunder Bay to oppose any increase in what’s known as the De Minimis Threshold.
“Any level of an increase in the DMT in Canada would be unwelcome for retailers and raising the De Minimis level to $200 would lead to massive increases in crossborder purchases negatively affecting retailers in items such as apparel, footwear, books, toys, consumer electronics and housewares, most of which are priced below $200 and easily shipped. The losses in terms of new investments, jobs and economic activity could be significant,” stated a media release by the Windsor chamber.
Chamber president and CEO Matt Marchand said the four chambers plan to bring a no-increase resolution forward at the Canadian Chamber of Commerce AGM next month in Fredericton, N.B. “The fact you have four chambers coming out very aggressively for keeping the De Minimis where it’s at reflects the deep concern we have for protecting Canadian retail,” Marchand said.
Studies of U.S. online retail show only 22 per cent of American customers purchase from non-U.S. sellers. In contrast, 67 per cent of Canadians have made online cross-border purchases.
“There’s a huge trade imbalance,” Marchand said. “That’s the primary reason for leaving it where it is. You have to level the playing field. It’s unrealistic to expect Canadian retail to compete against the online giants in the U.S.A.”
Laurie Tannous is a special adviser to the Cross Border Institute at the University of Windsor. She has been dealing with issues related to the new threshold in the U.S. as the vice-president of government relations with Farrow customs brokers.
“We have U.S. operations so we’ve been living with this on the U.S. side and I’m dreading what could happen here in Canada,” Tannous said. “Small and mediumsized businesses will be impacted. Small retailers are already getting hit by online, you can expect you’re going to see closures.”
With no oversight by brokerages or customs, Tannous said Canada is opening itself up to an influx of contraband goods.
“People would be shocked at how much drugs and contraband are in online mail,” she said.
She said Australia raised its threshold and then reversed course after just a few years.
A C.D. Howe Institute report last year stated the government spent $166 million collecting duties and taxes under the current threshold, offset by just $39 million in revenue. The report suggests raising the threshold would benefit the federal government by reducing customs processing costs.
As president of the Downtown Windsor BIA, Larry Horowitz sees an increased duty-free threshold as yet another obstacle to overcome.
“Obviously it’s not good for the local economy but we have to be prepared for these types of things,” he said. “The businesses that are successful are focusing on the things that win, changing their hours, updating their look and feel.”
That’s how young entrepreneur Justice Fournier views it.
“You don’t own your customer,” said Fournier, who has several business ventures centred around food and fitness. “You have to attract the customer and provide service that’s affordable and the quality they’re looking for.”