Canada, the United States and Mexico have signed a new free trade agreement that may benefit a lot of Canadian consumers wanting to shop online.
The new deal, called United States-Mexico-Canada Agreement (USMCA), raises Canada’s duty-free level from C$20 to C$150. It also raises the sales tax from C$20 to C$40.
Here are some of Prime Minister Justin Trudeau’s comments on the deal:
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Here’s a breakdown of what to know.
What does this mean?
The new duty-free threshold means Canadian consumers ordering U.S. goods do not have to pay a duty on products that are $150 or less.
The rise in the duty-free limit is also only for goods you buy online — not for trips across that border. Currently, if you stay in the U.S. for 24 hours you qualify for an exemption of $200. That exemption climbs to $800 if you stay 48 hours or more.
Before the new trade deal, Canada has set its de minimis threshold — the maximum value of an item that Canadians can order from a foreign country without paying duties or taxes — at $20, which has not increased since 1985 and is one of the lowest in the world.
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By comparison, the U.S. has a US$800 threshold that is applied to e-commerce.
“It’s a win for Canadian consumers. It raises the threshold at which duties can be imposed on incoming shipments from the other two NAFTA countries,” Brett House, a deputy chief economist at Scotiabank said.
“Overall, this is positive for consumers, but the threshold for duties is still low by international comparison,” he added.
Maryscott Greenwood of the Canadian-American Business Council, said this not only saves consumers money, but it also saves time.
“Canadian consumers would benefit quite a lot from an increase in the level,” she said. “Let’s say you live in a remote area in Canada, and you can’t get what you need so you shop online. … It is a convenience and a reality of our modern economy.”
When does it kick in?
Now that the deal has been negotiated, it needs to head to U.S. Congress for a mandatory 60-day review period. This means the USMCA could be signed before Dec. 1.
White House officials said U.S. President Donald Trump, Prime Minister Justin Trudeau and outgoing Mexican President Enrique Peña Nieto will sign the deal at the end of November. (Mexico’s new president, Andrés Manuel López Obrador takes office Dec. 1).
In the U.S. it will then be up to Congress, which could change after November’s midterm election, to ratify it before it comes into action.
In Canada, the signing of the deal comes shortly before the House of Commons rises for winter break.
And signing is not the same thing as ratifying the deal, which requires the legislatures of each member country to approve the agreement. For Canada, that attaches a looming deadline in the form of the upcoming elections in October 2019 and the end of the parliamentary sitting in June 2019.
Once the deal is signed in December, the federal government will need to introduce legislation to actually ratify and implement it. That bill will need to follow the same legislative process as any other, which will take months to gain approval from the various stages of review needed in both the House of Commons and the Senate before it can receive royal assent and become law.
And it will need to do all that before the parliamentary session ends in June or risk the deal becoming a campaign issue.
WATCH: What does the new NAFTA deal mean for Canada?
What about Canadian retailers?
Canadian retailers, many of them represented by the Retail Council of Canada, have previously pushed back against raising the de minimis level.
“Changing the de minimis levels would be a disaster,” Diane Brisebois, CEO of the Retail Council of Canada said. “It would immediately put Canadian businesses at a disadvantage. They would have to pay sales tax and duty, while the U.S. online seller would not have to. It does not make any sense whatsoever.”
A 2017 study by the Retail Council of Canada found that an increase in Canada’s de minimis level to either $200 will result in a loss of sales in the retail sector, “which will affect the Canadian economy in terms of decline in GDP, labour income and employment.”
The study found that if Canada raised the duty-free threshold to $200, it would shed more than 300,000 jobs by 2020. Even changing the duty-free level to $100 could have a huge impact on Canadian retailers, Brisebois said.
WATCH: 300,000 Canadian jobs could be lost if U.S. duty-free limit rises for online shopping, study says
‘Tariffs may be more consistent’
But House said the $150 duty limit may actually benefit retailers.
The current level is so low that it’s not “economical” to impose duty on every shipment, House said. Because of this, Canadian consumers buying goods online only see imposed tariffs every now and then.
“But raising the threshold makes it economical to collect. Tariffs may be more consistent and put retailers in a better position,” he said.
A 2016 C.D. Howe report found that the federal government spends four times more on enforcing duties than it takes in from them. The report (commissioned by eBay) argued that raising the duty-free threshold would benefit consumers, businesses and the government.
The report modelled the impact on public revenues of raising the limit from $20 to $80, $100 and $200 and found that all three scenarios would have a negligible effect and might even result in a small boost for government coffers.
That’s because assessing small parcels that might be subject to duties is very expensive. By holding the threshold at $20 instead of $80, for example, “the government collects $39 million in additional revenues, but at a cost of $166 million,” the authors noted.
— With files from Global News reporter Amanda Connolly
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