Should Small Business Owners Care About the United States-Mexico-Canada Trade Agreement?

In short, the answer is “Yes!”

Although details of the agreement haven’t been widely covered in the news media because of other events in the country, Chapter 25 of the new agreement promotes the growth of small and medium-sized companies in all three countries.

Unsplash-Sean McGee

Small to medium-sized businesses account for more than 90% of the exports to Mexico and Canada, and more than 80% of the imports from those two countries.

The U.S. Small Business Administration (SBA) defines a business as small mostly based on either the number of employees over the past 12 months or the average annual receipts over the past three years.

The two most widely used standards to qualify a business as small are 500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many non-manufacturing industries. There are many exceptions to these standards because size standards vary by industry.

Here are the numbers

According to the most recent data (2016) from the International Trade Administration, United States small businesses dominate trade with Mexico and Canada.

Exports—

Of the 57,098 U.S. firms that export to Mexico: 57.7% have fewer than 20 employees; 72.3 % have fewer than 50 employees; 81.4% have fewer than 100 employees; and, 93.6% have fewer than 500 employees.

Of the 86,526 U.S. firms that export to Canada: 59.9% have fewer than 20 employees; 75.3% have fewer than 50 employees; 83.7% have fewer than 100 employees; and, 94.4% have fewer than 500 employees.

Imports—

Of the 15,481 U.S. firms that import from Mexico: 57.6% have fewer than 20 employees; 67.9% have fewer than 50 employees; 74.6% have fewer than 100 employees; and, 86.8% have fewer than 500 employees.

Of the 17,277 U.S. firms that import from Canada: 43.3% have fewer than 20 employees; 55.7% have fewer than 50 employees; 65.3% have fewer than 100 employees; and, 83% have fewer than 500 employees.

Chapter 25

The Chapter begins with:

Article 25.1—General Principles: The Parties, recognizing the fundamental role of SMEs (Small and Medium-Sized Enterprises) in maintaining dynamism and enhancing competitiveness of the economies of the respective Parties, shall foster close cooperation between SMEs of the Parties and cooperate in promoting SMEs jobs and growth.

The chapter addresses key issues that will help to facilitate market expansion into Canada and Mexico, while creating stability and growth for cross-border commerce.

Chapter 25 will directly help United States entrepreneurs and small businesses by:

  • Promoting the growth of small business opportunities between the three countries
  • Providing strong intellectual property protections
  • Increasing opportunities for small farmers and other food businesses to export into Canada and Mexico
  • Increasing the de minimis threshold of shipment value for courier shipments entering Canada from $20 US to $150 US. (The threshold for collecting sales tax increases to $40 US.)
What’s next

Before the new agreement can go into effect, Congress must pass the appropriate legislation. With the U.S. midterm elections happening within the next few weeks, it’s unlikely the agreement will be ratified before the new Congress is seated in January. And results of the election may impact its ultimate passage.

The Mexican and Canadian legislatures will also have to authorize applicable legislation.

Author: hunterbrowncpa

Business Coach, Entrepreneur and CPA

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s