US wants freer NAFTA online but faces battle

A US proposal for Mexico and Canada to vastly raise the value of online purchases that can be imported duty-free from stores like Amazon.com and eBay is emerging as a flashpoint in an upcoming renegotiation of the NAFTA trade deal.

Vulnerable industries like footwear, textiles and bricks and mortar retail in Mexico and Canada are pushing back hard against the proposal by the US trade representative to raise Mexican and Canadian duty-free import limits for e-commerce to the US level of US$800, from current thresholds of US$50 and C$20 (US$15.74), respectively.

For the Mexicans, the main worry is that such a move could open a back door for cheap imports from Asia and beyond. For Canadian retailers, the fear is that e-commerce companies will undercut their prices.

The US plan was unveiled in July as part of the Trump administration’s goals to renegotiate the 25-year-old treaty.

While Mexico and Canada are still formulating their responses, the former is leaning strongly against the proposal in its current form, and Ottawa may not be far behind.

The proposed US$800 level “opens a completely unnecessary door” to imports from outside the NAFTA trading bloc, Mexican Economy Minister Ildefonso Guajardo said last Thursday on the sidelines of a NAFTA-related event, calling it “a very sensitive topic.”

The growing controversy over how to account for a burgeoning regional e-commerce sector dominated by the US highlights a rare area where the Trump administration is pushing to liberalize trade rules rather than tightening them.

Much of Trump’s criticism of NAFTA stems from his belief it has decimated US manufacturing as companies shifted production to Mexican factories with cheaper labor, creating a US trade deficit with Mexico worth over US$60 billion.

But Mexican and Canadian business leaders fear the rule change could make their industries vulnerable, arguing that unless online retailers can show products are made in North America, they should not be exempted from duties levied on other imports.

“We can’t open the door to inputs from outside the region coming in tax-free when we’re talking about the need to reduce the deficit and create jobs,” said Moises Kalach, who fronts the international negotiating arm of Mexico’s CCE business lobby. “It goes completely against that.”

Guajardo said Mexico’s retail group the National Self-service and Department Store Association, which includes powerful members such as Wal-Mart de Mexico, had visited him last week to express concerns about the proposal.

He said the group’s representative brought to the meeting a US$250 jacket bought on the Internet as evidence that violations to the existing limit were already threatening members’ businesses.

“Suppose there was an US$800 free limit. Can you imagine how many shirts Vietnam could send to Mexico in a packet below that price? They could easily flood us with packets of 100,” he said, while recognizing the need to smooth customs processes.

Complicating efforts to agree on a common set of rules is a tangle of diverging regulations on tax.