Suspension of De Minimis Exemption Hits Small Businesses Hard

The recent suspension of the U.S. de minimis exemption is causing significant concern among small business owners who relied on it for tariff-free trade. This harmful exemption was first passed in the 1930s. Most notably, it allowed for low-value goods worth less than $800 to pour across the Canadian border tariff-free, regardless of what country…

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Suspension of De Minimis Exemption Hits Small Businesses Hard

The recent suspension of the U.S. de minimis exemption is causing significant concern among small business owners who relied on it for tariff-free trade. This harmful exemption was first passed in the 1930s. Most notably, it allowed for low-value goods worth less than $800 to pour across the Canadian border tariff-free, regardless of what country they originally shipped from. As of August 29th, this exemption will stop applying to any country—including Canada. This change will make the already difficult shipping process for small businesses even more complicated.

Tanya Walia Monteiro, owner of The Flamingo, located on Queen Street East. She is not alone in lamenting this change. Based on her experience, she estimates that she spent two hours just filling out forms for one order because of the new requirements. American customers have stopped placing orders with her in a big way. Before, 80 to 90 percent of her internet sales were to customers in the U.S. This shift has made her reevaluate if she should ship to the United States at all.

Increased Paperwork and Costs

The implications are enormous. Now, all items, even those under $800 in value, will be given the same level of scrutiny as more expensive items coming into the U.S. This amendment has consequently tripled the amount of paperwork needed for shipping. It has made things even more expensive for businesses such as The Flamingo.

The complexity of the documentation has eaten up an enormous amount of time. Walia Monteiro told us she once passed nearly two hours on a single shipment. She stated that the shipping costs had become prohibitive:

“I actually had to do this a couple of weeks ago because an order was returned from Purolator because it didn’t have the right documents. There were about 10 items in there…so I had to fill out [multiple] forms for each product that I was shipping.”

This new layer of bureaucracy would likely deter small businesses from pursuing exporting opportunities altogether. As Walia Monteiro admitted, her business wouldn’t survive if she made the decision to no longer ship to the U.S. That clunky process has her reconsidering her approach. She noted,

“It cost me, I think almost $100 in all the different fees…and I even told them ‘I’m going to give you a store credit because I don’t know what the tariffs are going to look like for you.’”

The dramatic decrease in orders from U.S. customers has left Walia Monteiro no choice but to respond. She has recently instituted a $25 minimum purchase for her Canadian orders. This modification is her effort to offset lost income from American sales. We believe this regulatory change would have a devastating effect on small businesses. Their capacity to deal with increased operational complexities is often acutely hampered by a lack of resources.

“I haven’t made the decision to just not completely ship there at all … but that one order really has me rethinking about it because we don’t have two hours a day to fill out these [forms].”

Impact on Sales and Business Viability

Drew Fagan, a business expert, remarked on how these changes could affect small producers:

Fagan thinks that would force most small businesses to dramatically shrink their addressable market. To escape having to deal with time-consuming customs procedures, they might even move some or all of their operations to the U.S.

“For a small craftsperson, this will have an impact. A $100-$200 [order] might not be worth the effort.”

Walia Monteiro expressed her frustrations over how these changes fundamentally alter the landscape for small businesses:

She urged her customers and fellow business owners to take action:

“Small businesses like us are the ones that are truly affected because we already have such a hard time building equity.”

So far, the Canadian government has remained mum on what retaliation measures they may take. They remain undecided as to how to respond to the suspension of the de minimis exemption. Fagan suggested that this development could be a part of a larger bargaining chip for such agreements as CUSMA (Canada-United States-Mexico Agreement). Under CUSMA, products have to be made with at least 50 percent North American content to be eligible for duty-free trade. This requirement only adds to the complexity for small businesses.

“I encourage my American customers and even Canadians to speak to your local politicians. Tell them that you’re not happy about this.”

Future Considerations

As Walia Monteiro reflects on these challenges, she emphasizes the need for immediate support:

As she points out, the costs are already sky high for what’s currently imposed. This prospect leaves her questioning how much longer she can sustain her business with these new restrictions.

“Do something for small businesses. Do something for yourselves – because otherwise we’re not going to be able to exist.”

She notes that existing costs are already high, leading her to question how long she can sustain her business under these new conditions.

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