Beyond the Border: U.S.-Canada and U.S.-Mexico Trade in Perspective

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By Philip Poland, International Trade Administration Jun 23, 2015

The North American trade relationship is the strongest in the world, and exceptionally important to U.S. businesses.  The United States exported over $600 billion in goods and services to both Canada and Mexico in 2014. Canada is our largest trading partner, with $658 billion in goods exported and imported last year. With this in mind, a recent panel discussion I participated in, held during the Discover Global Markets: The Americas conference, explored the opportunities and challenges for U.S. companies looking to do business with our closest neighbors.

How should businesses approach trade with Mexico and Canada, and what are the implications for organizations that want to expand and succeed?  The following is an overview of key considerations relating to the U.S.-Mexico and U.S.-Canada equations:

NAFTA is key. Since taking effect in 1994, the free trade pact has significantly reduced the cost of trading between the United States, Mexico, and Canada, by removing or reducing tariffs in multiple industries, including agriculture, textiles and automobiles.  U.S. manufacturing exports to NAFTA countries have increased 258 percent in the last 20 years.  Companies that have not yet launched an export strategy, and are analyzing opportunities for their products, must surely consider the cost implications involved under the free trade marketplace.  Simply put, if your business is just getting into the global trade game, Canada and Mexico may be a good place to start.  Both countries have a very skilled labor force as well as high-quality education in the areas of engineering that is needed for production and manufacturing.

Logistics costs are low.  Given the close proximity of our neighbors, and the productive relationships that exist between our governments, border movements are simplified relative to other nations. Lower transportation costs and streamlined customs procedures mean reduced logistics costs for those U.S. businesses exporting goods to Canada and Mexico – and for those importing manufactured goods and materials for use in production as compared with the cost of shipping from Asia.

Rules and details matter. Companies considering trade with our neighbors – and those that are already trading – must clearly understand the particular customs requirements that apply in each country.  For instance, in Mexico, customs officials can be very particular about accuracy on customs documents, right down to the smallest details.  Companies must state the date as “day, month, year” versus the way that it is ordinarily stated in the United States, or they risk delays.  Even the smallest errors on documentation can cause long delays in the clearance process.

Regulations and enforcement are subject to change. As in many countries, regulations in Canada and Mexico evolve and change. Companies need to stay up-to-date and work with a logistics partner who understands the shifting environment.  As an example, Mexican customs recently began enforcing regulations on shoes and apparel that require the importer in Mexico to be registered in an effort to prevent the undervaluation of shipments.  More information on this requirement is available here.

Licensing and permit requirements must be understood.  It is essential for companies to understand the way that products are regulated in Canada and Mexico before they decide on their trade strategy.  For instance, in the area of vitamins and supplements, in some cases items sold over the counter in the United States will be sold only with a prescription in Canada and Mexico.  This regulatory difference means that some items exported to these countries will require a specific license or permit.  On the import side, U.S. companies that work with particular manufacturers across the border also need to understand when a license is required.

Looming policy and process changes could make trade with Canada and Mexico even more attractive. The United States, Canada, and Mexico continue to pursue agreements to streamline the trade process and harmonize data flows and perimeter security procedures.  The Beyond the Border program is a good example.  Mutual recognition and acceptance of trusted trader programs, which will allow for expedited customs procedures, are also in the works.  More information is available here.  Finally, the United States is pursuing the implementation of the International Trade Data System (ITDS), which will allow international traders to submit documents required by U.S. Customs and Border Protection and its Partner Government Agencies through a “single window.”  The ITDS will expedite customs procedures and reduce paperwork, and fulfill U.S. commitments under the Beyond the Border program.  Mexico has also recently implemented a single window program.

Note: This article is not intended to be specific legal or compliance advice, but general information related to international trade.