This article appeared in the Fall 2018 International Issue.

You wouldn’t really know it from recent media headlines, but cross-border trade between the United States, Mexico, and Canada continues to thrive, with US goods exports to Mexico up by more than 10% over 2017 levels, and exports to Canada up by more than eight percent.

A good chunk of that volume is due to the surge of e-commerce shipments crossing the border, as Mexican and Canadian consumers are increasingly drawn to high-quality American goods, easily accessible from US retailers’ websites. The US Department of Commerce reports that while 64 percent of Mexican online shoppers reported making a purchase from an international retailer, two-thirds were from US sites. The numbers are similar among Canadian shoppers. Almost 70% of online purchases made by Canadian shoppers during 2016 were from non-Canadian websites, with about one-third coming from US retailers, and the rest from Asia and Europe.

As US businesses look to Canada and Mexico to expand online sales, it’s essential to remember that these are international transactions, and that every shipment requires careful compliance with numerous customs mandates. Understanding and navigating the customs process can be confusing and time-consuming, so be prepared to either expend the required resources, or to enlist the services of a qualified third party to manage the process on your behalf.

The good news though, is the process has become significantly less onerous. For one thing, systems are now automated, which has essentially eliminated the need to rely on cumbersome, error-prone manual procedures. In addition, each government has taken steps to facilitate the clearance process and to encourage cross-border sales.

What Do I Need to Know as an International Shipper?

The first step is to understand the nuances of moving goods across the border, with regard to key requirements and common mistakes. Here’s an overview of some considerations that apply to shipments heading to either Canada or Mexico:

· NAFTA eligibility. The North American Free Trade Agreement (NAFTA) eliminates tariffs on qualified goods traded between the US, Canada, and Mexico, but determining eligibility can be highly confusing. A product must meet very specific requirements for domestic content as outlined in NAFTA’s “rules of origin.” Once you have determined that a product is eligible for NAFTA benefits, a NAFTA Certificate of Origin must be completed and submitted with shipment paperwork. Customs agents will not automatically assign NAFTA benefits; you must apply and submit required documentation.

· Tariff Classification. Every shipment must be assigned a tariff classification code, which is used to assess rates of duty, determine eligibility for free trade agreement benefits, and help monitor the types of goods entering a country. While Canada, the United States, and Mexico use the internationally-recognized Harmonized System as the basis of their tariff classification systems, each country maintains a unique coding system that must be understood and applied to all imports. However, determining the precise code can be difficult, since slight variations can distinguish one code from another. But, since incorrect classification codes are a top reason for border clearance delays, it’s important to prioritize this part of the process.

· De Minimis Threshold. Each government has in place a de minimis threshold that exempts shipments valued at less than that amount from duties and taxes. In the United States, the level is $800, which means goods entering the US can avoid taxes if they fall under that level. But Canada and Mexico maintain less generous thresholds, with current levels set at $16 and $50, respectively. Not surprisingly, this disparity has been a source of concern for US businesses, and the de minimis threshold is among the issues currently under consideration. (Mexico has reportedly agreed to raise its threshold to $100, although the current $50 rate remains in effect.)

· Expedited Clearance for Low Value Shipments. A tremendous boost for e-commerce shipments are the special considerations the Canadian and Mexican governments make for low value shipments. Through these initiatives — Canada’s Courier Low Value Shipment program and Mexico’s simplified clearance regime, qualified shipments benefit from expedited clearance with minimal time spent waiting at the border.

· Trusted Trader Programs. Each government has in place “trusted trader programs” that provide important clearance benefits to qualified participants. In exchange for certifying the security of their supply chains and undergoing a rigorous application process, program participants receive benefits including minimized risk of inspections, access to expedited clearance lanes, and direct access to customs personnel. Canada’s program is called Partners in Protection, the US offers its Customs-Trade Partnership Against Terrorism, while Mexico administers the NEEC (New Scheme of Certified Companies) program.

· Sales Taxes. Canada and Mexico maintain distinct sales tax structures that affect US retailers shipping goods into those countries. In Mexico, most goods entering the country are subject to a 16% value added tax, known as the IVA.

Canada imposes a five percent federal goods and services tax (GST) on virtually every product sold within its borders. Some provinces add their own tax, and that combined tax is called the harmonized sales tax (HST). Other provinces impose their own tax — a provincial sales tax (PST) — but keep it separate from the GST. Rules vary from province to province with regard to exceptions for small suppliers, so a business will need to determine its liability in each province to which goods are shipped.

US retailers can look to our North American neighbors and see a combined total of more than 165 million potential customers. But with the promise of new business comes the responsibility of customs compliance, which is why the right processes and resources must be in place before the first international sale is made.

John Costanzo is president of Purolator International, the US subsidiary of Purolator Inc., a leading integrated freight, package, and logistics solutions provider in Canada. He leads the company’s third-party logistics business and the development and execution of Purolator’s strategic growth plan for markets outside of Canada.