What businesses are doing to brace for the end of the de minimis exemption

In this Feb. 7, 2013 photo, U.S. Postal Service letter carrier Jamesa Euler, turns down the flag on a mailbox while delivering mail in the Cabbagetown of Atlanta. (AP Photo/David Goldman)

Canadian small business owners are not sure if they will be able to continue selling to U.S. customers following President Donald Trump‘s executive order to close the de minimis exemption.

The de minimis exemption allows packages that are worth less than US$800 to enter the United States duty-free. This allowed American customers to order products from outside the U.S. without having to worry about paying tariffs or other fees, while small businesses from around the world could sell to the American market relatively seamlessly.

Canada Post told CTVNews.ca that most Canadian packages will be subject to a 35 per cent duty, or tariff. Packages worth less than US$100 will be exempt, as long as they are sent by individuals rather than businesses.

The cancellation will have a large effect on Canadian commerce, business owners told CTV News.

‘I suspended shipping to the U.S.’

Elana White, owner of Outer Layer, a Toronto-based card and gift store is worried about her American customer base. “I suspended shipping to the U.S. earlier this week, so it definitely has an impact because I’m not going to be able to ship to those customers anymore,” White told CTV News Channel on Friday about the de minimis exemption being closed.

“At the moment it’s just confusing, nobody really knows how its going to work. … Nobody really knows how much it’s going to cost either at this point, so just to be safe and to avoid confusion and conflicts with customers, I just suspended U.S. shipping for now.”

‘Customers are going to be surprised’

“I’m not sure to be honest if the average American consumer is aware of what’s about to come,” said Cal Green.

Green runs Raised By Wolves, an Ottawa-based streetwear brand. He said that between 60 and 70 per cent of his collection is made in Canada.

He said the costs for shipping to the U.S. would be too high for his company to pay and instead he’s going to pass them off to American customers. “Our long-standing customers are going to be surprised,” Green told CTV News Channel on Thursday.

“I am looking into solutions, but at the end of the day, I’m not going to be relying on U.S. sales to keep the business afloat. Anything that does come through will be great, but really just trying to lean into Canadian production, and collaborations, and sales.”

‘This could be the end’

Korriko Pet Supply, a B.C.-based pet ware business saw more than half of its business disappear when it halted shipping to the U.S.

“We rely on U.S. customers for revenue, they make up 60 per cent of our business. So, having 60 per cent just disappear overnight, which we’ve already seen because we’ve had to shut off shipping to the U.S. for the time being,” owner Marion Kao told CTV News Channel on Thursday.

“I don’t know, this could be the end, hopefully it’s not,” Kao said.

Why the exemption is being closed

The de minimis exemption was a measure designed to expedite U.S. border and customs agents’ work, one University of British Columbia academic told CTVNews.ca.

“It was mainly put in place because of the burden that it put on to the U.S. border and customs agencies and they just wanted to move things through quickly without having to deal with all of the paperwork and filings that were involved for small value packages,” said Samuel Roscoe of the University of British Columbia in an August article.

But Trump thinks the exemption might be a means to smuggle fentanyl into the country.

In different executive orders, Trump blamed China, Mexico and Canada for the opioid crisis in the United States.

In a press release from April 2, the White House asserted that some Chinese exporters “hide illicit substances, including synthetic opioids, in low-value packages to exploit the de minimis exemption."

On July 30, the White House published another brief that collapsed the de minimis exemption for all countries.

Countries suspend mail service to the U.S.

The UN said on Tuesday that 25 different countries have suspended postal service to the U.S. This includes American allies like South Korea, Australia, Taiwan and New Zealand. Fourteen European countries have suspended service as well, along with Russia, China and India.

The Mexican postal service will temporarily stop package deliveries to the U.S. The Associated Press reported on Wednesday.

Amidst ongoing labour negotiations, Canada Post has decided to use a third-party service to process the fees on mailed packages.

“Canada Post has worked to secure the necessary solutions to maintain business continuity for our customers,” Canada Post told CTVNews.ca on Wednesday.

The mail service will use Zonos to collect duties from customers and send them directly to U.S. Customs and Border Protection.

‘It’s historic’

Dave Pelkey spoke to CTV News on Thursday about his business, The Vintage Crate’s challenges with the new duties.

At first, Pelkey said, he had some hope that if he filed the right paperwork under CUSMA, or the Canada-U.S.-Mexico Agreement, his products would be exempt from the tariffs.

“But I learned today that the president has made this the same as steel and copper and the others, as a national exemption that will not qualify for CUSMA.”

Pelkey added, “Somehow me shipping an antique toy to someone in the U.S. is a national security issue. So when it’s under the national security side of things, CUSMA will not exempt the item.”

“That information now has us really considering shutting down the Etsy store to U.S. customers, which will have a big impact on our antique sales through our online sales, we will also have to close down eBay,” he said. “That works out to 60 per cent of my antique business.“

Pelkey said now he will have to pay the 35 per cent tariff, brokerage fees and rely on more expensive shipping companies.

“I think that it’s historic that post offices around the world have stopped shipping to the U.S.”