COMMENTARY
38 THE JOURNAL OF COMMERCE www.joc.com
Stephan Galarneau
AUGUST 21.2017
WHEN THE OFFICE of the US Trade
Representative recently released
its 18-page document outlining key
objectives in the North American
Free Trade Agreement negotia-
tions to begin Aug. 16 , most pundits
rightly seized on the opportunity
to focus on items such as dispute
resolution, rules of origin, supply
chain management, and a number
of other hot-button issues.
Yet among the objectives set
forth in the document was the
establishment of reforms that would
allow small businesses to make bet-
ter use of NAFTA. These included:
l Secure commitment from the
US, Canada, and Mexico to pro-
vide information resources to help
small businesses navigate free trade
agreement requirements for export-
ing to NAFTA markets.
l Cooperate on sma l l a nd
medium-sized enterprise (SMEs)
issues of mutual interest.
l Establish an SME Committee
to ensure that the needs of SMEs
are considered as the agreement is
implemented so SMEs can benefit
from new commercial opportunities.
Although small business issues
may not have been traditionally at the
top of the priority list when it comes
to trade agreements, and may not be
the focus of economists' and policy
wonks' analyses, the inclusion of this
text represents a critical and note-
worthy pivot in the framing of trade
policy, and a positive one at that.
When evaluating SMEs and trade
in North America, it's important
to avoid speaking in homogeneous
terms. The disparity in the degree
to which SMEs in Canada and the
US
make use of trade opportuni-
ties is substantial, and offers some
explanation
as to why the US ini-
tiated the discussion over making
NAFTA
more accessible to small
business.
According to the Department of
Commerce, more than 304,000 US
companies exported their wares
abroad in 2014. Of these, 98 percent
were SMEs (defined as companies
with less than 500 people). Similarly,
SMEs represented 97 percent of
identified importers. Export activity
among US SMEs represented one-
third of total exports that same year.
In Canada, the picture is slightly
different. According to Canadian gov-
ernment data, SMEs were responsi-
ble for about 25 percent of Canada's
total exports in 2013 ($106 billion out
of $403 billion).
The really startling number,
however, is rooted in the percent-
age of SMEs that export. In Canada,
that number was 12 percent in 2014.
In the US — where small busi-
nesses make up 99.7 percent of total
business — less than 1 percent of
businesses export. That means less
than 1 percent of businesses is con-
tributing one-third of the country's
total exports, while 12 percent of
Canadian SMEs are contributing
only one quarter of total Canadian
exports.
In short, each individual US
SME is making a bigger impact to
total exports, and, in turn, GDP,
than its Canadian counterpart on
a proportional basis. In addition,
SMEs represented 27 percent of
export growth in the US in 2014.
The data show there is good
reason for the USTR to put greater
emphasis on helping US SMEs.
Given the individual impact each
SME exporter has, imagine what
would happen to US GDP if the per-
centage of SMEs that export grew
from 1 percent to 2 percent.
Despite the disparity between
the two countries, US and Cana-
dian SMEs do have something in
common.
They cite almost identi-
cal barriers to trade, not least of
which
are rooted in reg ulatory
barriers.
In the US, 24 percent of SMEs
cited regulations as a barrier to trade.
In Canada, a study by the Cana-
dian Federation of Independent-
Business (CFIB) in 2015 showed that
19 percent of SMEs were burdened
by border and trade rules. Setting
aside trade-related red tape, small
businesses in Canada face a far
heavier burden than their US coun-
terparts with respect to red tape in
general. The same CFIB showed
Canadian small businesses (with
fewer than five employees) spend
about 45 percent more per employee
to comply with regulation than their
US counterparts.
Those businesses that do engage
in trade activity typically get around
the burden of trade-related red
tape by using customs brokers and
third-party trade services provid-
ers to help them navigate the reams
of paperwork required, and will
likely continue to do so even if that
regulatory burden is reduced. There
are still a fair number of other bar-
riers preventing SMEs from taking
advantage of global trade opportuni-
ties, however.
For example, 38 percent of SMEs
believe their products aren't export-
able, which is likely untrue for the
vast majority. Access to investment
capital is an ongoing issue among
SMEs that typically have insuffi-
cient resources of their own to delve
into international markets. In addi-
tion, 37 percent simply don't know
where to begin.
For all these reasons, it makes
sense for a "new NAFTA" to offer
greater tools and information to
SMEs to help make North Amer-
ica's import and export markets
more
accessible. The outcome will
be mutually beneficial to all of the
agreement's signatories and far
more beneficial to SMEs that are
likely to end up with more profit
-
able and stable businesses than they
would have otherwise. JOC
Stephan Galarneau is vice president of
inside sales for North America at Livingston
International. He works exclusively with
SMEs.
THINKING 'SMALL' IN NAFTA
