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Aug.21, 2017

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COMMENTARY 38 THE JOURNAL OF COMMERCE 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

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