NAFTA Does Not Serve a Service Economy

Why is it that as a purchasing advisor to global companies, I have to show my college diploma and a letter from a client to cross the border into Windsor for a consulting meeting? We are supposed to be in a post-NAFTA world, when trade barriers are supposed to be lower between Mexico, the U.S. and Canada. It is clear that NAFTA has encouraged the flow of products among the three countries, but that benefit has not yet been extended to those of us in service industries.

If we are moving from a manufacturing to a knowledge economy, it’s in the best interest of Michigan and the U.S. to reconsider the exchange of services across the borders of our nearest neighbors.

The first problem is primarily based on the fact that selling a service often means moving people to their clients’ places of business, and when that move crosses a border – governments treat it essentially as immigration, not trade.

NAFTA actually addresses the flow of consultants across Mexican and Canadian borders. Under Chapter Sixteen of the treaty, the three NAFTA countries agreed on common rules for business people temporarily working in each other’s country. The provisions apply to business visitors, treaty traders and investors, intra-company transferees and certain professionals.

For most of my business travels to those countries I’m a “TN” or “Trade NAFTA” professional. In that category, my clients don’t have to prove that a Canadian or Mexican national could not do my job, but they do have to produce an employment letter, even for a one-day training session.  All Trade NAFTA-approved categories require a college degree, so immigration officials may turn me away if I can’t show it at the border. I also pay $50 for this inconvenience.

When we travel to a Mexican factory for even a one-day consultation we have to stop and arrange for a work visa or risk a $100,000 maximum fine. With penalties such as that, we always fulfill the administrative requirement, regardless of the inconvenience.

The Canadian government also set up a whole second set of tax obstacles to exporting my services. It’s hardly a surprise, but Canada is inclined to tax every dollar that our firm charges our Canadian clients and every dollar our consultants earn while they are in Canada. And they don’t just send a bill later. The law requires Canadian customers to withhold 15% of fees payable to U.S. consultant companies and pay it to the government. Companies here are also expected to withhold and pay Canadian income taxes on behalf of our consultants.

The law exempts businesses our size and consultants whose time at work in Canada stays under specific thresholds, but to stay within the law requires essentially applying for contract-by-contract waivers. We also had to set up a S-Corporation subsidiary to our LLC business because Canada doesn’t exempt LLCs from these tax burdens.

Taken one at a time, these are not insurmountable hurdles to our business. However, I don’t see any reason to create obstacles at all to the free flow of service-industry trade between the U.S. and our immediate neighbors. In a fiercely competitive world economy we are seeing European countries becoming more like a single trading entity – without giving up any of their significant national characteristics. The U.S., Canada and Mexico have recognized their common interests as a trading block, and it’s time to truly extend that to all forms of commerce.

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