Be prepared for an end to NAFTA, start contingency planning

Look at your supply chain to determine how exposed your business would become.

NAFTA negotiations have been pushed into 2018. Image: Fotolia

OTTAWA — Growing uncertainty over the future of the North American Free Trade Agreement (NAFTA) means companies need to brace themselves, including for the possibility that President Donald Trump walks away from a deal, a trade lawyer is warning the business community.

“The first step is for companies to understand this is very real and that they need to start contingency planning,” said Dan Ujczo, an international trade lawyer specializing in Canada-US matters.

On the campaign trail last year, candidate Trump vowed to rip up NAFTA – the 23-year-old trade agreement between the US, Canada and Mexico – if he could not renegotiate a better deal.

His recent reiterations of that threat, along with demands Canada and Mexico consider impossible, have forced everyone to take it more seriously.


Editorial: America first, fair trade last: brace for protectionist aggression

Time for US Congress to commit on NAFTA: Liberal MP Bob Nault

US hasn’t done analysis on what happens if NAFTA ends

NAFTA tensions push struggling talks into 2018

It remains to be seen whether Trump will in fact attempt to withdraw, how US Congress would react, whether Mexico and Canada would still keep talking and what that would end up meaning, in real terms, for cross-border trade between the three countries.

The US business and agriculture community has been ramping up its efforts to convince Congress, which could use its legislative powers to make it harder for Trump to exit the agreement, that they are not on board with abandoning the deal.

That outreach is important, Ujczo told businesses during an online presentation Oct. 27, but it is also not too early to get ready for any outcome.

There are some practical matters to consider, such as taking a look at the supply chain to determine how exposed a business would become if some of the tougher proposals, such as stricter rules of origin for the materials used in auto manufacturing, come to pass.

That should include examining checking certificates of origin and maintaining scrupulous records, because both client companies and customs officials are likely to start applying greater scrutiny as they also get ready for the new way of doing things.

“It’s time to really buckle down and take a look at that, because these proposals are going to heighten awareness throughout the supply chain and at the borders,” Ujczo, who is with the cross-border firm Dickinson Wright, in Columbus, Ohio, said during the presentation.

The lawyer also had advice for companies thinking about outsourcing to Asia as a way to minimize the fallout from the NAFTA renegotiations.

“Keep in mind NAFTA is not the only thing the Trump administration is doing. It’s targeting Asia,” said Ujczo, who noted the US has been ramping up its trade enforcement activities all around the world. “The only way the Trump trade strategy works is as a one-two punch: tightening up North America, while also targeting goods coming in from overseas.”

That raises the question of whether Canadian companies should think about packing up and moving south.

Ujczo said that would not be the case for everyone, but if they have US customers, it makes financial sense and the company was already thinking about moving there someday, it might not be a bad idea to speed up those plans.

“It has to have some business rationale,” he said in an interview. “I would never recommend just setting up shop in the US if you don’t have any other business going on there,” he said, but if it was already on the horizon: “It would accelerate that life cycle.”

Brenda Swick, a Toronto-based international trade lawyer with Dickinson Wright who joined the presentation, was more cautious.

“I think they should stay put where they are right now, but they should be looking at plan B,” she said in an interview.

Swick said those back-up plans should include figuring out how a company would be effected if there was a new NAFTA, a bilateral agreement between Canada and the US, or no free trade agreement between the two countries at all.

News from © Canadian Press Enterprises Inc. 2016
2 Comments » for Be prepared for an end to NAFTA, start contingency planning
  1. Mac Mackenzie says:

    Well, TRUMP has so far screwed up everything he has touched, so to blow up NAFTA will not come as a surprise to anyone. The clown has no idea how valuable NAFTA is to many, many, states and frankly he does not care, “he is the master dealmaker” and has to be seen as such ( at any cost )

  2. As a small business owner in Ontario and a definite part of the middle class, I am increasingly “feeling the burden” of maintaining the existing social programs to an ever increasing Canadian population and an ever increasing federal debt. The government has stated that small business is the backbone of Canada. With political “sabre rattling” occurring in regards to the cancellation of NAFTA, what motivation do I have to keep my small business in Ontario, Canada when there are so many financial and operational benefits to moving the business out of Canada? Big business already capitalize on this fact, so why shouldn’t small business? Remember, a significant part of Canadian small business compete on a global scale for our “slice of the pie”.

Have your say:

Your email address will not be published. Required fields are marked *