As concerns grow that the latest effort to “modernize” the North American Free Trade Agreement may end badly, Canadian companies need to take steps now to prepare themselves for the impact that major changes proposed by the United States, or in the worst case, even outright termination of the quarter-century-old trade agreement could have on their operations.
“The first step is for companies to understand this is very real,” said Dan Ujczo, an international trade lawyer specializing in Canada-U.S. matters, one of a growing number of experts that in recent months have been urging the business community to begin contingency planning.
Stating that a possible NAFTA withdrawal “increases uncertainty around the long-term prospects, costs and compliance obligations of doing business across not only North America, but globally,” consulting firm KPMG recommends that businesses put together a “Survival Guide” for the next six months looking at the impact various possible outcomes, including termination of the deal, might have on their customers, suppliers and employees.
Encouraging companies to “embrace the idea of planning with flexibility,” KPMG partner Russ Crawford states that separating the “knowns from the unknowns” is key to the process of developing a manageable set of possible responses. “An example may be to have a back-up plan mapped out to the extent possible if there was an X percent increase in tariffs, or a Y percent change in regional (or even country specific) content,” Crawford explained.
Contingency planning should include closely checking certificates of origin and keeping meticulous records, because both client companies and customs officials are likely to start applying greater scrutiny as they also prepare for compliance with 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 said about the likely effect of new regional content requirements during a presentation by the Columbus, Ohio based law firm Dickinson Wright.
As they work towards developing back-up plans, companies should include different scenarios for how they would be affected if there was a new NAFTA (that may incorporate tougher U.S. proposals such as stricter rules of origin in the automotive sector), a bilateral agreement between Canada and the U.S., or no free trade agreement between the two countries at all.