There are currently a great number of business owners, corporate executives and front-line workers across North America holding their breath in anticipation of what they believe will be the outcome of the NAFTA negotiations on or before September 30.

That’s the date set out by Washington to deliver the text of a deal with or without Canada before making public (within 30-days) the text to the bilateral trade deal the United States struck with Mexico on August 30. The US administration is following the time constraints designated by the Trade Promotion Authority, also known as fast track, to ensure the agreement is subject to a straight up-or-down vote by the US Congress. Any amendments would require the negotiations to be reopened.

The fast-track timing allows for a total of 90 days for consultation with Congress and stakeholders to consider the proposed agreement prior to beginning the legislative ratification process. This also coincides critically with December 1, when Mexico transitions power to its new President Andrés Manuel López Obrador. The current administrations both of Mexico and the United States would prefer to see the deal ratified by both countries in advance of Mexico’s new president taking power as there is concern from both countries that his administration could reject some of the provisions, forcing the parties back to the negotiating table.

However, Canadian officials have been taking a hard line in negotiations and have stated they would rather have no deal than bind Canada to a bad deal. They also feel that the US Congress would only support a trilateral free trade deal. However, that support was called into question recently when Republican Congressman and House Whip, Steve Scalise, made a statement suggesting Congress was growing impatient with Canada’s negotiating tactics.

That could be just tough talk in hopes of hastening the conclusion of negotiations that have been going on for more than a year in advance of a critical mid-term election and the initiation of a new government in Mexico. Canada hopes so, but also knows that President Donald Trump has demonstrated his willingness to staunchly uphold his negotiating positions.

With the deadline upon us, the question is, what happens if Canada and the US don’t sign a deal? As has been the case throughout the NAFTA negotiations, the answer isn’t black and white.

Canada could still insert itself into the bilateral deal. If no deal is reached by September 30^th, there’s no reason Canada couldn’t continue to negotiate in hopes of inserting itself into the deal after that date. Speculation has emerged the Canadian delegation is loath to publicly accept a deal that most believe will contain concessions on access to the Canadian dairy market before the provincial election on October 1 in Quebec, where much of Canada’s dairy is produced.

Meanwhile the text of the US-Mexico deal will be made publicly available in accordance with US law. But that agreement is likely already being drawn up with placeholders to include Canada, and there’s no reason those placeholders couldn’t be filled just as easily at some future date. The US Congress may be willing to accommodate such changes to ensure there is a tri-lateral deal. However, the stakes are high; a misplayed wager will have political and economic consequences for all parties.

The US could withdraw from NAFTA. In the event no deal is reached between the US and Canada by September 30^th, Washington could conceivable choose to officially withdraw from NAFTA as it puts its bilateral deal with Mexico before Congress.

This would set off a six-month timeline for the termination of the agreement, during which time the US and Canada could (and likely would) continue to negotiate to either find a way to include Canada in a trilateral deal with Mexico or negotiate a separate bilateral agreement with Canada.

There could be a zombie NAFTA. If Washington chooses to withdraw from NAFTA, only Congress can repeal the actual legislation associated with NAFTA. If Congress refused to do so, it would create what is often referred to as a Zombie NAFTA in which the agreement itself becomes defunct but many of the laws and provisions would continue to live on while others (such as the Chapter 19 dispute resolution mechanism) would no longer apply.

That would be almost as detrimental as a Congressional approval of US withdrawal from NAFTA as cross-border investment would likely grind to a halt in response to the uncertainty around the terms of trade.

However, if Congress were to approve the US-Mexico bilateral deal, it’s almost certain lawmakers would also approve a withdrawal from NAFTA as the bilateral deal would ultimately override the terms of NAFTA.

The US could impose tariffs on Canadian automobile imports. The threat of a 25-percent tariff on auto imports under Section 232 of the Trade Expansion Act of 1962—the same law the US used to impose tariffs on steel and aluminum—has been repeatedly mentioned by Trump administration officials. Such a move would have one of two effects. The first is that it could generate enough bad blood between Washington and Ottawa (and Canadians and Americans) to indefinitely stall free trade negotiations in spite of the economic consequences. The second is that it would become enough of a political liability to Canada’s governing Liberal Party that it would prompt Ottawa to offer greater concessions within a revised NAFTA to hasten Canada’s inclusion in a trilateral deal.

It should be noted, however, that one of the lingering issues in the NAFTA talks is that Washington won’t provide Ottawa with guarantees that it won’t impose the Section 232 tariffs on Canadian automobiles even in the event a deal is reached on NAFTA.

Congress could reject the US-Mexico bilateral trade deal. Despite some recent signs of frustration and impatience, members of Congress have signalled repeatedly they would prefer a trilateral deal over a bilateral one with Mexico. In response, they could refuse to ratify the bilateral deal, ultimately forcing resumption of talks between the US and Canada.

Resumption of negotiations would likely mean no deal could be reached until well into 2019 as the US would be in the midst of mid-term elections or a lame-duck Congress for the remainder of 2018 and a new Mexican administration would likely want to revisit whatever terms were agreed to by the current administration.

Canadian officials, emboldened by Congress’s preference for a trilateral deal, would be less inclined to concede provisions of the agreement they deem critical to Canada’s economic and industrial well-being, especially since 2019 is an election year in Canada. There’s also the possibility the makeup of Congress could change dramatically with the mid-term elections, shifting the focus of the negotiations to issues of greater concern to Democrats in Congress.

This would mean a prolonged period of uncertainty and diminished foreign investment in Canada, the US and Mexico, resulting in a softening of economic growth, which will ultimately hurt all three nations involved.

What does all this mean?

It means that the immediate period is really only another phase of negotiations that have been ongoing for more than year. September 30 will mark the end of this phase and October 1 will mark the beginning of the next phase. And we’ll know soon enough what the tone and pace of negotiations will be in that phase. The saga will almost certainly continue in one form or another.

Candace Sider is vice president of Government and Regulatory Affairs North America at trade-services firm Livingston International. She is a frequent speaker and lecturer at industry and academic events and is an active member of numerous industry groups and associations.

It is not surprising to note the conclusion of the fifth round of NAFTA negotiations has left more than a few industries anxious. The negotiations, which hitherto had been a trilateral demonstration of mutual good will and diplomacy eroded quickly into unveiled attacks on the positions of each party to the beleaguered trade deal after the fourth round of negotiations.

The impasse has led many observers to question whether or not the fate of the trade deal was already sealed; that the course had already been set for a US withdrawal.

It is in such instances that corporations tend to begin scenario planning and risk analysis in an attempt to determine how their business will be affected and how to mitigate disruption. In many cases, they work with third-party organizations such as accountants, lawyers, actuaries and trade-services advisors, not to mention their existing suppliers, vendors, distributors and freight forwarders to determine how best to mitigate business disruption and loss of revenue.

The challenge, however, is that the potential outcomes of the NAFTA negotiations may significantly alter long-standing trade rules and the degree and timing of those changes all remain speculative at this point. While it’s true the final outcome will either be a US withdrawal from NAFTA or a new, modernized trade agreement, how negotiators will arrive at either outcome offers a cornucopia of possibilities.

ARRIVING AT NAFTA 2.0

Unanimous approval: Assuming all parties agree to the terms of a new agreement by the recently revised negotiation deadline of spring 2018, a revised NAFTA could be implemented as early as the third quarter of 2018.

Phased approach: In the event some of the parties offer concessions, they may find it politically (and economically) expedient to have these phased in over time. For example, in the unlikely event Canada were to concede a 50-percent US content requirement for automobiles, it may ask that this is something phased in over a period of five or 10 years (versus the current US proposal of a one-year phase in). This would allow companies to adjust gradually and would be less disruptive to their operations. Canada arranged a similar phasing in of tariff removals in its recently ratified free trade deal with the European Union.

Delayed implementation: Should the parties agree to a set of revisions for NAFTA, these revisions would likely have to be incorporated into the NAFTA Implementation Act, which governs the provisions of NAFTA. This would fall under the purview of Congress, which may not necessarily approve the changes immediately.

Delayed negotiation: All parties are in agreement that they don’t want the negotiations to be politicized, which means avoiding negotiations taking place amidst the Mexican presidential election (spring 2018) and the US mid-term elections (fall 2018). In the event the parties are unable to come to a consensus on the hot-button issues, they could choose to temporarily shelve these and revisit them after the US mid-term elections, leaving NAFTA intact in the interim. Even if the parties were able to reach eventual agreement and implement a NAFTA 2.0, the lag in negotiations could postpone that implementation for as much as a year, prolonging the period of uncertainty around the trade deal.

TERMINATION TIMELINE

Unilateral withdrawal: If the US administration chooses to withdraw from NAFTA and Congress is on board, a six-month notification is all that would be required. In theory, this could mean trade barriers, including tariffs, between NAFTA countries could be in place as early as fall 2018. While this would be an unfavorable outcome for most industries, it would at the very least limit the time window of uncertainty around the fate of NAFTA.

Congressional debate: Legal experts are split on whether or not US President Donald Trump has the authority to unilaterally withdraw from a trade agreement. Many experts say that while the president can choose to pull out of NAFTA, Congress has ultimate authority over the NAFTA Implementation Act, which governs NAFTA. If that’s true, Congress may choose to debate and ultimately reject a US withdrawal from NAFTA. Such a debate would likely be heated and mired by legal contention, which could draw out the process for quite some time; even years.

Delayed termination: Given the massive implications of a NAFTA withdrawal to America’s economy and industries, Congress may choose to approve a gradual or delayed withdrawal, rather than a cliff’s edge, so that industries who are heavily invested in NAFTA can adjust over time. This could mean a full NAFTA withdrawal may not take place for several years.

Legal challenge: Should the US administration choose to withdraw from NAFTA, it is conceivable industries that are heavily invested in North American supply chains could choose to put forward a legal challenge that would essentially force Congress to maintain the NAFTA Implementation Act. This would be unprecedented and would likely leave NAFTA in limbo for an even longer period of time. If successful, it would essentially mean many of NAFTA’s rules would continue to be upheld in practice even if the US is no longer formally part of the agreement.

Shift to bilateral FTAs: The US administration has made no secret of its preference for bilateral trade agreements over multilateral ones. As such, a US withdrawal from NAFTA wouldn’t necessarily mean the end of free trade between the US and its neighbors. However, it is not clear whether or not a US withdrawal would mean the US-Canada trade relationship defaults to NAFTA’s predecessor, the Canada-US Free Trade Agreement, or not. But even if that were the case, it’s most likely the US would withdraw from that agreement as well, which would require an additional six-month notice. During that time the US would likely begin negotiations with both Canada and Mexico on bilateral trade deals, but industry would be left with the ominous task of having to navigate the provisions of a trade deal that hasn’t been used in almost a quarter century.

All this means that regardless of the outcome of the negotiations, the real implications of a withdrawal and their associated timelines are still shrouded in uncertainty. This makes risk analysis and scenario planning extremely complex and frustrating for businesses whose current supply chain investments have effectively been in limbo for several months already. The more negotiations are delayed, the longer the period of uncertainty and the lower the likelihood of investment.

Candace Sider is Vice-President, Regulatory Affairs, North America at trade-services firm Livingston International.