Businesses Unprepared For A Post-NAFTA World
Businesses across Canada and the United States that currently make use of the North American Free Trade Agreement (NAFTA) are fairly passive about the outcome of the ongoing NAFTA negotiations and have not yet developed contingency plans to prepare for a potential US withdrawal from NAFTA.
According to “Preparedness for a Post-NAFTA World,” a study conducted by customs broker and trade services firm Livingston International, only a small contingent of small and medium-sized businesses that currently use NAFTA – four percent and six percent respectively – have contingency plans in place in the event of a NAFTA withdrawal compared to only one in five large businesses (18 per cent).
The study also revealed a fairly passive attitude toward the ongoing NAFTA negotiations amongst Canadian and US companies that use NAFTA and the potential impact to their business. The lion’s share of those businesses (46 percent) say that while they are concerned the NAFTA negotiations may not be successful, they have only a general sense of the impact on their business and have not yet started contingency planning. An additional 29 percent say they haven’t considered whether or not the negotiations will be successful or unsuccessful or how an unsuccessful negotiation could affect their business.
“While we remain hopeful negotiations will be successful, we encourage businesses not to wait until a US notification of withdrawal is issued to begin considering the impact to their business,” said Daniel McHugh, Chief Executive Officer, Livingston International, emphasizing the notification period is only six months long. “There are multiple potential outcomes to the NAFTA negotiations and businesses should be considering how each one might impact everything from their trade processes and landed costs, to their risk exposure, cash flow, profitability and market competitiveness.”
Businesses across Canada and the US that use NAFTA say they will not be forced to reconfigure their supply chains in the event of a US withdrawal from NAFTA and are far more likely instead to pass down the cost of any new trade-related costs to consumers or scale down their business investments.
Only 12 percent of businesses that use NAFTA say they will be forced to change their supply chains while three times as many (36 percent) say they will incorporate any new trade-related costs into the prices of their products and 21 per cent say new trade costs will force them to rein in business investments. The finding is consistent among small, medium and large-businesses that use NAFTA.
“Washington’s stated intent in renegotiating NAFTA is to drive greater investment in the US economy by repatriating investments that had previously gone to Canada and Mexico, but it appears that is unlikely to be the outcome,” said McHugh. “The real result of a US withdrawal from NAFTA would simply be a spike in the prices of everyday goods, penalizing consumers across the continent.”
Only seven percent of US businesses that currently use NAFTA said a US NAFTA withdrawal would force them to stop using suppliers in Canada or Mexico and only nine percent of Canadian businesses said they would be forced out of the US market.
Only 18 percent of businesses overall that use NAFTA are closely following the NAFTA negotiations and are very aware of the key issues, versus 42 percent of large businesses. The greatest contingent of the business community (40 percent) that uses NAFTA believes there will be an ongoing delay in negotiations that will ultimately keep NAFTA alive for the foreseeable future but result in limited changes to the agreement. Fifty-eight percent of large businesses that use NAFTA believe a US withdrawal from NAFTA will have a very negative impact on the economy in which they have the biggest presence, versus 50 percent of small businesses and 39 percent of medium-sized businesses
Sixty percent of large businesses that use NAFTA believe a US withdrawal from NAFTA will have a very negative effect on their trade-related costs, versus 49 percent of small businesses and 44 percent of medium-sized businesses.
Approximately one in three businesses overall (29 percent) that use NAFTA say they will need either some or substantial external support to adapt to a post-NAFTA world.