Growing uncertainty over the future of the North American Free Trade Agreement 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-U.S. matters.
On the campaign trail last year, candidate Trump vowed to rip up NAFTA – the 23-year-old trade agreement between the U.S., 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.
It remains to be seen whether Trump will in fact attempt to withdraw, how U.S. 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 U.S. 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 Friday, 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 U.S. 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 U.S. 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 U.S. 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 U.S., or no free trade agreement between the two countries at all.