The future of the NAFTA may be up in the air as formal negotiations for a policy overhaul are forthcoming with the United States. NAFTA, which has been in force since 1994, created the world’s largest free trade area, and retooling the agreement could have a major impact on Canada’s economy, labour market and global supply chains.
Since its inception, NAFTA has removed barriers and encouraged the flow of goods and labour between Canada, the United States and Mexico. This is because, after NAFTA, imported items were no longer taxed, creating less expensive goods and encouraging trade. As a result, U.S. trade among Mexico and Canada has effectively tripled.
While the future of NAFTA is unclear at this time, businesses should not wait for sweeping changes to occur. Instead, organizations can prepare for NAFTA revisions by doing the following:
- Identify your exposures to U.S. trade action. Trade disputes can be incredibly costly for organizations, potentially leading to punishing anti-dumping and countervailing duties. To protect themselves, companies should lessen their exposure to such investigations by pinpointing how NAFTA changes might impact business as whole.
- Understand your supply chain. Changes to NAFTA will likely disrupt your supply chain, and upper management will no longer be able to delegate such issues to logistics or purchasing departments. It is vital for organizations and their leadership to identify supply chain vulnerabilities and alternative sources for critical inputs.
- Communicate your interests in NAFTA negotiations. The Canadian government is preparing for NAFTA renegotiations by identifying the interests of its business community. While these negotiators have their fingers on the pulse of the major issues related to NAFTA changes, your business may be able to request specific protections not previously discussed.
Organizations may also want to explore new markets to reduce U.S. dependence and assign an individual to stay current on NAFTA updates. While the future of NAFTA is uncertain, companies don’t have to sit on their hands, and the above strategies can better position them for success.
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