Canada Markets close in 1 hr 36 mins

How should Canadian businesses prepare for a world without NAFTA?

(Canada is increasingly convinced that Trump will pull the US out of NAFTA: Reuters, citing sources)

With the sixth round of NAFTA renegotiation talks underway in Montreal, many Canadian businesses don’t actually know how to cope in a world without NAFTA.

According to a survey from accounting services firm BDO Canada, only 35 per cent of Canadian business owners felt they were equipped to secure new suppliers and different modes of transportation. Meanwhile, 66 per cent of business owners have not pursued contingency plans in case of NAFTA’s dissolution.

“I wouldn’t necessarily be so pessimistic right off the bat,” says Ashley Ziai, senior policy analyst for national affairs for the Canadian Federation of Independent Businesses [CFIB]. “I am trying to remain hopeful that the agreement will be renegotiated. That being said, I do agree that this [negotiation] round is basically make-or-break and it’s a pivotal round to determine the way forward.”

NAFTA as it stands today has been in place for almost 25 years. If the treaty falls apart, Canadian business owners and corporations will need to prepare for a post-NAFTA world.

A world without NAFTA

According to Dan Ujczo, an international trade and customs lawyer for Dickinson Wright, we’re already seeing the effects of the uncertainty around NAFTA cause economic tightening and negative consequences for companies.

“Major manufacturers, such as auto companies that project their finances on three to five year cycles are already being conservative with their planning, so they’re not going to be purchasing as much from companies down the supply chain. This, in and of itself, will add to a slight contraction in the economy,” says Ujczo who projects that North America will start feeling that contraction in 2018 and into 2019 just based on the lack of decision making happening right now.

Ujczo is also seeing large manufacturers starting to go down the supply chain, and starting to ask questions about where they might be vulnerable were NAFTA to disappear. These are questions like, “Where are you purchasing your goods and services from?” These questions help ensure the record-keeping around what traditionally qualifies under NAFTA is being kept clean. This is a concern for companies because a lot of these suppliers are mom-and-pop shops when you move down the supply chain, and they don’t have a large customs and trade compliance staff — if they have any at all.

“An unintended consequence of that will be there are going to be companies that are unable to answer those surveys and questionnaires. As a result, they’re going to get out of those supplier contracts and you only get one shot at being the supplier of say a Chrysler or a Ford – once you’re out, you’re out,” says Ujczo, adding that the compliance burden on companies will increase, as there is greater scrutiny on what’s really qualifying for NAFTA and what’s not.

Another consequence of no NAFTA has to do with immigration. There are countless engineers, accountants and skilled tradespeople that travel throughout North America for work on NAFTA visas, also known as TN Visa. In the current climate of uncertainty, Ujczo predicts these visas will stop being issued.

“It creates huge staffing challenges,” says Ujczo. “Companies will have to rely on homegrown talent – where we know there’s already a shortage – or those positions will go unfilled.”

The trickle-down effect

Staffing holes can mean fewer choices, lower-quality products and potential safety risks for consumers, while the higher costs for the companies that will come with no free-trade treaty will almost certainly be passed on as well.

“At the end of the day, consumers will be the ones who will get hit because if you do away with NAFTA, beef for example, that is largely coming in duty-free, all of the sudden gets hit with a 25 per cent tariff,” says Ujczo.

Canada, Mexico and the U.S. will all raise their tariffs if the United States withdraws because no country can be seen to be giving another country preferential treatment under the rules of the World Trade Organization, so prices will go up everywhere.

Tariffs will go up to the Most Favoured Nation [MFN] level, which in the U.S. averaged 3.5 per cent and in Canada averaged 4.1 per cent in 2016. That may not seem like much, but with trade volumes of $1 trillion a year, Ujczo assures they will start to add up.

“More importantly, that’s the average. There are trade specific MFN levels, such as 25 per cent in the U.S. on light-duty pick up and most of the trucks used in the U.S. are based in Mexico, so depending on what you’re looking at, the rates could be significantly more,” he says.

Perhaps the most significant issue is that the NAFTA agreement is so embedded in trade and the way North America does business that no one is quite sure what the long-term negative consequences will be if it dissolves.

“It’s that very uncertainty that will really cause companies the most serious economic damage. They can’t plan at that point,” says Ujczo.

How businesses should prepare

Granted, not every business is affected by NAFTA, but for those that are, what should they be doing now in case NAFTA doesn’t survive the current negotiations?

“We’re encouraging our members to be in constant discussion with their suppliers in the U.S. and Mexico and to be speaking to their customers, while thinking about ways to move forward should the negotiations fail,” says Ziai of the CFIB.

Those ways to move forward may include diversifying their suppliers in other markets and relying on agreements such as the Canada-European Union Trade Agreement [CETA] and the new America-free Trans-Pacific Partnership [TPP] for guidance, she says.

The bottom line is, business owners will have to do a lot of homework to figure out where their exposures are.

“Every company needs to be looking at which parts of the NAFTA are vital to their operation because if we get into a withdraw scenario, every one of us that represents companies where NAFTA is critical will be in Washington lobbying to get legislation passed to save those parts of the NAFTA and it may not look like a free-trade agreement, it just may be another statute,” says Ujczo who estimates that only 15 per cent of American companies impacted are doing that right now.

“The major companies are doing it, but for most companies this is something that has only existed in the Twitter-verse and they’ve been more concerned about other domestic U.S. issues, such as tax reform, healthcare and others,” he says.

For its part the CFIB has made their business counsellors available to their members and works very closely with the Canadian Board of Trade and The Canada Border Services Agency to help provide answers to business owners’ questions.

“We will be looking at providing webinars and other resources in the future, especially if things don’t go so well,” says Ziai.

To mitigate possible staffing shortages, Ujczo is recommending that companies renew their NAFTA visas now even if there’s still one to two years left on them, just to buy themselves some time to figure out a staffing strategy should NAFTA be no more.

“While they likely won’t renew or grant new visas once NAFTA dissolves, NAFTA visas are usually three years and what we’ve seen with other visas is that customs will usually honour that original visa, even if the agreement behind it doesn’t exist anymore. So if your employee has a NAFTA visa and they’re in year two when NAFTA goes away, customs will likely let them stay another year,” says Ujczo.

“Don’t wait until the last minute to renew. Renew now while the NAFTA is still in-force and that will get you additional time until it hopefully sorts itself out,” he advises.

Though things look potentially dire now, both Ziai and Ujczo stress that trade within North America isn’t going away, with or without NAFTA, and they are both still hopeful that the agreement can be renegotiated successfully.

“I know that our government is working really hard this week and into the weekend, so I personally am still hopeful that we will see an agreement that works for everyone,” says Ziai.

“As a business, you have to do that contingency planning to be prepared for that worst-case scenario of a NAFTA withdrawal, but be ready to proceed with a new NAFTA as this moves forward,” says Ujczo. “Uncertainty is the worst-case scenario for business, so everyone needs to get prepared one way or the other.”

Download the Yahoo Finance app, available for Apple and Android.

  • Stocks Extend Drop, Bonds Rise on Trade Jitters: Markets Wrap
    Finance
    Bloomberg

    Stocks Extend Drop, Bonds Rise on Trade Jitters: Markets Wrap

    (Bloomberg) -- U.S. stocks fell to session lows in thin afternoon trading as investors prepared for a week brimming with potential catalysts, from central bank meetings to the looming America-China tariff deadline. Treasuries held modest gains.The S&P 500 slipped in volumes 20% below the 30-day average

  • Saudi Arabia Tightens Purse Strings But Aramco Cash Beckons
    Finance
    Bloomberg

    Saudi Arabia Tightens Purse Strings But Aramco Cash Beckons

    (Bloomberg) -- Saudi Arabia will earmark less money for subsidies, social benefits and the military, embarking on three years of spending cuts as the government looks to private businesses to pull a greater load in channeling investment.A fiscal program unveiled on Monday marks a shift away from stimulus

  • Liberals to release fiscal update before Christmas, Morneau says
    Finance
    The Canadian Press

    Liberals to release fiscal update before Christmas, Morneau says

    OTTAWA — The Liberal government promises a report on federal finances before MPs head home for the holidays."Our plan is to have a fiscal update before Christmas so we can update Canadians on the state of the economy," Finance Minister Bill Morneau said after he took the first step to provide

  • Downtown Toronto condo prices compared to Manhattan
    Finance
    Yahoo Finance Canada

    Downtown Toronto condo prices compared to Manhattan

    Downtown Toronto and Manhattan have a lot of in common, including a skyline littered with high-priced highrises. But their condo markets are worlds apart.

  • U.N.D.P. says Latin America is wealthier but unequal
    Finance
    The Canadian Press

    U.N.D.P. says Latin America is wealthier but unequal

    NEW YORK — Latin America has significantly reduced poverty over the last two decades. So why is there generalized discontent, prompting thousands of protesters to take to the streets?A report from the U.N. Development Programme released Monday concluded it's due to a new kind of inequality, no longer

  • New York City’s Biggest Battery Is Quietly Powering Brooklyn
    Finance
    Bloomberg

    New York City’s Biggest Battery Is Quietly Powering Brooklyn

    (Bloomberg) -- The biggest battery in New York City has been quietly running for months at the edge of Brooklyn.The 4.8-megawatt lithium-ion system sits beside a shopping center in East New York, helping power the local grid, according to a statement Monday from the property owner, Related Cos., and

  • Oil Slips as Trade War Impact Counters Surprise Saudi Cut
    Finance
    Bloomberg

    Oil Slips as Trade War Impact Counters Surprise Saudi Cut

    (Bloomberg) -- Oil fell from the highest close since September as the ongoing U.S.-China trade dispute muted the effects of Saudi Arabia’s surprise move last week to take additional crude barrels out of the market.Futures in New York fell as much as 1.6% after climbing 1.3% on Friday. The kingdom voluntarily

  • Transcontinental CEO calls bid to ban flyers in Montreal 'incoherent'
    Finance
    The Canadian Press

    Transcontinental CEO calls bid to ban flyers in Montreal 'incoherent'

    MONTREAL — The CEO of Transcontinental Inc. says a proposal by a Montreal municipal committee to drastically cut down on mail flyers is "insensitive, incoherent and impractical."Francois Olivier says a recommendation last week by the municipality's environmental committee to distribute

  • Gundlach: The 2020s will see 'real turmoil' as US debt woes come home to roost
    Finance
    Yahoo Finance

    Gundlach: The 2020s will see 'real turmoil' as US debt woes come home to roost

    '[It's] foolish to believe that there will be no economic downturn for the next ten years considering where we are right now,' says Jeffrey Gundlach.

  • Goldman Jumps Into WeWork Cleanup With Debt-Financing Plan
    Finance
    Bloomberg

    Goldman Jumps Into WeWork Cleanup With Debt-Financing Plan

    (Bloomberg) -- SoftBank Group Corp. tapped Goldman Sachs Group Inc. for new financing to help revive one of its biggest bets -- an investment in office-sharing company WeWork.Goldman is arranging a $1.75 billion line of credit, the first step in SoftBank’s pledge to put together $5 billion in debt financing

  • Deal on new Canada-U.S.-Mexico trade agreement close
    Finance
    The Canadian Press

    Deal on new Canada-U.S.-Mexico trade agreement close

    OTTAWA — A deal on amending the new North American free trade agreement appears close following a busy weekend, with hopes Canada, Mexico and the United States will approve a rewritten deal in the next 24 hours.The deal was signed by the three countries last year, but U.S. ratification has been stalled

  • Trump, Dems in tentative deal on North American trade pact
    Finance
    The Canadian Press

    Trump, Dems in tentative deal on North American trade pact

    WASHINGTON — House Democrats have reached a tentative agreement with labour leaders and the White House over a rewrite of the U.S.-Mexico-Canada trade deal that has been a top priority for President Donald Trump.That's according to a Democratic aide not authorized to discuss the talks and granted

  • Finance
    The Canadian Press

    AGs urge Atlantic Coast Pipeline construction to continue

    CHARLESTON, W.Va. — Attorneys general from 18 states are urging the U.S. Supreme Court to allow construction of the Atlantic Coast Pipeline to continue.West Virginia Attorney General Patrick Morrisey said his office will lead the coalition. A friend of the court brief scheduled to be filed Monday argues

  • Finance

    Phone service providers expected to adopt new caller ID verification program

    OTTAWA — Some of Canada's telephone providers are being called on by the country's telecom regulator to add to their arsenals in the battle against phone scammers.The Canadian Radio-television and Telecommunications Commission announced Monday that it expects companies that provide Internet-based

  • Paul Volcker Was a Remarkable Public Servant
    Finance
    Bloomberg

    Paul Volcker Was a Remarkable Public Servant

    (Bloomberg Opinion) -- With the passing of Paul Volcker, a true public servant has departed. Mentor and role model to so many, Paul exhibited wisdom and longevity in equal measure. His contributions to central banking, and economic policy-making more generally, were truly extraordinary.I first met Paul

  • Paul Volcker Was a Remarkable Public Servant
    Finance
    Bloomberg

    Paul Volcker Was a Remarkable Public Servant

    (Bloomberg Opinion) -- With the passing of Paul Volcker, a true public servant has departed. Mentor and role model to so many, Paul exhibited wisdom and longevity in equal measure. His contributions to central banking, and economic policy-making more generally, were truly extraordinary.I first met Paul

  • Tesla on Autopilot Rear-Ends a Parked Cop Car in Connecticut
    Finance
    Bloomberg

    Tesla on Autopilot Rear-Ends a Parked Cop Car in Connecticut

    (Bloomberg) -- Another Tesla Inc. vehicle operating on the carmaker’s driver-assistance system branded as Autopilot has crashed into a parked emergency vehicle, eliciting fresh warnings about the shortcomings of automated technology on public roads.A Tesla Model 3 sedan hit a parked police cruiser with

  • Walmart Canada apologizes and pulls Christmas sweaters with Santa and cocaine
    Finance
    Yahoo Finance Canada

    Walmart Canada apologizes and pulls Christmas sweaters with Santa and cocaine

    Walmart Canada is apologizing after inappropriate Christmas sweaters, including one featuring Santa and cocaine, were listed on its website by a third-party seller.

  • Ex-Fed Chair Volcker dies, tamed inflation with recession
    Finance
    The Canadian Press

    Ex-Fed Chair Volcker dies, tamed inflation with recession

    Paul Volcker, who as Federal Reserve chairman in the early 1980s elevated interest rates to historic highs and triggered a recession as the price of quashing double-digit inflation, has died, according to his office.He was 92.Volcker took charge of the Fed in August 1979, when the U.S. economy was in

  • ISS recommends shareholders vote against Baker-led offer for Hudson's Bay Co.
    Finance
    The Canadian Press

    ISS recommends shareholders vote against Baker-led offer for Hudson's Bay Co.

    Hudson's Bay Co. minority shareholders should vote against a privatization bid led by the retailer's executive chairman, says an influential proxy advisory service that points to a rejected, higher-priced offer.Institutional Shareholder Services Inc. recommended minority shareholders vote against

  • Finance
    Bloomberg

    Pelosi, White House Near Handshake Deal on New Nafta Agreement

    (Bloomberg) -- The Trump administration and House Democrats are on the verge of announcing a handshake deal on the U.S.-Mexico-Canada free trade agreement, according to people familiar with the negotiations, paving the way for approval of the deal as early as this month while Democrats gear up for an

  • Canopy Growth shares get lift after Constellation executive named new CEO
    Finance
    The Canadian Press

    Canopy Growth shares get lift after Constellation executive named new CEO

    Canopy Growth Corp.'s appointment of a veteran Constellation Brands executive as its new chief executive gave the cannabis producer's shares a lift on Monday.Canopy shares gained $3.25 or 13.1 per cent to $27.97 in midday trading on the Toronto Stock Exchange.The surge came after the Smiths Falls

  • Amazon says Trump's 'improper pressure' doomed Pentagon bid
    Finance
    The Canadian Press

    Amazon says Trump's 'improper pressure' doomed Pentagon bid

    Amazon says President Donald Trump's “improper pressure" and behind-the-scenes attacks harmed its chances of winning a $10 billion Pentagon contract.The Pentagon awarded the cloud computing contract to Microsoft in October.Amazon argues in a lawsuit unsealed Monday in the U.S. Court of Federal

  • Stock Market Live Updates: Tentative deal near on USMCA trade deal
    Finance
    Yahoo Finance

    Stock Market Live Updates: Tentative deal near on USMCA trade deal

    Headlines moving the stock market in real time.

  • Finance
    Bloomberg

    Repo Worrywarts Turn Their Attention to Next Monday and Dec. 31

    (Bloomberg) -- Investors are eagerly lining up backup financing just in case the U.S. repo market, which worried Wall Street when it went haywire in mid-September, sees turmoil at the end of the year.For the third straight Monday, the Federal Reserve conducted funding operations designed to give traders