Companies need to prepare for the worst outcome of the NAFTA negotiations

There is so much at stake that reason should prevail at the end of the day. But there is no certainty that the talks will end in a “win-win-win” solution.

 
In this April 21, 2008 file photo, national flags of the United States, Canada, and Mexico fly in the breeze in New Orleans. Negotiations start Wednesday for an update to the quarter-century-old North American Free Trade Agreement. THE CANADIAN PRESS/AP/Judi Bottoni

In this April 21, 2008 file photo, national flags of the United States, Canada, and Mexico fly in the breeze in New Orleans. Negotiations start Wednesday for an update to the quarter-century-old North American Free Trade Agreement. THE CANADIAN PRESS/AP/Judi Bottoni

With round four of the North American Free Trade Agreement talks ending in acrimony this week, NAFTA is quickly becoming synonymous with words like “unilateral”, “impasse ” and “dangerous”.

Companies in North America (especially small and medium-sized enterprises) are struggling amidst the flurry of headlines to determine how they should plan for the future. Should they just wait and see? Or should they have multiple contingency plans for multiple possible outcomes?

It all comes down to being prepared and expecting the unexpected in the era of Trump. This holds true for Canadian companies with American and Mexican operations and Canadian firms that export to, and/or import from the Mexican and American markets.

READ: NAFTA: U.S. hasn’t done analysis on what happens if free trade treaty ends

There are many threads to these NAFTA talks, and as the U.S. pulls harder—by staking out extreme positions and making aggressive demands of Canada and Mexico—they’re becoming tangled into a Gordian knot that perhaps no one will be able to untie.

Navigating the future

In spite of the logical need to modernize the 23-year old agreement, we may end up with no deal or worse—the very real prospect of President Trump posing for the cameras to show off his signed executive order declaring America’s intent to withdraw from NAFTA.

This remains unlikely but not impossible. There is so much at stake, in terms of the economy and jobs on all sides, that reason should prevail at the end of the day. But there is no certainty that the talks will end in a “win-win-win” solution.

Between now and the next round of negotiations in Mexico City in November, don’t be surprised to see President Trump take a chapter out of Nixon’s playbook by using the “madman theory” to categorically launch an offensive attack against Canada and Mexico in an all-or-nothing bid for a “win-lose-lose” NAFTA.

READ: Canada’s supply management a flashpoint in NAFTA talks: Here’s why

What we are witnessing is a President who feels extreme pressure to make rapid progress to create new jobs in America and project strength and control. To achieve this, he relies on intimidation rather than collaboration, and offers unilateral concessions rather than seeking genuine buy-in.

Given the stakes CEOs and other senior executives are wise to re-examine world markets, refresh their global business strategy and put contingency plans in place. At this point, some companies have developed plans, but they will find that the cadence of change will pick up considerably in the coming weeks and months ahead. They will also need to have these plans stress-tested and re-tested as the negotiations begin to move toward their final position.

Ready, set, go: What to consider next

There are a range of ways companies and organizations have responded to the NAFTA uncertainty, ranging from taking a wait-and-see approach to endeavoring to influence the talks and resulting policies. The latter is an option that is being exercised by groups like the Canadian American Business Council, the U.S. Chamber of Commerce, the Business Council of Canada and the Canadian Chamber of Commerce which are all engaging the three governments involved to shape the negotiations and the policies that follow.

A third path that some businesses are considering includes imagining a world in which the U.S. has withdrawn from NAFTA and determining how best to position themselves using Canada and Mexico’s existing global trading arrangements as a base. I hope it doesn’t come to this, but understand the need to plan for various potential outcomes.

Here are two principles that may assist in that thought process.

Develop your company’s ‘foreign policy’. With geopolitical trends shaping the world, companies need to develop many of the skills traditionally associated with diplomacy and statecraft.  It will take a lot of new markets to make up for a U.S. with prohibitively high trading barriers. The more skill you have as a company with trade and foreign policy, the better able you will be to do business in global markets outside the U.S.

Diversify into new markets outside North America. While the U.S. is playing a game of Russian roulette at the NAFTA table, companies should explore new and alternative markets. Preferential trade deals such as CETA create a window of opportunity for Canadian firms to strategically go after new export and investment opportunities in 28 markets across the Europe Union. Likewise, Mexico has a total of 10 free trade agreements involving 44 countries outside of NAFTA and Canadian and American companies can find ways to benefit from Mexican global market access in this time of uncertainty with the U.S.

What matters most

When the U.S. tone strikes a discordant note however, there are opportunities to look to Canada and Mexico as platforms for North American trade, in the event the U.S. pulls out of NAFTA and decides to go it alone. I hope that it never comes to this, but understand the business reality of needing to plan for every possible eventuality. At the end of the day, be prepared and expect the unexpected.

 

Omar Allam is a former diplomat and global entrepreneur who currently serves as CEO and founder of the Allam Advisory Group, a global trade consulting firm that advises companies with international market entry/expansion across the Americas, Europe, Middle East, Africa and Asia-Pacific. 

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