Moneywise: Many Canadian businesses don’t have post-NAFTA plans

While talks continue to renegotiate the North American Free Trade Agreement between Canada, the United States and Mexico, a recent poll has found that most Canadian businesses have no post-NAFTA contingency plans.

Changes, or as has been threatened, scrapping of the agreement altogether could have a significant impact on businesses and the livelihood of thousands of Canadians.

The poll, conducted among small, medium and large businesses, revealed that 66 per cent of respondents are not making contingency plans for the potential demise of the agreement.

Business owners are most concerned that negotiations could lead to unfair trade terms for either Canada or Mexico. They also are concerned that the trade deal could be terminated, resulting in the imposition of more duties and regulations, price uncertainty and an adverse impact on business and profitability.

Eighty six per cent believe U.S. President Donald Trump will exit NAFTA or will attempt to negotiate unfairly in favour of U.S. interests and 92 per cent say Canada should be looking to strengthen trade partnerships with other countries, particularly in Europe and Asia.

“The renegotiation of NAFTA has caused a lot of uncertainties but the best course of action is to develop a plan to ensure that your business continues to thrive, no matter what the outcome,” says Dean Elliott, managing partner, central group and markets strategic lead with BDO Canada.

The top five issues business owners here would like addressed are the cross border movement of professionals, fairer labour standards across all three countries, duty-free threshold, environmental provisions and procurement.

“The renegotiation of NAFTA is really an opportunity for owners to truly understand the implications of the trade pact on their businesses,” Elliott said in an interview. “They need to look at and understand how it affects their suppliers and customers and the implications of what will happen if it disappears. Many businesses have operated in the NAFTA environment for a long time and they may not be fully aware of and understand all its benefits to them.”

Elliott says Canadian businesses need to look at the operational implications of changes to or the scrapping of NAFTA and start looking at possible other markets such as Europe and Asia through the Canada European Trade Agreement (CETA) and Trans Pacific Partnership (TPP).

“If they start looking at other markets they will have to consider such things as what structure should they put in place – do they need to have an entity in a foreign county and set up a subsidiary there?” Elliott said. “They will need to do some research on how to go about doing that and get some professional advice. They need to take time to plot out different courses and scenarios.”

There have been a lot of changes to the economies of North America since the development of NAFTA almost 25 years ago. E-commerce, which has been impacted by the duty-free threshold, was not addressed in the original agreement and the digital economy, which has brought about a whole new class of economic factors and relationships, also was not considered.

As well, tax changes have the potential to change the way Canadian companies structure international businesses and how they do business in the United States.

Seventy five per cent of business owners, regardless of the company’s size or location, believe NAFTA will impact their decision-making. Owners believe there could be opportunities from the NAFTA talks such as more access to the U.S. market and fair competition, better access to other international markets if Canada strengthens its ties with other countries, and better and fairer labour standards across all three countries, resulting in more job opportunities.

“Trying to plan in a vacuum can create some inertia,” Elliott says, “The question becomes whether business owners will spend the time and money to learn about and seek out new opportunities.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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