Several missed deadlines later and there is still no end in sight for the ongoing renegotiations of the North American Free Trade Agreement (NAFTA). The latest of these – an informal target date of May 17 set by US House of Representatives Speaker Paul Ryan for the deal to be concluded with sufficient time to pass the necessary procedural hurdles in Congress before the US mid-term elections – has now come and gone. This makes the chance of a renegotiated agreement being implemented by the end of 2018 highly unlikely. And if the Democrats do end up taking the House in November – a realistic (if not assured) scenario – the Trump administration’s endeavour to get a new deal “that works for everybody, but most importantly… a deal that works for America” could very well hit a brick wall.
On top of this, another electoral spanner could be thrown into the works from the Mexican side. The current frontrunner in Mexico’s July 1 presidential election, left-leaning Andrés Manuel López Obrador, has pledged to stamp his own imprint on the deal, promising to appoint a new trade negotiator to this end if elected.
The Canadian contingent remains optimistic, however, with Prime Minister Justin Trudeau still maintaining this week that “we’re very close” to an “imminently achievable outcome”.
Notwithstanding this, major sticking points remain – among the most prominent of which is the US proposal for a five-year sunset clause whereby the renegotiated agreement would automatically terminate unless all three countries explicitly agree to renew it. Ardently opposed to this, Canada and Mexico have offered an olive branch in the form of a mooted provision to review the agreement every five years with a view to updating it where necessary. This takes into account the practical realities faced by companies and investors, which customarily map out their business strategies with significantly longer timeframes in mind; with the threat of expiry ever present, many claim that investor confidence and commercial certainty would erode beyond repair, with serious knock-on effects for all parties involved.
In light of the current and potential future storm clouds surrounding NAFTA, Canada at least has begun to turn its eye elsewhere for trusted trading partners, having recently signed the Comprehensive Economic and Trade Agreement with the European Union – which eliminates 99% of tariffs on full implementation – and now reviving the scuppered Trans-Pacific Partnership, this time without the United States but nonetheless comprising 11 Pacific Rim countries (including Mexico) which together account for 14% of the global economy. Notably, these two agreements concern markets significantly larger than the United States (with both having total populations nearing the 500 million mark).
With this in mind, companies and investors in Canada would be well advised to consider diversifying their export businesses – not only to take advantage of these newly opened markets, but also as an insurance policy against any trade barriers that might be erected should the NAFTA renegotiations take a turn for the worse.
To learn more about the ongoing NAFTA renegotiations and their potential impact on businesses and investors, watch leading Canadian law firm Osler Hoskin & Harcourt’s recent webinar on demand now.