The current negotiations on the North American Free Trade Agreement (NAFTA) are focused on making substantial changes most notably in the automotive industry, but also in agriculture, labor, textile, aerospace, intellectual property, and more. As negotiations continue, uncertainties as to the outcomes persist, and it is very difficult to precisely predict whether a consensus on key portions will be achieved by the end of this year, 2018.
In a Global Chamber event last week, several knowledgeable speakers shared their unique insights on the future implications of a re-negotiated NAFTA, discussing current trends, political timelines, and impacts by industry.
You can watch the discussion HERE.
Updates on NAFTA and negotiation timelines
(By Dan Ujczo, Practice Group Chair at Dickinson Wright)
- Where we expect to see major changes following the re-negotiated NAFTA:
- Automotive rules of origin
- Critical to the entire NAFTA deal
- Supply management and competition with Canada’s dairy industry
- Seasonality with Mexico and helping tomato growers in Florida
- Raising wages in Mexico
- Trade deficit reduction
- Sunset Review Clause
- NAFTA automatically expires after 5 years unless renewed by Congress
- Intellectual property rights
- Automotive rules of origin
- The timing and tempo of the re-negotiation makes reaching consensus difficult:
- US is approaching midterm elections
- Mexico has a presidential election in just a few weeks
- Canada has a federal election in 2019
- We can expect Trade Priorities and Accountability Act (TPA; sometimes called “fast track”) to be extended to 2021. A red line for Congress would be a NAFTA withdrawal.
- Getting an agreement on NAFTA will certainly be past July 30 Mexican election.
- Canada’s election is probably the greatest barrier to getting a deal on NAFTA: U.S. president's unpopularity + the Liberal Party’s defeat in Ontario are factors.
- Politically, there isn’t anyone running for office in the U.S. that wants to touch NAFTA before the midterm elections. There is no way the approval process for the re-negotiated NAFTA to be completed before a new legislature is seated in 2019.
- There is still a 10% chance that President Trump will withdraw, since withdrawal does not benefit President Trump, and he is already getting a lot of what he wants by creating uncertainty. This is also the most optimistic thing we can say.
- Future North American politics is the real challenge to re-negotiating the NAFTA, as each leader has to understand that the other leaders also need a deal that they will be able to sell to their constituents back home
On finalizing NAFTA and other trade agreements
(By Carol Colombo, Regional Contact to the U.S. Trade Rep. Lighthizer)
- There’s a 50% or below possibility that the deal will ultimately pass. There’s more than just NAFTA under consideration—there’s also untargeted tariffs based on national security.
- Going after perceived injustices in trade imbalances also means having our closest allies (Mexico, Canada, and the EU) be party to that action.
- When those countries we’re targeting start imposing retaliatory tariffs, and we stop controlling the pieces, there’s a lot of uncertainty and possible hostility.
Impact from Mexico’s perspective
(By Arturo Zamarippa, Executive Director at Global Chamber Guanajuato; Christian Aguirre, Executive Director at Global Chamber Hermosillo; and Indira Jeffrey, Director at iGlobal Business Consulting)
- Expected positive outcomes from the re-negotiated NAFTA for Mexico: less tariffs in the digital economy, customs, anti-corruption, reduced barriers to investment, increases in salary.
- In recent news, U.S. president imposed a 25% tariff on Mexican steel imports, and Mexico responds with retaliatory tariffs aimed at goods produced at U.S. president's political support base; $4 billion in trade would be affected between the two countries
Impact from Canada’s perspective
(By Grant Doyle, Executive Director at Global Chamber Calgary)
- Election season in full-swing, and it’s uncertain whether future Canadian politics will lean liberal or conservative. A conservative wave is coming along, and oil and gas will most likely lean conservative in the next election.
- Working provincially has been a serious issue for Prime Minister Trudeau for reaching agreements, but now we’re seeing a nationalization of infrastructure.
(By Dr. John Min, Chief Economist at Tempus)
- U.S. dollar is fluctuating more on a daily basis than Dr. Min has ever seen in the past 25 years
- About $1.2 trillion in trade will be affected by current NAFTA re-negotiations along with currency vicissitudes driven by political noise
- Canadian dollar is experiencing high volatility (10% change every month)
- Mexican peso is fluctuating both ways, strengthening and weakening, so there’s a lot of uncertainty on which way it will go. But common sentiment is that if the NAFTA uncertainties drag on, it will not be good for the Mexican peso moving forward
- Increasingly, companies are budgeting and trying to eliminate the FX risk by locking in their future rates wit 3 months, 6 months out
- U.S. dollar will probably do the best in 2018, as we expect interest rates to increase
Overall, speakers shared mixed outlooks on whether an agreement on NAFTA will be achieved in the near future.
With so many uncertainties, the best thing for businesses to do now is to simply keep a close watch on market trends and discussion topics. There will be opportunities for members to input along the way.
Follow Global Chamber for regular updates!
Daniel D. Ujczo, Practice Group Chair - International and Regional Practices at Dickinson Wright. Dan is an international trade and customs lawyer who specializes in Canada-United States and North American matters. In addition to his legal practice, Dan has responsibility for coordinating the firm’s innovative Canada-US Platform where Dickinson Wright is one of a limited number of legal service providers that have full-service offices located in Canada and the United States. Dan collaborates with more than 400 Dickinson Wright attorneys who regularly assist businesses that are navigating the cross-border regulatory and legal environment on issues such as customs and regulatory compliance, corporate structuring, M&A, taxation, business immigration, intellectual property protection, and financial incentives. Dan also provides public policy counsel to government officials and industry leaders in areas of regulatory cooperation, border security, economic development, labor mobility, and public-private-partnerships. A US-licensed lawyer, Dan is one of the few individuals that has served in the US and Canadian governments, as well as private practice and academia.
Carol Colombo, Regional Point of Contact to the U.S. Trade Representative Amb. Lighthizer. Carol has been representing the Office of the President of the United States, U.S. Trade Representative for the State of Arizona. She also serves on the Arizona District Export Council, and is Chairman at Amber Alert GPS. Carol leads the Trade Policy Committee for the Global Chamber Phoenix Chapter.
Christian Aguirre, Executive Director at Global Chamber Hermosillo. Christian is an experienced Business Director with a demonstrated history of working in the venture capital and private equity industry. He is skilled in international project management, negotiation, business planning, customer service, and incubators, and a business development professional with a Master of Business Administration (M.B.A.) focused in administration from Universidad del Valle de México.
Arturo Zamarippa, Executive Director at Global Chamber Guanajuato. Arturo is a University Professor and a Linguist in Guanajuato, Mexico. He has been an entrepreneur since 2000 starting three different business in the State of Oregon in the United States. With over 17 years of experience in business management and customer service he is also the Co-founder and Director of English Language Center in Guanajuato, Mexico. He is interested in promoting international networking, developing business and conducting scientific research in language teaching.
Indira Jeffrey, Director at iGlobal Business Consulting. Indira is the CEO of iGlobal Business Consulting, an international business consulting firm, and helps medium-sized businesses throughout the entire export or import process into Mexico, Latin America, the U.S., or Europe. She is also the Deputy Director of Global Chamber Guanajuato. Throughout her 21 years of professional experience, she has performed successfully as an entrepreneur, mentor and community leader.
Grant Doyle, Executive Director at Global Chamber Calgary. Grant is a business development and brand building expert with experience in entertainment, education, oil and gas, technology, sports, agriculture, tourism and government relations. He has an extensive network of connections across the world and he has built a network of nearly 60,000 people through brand building and business development. He's bringing those connections and skills together as he builds out a successful chapter of Global Chamber in Calgary.
Dr. John Min, Chief Economist at Tempus. Prior to working with Tempus, John was the Founder and Chief Economist for World First USA and worked as the VP of Sales for Ruesch International, an international financial institution based in Washington DC. Throughout his career, Dr. Min has also worked with companies such as JP Morgan Chase, Everbank, Management Concepts, Western Union, AFEX, and Ebury. Outside of the office, John spends much of his time in the classroom teaching economics at Northern Virginia Community College since 1999 and masters of finance courses at New England College of Business and Finance and London Academy of Trading since 2008. He earned his Doctorate in Economics in 2003 from George Mason University in Fairfax, Virginia.
Contact us if you would like to reach out to a speaker or if you simply want more information.