Companies Should Make Contingency Plans in Case NAFTA Renegotiation Falls Through, KPMG Says

The "strong divisions” on how to approach NAFTA between the deal’s three parties are increasing the possibility that a deal can’t be reached in the near term, and companies should start making contingency plans, said Russ Crawford, partner at KPMG in Canada, in a Sept. 18 press release. Businesses should put together a “Survival Guide” for the next six months to prepare for an “uncertain outcome,” Crawford recommended. Crawford is advising firms to become scenario planners if they are not already, and to develop contingency plans for any business and supply chains, should the U.S. withdraw from the deal, “however unlikely.” He added: “An example may be to have a back-up plan mapped out to the extent possible if there was an X percent increase in tariffs, or a Y percent change in regional (or even country specific) content.”

Canada, backed by Mexico, continues to reject elimination of NAFTA’s Chapter 19 binational dispute settlement process for challenging parties’ antidumping and countervailing duties, and the U.S. will try to “increase” rules of origin and “potentially” promote U.S. content in manufactured products, especially in autos, Eurasia Group Practice Head for Latin America Daniel Kerner noted in a statement. Another potential wrinkle for talks is Canadian and U.S. insistence for Mexico to raise wages and implement stricter enforcement of labor laws and union rights, Kerner said. A U.S. withdrawal would translate to “challenges with U.S. customs,” tariff increases and businesses scoping out other markets “more attractive to trade with,” Crawford said. “Geography and size of the respective markets -- and inertia -- will ensure trade flows within North America remain an attractive proposition,” he said. “But the removal of the preferential treatment under NAFTA may see a new focus on other markets.”