Renegotiations of the North American Free Trade Agreement (NAFTA) are now underway.

The North American Free Trade Agreement (NAFTA) went into effect on January 1, 1994. Since then, trade between the three nations has grown exponentially due largely to the establisment of continental supply chains. Each day, the United states conducts more than US$3.6 billion in trade with Canada and Mexico, and since the agreement went into effect, the North American economy has expanded to a combined GDP of more than US$20 trillion.

The agreement has allowed North American companies to take advantage of significant cost savings, and initiate productivity-enhancing measures that have allowed them to be far more competitive. To this end, companies have leveraged NAFTA to establish a network of manufacturers, vendors, suppliers and distributors that rely heavily on the free movement of goods across North America’s borders to maximize the advantages that each market offers.

Renegotiating NAFTA

On May 18, 2017, United States Trade Representative (USTR) Rober Lighthizer notified Congress that the government intends to renegotiate the terms of NAFTA. The notification was the formalization of a re-evaluation of NAFTA the current U.S. administration had promised to the American public in its election camapign the previous year.

On July 17, the office of the USTR, in accordance with U.S. law, released its key objectives in the NAFTA negotiations, which will be heavily focused on modernization in areas of intellectual property rights, regulatory practices, as well as labor and environment, government procurement and a number of other key areas. Negotiations are expected to begin on August 16, 2017.

Impact to businesses & supply chains

NAFTA has paved the way for the development of sophisticated supply chains that have allowed American manufacturers, particularly midsized firms, to realize cost-savings and become more innovative. NAFTA has allowed businesses of all sizes to take advantage of reduced or eliminated tariffs, enabling them to establish effective supply chains that have resulted in increased GDP, higher standards of living, greater investment in research and development and the rise of the “knowledge economy”.

Businesses in the U.S., Canada and Mexico have made decisions with respect to where they will locate manufacturing facilities based on the advantages afforded to them by the Agreement, and have made significant financial investments associated with those decisions based on the certainty that stems from the current trade environment created by NAFTA. Any modifications to NAFTA will inevitably affect the business value of those facilities and the broader supply chains of businesses across North America, leading to increased cost and disruption to operations.

Vendor relationships are often multi-tiered, and impact numerous companies. Suppliers are also distributors and the potential for downstream disruption can be catastrophic, as a domino effect emerges in realigning suppliers to ensure that they meet new provisions.

Impact to consumers

Access to imports boosts the purchasing power of the average North American household. by approximately $10,000 annually. A withdrawal from NAFTA or a weakened NAFTA has the potential to generate inflation, driving up the cost of everyday goods. In fact, in a recent survey commissioned by Livingston, 57% of Americans believe a withdrawal from NAFTA will lead to an increase in the price of everyday goods.

Key milestones

October 11-15, 2017

  • The fourth round of talks is scheduled to take place in Washington

September 23-28, 2017

  • The third round of talks takes place in Ottawa

September 1-5, 2017

  • The second round of talks takes place in Mexico City

August 16, 2017

  • Formal negotiations begin

 July 17, 2017

  • Office of the U.S. Trade Representative publicly releases its key objectives to Congress

 June 27-29

  • The Office of the U.S. Trade Representative (USTR) holds public hearings June 27-29, 2017 regarding the upcoming negotiations of the North American Free Trade Agreement (NAFTA)

June 3, 2017

  • All interested Canadians are invited to provide a written submission in response to the Canada Gazette Notice on consultations on the renegotiation of the NAFTA

 May 23, 2017

 May 18, 2017

 January 1, 1994

  • NAFTA trilateral agreement goes into effect between the United States, Canada and Mexico.

Supporting NAFTA modernization

A lot has changed since NAFTA’s implementation in 1994. At that time, the World Wide Web and digital communication were only beginning to become commonplace in North American businesses and households, and e-commerce was in its infancy. The advent of the Internet, and eventually mobile communication, put competitive pressures into overdrive and forced many companies to find a means to reduce costs.

The existing agreement is more than two decades old and requires modernizing to ensure that free movement of goods, as well as the performance of services, e-commerce, intellectual property protection, movement of labor, and so on, flourish.

Livingston International advocates for a stronger, more modern NAFTA – but one that strives to limit disruption to North American businesses and their supply chains, which could take years and significant investment to reconfigure.

Supporting our customers’ needs

Livingston will continue to monitor the progress of discussions regarding the NAFTA renegotiation process and will continue to provide updates.

If you have any immediate questions please contact NAFTA@livingstonintl.com.