Few companies have begun contingency planning for a U.S. NAFTA withdrawal
April 5, 2018, Toronto, Ontario, Canada — Businesses across Canada and the United States that currently make use of the North American Free Trade Agreement (NAFTA) are fairly passive about the outcome of the ongoing NAFTA negotiations and have not yet developed contingency plans to prepare for a potential U.S. withdrawal from NAFTA.
According to Preparedness for a Post-NAFTA World, a study conducted by customs broker and trade services firm Livingston International, only a small contingent of small and medium-sized businesses that currently use NAFTA – four percent and six percent respectively – have contingency plans in place in the event of a NAFTA withdrawal compared to only one in five large businesses (18 per cent).
Businesses Passive About Outcome to NAFTA negotiations
The study also revealed a fairly passive attitude toward the ongoing NAFTA negotiations amongst Canadian and U.S. companies that use NAFTA and the potential impact to their business. The lion’s share of those businesses (46 percent) say that while they are concerned the NAFTA negotiations may not be successful, they have only a general sense of the impact on their business and have not yet started contingency planning. An additional 29 percent say they haven’t considered whether or not the negotiations will be successful or unsuccessful or how an unsuccessful negotiation could affect their business.
“While we remain hopeful negotiations will be successful, we encourage businesses not to wait until a U.S. notification of withdrawal is issued to begin considering the impact to their business,” said Daniel McHugh, Chief Executive Officer, Livingston International, emphasizing the notification period is only six months long. “There are multiple potential outcomes to the NAFTA negotiations and businesses should be considering how each one might impact everything from their trade processes and landed costs, to their risk exposure, cash flow, profitability and market competitiveness.”
Passing additional costs to consumers more likely than supply-chain reconfiguration
Businesses across Canada and the U.S. that use NAFTA say they will not be forced to reconfigure their supply chains in the event of a U.S. withdrawal from NAFTA and are far more likely instead to pass down the cost of any new trade-related costs to consumers or scale down their business investments.
Only 12 percent of businesses that use NAFTA say they will be forced to change their supply chains while three times as many (36 percent) say they will incorporate any new trade-related costs into the prices of their products and 21 per cent say new trade costs will force them to rein in business investments.
The finding is consistent among small, medium and large-businesses that use NAFTA.
“Washington’s stated intent in renegotiating NAFTA is to drive greater investment in the U.S. economy by repatriating investments that had previously gone to Canada and Mexico, but it appears that is unlikely to be the outcome,” said Mr. McHugh. “The real result of a U.S. withdrawal from NAFTA would simply be a spike in the prices of everyday goods, penalizing consumers across the continent.”
Only seven percent of U.S. businesses that currently use NAFTA said a U.S. NAFTA withdrawal would force them to stop using suppliers in Canada or Mexico and only nine percent of Canadian businesses said they would be forced out of the U.S. market.
Other Interesting Findings
- Only 18 percent of businesses overall that use NAFTA are closely following the NAFTA negotiations and are very aware of the key issues, versus 42 percent of large businesses.
- The greatest contingent of the business community (40 percent) that uses NAFTA believes there will be an ongoing delay in negotiations that will ultimately keep NAFTA alive for the foreseeable future but result in limited changes to the agreement.
- 58 percent of large businesses that use NAFTA believe a U.S. withdrawal from NAFTA will have a very negative impact on the economy in which they have the biggest presence, versus 50% of small businesses and 39% of medium-sized businesses
- 60 percent of large businesses that use NAFTA believe a U.S. withdrawal from NAFTA will have a very negative effect on their trade-related costs, versus 49 percent of small businesses and 44 percent of medium-sized businesses.
- Approximately one in three businesses overall (29 percent) that use NAFTA say they will need either some or substantial external support to adapt to a post-NAFTA world.
About the survey
Livingston International surveyed 1,017 businesses in the U.S., Canada and Mexico that use NAFTA via an online poll from Feb. 5 to 15th, including 669 small businesses, 234 medium-sized businesses, 114 large businesses. Among those surveyed, 676 respondents listed Canada as the country in which they have the largest presence and 316 the United States. Margins of error at a 95 percent confidence level would be +/- 3.0 percentage points for all respondents using a probabilistic sample; the margins of error would be larger within subgroups of the survey population.
About Livingston International
Livingston International focuses on customs brokerage and trade compliance, offering international trade consulting, global trade management and freight forwarding. It provides clarity in a world of trade complexity, so businesses can grow further, faster and smarter. Livingston employs almost 3,500 staff at 100 key border points, sea ports, airports and other strategic locations across North America, Europe and Asia. Visit us at www.livingstonintl.com, and on Twitter, LinkedIn and Facebook.
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