North American Free Trade Agreement, or NAFTA, removes trade barriers between the United States, Mexico, and Canada — which makes it easier and less expensive for your business to export and import goods within North America. NAFTA also makes it easier for Canadian companies to get access to investment dollars, technology, and talented employees from both Mexico and the U.S. This system has been in place since 1994, but the United States has been pushing to renegotiate NAFTA. If the policy changes, or if the United States pulls out, it could have serious effects on your business.
Imports and Exports
If your company imports or exports goods from the United States or Mexico, any change to NAFTA could have a big impact on your bottom line. Currently, businesses in all three member countries enjoy favourable trade terms — in other words, it costs you less to bring products across the border. Any change to the agreement could result in higher tariffs on products. If a significant part of your business relies on selling to U.S. customers or manufacturing goods in Mexico, this price increase could have a significant effect on your bottom line in one direction or another. As a result, you might need to look within Canada or to other countries for a more affordable solution.
How Do NAFTA Changes Impact E-Commerce?
As part of the NAFTA renegotiation, the United States has pushed to change the duty-free levels on e-commerce purchases. Under NAFTA, customers in Canada can buy up to $20 CAD of products online without paying sales tax. If proposed changes to into effect, that level would be raised to $800. If you run a traditional retail business in Canada, that higher limit could cut into your business, since your customers might be tempted to purchase online from U.S. retailers. Massive online retailers such as Amazon can usually offer lower prices — that, plus the duty-free import, means that you could lose customers. This possibility is of particular concern for vulnerable industries, including brick-and-mortar stores, footwear manufacturers, and fabric companies that have relied on local customers and have often been immune to the effects of NAFTA.
How Do NAFTA Changes Affect Your Hiring Capacity?
Changes to NAFTA can also affect labour mobility, or the flow of workers across the borders of Mexico, the United States, and Canada. Under the original NAFTA, workers in approximately 60 jobs can cross borders without much hassle. Unfortunately, that list was created in the ’90s, so it doesn’t include many jobs that are in high demand today. In fact, "systems analyst" is the only item on the list that involves computers.
If labour mobility should decrease, what does that mean for you? If you work in a field that isn’t covered by NAFTA, such as e-commerce, you may have trouble bringing in workers from the United States or Mexico. It could also mean that you may have trouble travelling to either country to meet with a client.
How Can I Prepare My Business?
As you watch the NAFTA renegotiation, it’s important to explore other alternatives for your business. If you export or import goods, look to Canada’s other trade agreements to find countries with better terms. One option is the EU-Canada Comprehensive Economic and Trade Agreement, or CETA, which allows you to make duty-free trades with European countries. This can also help give you options if the United States pulls out of NAFTA completely with just six months of transition time. The fact that the United States wants to allow members to pull out of NAFTA or renegotiate every five years could add challenges to long-term planning, so preparing your business makes sense..
If your company relies on the United States or Canada for supplies, sales, or labour, changes to NAFTA could have serious effects. Staying informed and prepare your business to adapt to stay afloat during uncertain trade conditions.