With slow progress being made on the key issues in the North American Free Trade Agreement (NAFTA) renegotiations, businesses need to start working on backup plans says a new report from the professionals at KPMG's member firms and Eurasia Group.
"While we think the possible withdrawal of NAFTA is unlikely, the strong divisions across the three countries on the key issues is increasing the risk that a deal can't be reached in the near term," says Russ Crawford, partner at KPMG in Canada. "It is time for companies to start making contingency plans. You may think that NAFTA renegotiations are not likely to pose a material threat to your business, but in these uncertain times, these risks may be unpredictable."
Crawford recommends businesses put together a ‘survival guide’ to prepare for an uncertain outcome. Required actions include:
- Decide upfront if you want to have a voice. With the exact outcomes unknown, businesses can participate in the debate, sharing their concerns and assessment of the practical implications on their business with industry associations and other stakeholders. It is essential for any business exposed to NAFTA via trading links through Mexico, US and Canada to understand the implications of various possible outcomes.
- If you aren't already a scenario planner, become one. The possibility of withdrawal from NAFTA, however unlikely, increases uncertainty around the long-term prospects, costs and compliance obligations of doing business across not only North America, but globally. Consider the impact it might have on your customers, suppliers and employees, and develop contingency plans to deal with any potential changes to business and supply chains.
- Embrace the idea of planning with flexibility. "We are big proponents of contingency planning,” says Crawford. “The key is to separate the knowns from the unknowns in order to have a manageable set of possible business responses. 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.”