Recently, the US began negotiations with Canada and Mexico to revamp some major areas that make up the North American Free Trade Agreement (NAFTA). The changes that will come out of these negotiations will have a ripple effect across the supply chain.
Since NAFTA was signed into action in January of 1994 a lot of things have changed. The explosion we’ve seen in trade activity and global sourcing over the last 20 years will only serve to complicate issues throughout the supply chain vertical once negotiations are finalized.
Below I’ve summarized a few major points I believe are the most important to consider going forward.
1. Rules of origin: What is this and what does this mean for suppliers and trade?
NAFTA’s rules of origin favor members of NAFTA by providing lower tariffs assessed on materials and goods sourced from another member country. This is probably the most important issue for suppliers.
The rules of origin are already more restrictive than those found in other trade agreements and further restriction would be seen as counterproductive. The automotive supply chain is especially susceptible to even minor tweaks to NAFTA. Changes will also have an effect on warehousing, OEMs, sourcing, regulatory filings, transportation and procurement processes.
Supply chain managers should begin beta testing scenarios to identify weak points and design action plans/protocol to address worst/best case scenarios.
Don’t get caught sleeping.
While I believe changes in rules of origin will have the largest effect on supply chains, there are also several updates to NAFTA that should be noted. These additions will serve to modernize NAFTA based on today’s economy.
2. Digital Trade and Intellectual Property Rights
Digital trade and intellectual property rights policies are critical to preserving collaborative free flow of information across borders, establishing a stable legal foundation and encouraging investment in future technologies (i.e. artificial intelligence initiatives). The standards that come out of talks will set the tone for years to come.
3. Cross-border Investment
The investment in developing infrastructure and partnerships across the three countries that make up NAFTA will be critical going forward.
Cross-border investment will serve to support a highly integrated continental economy and hundreds of billions of dollars in annual trade flows. The figure below illustrates some of the cross-border investment.
As always, thanks for reading, and I hope this was helpful! A like or a share speaks volumes!!!