United States trade representatives are in talks to revamp the North American Free Trade Agreement (NAFTA) with Canada and Mexico. The first round of talks on the three-nation pact will continue through August 20.

The current administration has called NAFTA "the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country."

What is at stake?

Nearly 14 million U.S. jobs depend on trade with Canada and Mexico. More than $1 billion of commerce crosses the northern and southern borders of the U.S. daily, according to the U.S. Chamber of Commerce.

The original goal of NAFTA, implemented in 1994, was to eliminate barriers to trade and investment between the U.S., Canada and Mexico. The agreement affected U.S. and more than one-third of U.S. exports to Mexico.

To note: The U.S. trade deficit with Mexico was $63 billion last year, and it has grown considerably since NAFTA went into effect in 1994. The U.S. did not have a deficit with Canada last year.

One of the biggest provisions included in NAFTA involves limitations on import and exports. According to the current administration, the ultimate goal of a new trade agreement is to increase the number of American factory jobs. One possible way to do that is to force companies to produce more parts in the U.S.

 

Will Rules of Origin Change?

One of the key points in NATA talks is Rules of Origin (RO)--meaning a certain percentage of parts in a product, such as a car, have to originate from North America.

For example, 62 percent of the parts in a car sold in Mexico, Canada or the U.S. must come from there. The new administration has hinted it could raise that percentage and that it plans to strictly enforce the standards for RO.

Trade experts caution that forcing more parts to be made in America could mean car prices go up.

 

Considering solutions to change

Leaders that develop strategic options and hedges for a variety of future scenarios navigate better when new developments unfold. These could include expanding procurement options or increasing volume sourced from competitive local suppliers. Companies could go even further by expanding production capacity or switching suppliers from foreign- to U.S.-based companies, according to Harvard Business Review.

Using technology to plan, prepare, and then manage

As the leading provider of a comprehensive suite of global trade management products, Integration Point is helping companies of all sizes to not only stay ahead of a rapidly changing landscape but to also manage impacted programs once existing rules and regulations are updated.

Starting with our Global Trade Content offering that helps shippers stay up-to-date with regulatory agencies in more than 200 countries and territories. From there, Integration Point analytical tools allow importers to analyze the impact of duties, compliance, and supply chains before sourcing decisions are made. In addition, these tools also increase compliance awareness earlier in the sourcing decision process.

For free trade agreements such as NAFTA, the Integration Point Free Trade Agreement (FTA) Management solution, which automates the FTA life cycle, includes “what-if” analysis on Bills of Materials to determine if a change in eligibility results once revisions to rules of origin are finalized.

Last, but not least, data analysis solutions such as Global Trade Visibility, which deliver visibility into trading patterns across trade lanes. With this level of visibility, companies are then able to make more informed changes to sourcing locations and supply chain design.

 

Sources: Harvard Business Review, CNN