Canada: What Is Your Strategy For A Possible NAFTA Termination?

Last Updated: January 16 2018
Article by Heather Innes

Will President Trump terminate NAFTA?  Unfortunately, we don't know.  Some days, press reports suggest a growing possibility that he will take steps to terminate the agreement.  Other days, President Trump's pronouncements hint that he may be prepared to further negotiations. This leaves organizations in a difficult position.  If President Trump does issue a notification of intent to terminate NAFTA, the notification will trigger a 6 months termination period after which the benefits of NAFTA will no longer be available to Canadian organizations and their suppliers who rely on NAFTA duty free movement of goods across the Canadian, Mexican and US borders.  This could have a significant financial and competitive impact on your organization.

The 1988 Canada-U.S. Free Trade Agreement (the "Canada-U.S. FTA")was superseded, but not repealed, by NAFTA in 1994. If NAFTA is terminated, the Canada-U.S. FTA may be revived by default and thereby, be available to Canadian organizations for imports/exports as between Canada and the U.S.  However, it is far from a certain that the U.S. will retain and not formally terminate that agreement as well.

So, how should organizations prepare to respond to the increasingly possible (some may say likely) termination of NAFTA in the coming months.  Below is a non-exhaustive list of things you should consider when developing your organizational strategy to respond to a possible NAFTA termination:

  1. Plan for Uncertainty:   As noted, we don't know if NAFTA will survive.  Further, it remains unclear whether President Trump has the U.S. constitutional authority to terminate without the approval of the US. Congress.  We also don't know if the 1988 Canada-US Free Trade Agreement will be revived and available for Canadian and U.S. organizations.   For many organizations, NAFTA provides far reaching financial and competitive benefits for their North American business operations.  While in-house counsel can assess and help their organization navigate the termination process, provide guidance on and monitor the timing and triggers, your organization will need to develop a strategy that manages the uncertainty and can be implemented in a timely manner.  If a termination notice issues, your organization will need to respond to a short, 6-month termination timeline.  Your organization should consider taking certain steps now to ensure that you are ready to make required changes quickly (e.g. finding and validating alternative suppliers or finding ways to manage a higher tariff rate);
  2. Assess the NAFTA benefits you and your suppliers enjoy today: Your organization and your suppliers may rely on NAFTA to eliminate the tariffs on manufacturing materials and components and finished goods.  The concessions available to expedite the movement of certain classes of individuals (e.g. lawyers, engineers, etc.) across NAFTA borders also may be an important NAFTA benefit used by your organization and suppliers. Preparing a detailed inventory of the products, services and classes of individuals affected within your organization and that of key suppliers, is an important first step;
  3. Identify the impact of a NAFTA termination and alternative trading arrangements:  There are several different scenarios to consider:
  • If President Trump announces his intent to terminate NAFTA:  Although NAFTA provides that the agreement will terminate 6 months following the provision of notice, the following scenarios could arise and could affect the timing of its actual termination:
    1. A constitutional challenge may be brought before the U.S. courts to determine whether or not the President has the authority to terminate the agreement without Congressional approval; and/or
    2. i Canada, Mexico and the U.S. could agree to postpone the termination date.  For example, if the U.S. felt that the NAFTA negotiations gain positive momentum or in the face of upcoming mid-term elections, President Trump faces internal pressure from Congressional representatives whose constituents need NAFTA to export their products (e.g. farmers selling their crops to Mexico);
  • The Canada-U.S. FTA is revived (the U.S. does not terminate): If the Canada-U.S. FTA is available to provide duty elimination for certain materials, components, finished goods to the extent that they meet the applicable rule of origin content/tariff class shift requirements for U.S. and Canadian content and have the required certificates of origin, adjustment will be required.  The rules of origin under the Canada-U.S. FTA are not the same as those under NAFTA and Mexican content will not be eligible as it was under NAFTA.  Consequently, you should re-visit the Canada-U.S. FTA rules of origin to ensure that your products, materials, etc. meet the rules of origin under that agreement and you have the required supporting documents;
  • Both NAFTA and the Canada-U.S. FTA are terminated by President Trump: Canadian organizations trading with the U.S. must utilize other agreements or find alternative trading partners and customers:
    • NAFTA would continue as a free trade agreement between Canada and Mexico:  Termination by the U.S. would not change the technical status of the NAFTA relationship between Canada and Mexico.  This is a three party agreement and the exit of the U.S. leaves Canada and Mexico as parties to the NAFTA.   Goods moving between Canada and Mexico would continue to enjoy duty free treatment as long as they continue to qualify and as long as neither party withdraws from the agreement.  Note that the rules of origin likely will be affected: originating content requirements are likely to change to include only Canadian and Mexican content;
    • Ongoing trade with the U.S. at WTO MFN rates and likely without NAFTA immigration benefits:  Ongoing trade would occur at the World Trade Organization's (WTO) most favoured nation rates.  This means that the duty rate applied to goods moving into the U.S. from Canada or into Canada from the U.S. would be the same as the duties applied to similar goods flowing from other WTO countries that don't have free trade agreements into those countries. You also need to consider if and how the elimination of NAFTA could affect the movement of key personnel and service providers that support your organization in Canada and the U.S.  Without a NAFTA trade relationship between Canada and the U.S. query the impact on the overall political relationship.  If the U.S. withdrawal from NAFTA escalates trade frictions, could this impact the overall movement of goods and people across the Canada-U.S. border (e.g. slowing movement of goods and people at the border or imposing regulatory impediments)? Your organization should weigh and plan for this possible outcome;
    • Other free trade agreements are available to reduce tariffs:  Canada has a number of free trade agreements that may provide alternative sourcing and market options, including the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and the Canada-Korea Free Trade Agreement. Your organization should consider whether your production/service inputs could be more cost effectively imported from other countries with which Canada has a free trade agreement. Often re-sourcing options require significant lead time for contract transition and validation, so timing is important.  New market opportunities also may be available in countries with which new FTA's have been negotiated (e.g. the EU) and may permit you to deliver finished goods to potential customers at a lower (duty free) cost.

The uncertainty surrounding the status of NAFTA negatively impacts both the equity markets and the Canadian and Mexican currencies.  It also causes uncertainty within your organization and could hamper the execution of global and domestic strategies.  Having a well thought out strategy to respond to this uncertainty, one that will position your organization to quickly adjust to a post NAFTA trading, environment, if needed, will drive confidence internally and with external stakeholders.  To react quickly you need to develop and possibly execute your strategy now, even if only partially by identifying/validating and establishing the footprint for required changes. If President Trump issues a NAFTA termination notice, you may have as little as 6 months to prepare.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions