Political Risk Analysis - NAFTA: Scenarios For A Trade Deal In Crisis - FEB 2018
BMI View: We maintain our core view that NAFTA will emerge largely intact from ongoing renegotiations, but the likelihood of a termination has increased with the introduction of hard-line positions by the US. In this piece we outline our thoughts surrounding a number of possible outcomes. Scenarios range from a 'zombie' NAFTA to an all-out trade war between the US and Mexico.
Our core view is that the North American Free Trade Agreement (NAFTA) will remain largely intact following the conclusion of ongoing renegotiations between the US, Mexico and Canada. However, the hard-line stance taken by US negotiators has significantly increased the chance of a US exit. The US introduced a number of controversial proposals in the fourth round of talks surrounding dispute settlement, dairy trade, government procurement, 'rules of origin' requirements in the auto sector and a "sunset clause", which would require a renegotiation of the agreement every five years. Many of these are 'non-starters' for Canada and Mexico and their inclusion in the US' proposals raises questions of the US team's ultimate goal.
The fifth round of negotiations, which concluded on November 21, has done little to assuage investor fears that NAFTA will collapse, and at the very least, the prospect of a deal being reached by the end of Q118 are diminishing. In this article we explore the most probable scenarios around NAFTA renegotiations.
|Scenarios For NAFTA Renegotiations|