A Critical Analysis of Scenarios for Small and Medium Enterprisee in NAFTA renegotiations

Vargas-Hernandez, Jose G; Orozco Quijano, Elsa Patricia; Virchez, Jorge Article A Critical Analysis of Scenarios for Small and Medium Enterprisee in NAFTA renegotiations Small Business International Review (SBIR) Provided in Cooperation with: Spanish Accounting and Business Administration Association (AECA) and Universidad Politecnica de Cartagena (UPCT) Suggested Citation: Vargas-Hernandez, Jose G; Orozco Quijano, Elsa Patricia; Virchez, Jorge (2019) : A Critical Analysis of Scenarios for Small and Medium Enterprisee in NAFTA renegotiations, Small Business International Review (SBIR), ISSN 2531-0046, Spanish Accounting and Business Administration Association (AECA) and Universidad Politecnica de Cartagena (UPCT), Madrid and Cartagena, Vol. 3, Iss. 1, pp. 1-18, https://doi.org/10.26784/sbir.v3i1.151 This Version is available at: https://hdl.handle.net/10419/224298 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-sa/4.0 Volumen 3, Número 1 January - June 2019 pp. 1-18 DOI: https://doi.org/10.26784/sbir.v3i1.151 Recibido: 2018-05-24 Aprobado: 2018-09-01 Small Business International Review A Critical Analysis of Scenarios for Small and Medium Enterprisee in NAFTA renegotiations Un Análisis Crítico de los Escenarios para pequeñas y medianas empresas en las Renegociaciones de NAFTA José G. Vargas-Hernández, M.B.A., Ph.D.1 ORC ID: http://orcid.org/0000-0003-0938-4197 ResearcherID: A-8344-2016 G6347-2017 Visiting Scholar at Laurentian University University Center for Economic and Managerial Sciences, University of Guadalajara [email protected], [email protected], [email protected] Elsa Patricia Orozco-Quijano, M.B.A.; Ph.D. (Cand.) 2 ORC ID: http://orcid.org/0000-0002-6616-3174 Master Lecturer, Faculty of Management, Laurentian University [email protected] Jorge Virchez, PhD3 https://orcid.org/0000-0002-7574-3197 Full Professor School of Northern and Community Studies (Geography), Laurentian University [email protected] 1 Research professor at University Center for Economic and Managerial Sciences, University of Guadalajara. Member of the National System of Researchers of Mexico. Professor Vargas-Hernández has a Ph. D. in Public Administration and a Ph.D. in Organizational Economics. 2 Master Lecturer at the Department of Marketing and Management and Work Integrated Education Coordinator at the Faculty of Management at Laurentian University has over 12 years of teaching experience in English and French. Her research expanded recently from International Business and Marketing to Work Integrated Learning and Entrepreneurship. 3 Full Professor in the Department of Geography at Laurentian University since 1991. He has been teaching in both official languages, English and French. Most of his courses are in Regional Geography Studies (The Americas, Asia, Europe and Africa) as well as the Sub-Arctic. His present research is in the Postcolonial healing landscapes and mental health in remote indigenous communities in the subarctic in Ontario. Canada. José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 2 Abstract The aim of this paper is to set some scenarios for small and medium enterprises (SMEs) from a critical analysis of the provisions in the North American Free Trade Agreement (NAFTA) renegotiation, its challenges and opportunities. The critical analysis departs from the questionable position of the withdrawal from NAFTA and their consequences for SMEs of not giving continuity through a process of renegotiation among the three partners. The method used is the critical analysis based mainly in some sources of information, analysis of results of NAFTA, and the strategic examination of its challenges and opportunities for SMEs. Finally, the analysis establish some possible scenarios post-NAF- TA renegotiation and some strategic proposals for the SMEs. Keywords: Challenge, NAFTA, opportunity, renegotiation, scenario, SMEs. Resumen El objetivo de este documento es establecer algunos escenarios para las pequeñas y medianas empresas (PYMEs) a partir de un análisis crítico de las disposiciones en la renegociación del Tratado de Libre Comercio de América del Norte (NAFTA), sus desafíos y oportunidades. El análisis crítico parte de la cuestionable posición de la retirada del NAFTA y sus consecuencias para las PYMEs de no dar continuidad a través de un proceso de renegociación entre los tres socios. El método utilizado es el análisis crítico que se basa principalmente en algunas fuentes de información, el análisis de los resultados del NAFTA y el examen estratégico de sus desafíos y oportunidades para las PYME. Finalmente, el análisis establece algunos escenarios posibles después de la renegociación del NAFTA y algunas propuestas estratégicas para las PYMEs. Palabras clave: Desafío, NAFTA, oportunidad, renegociación, scenario, PYMEs. SBIR / Small Business International Review / Vol. 3 Nº 1 / January - June 2019 / AECA-UPCT-FAEDPYME 3 1. Introduction Global economy has changed significantly in the last three decades especially due to technology advances with the widespread use of internet for e-commerce and trade, affecting consumer habits, communication and managerial practices, supply chain management, etc. While the notion that trade is an engine of economic growth (Kravis 1970) and Lewis (1980) benefiting all the involved participants, an assumption that cannot easily be refuted theoretically, however, free international trade has never been implemented. The approval of NAFTA in 1993 brought the three North American Countries, Canada, United States and Mexico into an economic rationale according to the conclusions of international free trade theory which claim that allows each country for specialization based on comparati- ve advantage. Free trade through specialization benefits all countries involved promoting economic efficiency and growth (Kondonassis & Malliarls, 1996). Despite the serious and broader concerns of disparities in income and cultural and ethnic differences that could pose serious obstacles for economic and market integration among the three partners of NAFTA, 24 years of implementation and operation, the results confirm that the agreement has benefitted all the three partners. It also has confirmed that the two neighbors of United States, Canada and Mexico are of considerable foreign-policy importance, (Krueger (1992), which is to say that the political dimension is linked to economic decisions in NAFTA. The renegotiations of NAFTA is a unique opportunity for economic analysts, to investigate, analyze and contrast the new and then old issues that have motivated the North American economic and market integration. Proponents and critics of the renegotiation of NAFTA agree on modernization and reevaluation of the agreement considering the challenges and opportunities, although they have contrasting views on the process of revision. This paper addresses the main concerns on NAFTA provisions renegotiation and its impact on SMEs making a critical analysis on recent developments in strategic terms of challenges and opportunities. Finally, this paper develops some scenarios and make some proposals. 2. Methodology: a critical analysis method This study is based on the critical analysis of different sources of information, analysis of results of NAFTA, and the strategic examination of its challenges and opportunities for SMEs. The method of critical analysis has the purpose for writing a critique to evaluate the written work on a specific issue by reviewing the theoretical and empirical literature in order to increase the understanding, evaluate the assumptions and results, express an opinion, have some concluding remarks, give some suggestions and recommendations and propose some changes. A framework for critical analysis was developed involving the following steps: a. Delimitation of the problem under the study and variables being analyzed b. Identify objective and intended purposes of this analysis. c. Review the theoretical and empirical literature on the issue subject to the analysis. d. Find the main assumptions of different researches that support the intended purposes e. Identify the main economic trends and tendencies f. Analyze challenges and opportunities according to the intended objective of our research. g. Identify advantages, benefits and disadvantages. h. Analyze the impact of the agreement on the SMEs growth and their relationship with the economies of the countries involved i. Identify the main issues surrounding the SMES under the renegotiation process of the agreement j. Derive results in terms of proposals for changes and NAFTA renegotiation scenarios and proposals The purpose of critical analysis methodology is to contribute, invite and promote dialogue that José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 4 may support researchers, practitioners, negotiators, owners and managers of SMEs to arrive at new insights about the impacts of their day- to-day actions. 3. Background of research: nafta renegotiations and smes A. NAFTA renegotiations NAFTA entered into force on January 1, 1994, as the first of a new generation and most comprehensive free trade agreement negotiated at the time (Villarreal & Fergusson, 2018). NAFTA was instrumental in developing closer trade and investment relations among the three countries: United States, Canada and Mexico. Through NAFTA, the United States and Canada could have more access to the Mexican market after the removal of tariffs and quotas and U.S. market was opened to increased imports from Canada and Mexico. Tariffs phased out for sensitive products such as sugar and corn, after 15 years when the agreement went into effect to become duty free. NAFTA removed investment barriers, protected investors and provided mechanisms for the settlement of disputes. Hufbauer and Schott (1992) suggested that Mexico anticipated that NAFTA would reduce the threat of U.S. protectionism, would reinforce trade reforms and would provide Mexican SMEs with more opportunities for export to the United States. As a consequence, Mexico would rise the employment and income which could further increase the gains of Canadian and U.S. small and medium sized business. For example, NAFTA integrated the motor vehicle industry by removing protectionist policies. NAFTA included liberalization commitments and specific exceptions to national treatment. NAFTA lock in trade and investment liberalization among the three countries. Since NAFTA, the three partners have relationships of cooperation on issues of mutual interest, expanding economic linkages and forming integrated production, distribution, logistics and marketing chains, improving working conditions and living standards of employees and consumers Villarreal, and Fergusson (2018). NAFTA market has become the largest destination for small and medium enterprises of partners. Mexico and Canada were the largest destinations of U.S. small and medium-sized enterprises with more than 95 percent of their exports in 2014. Some economic analysts contend that Mexican economic reforms added resilience to its economy that will bring greater economic growth. The recent finance and fiscal reforms in Mexico creates more competition in the banking sector increasing the access to finance and credit for small and medium sized business NAFTA represented the first opportunity for establishing labor and environmental provisions in a new type of relationships of cooperation among the NAFTA partners. However, some critics blame NAFTA for a decline in labor conditions, employment and wages in United States and for lack of improvement on labor and environmental standards (Hufbauer, Cimino & Moran 2014; U.S. Chamber of Commerce 2015). The North American Free Trade Agreement initiated in 1994 linking the Canadian, Mexican and United States economies creating a market with 490 million consumers. The renegotiation talks began in August 2017. The economic model emerged out from NAFTA arrangements faces new challenges. The interdependence on trade among the three partners of NAFTA is challenged by a high percentage of U.S. content on Canadian and Mexican exports. United States has officially proposed for updating the trade agreement with its Summary of Objectives for the NAFTA Renegotiation centered on modernization to address a fairer deal expanding rules of origin to include more U.S. content and to balance trade reducing bilateral trade deficits with Canada and Mexico. NAFTA renegotiation and modernization has been a priority for the U.S. Government and now it is also for Mexico. The reason behind the U.S. renegotiation is because NAFTA is characterized by the President as the “worst trade deal,” that has resulted on a trade deficit with Mexico and Canada and has SBIR / Small Business International Review / Vol. 3 Nº 1 / January - June 2019 / AECA-UPCT-FAEDPYME 5 stated several times the potential withdrawal from the agreement. NAFTA renegotiation is a constructive alternative to strengthen economies. However, it is very debatable the use of trade agreement provisions to overcome the trade deficit because macroeconomic fundamentals determine trade imbalances (Bergsten, 2017). Renegotiation of NAFTA is more likely to affect the composition of trade partners but it is very questionable its impact on the trade deficit. If in the renegotiation of NAFTA there are not clear provisions it is not clear how is possible to reduce trade deficit. U.S. is seeking in the NAFTA renegotiations to enhance trilateral cooperation on security and energy sectors having more open access to invest and trade in the oil sector. On the part of Mexico may seek to enhance the energy sector, mainly the state-owned PEMEX oil Company, to compete in the market. Renegotiation of NAFTA includes the issues of energy trade, government procurement, IPR protection, rules of origin, and small- and medium-sized businesses. NAFTA has significantly benefitted the motor vehicles, auto parts, agriculture industries and the small and medium businesses. Only a few small and medium-sized businesses follow the key issues and potential outcomes of the renegotiation process of NAFTA. B. Background of the SMEs Small and medium business are living in an era of tremendous global development and change which requires decision making and policy implementation confronted by challenges and opportunities to shape their own developments and serve their best interests. The industrial sectors of auto mobiles, motor vehicles and parts, agriculture and small and medium enterprises have been significantly received benefits from the creation of NAFTA. Exports from United States to Mexico have grown in motor vehicles and parts 262 percent. Agricultural exports to Canada and Mexico have increased 350 percent. Mexico and Canada are the largest market destinations for U. S. small and medium-sized enterprise’s (Dubbert, & Sengenberger, 2018). NAFTA generates multi-million dollar industries in the SMEs in most of the American states because of its business facilities and commercial advantages. In its 24 years of operation, 33 states have sold more goods and services to Canada and Mexico than to the rest of the United States. In 2016, the last exercise prior to the declaration of the commercial war, exports to Canada ranged from 9,000 million dollars from Washington State to 23,700 million dollars from Michigan. While the sales to Mexico went from the 2,000 million of Hawaii to the 91,700 of Texas. Fiscal reforms in Mexico incentivize participation of SMEs in the formal, tax-paying economy by offering credit, home loans, insurance, retirements. Among the SMEs, NAFTA seeks to boost formal-sector productivity and employment. Small-and medium-sized enterprises employ over 60 percent of Mexican workers including informal sector. Millions of jobs created by SMEs depend on NAFTA trade, which remains critical to workers, owners and companies to generate new opportunities. However, productivity in Mexican small businesses fell by 6.5% per year between 1999 and 2009 while during the same period, large companies increased by 5.8% per year (McKinsey Global Institute 2014). Majority of small and medium enterprises (SMEs) participate and use NAFTA to save costs, in cross-border transactions although sometimes they remain dangerously passive as to its outcome. Since NAFTA went into effect, Mexico and Canada have evolved into the largest two export destinations for U.S. small and medium-sized businesses (U.S. Chamber of Commerce 2017). Across Canada there are 109,000 small and medium-sized member businesses (Canadian Federation of Independent Business, 2018) out of which one in five are involved in foreign trade. The issue of growing and strengthening small-to-medium enterprises (SMEs) that accounts for 90 percent of worldwide business, is an important business case (Gasiorowski-De- nis, 2015). SMEs constitute over 90 percent of exporters of goods and services in the three José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 6 countries members of NAFTA. Currently, SMEs two-thirds import and one-third export either products or services (CFIB, 2018). The resource-based theory and the capability theory of firms sustain that the internationalization process of SMEs requires resources and capabilities (Martineau & Pastoriza, 2016). Also the institutional theory suggests that institutions and public policy play an important role in strategic decision making about locating, scaling and linking SMEs to value added chains of investment, design, production, logistics, marketing and international trade. Also institutions and public policy supporting investments, credit, certification process, etc., are relevant for the internationalization processes of SMEs. Competitive economics is critical for SMEs to cross-border trade and international trade procedures to achieve cost-effective solutions through the access to technology delivering speed, ease and security such as the block change technology. Borders among the three countries have thickened due to the enforced security measures damaging the trade relationships. This situation gives an opportunity to find initiatives and procedures based on reciprocal collaboration to facilitate cross-border trading. SMEs engaging in international markets make major contributions to the economy by being more productive Baldwin and Gu (2003) become more likely to export (Melitz, 2003 and Baldwin & Gu, 2003) and having higher revenues, paying higher wages (Mayer & Ottaviano 2008), investing more on research, innovation and development having higher rates of technology adoption (Lileeva & Trefler 2010). Innovation of SMEs boosts production, employment and more competition to benefit consumers. Innovation in SMEs can come after better access to credit and other financial instruments that enable international and cross-border trade. Small and medium sized enterprises (SMEs) can innovate and develop the capacity to conduct cross-border transactions of goods and services through the use of internet, digital devices, reducing cost and space of firm size required. SMEs are heavy web and internet users to trade and to source products and services internationally. Besides, SMEs with high web use realize higher percentage of sales growth on average and low web users had no presence or sales decline. Martineau and Pastoriza (2016) suggest that education, experience and growth orientation personality of the SMEs owners are relevant factors in decision making to export. SMEs owners with higher level of education and management experience are more positively correlated with export propensity because they are enabled to likely become exporter of products and services. Small and medium enterprises (SMEs) under the framework of the North American free Trade Agreement (NAFTA) have to keep searching for new markets. Small and medium enterprises (SMEs) are efficient exporters contributing significantly to the economy of NAFTA members. Small and medium-size enterprises among the NAFTA countries make up a growing percentage in the share of international trade. The state´s members of NAFTA are committed to provide support and stimulate to establish mechanisms for SME to meet requirements for trade liberalization, encouraging greater participation by SMEs in regional supply chains aimed to export orientation. The agreement includes a Trilateral Dialogue to increase the efforts for access of SME to the North American Free Trade market. Given the importance of the North American free market, many SMEs are concerned about the renegotiation process of NAFTA. Protecting the free trade fundamentals in the negotiations of NAFTA is a relevant matter to have settled the small and medium enterprises (SMEs). Matters on SMEs subject to negotiations are the markets, strategic information sharing and cooperative activities with other local, domestic and international business. The renegotiation of the new NAFTA normal has positive and negative impacts on SMEs, generally determined by geography and industry. Large companies from the e-commerce sector have supported small and medium-sized enterprises (SMEs) to marketing, distribute and SBIR / Small Business International Review / Vol. 3 Nº 1 / January - June 2019 / AECA-UPCT-FAEDPYME 7 sell products to foreign markets, for example “e-Bay enabled SMEs,” were exporters in Mexico, Canada, and in the United States. Regarding e-commerce, Mexico faces substantial challenges regarding public distrust on digital and online systems, low internet connectivity, etc. Despite this problem, the e-commerce market has grown (Export.gov, 2017). SMEs need to adapt quickly the new trade arrangements to the new NAFTA normal in order to avoid potential harm manufacturing and services while benefitting others. C. Challenges of SMEs A report of the OECD (2017) stated that “…a key challenge for many SMEs is to identify and connect to appropriate knowledge partners and networks”. The success for the SMEs depends of their “their access to strategic resources…such as education and training, innovation and infrastructure.” The North American Free Trade agreement is a challenge for SMEs to gain preferred access to more than 500 million consumers. NAFTA partners are the largest destinations for small-business exports between each other. For example, U.S. small and medium-sized business represented more than 95 percent of all its exports equivalent to 25 percent of total value into the Canada and Mexico markets. 95 percent of U.S. SMEs are small and medium companies’ exports into the other members of NAFTA, Canada and Mexico. The largest export destinations of U.S. small and medium-size enterprises (SMEs) are Canada and Mexico representing more than 95 percent in 2014 and becoming the largest markets for U. S. (International Trade Administration 2016). Canadian small and medium sized firms that already trade with the other NAFTA parties, U. S. and Mexico, are not very or somewhat familiar with the agreement (Kelly, 2018). However, exports from Canada and Mexico to U. S. have risen substantially since NAFTA. Similarly, cross-border investment has increased significantly as well. Over the past three years, the Canadian Canadian and Mexican SMEs are facing the uncertainties of the NAFTA renegotiation with the possibility of the trade deal collapse. SMEs face several challenges to position themselves getting support to achieve resources and capabilities aimed to create, develop and reinforce the links within the international value chain. Free trade among the three countries has been complex and diverse because final product could have combinations of value added from all trading partners. Trade tariffs and trade barriers disrupt production chains of SMEs, which increase costs for consumers, reduce efficiency and competitiveness in production and thousands of lost Jobs. An important challenge is the reduction of low value shipments requiring minimal custom paperwork and costs by supporting the digital marketplace and promoting inclusivity for SMEs. Engaged SMEs leverage digital platforms to access the different markets. The existent integration in North America translates into high opportunity costs derived from inconsistent and incompatible regulations. The eco-system for SMEs shares policy information among the different regions to access to the best practices of financial processes connected through a web portal that allows encode invoices. SMEs optimize some internal processes of export initiatives through digitalization such as payments, invoices, settlements and reconciliations to improve speed, security and ease of trade transactions. However, Hufbauer and Wong (2011) found that savings to customs, express shipping, SMEs and consumers from raising the threshold outweighed lost government revenue. The majority of female owned SMEs (51.9) and non-female SMEs owned (9.3) of all SMEs (49.7) grew between 1 percent and 10 percent of an average annual revenue between 2012 and 2014. The export propensity of Canadian small-sized SMEs in 2014 was 20.7 percent meaning the share of all SMEs that export Canadian female-owned SMEs follow the same trends as all SMEs but outshine female owned non-expor- ters in larger size located in export intensive in- José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 8 dustries, education and experience, more likely to be born outside Canada (Office of the Chief Economist, 2016). The propensity of micro-sized SMEs, between 1 and 4 employees, was 53.0 percent, tiny SMES between 5 and 19 employees were 34 percent, small SMEs between 20 and 99 employees 11.1 percent and medium-sized SMEs between 100 and 499 employees were 1.6 percent. The industries of manufacturing, wholesale trade and professional and technical services, have the highest export propensities of enterprises for exporting. In Canada, Ontario is the location where SMEs have greater propensity to export likely tied to industry (Office of the Chief Economist, 2016). There is also an increasing participation of female owned exporting SMEs, as it has been reported by the Office of the Chief Economist (2016). According to this report, SMEs female owned represented only 15.7 percent and only 11.1 percent of all exporting SMEs. The data used is from the Survey on Financing and Growth of Small and Medium Enterprises with over 97 thousand female SMEs. This report examines characteristics and differences between majority female owned SMEs exporters and non-exporters. Canadian SMEs exporters are larger and have more control and ownership over relevant resources and capabilities than the other SMEs non-exporters (Orser et al. 2010). Investors and owners of SMEs challenge regulations using broad language and designed to further policies related to issues of environment, labor, safety, health, etc. (Hufbauer and Schott 2005). Female’s owners of businesses tend to be smaller more oriented towards local markets and less likely to participate in international markets. Female owners of exporting SMEs in Canada are larger in terms of number, more educated and experienced that non-exporting SMES owned by non-females. Female SME exporters are more traditionally export intensive industries, although they are smaller and are less likely to participate in less export-intensive than non-females (Office of the Chief Economist, 2016). Female SME owners face perceived and real obstacles to growth (Orser 2007) although may be less interested in growth as a revenue (Poggesi, Mari, & De Vita 2016). D. Renegotiation challenges of NAFTA Small and medium-size enterprises is an issue for NAFTA renegotiation that could be modernized using as a reference other more recent agreements such as the TPP, considering recent technological and scientific developments, managerial and regulatory practices. Regulatory challenges brought SMEs under the investor-state dispute resolution provisions of NAFTA have to be overcome as a source of controversies. SMEs are being discouraged for growing and expanding businesses by the rising tensions in NAFTA renegotiations and the imposition of marginal trade tariffs. Also, related industry is already suffering with the trade tariff already imposed to steel and aluminum by United States, such as the documented case of the firm in the boating industry. Local business could suffer with the withdrawal as the case of Boating Ontario representing several SMEs across the province with more than 30,000 direct and indirect jobs is projecting a 20 per cent job reduction in 2019. Rutherford, (2018). Any disruption to the economic relationships of NAFTA, could have economic adverse effects for the three partners on productivity, competitiveness, employment, investments, etc. Low skilled employment would decline by 125,000 for Canada and 951,000, for Mexico respectively (Walmsley & Minor 2017). Any change to NAFTA has a broad and varied impact on Canadian, Mexican and even United States small and medium businesses. If United States decides, as it has been threatening, to pull out of NAFTA, trade with Canada will revert to the 1988 signed Canada-US trade agreement (Galarneau, 2017). The case of Mexico is different not having a previous US-Mexico trade agreement and the impact on Mexican SMEs will be devastating. Today the three economies are economically interdependent in such a way that any decou- SBIR / Small Business International Review / Vol. 3 Nº 1 / January - June 2019 / AECA-UPCT-FAEDPYME 15 Institutional comprehensive programs and policies are needed to support SMEs to achieve and upgrade potential capacities and develop organizational and technological capabilities, which may be aimed to facilitate access mechanisms that allow them to insert in the integration and internationalization processes of value added chains. Financial and other programs aimed to strengthen the international trade processes of SMEs are necessary to support these companies that provide important benefits to the economies of the country members of NAFTA. Workers would like to have higher wages in the case of Mexico, but government considers that the labor policy is a domestic matter and should be excluded the discussion in renegotiations of NAFTA (Quinn & Martin, 2017). Entrepreneurs and business managers of SMEs will need to design and implement a long term strategy with short term alternatives to ultimately achieve success in this new world order of trade protectionism (Galarneau, 2017). The renegotiated NAFTA should be more flexible than the original one in many provisions related to SMEs, including on rules of origin that could soon become obsolete. The new NAFTA has the opportunity to fully take into account the potential development of vertiginous technological change. To make an analysis of the main factors involved in the process of NAFTA renegotiation to help the decision and policy makers to meet the challenges posed to SMEs by the recent developments in economic process of globalization, political power, regional market, fair trade, investment, technological changes, etc., all the stakeholders must be engaged in the design of policy solutions to the difficult and complex challenges confronting the SMEs in the renegotiated NAFTA. 5. Conclusions NAFTA renegotiation is a good opportunity to realize the economic cooperation relationships among the SMEs of partners as a new habit of fair trade strategic partnership in order to take full advantage of all the economic opportunities it has created. The renegotiated NAFTA must facilitate trade by small-and-medium-si- zed enterprises, considering that these SMEs constitute a majority of exporters in U.S. and Canada. NAFTA as the North American free market has given SMEs an unprecedented amount of opportunities and choices that have enabled to realize the critical components of trade liberalization. NAFTA has been largely beneficial to the three country members and should be renegotiated, modernized to reflect developments and maintained, because it is a valuable opportunity SMEs to embolden the gains provided by NAFTA. Focus on issues that sidestepping controversy that make a positive difference for SMEs in the renegotiated NAFTA could create more jobs of quality and provide the workers more security. Business leaders, politicians, government officials, business organizations, communities, companies, employees, etc. all should be concerned on the processes of NAFTA renegotiations to expand opportunities on fair trade and environmental sustainable development. Provisions in NAFTA renegotiation could be used to modernize it through the deepening of commitments and further cooperation of SMEs addressing all the challenges. All the options should be on the table for modernizing NAFTA through a process of renegotiation, to boost North American competitiveness of SMEs and better address the conditions of international trade, commerce and investment, challenge regulations for liberalizing and reforming the agreement. Renegotiation of NAFTA should further advance trade liberalization of SMEs goods and services instead of protecting national trade interests and avoiding regulations that reduce trading opportunities such as more restrictive rules of origin or public procurement requirements. José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 16 References Alvarez, G. Aguilar, and William W. Park. (2003). The New Face of Investment Arbitration: NAFTA Chapter 11. Yale Journal of International Law, 28 (2), 365–407. https://digitalcommons.law.yale.edu/yjil/vol28/iss2/9/ Anderson H., C. (2017). The Future of the North American Free Trade Agreement. The Scowcroft Institute of International Affairs and The Mosbacher Institute for Trade, Economics, and Public Policy. http://bush.tamu. edu/scowcroft/papers/nafta/ Baldwin, J. R., & Gu, W. (2003). Export-market participation and productivity performance in Canadian manufacturing. Canadian Journal of Economics/Revue Canadienne d`Economique, 36(3), 634–657. https://doi. org/10.1111/1540-5982.t01-2-00006 Bergsten, C. F. (2017). Trade Balances and the NAFTA Renegotiation, Peterson Institute for International Economics, Policy Brief, June 2017. https://piie.com/publications/policy-briefs/trade-balances-and-nafta-renegotiation Canadian Federation of Independent Businesses (CFIB) (2018). Small businesses concerned about potential changes to NAFTA: survey. Retrieved January 09, 2018, from https://www.cfib-fcei.ca/en/media/small-businesses- concerned-about-potential-changes-nafta-survey Carpentier, C. L. (2006). NAFTA Commission for Environmental Cooperation: ongoing assessment of trade liberalization in North America. Impact Assessment and Project Appraisal, 24(4), 259–272. https://doi. org/10.3152/147154606781765048 Carrincazeaux, C., & Frigant, V. (2007). The Internationalisation of the French Aerospace Industry: To What Extent Were the 1990s a Break with the Past? Competition & Change, 11(3), 260–284. https://doi. org/10.1179/102452907x212429 Corchado, A. (2017). Specter of Corruption Looms Over Mexico as NAFTA Talks get Rolling, Dallas Morning News, August 14, 2017 Retrieved from: https://www.dallasnews.com/news/mexico/2017/08/14/spectercorruption-looms-mexico-nafta-talks-get-rolling Dubbert, J., and Sengenberger, J. (2018). Preserving and modernizing NAFTA a free trade agreement for a new generation. Millennial Policy Center Policy Paper February 28 | 2018. http://www.millennialpolicycenter.org/ wp-content/uploads/2018/03/180228_MPC_PolicyPaper_Preserving_and_Modernizing_NAFTA.pdf Export.gov (2017) “Mexico—eCommerce,” International Trade Administration. September 14, 2017. www.export. gov/article?id=Mexico-Ecommerce European Commission (2016). CETA: EU and Canada agree on new approach on investment in trade agreement, European Commission press release, February 29, 2016, http://europa.eu/rapid/press-release_IP-16-399_en.htm (accessed on May 18, 2017) Freund, C. (2017). Streamlining Rules of Origin in NAFTA, Peterson Institute for International Economics, Policy Brief, Washington, DC, June 2017. https://piie.com/publications/policy-briefs/streamlining-rules-origin- nafta Gaines, S. E. (2007). Environmental policy implications of investor-state arbitration under NAFTA Chapter 11. International Environmental Agreements: Politics, Law and Economics, 7(2), 171–201. https://doi.org/10.1007/ s10784-007-9041-7 Galarneau, S. (February 24, 2017). Canadian Small Businesses Impacted by Talk of New NAFTA February 24, 2017 in Global Trade Magazine. Retrieved from https://www.livingstonintl.com/canadian-small-businesses- impacted-talk-new-nafta/ Gasiorowski-Denis, E. (2015). The big business of small companies. International organization for Standarization. https://www.iso.org/news/2015/03/Ref1937.html Hernández, J. (2015). Las empresas mexicanas en la cadena de valor de la industria aeronáutica (Tesis doctoral). Mexico: Flacso. http://flacso.repositorioinstitucional.mx/jspui/handle/1026/14 Hernández Chavarria, J., & Carrillo, J. (2018). Possibilities of Mexican SMEs insertion in the aerospace industry value chain, the Baja California case. Estudios Fronterizos, 19. https://doi.org/10.21670/ref.1802002 SBIR / Small Business International Review / Vol. 3 Nº 1 / January - June 2019 / AECA-UPCT-FAEDPYME 17 Hufbauer, G. C. (2016). Investor-State Dispute Settlement. In Trans-Pacific Partnership: An Assessment, ed. Cathleen Cimino-Isaacs and Jeffrey J. Schott. Washington: Peterson Institute for International Economics. https://piie. com/publications/chapters_preview/7137/11iie7137.pdf Hufbauer, G. C. and Wong, W. F. (2011). Corporate Tax Reform for a New Century. Policy Brief, number PB 11- 2, April 2011. Peterson Institute for International Economics. https://piie.com/publications/policy-briefs/ corporate-tax-reform-new-century Hufbauer, G. C., Cimino, C., and Moran, T. (2014). NAFTA at 20: Misleading Charges and Positive Achievements, Peterson Institute for International Economics, Number PB14-13, May 2014. https://piie.com/publications/ policy-briefs/nafta-20-misleading-charges-and-positive-achievements Hufbauer, G. C., and Schott, J. J. (2005). NAFTA Revisited: Achievements and Challenges. Washington: Peterson Institute for International Economics. https://piie.com/bookstore/nafta-revisited-achievements-and- challenges Hufbauer and Schott (1992). North American Free Trade: Issues and Recommendations. Institute for International Economics (U.S.),Peterson Institute. ICSID (2017). International Centre for Settlement of Investment Disputes. 2017. ICSID 2017 Annual Report. Washington, DC. © International Centre for Settlement of Investment Disputes. https://openknowledge. worldbank.org/handle/10986/28558 International Trade Administration (2016). U.S. Department of Commerce, Exporter Database, Recovered 16/12/2016. http://tse.export.gov/EDB/SelectReports.aspx Kelly, D. (2018). Canadian Federation of Independent Business (CFIB). Toronto, Canada. Retrieved from: https:// www.cfib-fcei.ca/en/node/1083 Kondonassis, A. J., & Malliaris, A. G. (1996). NAFTA: Old and new lessons from theory and practice with economic integration. The North American Journal of Economics and Finance, 7(1), 31–41. https://doi.org/10.1016/s1062- 9408(96)90020-0 Kravis, I. B. (1970). Trade as a Handmaiden of Growth: Similarities Between the Nineteenth and Twentieth Centuries. The Economic Journal, 80(320), 850. https://doi.org/10.2307/2229902 Krueger, A.O. (1992.) Government, Trade, and Economic Integration. The American Economic Review, 82(2), 109- 114. Retrieved from http://www.jstor.org/stable/2117385 Lewis, A.W. (1980). The Slowing Down of the Engine of Growth. American Economic Review 70, 555-564. Retrieved from https://EconPapers.repec.org/RePEc:aea:aecrev:v:70:y:1980:i:4:p:555-64 Lileeva, A., & Trefler, D. (2010). Improved Access to Foreign Markets Raises Plant-Level Productivity… for Some Plants*. Quarterly Journal of Economics, 125(3), 1051–1099. https://doi.org/10.1162/qjec.2010.125.3.1051 Martineau, C., & Pastoriza, D. (2016). International involvement of established SMEs: A systematic review of antecedents, outcomes and moderators. International Business Review, 25(2), 458–470. https://doi.org/10.1016/j. ibusrev.2015.07.005 Mayer, T., & Ottaviano, G. I. P. (2008). The Happy Few: The Internationalisation of European Firms. Intereconomics, 43(3), 135–148. https://doi.org/10.1007/s10272-008-0247-x McKinsey Global Institute (2014). A Tale of Two Mexicos: Growth and Prosperity in a Two-Speed Economy, March 2014. https://www.mckinsey.com/featured-insights/americas/a-tale-of-two-mexicos Melitz, M. J. (2003). The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica, 71(6), 1695–1725. https://doi.org/10.1111/1468-0262.00467 OECD (2017). Enhancing the Contributions of SMEs in a Global and Digitalized Economy, Report of June 2017. OECD. http://www.oecd.org/mcm/documents/C-MIN-2017-8-EN.pdf Office of the Chief Economist (2016). Majority-Female Owned Exporting SMEs in Canada. The Canadian Trade Commissioner Service. Office of the Chief Economist. Government of Canada. http://www.tradecommissioner. gc.ca/businesswomen-femmesdaffaires/2016-MFO_SMES-PME_EDMF.aspx?lang=eng José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez 18 Office of the USTR (2017). Trilateral Statement on the Conclusion of NAFTA Round One, Press Release, August 20, 2017 Retrieved from: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/august/ trilateral-statement-conclusion Orser, B., Spence, M., Riding, A., & Carrington, C. A. (2010). Gender and Export Propensity. Entrepreneurship Theory and Practice, 34(5), 933–957. https://doi.org/10.1111/j.1540-6520.2009.00347.x Poggesi, S., Mari, M., & De Vita, L. (2016). What’s new in female entrepreneurship research? Answers from the literature. International Entrepreneurship and Management Journal, 12(3), 735–764. https://doi.org/10.1007/ s11365-015-0364-5 Quinn, G and Martin, E. (2017). A NAFTA Win for Trump May Rest on Helping Mexican Workers Get a Raise, Bloomberg, August 7, 2017 Retroeved from https://www.bloomberg.com/news/articles/2017-08-07/trumpnafta-win-may-rest-on-helping-mexican-workers-get-a-raise Rockstrom, J., and Mattias K. (2015). Big World, Small Planet: Abundance within Planetary Boundaries. New Haven, USA: Yale University Press. Rutherford, K. (2018). Ontario boating industry to feel the sting of retaliatory Canadian tariffs on U.S. watercraft Boat prices expected to jump 15 per cent after tariffs take effect July 1. CBC News · Posted: Jun 25, 2018 4:30 AM ET | Last Updated: June 25 Downloaded on July 30, 2018 from https://www.cbc.ca/news/canada/ sudbury/sudbury-boating-tariffs-1.4718718 Sachs, J. (2015). The Age of Sustainable Development. New York, USA: Columbia University Press. https://doi. org/10.7312/sach17314 Salzman, J. (2001). Executive Order 13,141 and the Environmental Review of Trade Agreements. The American Journal of International Law, 95(2), 366. https://doi.org/10.2307/2661402 Sinclair, S. (2015). NAFTA Chapter 11 Investor-State Disputes. Canadian Centre for Policy Alternatives (January):1–41 Torres, B. (2002). The North American Agreement on Environmental Cooperation: Rowing Upstream. In, Carolyn L. Deere and Daniel C. Esty (Eds.). Greening the NAFTA: Lessons for Hemispheric Trade. Cambridge, USA: MIT Press. U.S. Chamber of Commerce (2017). The Facts on NAFTA: Assessing Two Decades of Gains in Trade, Growth, and Jobs. U.S. Chamber of Commerce, 8 Mar. 2017. Retrieved from https://www.uschamber.com/report/thefacts-nafta-assessing-two-decades-gains-trade-growth-and-jobs U.S. Chamber of Commerce (2015). NAFTA Triumphant: Assessing Two Decades of Gains in Trade, Growth, and Jobs, October 2015 Retrieved from https://www.uschamber.com/report/nafta-triumphant-assessing-two- decades-gains-trade-growth-and-jobs Villarreal, M. A. & Fergusson, I.F. (February 27, 2018). NAFTA Renegotiation and Modernization Specialist in International Trade and Finance February. Congressional Research Service 7. Retrieved from https://fas.org/ sgp/crs/row/R44981.pdf Walmsley, T., and Minor, P. (2017). Reversing NAFTA: A Supply Chain Perspective, ImpactEcon, Working Paper, March 2017, (pp. 26-27). https://impactecon.com/resources/reversing-nafta/ Wilson, Ch. (2017). Mexico and the NAFTA Renegotiations, Wilson Center, Webcast, Washington, DC, August 15, 2017. Retrieved from https://www.wilsoncenter.org/event/mexico-and-the-nafta-negotiations How to quote this article? / ¿Cómo citar este artículo? Vargas-Hernández, J., Orozco Quijano, E., & Virchez, J. (2019). A Critical Analysis of Scenarios for Small and Medium Enterprisee in NAFTA renegotiations. Small Business International Review, 3(1), 1-18. https://doi.org/10.26784/ sbir.v3i1.151 This publication is licensed under a Creative Commons Attribution-NonCommercial- ShareAlike 4.0 International License (CC BY-NC-SA 4.0) Copyright © 2019 José G. Vargas-Hernández, Elsa Patricia Orozco-Quijano y Jorge Virchez