President-elect Donald Trump made trade policy a key issue in his campaign and has declared his interest in either withdrawing from or renegotiating the North American Free Trade Agreement (NAFTA). Government officials from Mexico and Canada have publicly stated that their respective governments are open to renegotiating the treaty. As a result, companies that do business in Mexico or Canada or engage in cross-border transactions with those countries are likely to confront significant new challenges and uncertainty in the next few months.

Any renegotiation could lead to an increase in U.S. tariffs on imports from Mexico and Canada, which could increase to the levels applied to other members of the World Trade Organization (WTO). There may also be parallel increases in Mexican and Canadian tariffs on imports from the United States. Such shifts would threaten Mexico’s maquiladora industry in particular, which depends upon the tariff-free movement of inputs and finished products to and from the United States. Renegotiation also could affect U.S. firms that supply goods and services to the Mexican and Canadian governments and place in doubt bilateral arrangements facilitating the movement of U.S. workers and executives across the Mexico and Canada borders. Such a dramatic move, moreover, might be a precursor to unilateral U.S. trade measures. U.S. presidents, for example, have significant authority to impose tariffs against foreign trade practices.

What the Trump Administration’s policy priorities would be in any renegotiation are not clear, but changes in tariffs and the protection of U.S. jobs may be at the top of that list. It would not be surprising if President-elect Trump were to wield the threat of withdrawal as a source of leverage in any talks, and perhaps also seek to impose punitive tariffs against imports from Mexico and/or Canada. Any unilateral actions, of course, could prompt Mexico and Canada to retaliate in kind, such that these bilateral relationships deteriorate and market uncertainty increases.

If a Trump Administration goes so far as to withdraw unilaterally from the trade pact, that would also have the consequence of removing the protection that NAFTA’s Investment Chapter provides to the investments of U.S. investors in Mexico and Canada.

The Investment Chapter of NAFTA grants U.S. investors with investments in Mexico and Canada several substantive rights. For instance, Mexico and Canada must grant fair and equitable treatment to the investments of U.S. investors, must refrain from adopting arbitrary measures that may affect those investments, and must not expropriate those investments unless certain conditions are met, including the payment of compensation. The Investment Chapter also allows U.S. investors to seek damages in an international arbitration proceeding if any of those rights are violated. These substantive and procedural protections would no longer be available to U.S. investors if the United States were to withdraw from NAFTA. For those investors who believe Mexico or Canada has violated NAFTA, as long as a party notifies its intention to file a claim while NAFTA remains in force, its ability to seek redress in an arbitration related to that dispute will be preserved, even after any U.S. withdrawal has occurred.

Companies with significant investments in Mexico and Canada would be wise to consider how a withdrawal from, or fundamental changes to, NAFTA might impact their businesses going forward. Reopening NAFTA negotiations could present risks as well as opportunities for those on both sides of the border.