Canada: Trump, Canada And The Future Of NAFTA: Some FAQs

Last Updated: January 18 2017
Article by Matthew S. Kronby and Milos Barutciski

As Inauguration Day approaches we are receiving many questions about Donald Trump's promise to renegotiate or "tear up" the NAFTA, most of them turning on what he can do and what would it mean for Canada-United States trade. Here are some answers.

1. Could President Trump terminate or "tear up" the NAFTA?

Not exactly. However, under Article 2205 of the NAFTA, the U.S. could withdraw from the agreement on six months' notice. The NAFTA would remain in force between Canada and Mexico.

2. Could the President make the decision to withdraw the U.S. from the NAFTA or renegotiate it on his own, or would Congress need to approve the decision?

The President likely has the legal authority to withdraw the U.S. from the NAFTA on his own, and that authority may well extend to overriding some statutory provisions giving effect to the United States' NAFTA obligations. Even if Congress challenged the President's authority on these matters, a challenge likely would take far longer than the six-month NAFTA notification period to work its way through the courts, and the courts might refuse to take sides. Therefore it is prudent to assume that a Trump Administration has considerable latitude to pull the U.S. from the NAFTA with or without Congressional support.

3. Is a Trump Administration likely to withdraw the U.S. from the NAFTA?

No. The U.S. has too much to lose from unilateral withdrawal, given the deep economic ties the NAFTA has produced among the U.S., Canada and Mexico. It is far more likely that the U.S. will use the threat of withdrawal to renegotiate aspects of the NAFTA.

4. What will be on the table if the NAFTA is renegotiated?

Canada's asks are likely to include greater access to U.S. procurement—including constraints on "Buy America" policies—as well as modernization of rules of origin, deeper regulatory cooperation, improvements to the state-to-state dispute settlement mechanism and possibly reforms to the investor-state dispute process.

However, the U.S. will hold the stronger hand in any negotiations. Despite the Government of Canada's professed willingness to re-open the NAFTA, a Trump Administration will be looking not to improve trade flows, but for Canada and Mexico to "pay" for access to the U.S. market.  

The U.S. asks may well include concessions by Canada in sensitive areas such as supply-managed agriculture, the lifting of foreign investment restrictions in the telecommunications sector, limits on Canadian softwood lumber exports and changes to intellectual property rights to more closely mirror the U.S. system. The U.S. can also be expected to seek the elimination of the binational dispute settlement mechanism that allows Canadian governments and businesses to challenge U.S. anti-dumping and anti-subsidy determinations before bilateral panels rather than in U.S. courts.

While the President-elect's NAFTA-related opprobrium has been directed at Mexico, Canadian negotiators—as well as  Canadian businesses and their U.S. allies—will need to be nimble in order to preserve, let alone improve on, the status quo for Canada-U.S. trade. The good news is that the U.S. has much at stake as well. Concluding the negotiations is likely to depend more on finding win-win solutions than on brinksmanship.

5. What happens to Canada-U.S. trade if the U.S. does withdraw from the NAFTA?

The Canada-U.S. Free Trade Agreement (CUSFTA) was never terminated; it was merely suspended for so long as the NAFTA is in force as between Canada and the U.S. Therefore if the U.S. were to withdraw from the NAFTA, the CUSFTA probably would come back into force.

6. Why "probably"?

When the NAFTA was concluded, the intention was that the CUSFTA would kick back in automatically if the NAFTA ceased to apply to Canada-U.S. trade, but it is not entirely clear if some sort of affirmative action is required. And the U.S. potentially could terminate the CUSFTA too, also on six months' notice, leaving Canada-U.S. trade to be governed by WTO rules, including the WTO's "most-favoured nation" duty rates.

However, that scenario seems highly unlikely. The principal focus of Trump's opposition to North American free trade has been Mexico. By contrast, the CUSFTA was one of the legacy achievements of the Reagan Administration. It is difficult to imagine Trump wanting to undo that legacy, or that his new U.S. Trade Representative, who helped to negotiate the CUSFTA, would want to do so either.  Nevertheless, the mercantilist orientation of the Trump Administration means that it may want to get something in exchange for continuing the CUSFTA.

7. What would it mean for bilateral trade if the CUSFTA did come back into force?

Under the CUSFTA, bilateral trade in nearly all goods would remain duty free. However, the CUSFTA rules of origin to determine which goods qualify for duty-free treatment are less precise than those in the NAFTA.  

Reversion to the CUSFTA would also mean the loss of NAFTA protections for Canadian exporters from U.S. safeguard actions against injurious imports, which can be expected to become more commonplace under a Trump Administration. It would also mean the end of the NAFTA's binational dispute settlement mechanism for dumping and subsidy disputes. The equivalent mechanism under the CUSFTA was time-limited and has expired. Preserving the binational dispute settlement process was a key objective for Canada when the NAFTA was negotiated, although its value has eroded over time.

The CUSFTA also offers less comprehensive protections for services and investment trade than the NAFTA does. For example, CUSFTA protections do not extend to certain important services like rail transportation or provide for investor-state dispute settlement like that in NAFTA's Chapter 11.

Reasons for Canadian Business to be Wary After January 20

These are only some of the concerns a Trump presidency raises for Canada-U.S. trade. Others include expanded "Buy America" policies, U.S. engagement with the WTO, and the shape of U.S. tax reform efforts, which will involve Congress and could include border tax adjustments or other measures that have major implications for trade.

Trump's nominees for key trade positions, including for Commerce Secretary and the head of the new National Trade Council, as well as his post-election threats to companies in the auto sector, demonstrate his intent to follow through on campaign promises to change the way the U.S. has conducted trade relations for past 25 years. While the principal targets of these changes will be China and Mexico, the clear message from the Trump transition team has been that the Trump Administration "will put American workers first".  That makes Canada vulnerable to both direct and collateral damage.

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 Mondaq.com.

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

Authors
Matthew S. Kronby
Milos Barutciski
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.