Canada: NAFTA. Here Today, Gone Tomorrow?

Last Updated: October 24 2017
Article by Geoffrey C. Kubrick and Robert Wisner

Will NAFTA end? This article examines issues that may be expected to arise in the event that the United States wishes to withdraw from NAFTA. These issues include legislative requirements in the United States, the potential resurrection of the Canada-United States Free Trade Agreement ("CUSTA"), and what may arise in the absence of any free trade arrangement.

In the most recent negotiating round for NAFTA 2.0, the United States finally enunciated its negotiating position with respect to particularly contentious issues, including dispute settlement proceedings, American automotive content under NAFTA and supply management.  The negotiating position of the United States is being described as excessive and politically impossible for Canada and Mexico.

Press reports have been suggesting that the American position is simply a means of making renegotiations unpalatable, reflecting President Trump's intention to terminate NAFTA.  It is certainly premature to write off NAFTA.  One always expects negotiations to get more difficult as they move toward completion.  Given the economic interests at stake in all three countries, the authors maintain hope that the talks will continue and ultimately succeed.

Can President Trump Tear Up NAFTA?

Even if it was the wish of the American administration to end NAFTA, it may prove to be a very difficult beast to kill. 

As an opening proposition, no one country can tear up NAFTA.  The United States can certainly withdraw from NAFTA, but the agreement would continue in force between Canada and Mexico unless either of those parties also chooses to withdraw.

Withdrawal from NAFTA requires six months notice before the rights and obligations under the agreement can be terminated.  There is an interesting debate amongst US constitutional law scholars regarding President Trump's power to deliver such a notice without congressional approval and the legal consequences of such unilateral action.  The North American Free Trade Agreement Implementation Act of the United States is 169 pages long and involves many amendments to American legislation including customs provisions, trade remedies, agriculture, and extensive amendments to a wide range of related statutes.  Under American constitutional law, NAFTA only came into force when the legislation was approved by both houses of Congress and the President.  To undo these extensive legislative changes in the United States would therefore require further legislation passed by Congress.  Some have argued that even the delivery of a notice of withdrawal by President Trump without Congressional approval would be unconstitutional.

It has been reported  that two thirds of American states have Canada as their major export market.  This means that there may be a vested interested on the part of up to 66 Senators to protect jobs in their states by declining to implement the statutory measures required to remove NAFTA obligations from American legislation.  Similarly, American southern states also have a significant interest in maintaining export markets in Mexico.  Therefore, the prospect of sweeping legislative change may be challenging.

Nonetheless, there may be certain areas where changes to NAFTA rules can be made unilaterally by Presidential fiat.

First, as a matter of international law, a Presidential notice of withdrawal from NAFTA is likely to be deemed effective in putting an end to the international obligations of the United States even if there is a dispute about the constitutional validity of such action under US law.  Absent an obvious lack of authority, an international tribunal is unlikely to hold the United States to any legal obligations following delivery of required notice in accordance with NAFTA's express withdrawal provisions.  If this notice occurs, certain provisions of NAFTA that were not implemented by US legislation, such as its investor-state dispute settlement provisions, will no longer be binding on the United States. 

Second, the complex patchwork of US trade remedies legislation authorizes the executive branch to take certain unilateral actions against imports.  The withdrawal of the US from NAFTA would lead to the loss of any international law constraints on such trade remedies enforceable through NAFTA (as opposed to other treaties, such as the WTO Agreements).  Thus, Canada and Mexico may lose the ability to challenge certain US administrative actions before bi-national panels under NAFTA Chapter 19 or by state-to-state arbitration under NAFTA Chapter 20.

Potential Resurrection of the Canada-US Free Trade Agreement

The termination of NAFTA may not mean the termination of free trade arrangements between Canada and the United States.  The Canada-U.S. Free Trade Agreement ("CUSTA"), concluded in 1989, was suspended as long as NAFTA applied to both Canada and the United States.  An exchange of diplomatic letters in January 1993 indicated the intention of both parties that the suspension would "remain in effect for such time as the two Governments are Parties to the NAFTA". Termination of NAFTA could arguably mean that the provisions of CUSTA would go back into force, including tariff removal and the continuation of the automotive provisions that reflected a free trade arrangement with the United States that has been in existence since the 1965 Auto Pact.  However, CUSTA did not include the investor-state dispute settlement provisions found in NAFTA.  In addition, the equivalent to NAFTA Chapter 19 constraints on US trade remedy measures under CUSTA have now expired.

There are pundits in the United States who claim that the reversal of the suspension of CUSTA is not automatic, but would require legislative action to bring that agreement back into force. This view may be contrary to section 107 of the American NAFTA Implementation Act which makes clear that "[a]n agreement by the United States and Canada to suspend operation of [CUSTA] shall not be deemed to cause [CUSTA] to cease to be in force". One might reasonably argue that this provision automatically brings CUSTA back into operation without the need for further legislative action.

CUSTA has a termination provision similar to NAFTA in that it can also be ended upon six months notice; but arguably notice cannot be given until NAFTA has actually been terminated, since CUSTA is suspended until that time.  Even then, the need for extensive legislative changes in the United States may further complicate any administration attempt to quickly terminate that agreement.

What Happens if there is no Trade Agreement between Canada and the United States?

1. General Impact

Even if these free trade arrangements were terminated between Canada and the United States, it is difficult to see how the United States might benefit since its most favoured nation (MFN) tariffs are generally very low. 

It has been reported that average US MFN duty rates are in the range of 2.5%. For Canada the average duty rate is 3.5%. While customs duties are always an impediment to trade, these generally low rates will minimize the impact of the end of free trade agreements. Exporters to the US should confirm what the MFN duty rates will be on products they may wish to ship to the American market.

2. The Automotive Sector

The American MFN import duty rate on automobiles is currently 2.5% (though it does go up to 25% on pick-up trucks and commercial vans).  An additional complication for the American automotive industry is that 75% of all U.S. parts exports are to Canada or Mexico (as reported by the U.S. International Trade Administration in 2016).  A further issue is the degree of rationalization in the North American automotive industry (and in particular between Canada and the United States).  With parts routinely crossing the border six or seven times for further processing, existing supply chains would be severely disrupted in the event that the U.S. intended to impose local content requirements.  The significance of these concerns is perhaps best expressed by American automotive producers who are opposed to the very proposals intended to benefit them.

3. Services

Loss of a free trade agreement would also inhibit the orderly movement of business travellers between NAFTA partners.  Once again, this would likely act to the detriment of the United States as it currently maintains a substantial trade surplus in services with both Canada and Mexico.  Without the protections available to American businesses under NAFTA, service exports could be severely impacted.

4. Dispute Settlement

Trade between existing NAFTA partners would continue to be subject to international trade discipline under the auspices of the World Trade Organization ("WTO") even in the absence of any free trade arrangements. The WTO includes a number of trade facilitation agreements, as well as a binding dispute resolution process to deal with protectionist policies imposed by Member states. These rights arose after NAFTA came into force.  Canada has been successful in a number of WTO cases against the US where NAFTA was ineffective in resolving disputes.


NAFTA negotiations have reached a critical juncture with the more controversial American proposals now on the table.  With over $1 trillion in three-way trade in goods and services, we believe it in the interests of all three countries to continue to push forward and make whatever progress is possible.  To the extent that there are threats, or reports of unilateral termination of NAFTA, these are unlikely to occur in the near future due to the limitations discussed above.  In these circumstances, it is clearly a better road to seek accommodation with NAFTA partners, rather than to risk damage to the largest integrated market in the world today.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

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.

Geoffrey C. Kubrick
Robert Wisner
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
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