United States: The Undoing Project – Why NAFTA Can't Be Undone, But Can Be Re-Done

Boy, does it sound convincing when Mr. Trump states he will submit notice under section 2205 of NAFTA to let Mexico and Canada know that the U.S. will withdraw from NAFTA. The problem is, while the president-to-be is capable, we presume, of writing, signing, and sending (or possibly tweeting) such a notification, that notification would not have a legal significance because withdrawing from NAFTA, ab initio, is not a power accorded the President.

The Agreement and underlying laws propose a number of paths by which the president may effectuate withdrawal from NAFTA. However, each of those paths require congressional cooperation or an act by Canada or Mexico to which the President may respond. Negotiating (or renegotiating) the Agreement would be squarely in a President Trump's authority, though congress would then need to implement the terms of the new or amended agreement.

Un-undoable

Article 2205 of NAFTA, Withdrawal, reads as follows: A Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties. The language §of the Agreement itself merely states that a "Party" may withdraw, but does not explicitly give that power to the President.

NAFTA was enacted under the authority Trade act of 1974. Section 125(a) of the Trade Act states that agreements reached under the Act will be subject to termination or withdrawal, but does not specify who will give that notice or enact the termination or withdrawal from the agreement. A President Trump may take the position that the power to provide notice of withdrawal is his under the executive power to conduct foreign relations. However, the Constitution reserves to the congress the power to impose duties and regulate trade between nations. Additionally other paragraphs in the same Section 125 of the Trade Act designate powers specifically to the President. Statutory construction arguments would lead to the conclusion that the legislation drafters could have assigned the power to withdraw to the president but deliberately chose not to.

The law that put NAFTA into effect, called the NAFTA Implementation Act, comes close to providing the president power to modify the tariffs established under NAFTA. Certain sections of the NAFTA Implementation Act provide the President the power to modify tariffs by proclamation. However, the proclamations are subject to consultation and layover requirements.

Section 201(b)(1)(d) of the NAFTA Implementation Act states that the President may proclaim such additional duties as he determines necessary to maintain the general level of reciprocal and mutually advantageous concessions with respect to Mexico or Canada. The President could claim that Mexico has taken some action that upsets the general level of reciprocal and mutually advantageous concessions such as making adjustments to the VAT or failing to meet labor standard requirements. The President could then invoke 201(b)(1)(D) and impose tariffs.

However, the power to proclaim additional duties in 201(b) is made subject to requirements that the president consult with congress and wait a certain prescribed period as follows:

  1. The President must obtain advice regarding the proposed action from his advisory committees and the International Trade Commission;
  2. The President must submit a report to the House Committee on Ways and Means and Senate Finance Committee regarding the proposed changes of duties; and
  3. The President must wait until period of 60 calendar days, beginning with the first day on which the President has met requirements (1) and (2) with respect to the proposed action, has expired and consult with the House and Senate Committees regarding the proposed action during that period.

The import of the consultation and waiting requirements is supported in the legislative history of the NAFTA Act, which states with respect to Section 103:

The President is further authorized, in certain circumstances, to take future actions by proclamation. In those circumstances, it is essential to ensure adequate consultation with the Congress and the private sector before the action is taken. This is accomplished by requiring both consultation and a layover period prior to Presidential proclamation

Given the history of 103, and the express requirement in 201(b) that actions taken thereunder are subject to consultation and layover, it is difficult to imagine that the President could use Section 201(b) to terminate NAFTA (or proclaim tariffs that would effectively terminate NAFTA) without support from Congress. Further, the explicit reference in the Senate Report regarding NAFTA amendments being subject to the normal legislative process, i.e. passage of legislation by both the House and Senate, would support the conclusion that termination of the agreement altogether would require input from the Legislature.

A New NAFTA

According to a CNN report, a memorandum attributed to the Trump transition team, the team's 200-day plan is built around five main principles, the first of which is renegotiating or withdrawing from NAFTA. The memo states that Trump would begin, as early as Day 1, on reforming NAFTA. His proposed actions would include ordering the Commerce Department and International Trade Commission to begin a study on what the ramifications of withdrawing from the treaty would be, and what would be required legislatively to do so. He would also have the US Trade Representative notify Mexico and Canada that the US intends to propose some amendments to the treaty, which could include measures on currency manipulation, lumber, country of origin labeling and environmental and safety standards According to the memo, By Day 200, Trump would be considering formally withdrawing from NAFTA and continuing to pursue bilateral trade agreements."

Canadian leaders have expressed willingness to renegotiate NAFTA. While Mexican leaders express hesitation or refusal to renegotiate NAFTA. While renegotiation of NAFTA can be initiated by the President, the negotiation will eventually require congressional support. Effectively, in order to "renegotiate" the President would have to submit a renegotiated agreement to congress to be implemented. Further, if congressional support for a renegotiated agreement is not apparent, it is possible foreign negotiators will not take seriously U.S. efforts to renegotiate a trade agreement.

To Undo or Not to Undo

It will remain a political question whether the benefits of NAFTA will curb the new administration's enthusiasm for rending or revising the trade agreement. The memo by the Trump provides the incoming team a little room to maneuver around its exhortations. A draft presidential memorandum at the end of the document that could be used to order the review of NAFTA orders the report to pay "extra consideration to the effects such a policy change may have on the middle class, manufacturing and service sector workers, and foreign direct investment into the United States."

So while little in the future of NAFTA is certain, it is likely that any changes will take time and require more than just a presidential edict. Further, the time the changes require may be the time it takes to pull back from those changes.

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.

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