The art of breaking the deal: what president trump can and can't do about NAFTA.

Author:Johnson, Jon R.
Position::North American Free Trade Agreement
 
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While the president's anti-NAFTA rhetoric has been directed at offshoring and balance-of-payments issues with Mexico, Canada is at risk of being sideswiped by aggressive anti-trade and anti-NAFTA measures that the president may adopt.

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During the US election campaign, now President-elect Donald Trump repeatedly described the North American Free Trade Agreement ("NAFTA") as the "worst trade agreement ever" and vowed that he would renegotiate it or "tear it up."

By "tearing up NAFTA" Mr. Trump presumably meant that he would cause the United States to withdraw from NAFTA unless his demands in a renegotiation were met. The main question I examine here is whether the president can trigger a withdrawal of the United States from NAFTA without the concurrence of Congress. This raises important issues for the governments of Canada and Mexico and for all private-sector entities and persons whose prosperity depends on the continued existence of NAFTA. This paper draws implications specifically for the government of Canada. The discussion is organized around five questions:

  1. Can the president unilaterally withdraw the US from NAFTA?

  2. Can the president unilaterally raise trade duties on NAFTA partners by proclamation?

  3. When and how can Congress defend its powers?

  4. What other presidential powers could be used to frustrate NAFTA?

  5. The focus on Mexico--What are the implications for Canada?

  6. CAN THE PRESIDENT

    Unilaterally Withdraw the US FROM NAFTA?

    The ultimate threat President Trump can make in a NAFTA renegotiation if his demands are not met is for the United States to withdraw from the trade deal. While there are many ways in which the Trump Administration could proceed to achieve its trade objectives as regards NAFTA, the governments of Canada and Mexico should regard the US threat of withdrawal as a possibility and determine the steps required for the US government to make good on this threat.

    The NAFTA text itself contemplates that a NAFTA Party may wish to withdraw from NAFTA. Article 2205 provides that a Party may withdraw from NAFTA six months after providing written notice of withdrawal to the other Parties. However, giving the notice in and of itself does not give effect to such a withdrawal.

    Indeed, as I show here, Congress must concur if the government of the United States is to formally withdraw from NAFTA.

    However, as will be discussed later in this paper, the president has powers delegated to him by Congress that he could use to seriously frustrate the operation of NAFTA and force concessions from the governments of the other NAFTA Parties. The governments of Canada and Mexico should examine the scope of each of these powers and the degree to which the application of each is subject to constraint by the US Congress or by the US Courts, before deciding on a course of action in the face of any presidential declaration to seek to renegotiate or withdraw from NAFTA.

    The President's Foreign Affairs Powers versus Congressional Trade Powers

    In the first of a useful series of studies published by the Peterson Institute under the title Assessing Trade Agendas in the US Presidential Campaign (1) the "Peterson study"), the Peterson Institute's Gary Clyde Hufbauer states that the president could use "the foreign affairs powers of the President to terminate NAFTA". (2) The Economist magazine has picked up this conclusion with the statement: "He [President Trump] could use the President's prerogative over foreign affairs to withdraw from the North American Free Trade Agreement with just six months' notice according to the Peterson Institute, a think tank." (3)

    Would withdrawal be that straightforward? Not when we examine the extent of the foreign affairs powers of the President under the US Constitution and the manner in which these powers interact with powers granted to Congress.

    Presidential Powers: The foreign affairs powers of the president are based on Article II Section 1 of the Constitution that states that: "The executive Power shall be vested in a President of the United States of America. "This provision has been interpreted as conferring foreign affairs powers on the president because, at the time that the US Constitution was drafted in 1787, the expression "executive Power" was interpreted as including powers over foreign affairs. (4) On the basis of this interpretation of "executive Power," foreign affairs powers not explicitly identified in the Constitution as belonging to Congress belong to the president.

    Congressional Powers: However, there are in fact powers relating to foreign affairs that are explicitly identified in the Constitution as belonging to Congress. The Commerce Clause in Article I, Section 8 confers upon Congress the power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes." Further, the Treaty Clause in Article II Section 2 clause 2 of the Constitution confers upon the president the "Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur." In summary, both the Commerce Clause and the Treaty Clause directly involve Congress in foreign affairs matters of the United States. The regulation of Commerce with foreign nations is expressly granted to Congress under the Commerce Clause. The president may make treaties only if "two thirds of the Senators present concur."

    Crucially, the same article also includes the "Necessary and Proper Clause" (clause 18), which reads as follows:

    "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."

    The "foregoing Powers" include the power of Congress to "regulate Commerce with foreign Nations" provided for in the Commerce Clause.

    How Trade Agreements Are Implemented

    Under US law, trade agreements are now usually-considered as Congressional/Executive Agreements rather than as treaties. (5) This is because the president and Congress have joint authority over trade agreements, the president through the foreign affairs power (with limitations as discussed) and Congress through the Commerce Clause.

    Trade agreements are negotiated by the Office of the United States Trade Representative ("USTR") and are signed by the president, but must be approved by Congress and implemented through implementing legislation enacted by Congress. NAFTA was approved under the North American Free Trade Agreement Implementation Act ("Implementation Act"), (6) which Congress enacted under the authority of section 1103 of the Omnibus Trade and Competitiveness Act of 1988 (7) and section 151 of the Trade Act of 1974 (8), together with an accompanying Statement of Administrative Action. The latter is a statement that must be submitted to the House of Representatives and the Senate along with the implementing bill. It describes the administrative action proposed to implement a trade agreement. (9) Congress expressly approved both NAFTA and the Statement of Administrative Action in Section 101(a) of the Implementation Act.

    When Congress approves a trade agreement, Congress is approving terms upon which the commerce of the United States with the country or countries party to the agreement will be regulated. The act of approving a trade agreement falls squarely within the powers granted to Congress under the Commerce Clause.

    The Withdrawal Provision

    NAFTA Article 2205 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."

    In the case of the United States, the "Party" is the US government. Under the plain wording of NAFTA Article 2205, providing the written notice is simply a condition that a Party has to fulfil before it proceeds to withdraw from NAFTA. Providing the notice does not have the effect of causing Party to withdraw from NAFTA. NAFTA does not provide any procedure for a Party to withdraw from NAFTA. This question is up to each Party to determine.

    In approving NAFTA, Congress approved terms upon which the commerce of the United States with each of Canada and Mexico would be regulated, as Congress...

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