Background
The North American Free Trade Agreement ("NAFTA") is a trade deal between the U.S., Mexico and Canada, which works to eliminate both tariff and non-tariff barriers to free trade and investment among the three countries and thereby encourage economic integration. It was signed by Prime Minister Brian Mulroney, Mexican President Carlos Salinas and U.S. President George H.W. Bush and became effective on January 1, 1994.
Throughout his presidential campaign, President Trump disparaged NAFTA as the "worst trade deal maybe ever signed anywhere, but certainly ever signed in this country".1 On January 23, 2017, President Trump signed a presidential memorandum directing the withdrawal of the U.S. as a signatory to the Trans-Pacific Partnership, and included a vague direction to "begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages".2 Some interpreted this as an intention to renegotiate NAFTA, although no such executive order has been signed.
On February 2, 2017, President Trump met with congressional lawmakers urging them to make a new deal happen. Perhaps as a result of the $11.9 billion trade surplus the U.S. enjoys with Canada3, the President's tone softened when meeting with Prime Minister Trudeau on February 13, 2017; with the President commenting he would only be "tweaking" NAFTA in relation to Canada.
In light of the possibility that NAFTA will be replaced, or at least renegotiated in part, this article will discuss the legal process which would govern if NAFTA were to be reopened.
U.S. Withdrawal from NAFTA
Article 2205 of NAFTA permits the U.S. to withdraw from the agreement on six months' notice to Canada and Mexico. NAFTA cannot be terminated unilaterally by President Trump, however, as it would remain in force between Canada and Mexico. From a domestic U.S. legal perspective, it is unclear whether Trump has the authority to withdraw from NAFTA through executive action, without congressional approval. In two prior instances, U.S. Courts declined to rule on whether the power to withdraw from international treaties resides within the executive powers of the administration or the legislative powers of Congress.4 In both cases, the applicable courts declined to interfere with then President Carter and President Bush's decisions to terminate international treaties through executive action, although the constitutionality of their actions was not affirmed by the courts.
Should President Trump order the withdrawal from NAFTA through executive action, it will be interesting to consider: (i) whether the political will to challenge the constitutionality of the President's move exists; and (ii) the potential merit of such a constitutional challenge.
U.S. Process to Renegotiate
Presuming that the U.S. successfully withdraws from NAFTA and wishes to negotiate a new free trade agreement with Canada and Mexico, U.S. domestic law informs how the negotiation process. The U.S. Constitution gives Congress sole authority over the regulation of foreign commerce, including powers to impose and collect tariffs and duties and to regulate international commerce. However, to expedite the negotiation of international trade agreements, Congress has empowered the U.S. President by way of the Trade Promotion Authority since 1974.5
Trade Promotion Authority is a legislative procedure pursuant to which Congress provides details on negotiating objectives and a consultation process for trade negotiations, in advance of negotiations. Trade Promotion Authority helps expedite the implementation and enactment of trade treaties once an administration concludes negotiations. Nevertheless, under the Trade Promotion Authority, Congress must still provide its final approval for any proposed U.S. trade agreement before it can be enacted.
Before Trade Promotion Authority can be granted, U.S. Congress must receive formal notification from the White House 90 days before renegotiations can start. President Trump provided a draft letter (not formal notification) to Congress on March 30, 2017, indicating the Trump Administration's intent to renegotiate NAFTA. The letter, while still calling for changes, dramatically toned down the rhetoric used throughout the campaign.
Canadian Process to Renegotiate
In Canada, the authority to negotiate, sign and ratify international conventions and treaties is vested in the executive branch of the government. Canada does not have a similar requirement that Cabinet be informed of renegotiations of NAFTA (as exists in the US), nor does Canada have any "fast track legislation" aimed at expediting the implementation of treaties negotiated by the executive branch.
Once the international treaty is signed, implementing legislation must be drafted and approved by Parliament. As a result of divided authority between federal and provincial bodies in Canada, implementation may require both provincial and federal legislation passed through the appropriate legislative processes. This is again different from the U.S., where once a treaty is approved by Congress, it is enforceable under U.S. law (without implementing legislation).
Conclusion
Presuming that renegotiations are opened, and the respective legislative processes followed, it appears that renegotiations are likely to centre around two main issues — the dispute settlement process and rules of origin. In respect of the dispute settlement process, the United States has expressed particular concern over the independent NAFTA panel that rules on anti-dumping duties.6 In respect of the rules of origin (the rule that a product must contain a minimum percentage of content from Canada, the US or Mexico), it is suspected that President Trump will want to increase these minimums, in particular with respect to U.S. content. Additionally, it is speculated that tariff rates generally as well as immigration and border security will be on the table for discussion and used as bargaining chips.
Footnotes
1 Donald Trump at the Presidential Debate on September 26, 2016.
3 Trade with Canada totaled an estimated $662.7 billion in 2015, according to the U.S. Trade Representative. The United States exported $337.3 billion and imported $325.4 billion worth of goods and services.
4 See Goldwater v. Carter, 444 U.S. 996 (1979) and Kucinich v. Bush 236 F.Supp.2d 1 (2002).
5 https://fas.org/sgp/crs/misc/R43491.pdf
6 Anti-dumping duties are duties an importing country applies when they believe a product is being "dumped" (i.e. introduced at a predatory price (below what it is priced in its home jurisdiction)).
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