Can Trump Terminate NAFTA?

October 10, 2017 1:00 PM
Photo Credit: 
REUTERS/Chris Wattie

President Trump’s longstanding threats to terminate the North American Free Trade Agreement (NAFTA) seem closer than ever to being realized. The fourth round of NAFTA negotiations starting October 11 may be the moment when Ambassador Robert Lighthizer makes demands so unacceptable to Canada and Mexico that they refuse to go along, handing the administration the rationale for officially killing the accord, which he repeatedly calls “the worst trade agreement in history.”

Can the president withdraw the United States from the agreement, and rewrite US commercial relations with Mexico and Canada, without the assent of Congress and the courts? Very likely yes. But the Congress does not lack tools to stay Trump’s hand, or at least create fresh obstacles, if enough members act on the unhappiness of businesses in their states and districts dependent on exports to and imports from Canada and Mexico.

The fourth meeting between NAFTA negotiators, to be held in Pentagon City outside of Washington, is likely to focus on demands already announced or leaked by Lighthizer’s office. Among these demands are auto rules of origin designed to expand US production at the expense of the NAFTA partners, a provision to sunset the new agreement after five years unless affirmatively renewed, and an end to arbitration of antidumping and countervailing duty cases. If Canada and Mexico flatly reject these proposals, President Trump’s power to terminate becomes a central question.

Courts not likely to challenge a notice to withdraw from NAFTA

Article 2205 of the NAFTA agreement enables any party to withdraw: “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 legal question: Can the president alone withdraw, or does he require the consent of Congress to invoke Article 2205? Of course, notice of withdrawal is not the same as withdrawing, since the notice could be rescinded within the six-month period (or rescinded at a later date if the president stipulates that withdrawal is not effective until, for example, January 1, 2019). Given Trump’s penchant for dramatic gestures, he could use the notice as a negotiating tactic. But if the president does issue a notice, the legal question will be front and center.

While the Constitution is silent on the power to terminate treaties, historical practice has conferred this power on the president alone. That power was challenged once, when Senator Barry Goldwater questioned President Jimmy Carter’s nullification in 1978 of the Sino-American Mutual Defense Treaty of 1954, a treaty that protected Taiwan.[1] When the question reached the Supreme Court, six justices vacated a court of appeals ruling in favor of Goldwater without hearing oral arguments. In his concurring opinion, supported by several justices, Chief Justice William Rehnquist said the question was political, not subject to judicial review. In another concurring opinion, Justice Lewis Powell said the case would have been ripe for review if Congress had adopted a resolution requiring assent, but no resolution got further than a draft. Only Justice Powell offered this olive branch to Senator Goldwater.

With respect to presidential and congressional powers, the core distinction between the 1979 case upholding President Carter and the current termination debate is this: NAFTA is a trade agreement, not a defense treaty. In the broad realm of foreign affairs, congressional powers are highest in the arena of foreign commerce, since Article I, section 8 of the Constitution gives Congress power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes.”

That said, NAFTA has a huge foreign relations component, apart from its commercial objectives. Multiple commentators argue that trade agreements are about far more than trade: They shape the whole tenor of relations between the United States and foreign powers. The argument that congressional assent is needed to terminate NAFTA would be persuasive if the 103rd Congress had had the foresight to insert such language when it enacted implementing legislation. But back in 1993, when NAFTA implementation was ratified, no one thought that NAFTA’s future would be hanging by a thread in 2017.

Moreover, termination of NAFTA would not, by itself, change the implementing legislation, H.R. 3450, the North American Free Trade Agreement Implementation Act. NAFTA is an agreement between three sovereign powers, enforceable in international law, but with no effect in US domestic courts. Congress did not ratify the NAFTA text; it ratified H.R. 3450. That’s what matters domestically. If President Trump terminates NAFTA under Article 2205, he would not, by that action, change a word in the implementing legislation. Because invoking Article 2205 would have no effect on H.R. 3450, and because the implementing legislation says nothing about congressional assent, the Supreme Court would very likely reach the same conclusion as in Goldwater v. Carter: It would uphold President Trump’s notice of withdrawal.[2]

How NAFTA implementing legislation shapes the consequences of NAFTA withdrawal

That brings us to the implementing legislation. What consequences would flow from actual withdrawal, or what actions could President Trump take, that would alter the terms of US commerce with Canada and Mexico consistent with H.R. 3450?

Section 109 of H.R. 3450 states that if “a country ceases to be a NAFTA country, sections 101 through 106 shall cease to have effect with respect to such country.” That section might seem to cut the heart out of US commercial relations with its NAFTA partners, once the United States withdraws.[3] Possibly, if NAFTA is terminated with respect to Canada and/or Mexico, the tariff proclamation issued by President William Clinton that provides for duty free admission would automatically expire and tariffs would revert to their MFN levels. However, if tariffs do not automatically revert, President Trump could use another provision of H.R. 3450 to restore MFN tariffs. And he could invoke this provision, Section 201(b)(1), even if he does not send a notice of termination to the other NAFTA parties.

Section 201(b)(1) is the crucial language that allows the president to deny NAFTA benefits to Mexico, Canada, or both:

  • (b) Other Tariff Modifications.--
    • (1) In general.--Subject to paragraph (2) and the consultation and layover requirements of section 103(a), the President may proclaim--
      • (A) such modifications or continuation of any duty,
      • (B) such modifications as the United States may agree to with Mexico or Canada regarding the staging of any duty treatment set forth in Annex 302.2 of the Agreement,
      • (C) such continuation of duty-free or excise treatment, or
      • (D) such additional duties, as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada or Mexico provided for by the Agreement.

In his presidential campaign, Trump forcefully declared that NAFTA partners take unfair advantage of the United States. The 2016 election turned in part on that claim. Given this history, in the event negotiations do not meet his demands, Trump could easily invoke the call for “reciprocal and mutually advantageous concessions” to raise US tariffs applicable to Mexico or Canada or both to the most-favored-nation (MFN) levels applicable to countries with which the United States does not have free trade agreements.[4] Trump would not need congressional assent to invoke section 201(b)(1).

However, under section 103(a), Trump would need to seek advice from the trade advisory committees and the International Trade Commission (ITC), submit a report to the House Ways and Means Committee and the Senate Finance Committee, consult with those committees, and wait 60 days from the ITC report before the new tariffs could take effect.

The Trade Agreements Act of 1974, which applies to NAFTA, also comes into play. Under section 125, termination of a free trade agreement does not revert US tariffs to their prior MFN level for one year—unless the president issues an immediate tariff proclamation. If he does not issue a proclamation, the president “shall” recommend appropriate new tariff rates for congressional action. In other words, in a post-termination world, it’s up to Trump to decide how much to involve Congress in setting new commercial terms for trade with Mexico and Canada.

NAFTA implementing legislation covers many subjects besides tariffs—government procurement, labor and environmental conditions, services trade, labor and environmental conditions, and arbitration proceedings. These statutory provisions would not be affected by termination or tariff proclamations without congressional action. Moreover, the Canada-US Free Trade Agreement (CUSFTA) of 1989 remains in force, though largely suspended by NAFTA. Presumably, CUSFTA would spring back to life and ensure continuation of free trade between the United States and Canada, unless separately terminated.[5]

If Congress objects to total presidential control of the commercial agenda with Mexico and Canada, what action can it take? Picking up on Justice Powell’s olive branch to Senator Goldwater, Congress could enact a joint resolution calling on President Trump to obtain congressional assent before invoking Article 2205 of NAFTA or section 201(b)(1) of H.R. 3405. Short of that blockade, the Ways and Means and Senate Finance Committees could advise the president that he will have a tough time moving other legislation (such as the tax bill) or appointments (such as trade officials) unless he first obtains the majority assent of at least these two committees before taking action that could spell the end of NAFTA.

Author's note: For a more extensive discussion, see Brandon J. Murrill, “U.S. Withdrawal from Free Trade Agreements: Frequently Asked Legal Questions,” Congressional Research Service, September 7, 2016.

This blog post was revised October 17, 2017.

Notes

1 Goldwater vs. Carter, 444 U.S. 996, 1979.

2 Note, however, that the Canada-US Reciprocity Treaty, in force between 1855 and 1866, was abrogated by a Congressional resolution with the assent of President Andrew Johnson. This bygone episode does not squarely address the president’s power, acting alone, to terminate a trade agreement.

3 Section 2 of H.R. 3450 defines a NAFTA country as Canada or Mexico so long as the United States applies NAFTA to that country.

4 The MFN rates are set forth in column 1 of the US harmonized tariff schedule.

5 Section 107 of H.R. 3450 sets out the interaction between NAFTA and CUSFTA.

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