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A legal look at a NAFTA termination timeline
By ADAM BEHSUDI
With help from Megan Cassella and Luis Sanchez
A LEGAL LOOK AT A NAFTA TERMINATION TIMELINE: For lawmakers who support NAFTA, and trade agreements more broadly, part of the reason for widespread concern over President Donald Trump's now-familiar threats to terminate trade deals — which he repeated again this week — is that trade lawyers largely believe he has the executive authority to do so on his own.
The general assumption is that Section 125 of the Trade Act of 1974 gives the president power to withdraw from trade agreements as long as he holds a public hearing on the matter — that is, unless he decides it would be "contrary to the public interest." The trade act allows for the current reduced or eliminated tariffs to remain in place for up to a year as trade adjusts. For NAFTA specifically, what's known as Article 2205 allows any party to withdraw six months after notifying the other two countries in writing that it plans to do so.
But legal experts are saying, well, not so fast. Some maintain that Congress may still have more power over withdrawal than many lawmakers and other government officials recognize — enough to challenge Trump's. Any invocation of Section 125 would involve breaking new legal ground, and U.S. exporters and consumers — and potentially lawmakers — could sue, leaving it up to the courts to decide. And under one rarely referenced provision of the Constitution known as the Commerce Clause, the president is the negotiator and the signer of trade agreements, but not the "decider," leading trade expert Joel Trachtman argues.
"If President Trump proposes to give notice to terminate NAFTA without congressional approval, U.S. exporters, and U.S. consumers, and perhaps also U.S. members of Congress, should sue," Trachtman wrote in an op-ed in The Hill. "Before we reach that point, Congress could pass legislation specifically denying the president authority to terminate these trade agreements, in order to avoid uncertainty. It has the power, and the responsibility, to do so."
IT'S THURSDAY, AUG. 24! Welcome to Morning Trade, where our ears are still ringing from watching Sheer Mag perform last night. You might recognize the band's rhythm guitarist Matt Palmer, who happens to be the one and only son of our own Doug Palmer. Got any news to share? Let me know: [email protected] or @abehsudi.
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TRUMP'S EMPTY NAFTA THREAT: Canada and Mexico hardly flinched on Wednesday after Trump once again threatened to withdraw from NAFTA, saying he didn't think the three sides would be able to reach a satisfactory deal and that the United States "probably" would terminate it. In both countries, the remarks — Trump's first since renegotiation formally kicked off last week — appeared largely to fall on deaf ears, sending a signal that Ottawa and Mexico City have grown inured to the president's nearly constant bluster over trade.
Instead, greater concern came from inside the U.S. government, where executive branch officials and lawmakers who support the deal see little value in Trump's tough trade talk and who worry relentless threats only make the United States' own negotiating position more tenuous.
"I don't know a single person with a working brain cell that thinks that's a good idea," said one U.S. government source close to the talks, referring to renewing the threat of terminating the deal. "It's a stupid message to send during the negotiations."
For America's neighbors to the north and the south, the official government response was to assuage concerns by chalking up Trump's remarks to standard negotiating procedure. Mexican Foreign Minister Luis Videgaray — in an attempt to temper the peso, which dropped slightly after the comments were made — called it a negotiating tactic and said Mexico was not scared. In Canada, a spokesman for Foreign Minister Chrystia Freeland said simply that "trade negotiations often have moments of heated rhetoric" and Canada's "priorities remain the same." Read the full story here.
NAFTA WITHDRAWAL: THE VIEW FROM CANADA: For Canada, the economic impact of withdrawing from NAFTA would be noticeable but not overwhelming, according to an analysis from last year that gamed out the possible impact of either Trump's or Hillary Clinton's trade policies.
The analysis from Export Development Canada, the country's export credit agency, presented a NAFTA withdrawal scenario that would increase tariffs by 3.5 percent on all goods and services, which would reflect the average MFN tariff applied by the U.S. at the WTO. That would result in, compared to current levels, an export drop of just over $10 billion, a decrease of more than $32 billion in Canadian investment south of the border and the loss of 362,000 Canadian jobs. If the U.S. were to go as far as also repealing the 1987 U.S.-Canada FTA representing a 4 percent tariff increase, the losses would jump to $11.4 billion in exports, $34.3 billion in U.S. investment and 391,000 jobs.
To put it in perspective, those losses wouldn't quite reach what Canada experienced in the Great Recession of 2008-2009, when job losses north of the border reached 426,500 at its peak. Canadian exports to the U.S. between 2008 and 2009 dropped by $100 billion.
THE BRADY THEORY: TRUMP DIDN'T MEAN WITHDRAWAL RIGHT NOW: In making the threat this time around, Trump didn't elaborate on exactly what he meant when he waved the threat of termination, saying that he thought it would happen "at some point, OK, probably." To House Ways and Means Chairman Kevin Brady, that may not mean right now, or even this year — but it could instead be a reference to the five-year review period that would come after any new deal is finalized.
Speaking during a town hall discussion at AT&T headquarters in Dallas, Brady said that he believed Trump was referencing not imminent withdrawal but a new provision under discussion that would require "something like a five-year reset or sunset or trigger, where you look to see if the countries are doing what they said they would do before it's sort of made permanent going forward."
"I actually think he may have been referencing that discussion for future accountability than withdrawing right now," Brady said.
— The BIT bites back: In the same interview, Brady offered a show of support for the bilateral investment treaty between the United States and China, saying that continuing negotiations there would be a better way to address Beijing's alleged intellectual property rights violations than the unilateral trade actions the White House is considering.
"I really think the next step with China is to agree on what's called a BIT, which protect investment decisions and really forces a country, before you have a trade agreement with them, to really get their behavior right," Brady said.
His comments come as the administration's plans to revisit the BIT appear to be on ice. It is, however, pursuing a trade probe under what's known as Section 301 to investigate China's handling of intellectual property and technology transfer requirements, which could take up to a year.
INDONESIA, CHILE MOVE FORWARD ON TRADE TALKS: Chile and Indonesia completed a fourth round of trade negotiations this week in Jakarta. The two countries are working to complete a deal by the end of the year.
"For Chile, reaching a trade agreement with the largest ASEAN economy would open wide possibilities for our food shipments, just to give an example. For Indonesia, our country can become a gateway to Latin America," Pablo Urria, Chile's chief negotiator, said in a statement from Chile's trade ministry.
Indonesia's chief negotiator, Iman Pambagyo, said a trade deal with Chile would provide the first bridge into Latin America. The next round of talks is scheduled to take place Oct. 19-20 in Santiago.
BRAZIL ETHANOL TRQ RILES U.S. PRODUCERS: U.S. ethanol producers have taken a dim view of Brazil's approval of a new tariff-rate quota on U.S. ethanol imports. The TRQ, which will reportedly be in place for two years, would impose a 20 percent tariff after imports exceed a 600 million liter threshold.
"Given the tremendous volume of information we provided to Brazil that demonstrated how misguided a tariff would be, it seemed politics prevailed today and Brazilian consumers lost," the U.S. Grains Council, Renewable Fuels Association and Growth Energy said in a joint statement Wednesday. "Imposing tariffs on U.S. ethanol imports will hurt Brazilian consumers by driving up their costs at the pump. Additionally, this action goes against Brazil's long-standing view that ethanol tariffs are inappropriate and will effectively close off an open and bilateral trading relationship that benefits all sides."
AFL-CIO URGES AGOA EXCLUSION FOR MAURITANIA: The AFL-CIO is pressing USTR to reconsider Mauritania's benefits eligibility under the African Growth and Opportunity Act because of the government's failure to improve labor conditions and combat slavery.
Starting this year, Mauritania is eligible to receive AGOA tariff reductions on exports of textile and apparel. At a hearing Wednesday as part of the annual review of which countries should receive benefits under the act, Celeste Drake, a trade and globalization specialist at the AFL-CIO, said Mauritania had an opportunity in 2015 to demonstrate progress toward establishing fundamental rights for its citizens with the upgrade of its anti-slavery law, but the inadequate implementation of the law shows it missed the opportunity.
"The government continues to turn a blind eye to clear and compelling evidence of the practice of slavery," Drake said. "The government's refusal to acknowledge the problem has prevented progress toward establishing the right to be free from forced labor as is required under AGOA."
INTERNATIONAL OVERNIGHT
— Former USTR and World Bank President Robert Zoellick explains in the Financial Times how Trump's foreign policy is a political realignment achieved by voicing the grievances of his voters.
— In a new poll, about 45 percent of Americans think NAFTA has contributed to economic growth over the last 20 years.
— Japan is proposing that the 11 countries trying to revive TPP without the U.S. can suspend the concessions they made to the U.S., Nikkei Asian Review reports.
THAT'S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected] and @abehsudi; [email protected] and @mmcassella; [email protected] and @tradereporter; [email protected] and @jmlauinger; and P.J. Joshi, at [email protected] and @pjoshiny. Also follow us @POLITICOPro and @Morning_Trade.
Pradnya Joshi @pjoshidc
John Yearwood @john_yearwood
Doug Palmer @tradereporter
Gavin Bade @GavinBade
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About The Author : Adam Behsudi
Adam Behsudi is a trade reporter for POLITICO Pro.
Prior to joining POLITICO, he covered international trade policy for Inside U.S. Trade, where he tracked down the latest news on the Trans-Pacific Partnership from exotic locales such as Auckland, New Zealand; Kota Kinabalu, Malaysia; and Leesburg, Va.
Before writing about anti-dumping, export controls and other trade subjects, Behsudi covered city hall for the Frederick News-Post. He got his start in journalism chasing crooked sheriffs and other crime-related news in the mountains of western North Carolina for the Asheville Citizen-Times
Behsudi earned his bachelor's degree in 2005 from the University of Missouri. With the hope that journalism could return as a growth industry within his lifetime, he earned a master's degree in interactive journalism from American University in 2010.
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