Wednesday, November 09, 2016

Anyone Curious About Withdrawing from NAFTA?

For some reason, I have been asked what it would take for the U.S. to withdraw from NAFTA or another trade agreement. Funny how that comes up today, the day after the U.S. presidential election.

The answer is not 100% clear.

In Article 2205, the NAFTA says the US can withdraw with 6-months written notice. If that happens, the agreement stays in place between Mexico and Canada. How that happens is a question.

The US would certainly be out of the agreement going forward, but most of the implementation of NAFTA was through legislation. That legislation might still be in place until Congress removes it.

Arguably, the legislation might automatically repeal itself. 19 USC 3451 says that if a country withdraws, the amendments made to implement NAFTA “cease to have effect with respect to that country.” It is not clear whether “that country” can be the US or whether that implies that Canada or Mexico has left NAFTA. There would be much litigation. Other trade agreements likely work the same way, but I have not looked.

Also, should the US pull out of NAFTA, the pre-existing US-Canada Free-Trade Agreement comes back from the dead. We would need to brush up on those rules.

Also, if the President tries to impose new duties, he runs up against WTO tariff bindings. US law, specifically so-called Section 301, lets the US increase duties or take other actions to address violations of trade agreements or unfair practices by our trading partners. Countries that feel increased duties are not consistent with WTO obligations can seek relief through the WTO dispute settlement process and, of authorized, retaliate. The potential for serial grievances and retaliation is what we call a "trade war."

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