Despite a charm offensive by Prime Minister Trudeau in Washington, President Trump is again signaling his opposition to NAFTA and his desire to terminate it. Our Don Newman explains what exactly will happen, if and when, the plug on NAFTA is pulled.
NAFTA – What Happens Next?
All may not be lost if the current NAFTA negotiations collapse, as there are at least two fallback positions for Canadians to consider. But if Donald Trump announces that he wants the United States out of the North American Free Trade Agreement, what exactly happens next?
Well the sun will still come up in the east the next morning. Under the United States Constitution, it is Congress, not the President, that has jurisdiction over trade and both the House of Representatives and the Senate jealously guard that authority.
That is why to abrogate any trade deal, the President has to give Congress six months notice that he wants to end it. And with NAFTA that will be a critical six months.
Canada, as well as Mexico, will then have to determine whether Trump really wants to end NAFTA or whether he just wants to put more pressure on both countries to cave into what they consider unreasonable American demands. This is a negotiating technique that works in real estate and licensing deals and Trump seems to believe it can work in negotiating international trade deals as well.
That, of course, remains to be seen. Mexico has said it will not bow to that kind of pressure, and will end any negotiations. The Canadian government hasn’t said what it would do.
NAFTA in 1987
The past might not be instructive either. At the critical moment in the 1987 negotiations on the Canada – U.S. Free Trade Agreement, Ottawa said the deal could not be completed without an independent system of expert panels to settle the trade disputes that would inevitably arise. The Americans backed down.
But in 1987, if Free Trade had not gone ahead, what was then the status quo would have been maintained. Now, of course, is different. If NAFTA disappears the whole network of supply chains, economies of economic scale and other forms of integration and investment would go with it. There is a lot more at stake than in 1987.
First Fallback Position – Saving Portions of NAFTA
With so much more at stake now than in 1987, Canada, and perhaps even Mexico, may be convinced to keep talking, and to try to save as much of NAFTA as possible working against a six month deadline.
If that is what happens, this is the first fallback position. It means Canadian companies and Associations will have to quickly decide what is absolutely key to their success in the current NAFTA agreement, and what they could survive without.
That will then have to be quickly, forcefully and effectively conveyed to the Government.
But suppose negotiating stops. What happens then?
Second Fallback Position – Engaging US Congressional Committees
In Washington, the NAFTA ball lands in the court of two powerful Congressional Committees with the primary responsibility for trade deals: the House Ways and Means Committee and the Senate Finance Committee.
They will be the ones with the responsibility of unwinding the laws, rules and regulations in the United States that comprise the system created to facilitate NAFTA.
They will be the ones who will be subjected to tremendous pressure. Lobbyists representing Governors whose states will be particularly hard hit by NAFTA’s cancellation, the U.S. Chamber of Commerce, the auto industry, the agrifood industry and farmers organizations among others, will all pressure the Congressmen and Senators on those committees to save and protect the elements of the NAFTA package that favour their interests.
As well, other Senators and Congressmen who are not on the two committees, will be lobbying those that are, to protect industries or consumers in their districts that have benefited from NAFTA.
This is the second fallback position. This can also be an opportunity for Canadian companies and associations to try and preserve elements of NAFTA. Working with Congressman and Senators, and with likeminded American partners, this will be an opportunity to mount effective lobbying efforts in Washington.
It Ain’t Over ‘til It’s Over
So, although NAFTA could be in peril, as Yogi Berra said: “It ain’t over ’til it’s over.”
And as the British slogan during the wartime blitz advised: “Keep calm and carry on.”
Don Newman is Senior Counsel at Ensight, a Member of the Order of Canada, and a life-member and past president of the Canadian Parliamentary Press Gallery.