The fifth round of talks between U.S., Canadian and Mexican officials is scheduled to conclude Tuesday in Mexico City. Auto industry stakeholders are on edge because of controversial U.S. proposals over regional and local content requirements that raise questions about whether common ground for an updated treaty can be found.
Legal experts postulate that lawmakers could require the president to seek a congressional review or approval before withdrawing from NAFTA. It could also order a cost-benefit study by the International Trade Commission, try to take back some delegated authority on trade matters, pass a resolution expressing its desire for the U.S. to remain in NAFTA, or hardwire NAFTA duty rates into U.S. law, they say.
But those efforts are likely to run into the same pitfalls Congress faced trying to roll back the Affordable Care Act, Claeys said. The Republican Party is divided on trade matters. And getting a veto-proof majority for legislation tying the president's hands on NAFTA, especially with Democrats conflicted about the merits of trade policy, is highly unlikely, according to Capitol Hill observers.
If Trump signals a withdrawal, triggering a six-month waiting period, Claeys said Republican leaders will probably show restraint, on the assumption that the administration would use the six months to pursue more negotiations. Whether they eventually confront the president depends on the political climate at the time. Passage of tax cuts now on the table in Congress could usher in an era of good feeling, he said; a failure could prompt many Republicans to abandon the president's agenda.
John Veroneau, a partner at Covington & Burling LLP who served as a high-ranking U.S. trade official under presidents George W. Bush and Bill Clinton, suggested Trump might put the ball in Congress' court, as he did with the Iran nuclear deal. Such a move would be a political act without any real statutory impact.
Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, predicted Trump would pull another sleight of hand: announce he will terminate NAFTA sometime after the six-month waiting period, without setting a specific date, while continuing to negotiate.
"There are going to be congressional districts that he would like to win in 2018, which he will lose" if NAFTA-reliant jobs disappear, the noted economist said.
One legal argument NAFTA supporters have been counting on is that NAFTA terms will stay on the books even if the president withdraws, because Congress passed domestic laws to implement the agreement, and those laws don't go away unless Congress acts. In that case, NAFTA would be dead, but walking.
But some trade attorneys are now pushing back on that thinking. That's because NAFTA, as the first regional trade agreement, primarily focuses on eliminating duties for qualifying imports from partner nations.
Absent NAFTA, U.S. duty rates would most likely stay in place for one year before reverting to the internationally agreed rate for Mexico of 2.5 per cent for finished passenger vehicles (20 per cent for U.S. auto imports to Mexico). Canada rates would be set under the pre-existing U.S.-Canada free trade agreement, Veroneau said.
Other than duties, government procurement rules, food safety and dispute settlement procedures, NAFTA didn't alter many U.S. regulations. And the implementation act would no longer apply to Mexico and Canada, because the U.S. would no longer treat them as part of NAFTA, Claeys said.
"Our system was so open, so we didn't have to make a lot of changes," Vanessa Sciarra, vice president for legal affairs at the National Foreign Trade Council, said in an interview. "Mexico had to change a lot in their law. We actually had to change very little."
Lawyers are also unsure how courts would handle legal challenges to a NAFTA withdrawal. Courts are reluctant to take cases on policy differences, so plaintiffs would have to show they would be harmed to have legal standing for a court case. The most likely parties to file suit are individual companies.
But Sciarra raised the possibility that state attorneys general might step in to challenge a NAFTA withdrawal, feeling emboldened by states' ability to block the Trump travel bans on immigrants from certain countries.