Termination or Modification of US Trade Agreements | White & Case LLP International Law Firm, Global Law Practice
Termination or Modification of US Trade Agreements

Termination or Modification of US Trade Agreements

US law provides the President with varying levels of, and in some cases uncertain, authority to modify, renegotiate, or withdraw from US trade agreements. There is almost no precedent governing the legal provisions at issue here. Moreover, each US trade agreement is actually governed by three different US laws: the Trade Act of 1974; the specific version of trade promotion authority (TPA) in effect at the time of the agreement's implementation; and the act implementing the agreement's specific commitments into US law. In some cases, these laws appear to contradict each other on the question at issue (e.g., tariff modification), which may raise questions regarding the proper statutory interpretation.

We assess below the legal procedures for the United States' withdrawal from the NAFTA, the WTO Agreements, and other US trade agreements, as well as the procedures for potential modification of such agreements through either renegotiations or unilateral tariff increases.

 

General Principles Governing US Trade Agreements

Trade Agreements under US Law

Under US law, trade agreements are not treaties (which are typically "self-executing," require two-thirds approval by the Senate, and have the force of law upon ratification). They are "congressional-executive agreements" that, even after being signed by the President, have limited legal force in the United States until they are converted into implementing legislation (which would amend current law), passed by Congress, and signed into law by the President. This process reflects a critical compromise between the legislative and executive branches: Congress under a series of laws has delegated to the President some of its Article I, Section 8 powers to "regulate Commerce with foreign Nations" so that the President may efficiently execute our domestic trade laws and sign and implement trade agreements through his foreign affairs powers under Article II. At the same time, Congress has retained its ultimate constitutional authority over international trade, for example by approving or rejecting trade agreements and by amending US trade laws to implement them.

Trade Agreement Provisions on Termination or Withdrawal

All US trade agreements, including the WTO Agreements, contain provisions on termination of or withdrawal from the agreement. These provisions uniformly state that a Party may terminate or withdraw from the agreement six months after providing written notification to the other Parties.[1]

  • Withdrawal. The President's constitutional authority over foreign affairs, as well as the "termination or withdrawal" authority granted to the President under Section 125 the Trade Act of 1974, would very likely permit the President to withdraw from a US trade agreement without formal congressional approval.[2] As such, President Trump could cite this authority, as well as the authority set forth in the legislation authorizing the negotiation (i.e., the TPA), to withdraw the United States unilaterally and notify this action to the depository specified in the relevant trade agreement.
  • Termination. Whether an FTA terminates upon the United States' withdrawal therefrom is unclear in some cases. Although the Trade Act of 1974 grants the President the authority to "terminate" a trade agreement, US trading partners would not be bound by these provisions and instead would be subject to the agreement itself and their own domestic laws. Thus, a US trade agreement would, unless otherwise specified therein, likely "terminate" upon US withdrawal only where there is only one other party to the agreement. Should the agreement remain in force (i.e., not be "terminated"), the United States' withdrawal from an agreement would permit any remaining party to withdraw immediately any and all trade concessions (e.g., preferential tariff treatment) set forth therein with respect to the United States.

Effect of Termination or Withdrawal on US Implementing Act

Because implementing acts are passed by Congress and signed by the President, the clearest way to terminate the laws, and all trade concessions provided thereunder, would be through Congressional passage of another piece of repeal legislation. If the implementing act for a trade agreement remains in force following US withdrawal therefrom, US tariff and other commitments implemented by the act would arguably remain in force, even though other parties to the agreement could immediately abandon their commitments with respect to the United States.

As discussed below, however, US trade agreement implementing acts contain varying rules on the effect of US withdrawal on the act itself (i.e., whether one could argue that the act also terminates upon US withdrawal). However, unilateral termination of a US trade agreement’s implementing law, through either the Trade Act of 1974 or a provision of the law itself, could bring constitutional challenges similar to those against the line-item veto in the 1990s. In Clinton v. City of New York[3], for example, the US Supreme Court ruled that the Line Item Veto Act of 1996 violated the Constitution’s "Presentment Clause" because it gave the President unilateral authority to amend or repeal laws that had been duly passed by Congress. This ruling would thus appear to provide legitimate legal grounds to argue that the Presentment Clause prohibits a President from unilaterally terminating an FTA implementing act, or that all of the various acts’ provisions on termination of a trade agreement must be interpreted by US courts (and the President) as permitting termination through only (i) withdrawal/termination by all other parties to the agreement; or (ii) formal action by the US Congress (i.e., bicameralism and presentment).

Furthermore, Section 125(e) of the Trade Act of 1974 does appear to permit the President to modify "[d]uties or other import restrictions required or appropriate to carry out any trade agreement entered into pursuant to this Act" upon either the United States' termination of or withdrawal from a trade agreement. It requires that (i) these measures remain in place for one year following termination or withdrawal, "unless the President by proclamation provides that such rates shall be restored to the level at which they would be but for the agreement"; and (ii) the President within 60 days after termination or withdrawal transmit to the Congress "recommendations as to the appropriate rates of duty for all articles which were affected by the termination or withdrawal." This provision would arguably permit the President to unilaterally modify FTA tariff and other concessions via presidential proclamation regardless of whether a trade agreement was formally "terminated", but could conflict with trade agreement implementing act provisions, such as those discussed for the WTO Agreements below, that do not permit termination of an implementing act without congressional approval.

Modification or Amendment of Trade Agreements

Instead of withdrawing from the US trade agreements completely, the implementing acts for such agreements and other provisions of US law give the President unilateral but ambiguous authority to raise tariffs on imports from the other agreement signatories via presidential proclamation. It is an open question as to whether Congress intended to delegate to the President broad unilateral authority to raise tariffs on FTA partners, but the implementing acts and their accompanying SAAs provide little detail. Furthermore, as is explained below, the President's power to raise tariffs in this manner is subject to certain express limitations, some of which are set forth in the TPA legislation that governs each agreement.

Finally, Sections 125(b) and (c) of the Trade Act of 1974 grant the President the respective authority to revoke previous presidential proclamations reducing US tariffs under a trade agreement and to raise tariffs via proclamation "in order to exercise the rights or fulfill the obligations of the United States." Increased tariffs under Section 125(c) may not exceed the higher of (i) 50 percent above the general US tariff schedule rate on January 1, 1975; or (ii) 20 percent above the rate for the relevant country as of January 1, 1975. However, a legitimate argument may be made that these provisions have no operative force for modifying tariffs under current US trade agreements because they have been superseded by the specific provisions on tariff modification in the TPA laws and implementing acts governing each trade agreement.

Outside of raising tariffs, President Trump also could seek to enter into negotiations to amend US trade agreements. The President has this authority under TPA, though in several cases it is unclear whether US law requires congressional approval of any such amendments. As noted above, Mr. Trump's advisors have suggested that the Trump administration might seek to renegotiate US trade agreements to address bilateral trade balances (for example, through mechanisms such as tariffs) and the border-adjustment of VATs. Moreover, they have suggested that the Trump administration might seek to eliminate the investor-state dispute settlement provisions of US trade agreements.

 

Review of Specific US Trade Agreements

The power of the President to terminate a US trade agreement or modify tariffs thereunder varies under US law, depending on the agreement at issue. We assess below whether President Trump could (i) unilaterally withdraw from various US trade agreements; and (ii) claim that this withdrawal would automatically terminate the corresponding implementing acts, thereby undoing US commitments under those trade agreements. We also review whether President Trump could, absent complete withdrawal or termination, unilaterally raise tariffs on trade agreement partner countries or renegotiate the agreements. As discussed below, the President's authority under US law appears weakest for the WTO Agreements, broader but ambiguous for regional FTAs (NAFTA and CAFTA-DR) and strongest for bilateral FTAs.

The conclusions set forth below merit caution, however, because there is no modern precedent relating to presidential termination of a trade agreement, and because in many cases the applicable legal text is minimal, overlapping and ambiguous.

WTO Agreements

Given the powers conferred through the Constitution and the Trade Act of 1974, President Trump would very likely have the authority to trigger US withdrawal from WTO without formal congressional approval, though withdrawal would not automatically terminate the legislation that implemented the WTO Agreements (i.e., the URAA). Rather, formal congressional approval would be required to terminate the URAA. Though the URAA arguably gives President Trump the unilateral authority to raise applied tariffs on imports from WTO Members to the most-favored nation (MFN) "bound rates" set forth in the US goods schedule, there are strong legal arguments that such actions were not intended by Congress.

Withdrawal

Withdrawal from the WTO Agreements is governed by Article XV of the Marrakesh Agreement Establishing the World Trade Organization:

Article XV
Withdrawal

1. Any Member may withdraw from this Agreement. Such withdrawal shall apply both to this Agreement and the Multilateral Trade Agreements and shall take effect upon the expiration of six months from the date on which written notice of withdrawal is received by the Director-General of the WTO.

2. Withdrawal from a Plurilateral Trade Agreement shall be governed by the provisions of that Agreement.

Although other WTO Members would be free to terminate immediately preferential treatment upon the United States' withdrawal from the WTO, it is likely that withdrawal would not automatically terminate the URAA. Unlike other US trade agreements discussed below, the URAA contains a detailed process in Section 125 for congressional termination of the act. In particular, subsection (b)(1) states: "The approval of the Congress, provided under section 101(a), of the WTO Agreement shall cease to be effective if, and only if, a joint resolution described in subsection (c) is enacted into law pursuant to the provisions of paragraph (2)" (emphasis added).[4] The remainder of Section 125 sets forth the procedures and substance governing any such "joint resolution," including the text thereof ("That the Congress withdraws its approval, provided under section 101(a) of the Uruguay Round Agreements Act, of the WTO Agreement as defined in section 2(9) of that Act.").

If the URAA remained in force following US withdrawal from the WTO under Article XV, US tariff and other WTO commitments implemented by the URAA would remain in force, even though other Members could immediately abandon their WTO commitments with respect to the United States. The President could claim that the URAA self-terminates after he withdraws the United States from the WTO under Article XV, or that withdrawal alone permits him to increase US tariffs and other import restrictions under Section 125(e) of the Trade Act of 1974 (see above), but these arguments could be countered by the fact that URAA expressly limits its termination through only the congressional "disapproval resolution" process. Unilateral termination of the URAA would also be subject to the aforementioned constitutional questions with respect to the Presentment Clause.

Tariff Modification

Instead of withdrawing from the WTO completely, the URAA arguably gives President Trump the unilateral authority to raise tariffs on imports from WTO Members. Tariff reductions under the WTO Agreements are implemented via presidential proclamation pursuant to Section 111(a) of the Act.[5]

  • Such tariff modifications were implemented for the original WTO Members on December 23, 1994 and published in the United States Federal Register.
  • Section 111(a)(3) of the URAA grants the President the authority to issue another presidential proclamation imposing "such additional duties, as the President determines to be necessary or appropriate to carry out Schedule XX," which is defined in Section 2 of the URAA as "Schedule XX—United States of America annexed to the Marrakesh Protocol to the GATT 1994."
  • The President could argue that these provisions give him the unilateral authority to undo some of the tariff reductions under the WTO Agreements, because the text of Section 111(a)(3) is sufficiently discretionary and ambiguous so as to provide the President with a wide array of justifications to raise tariffs.
  • However, the President's power to impose these "additional duties" is not without limitation. First, the URAA SAA indicates that subsection (a)(3) is not intended to be used for retaliatory or other economic purposes. Instead, the SAA states that "[t]he authority to increase tariffs is necessary to take account of the fact that Schedule XX calls for an increase in tariffs on agricultural products whose importation into the United States is currently subject to quotas or other nontariff restrictions." Second, the language of Section 111(a)(3) would likely not permit duties to exceed the "bound" rates set forth in the US Goods Schedule ("Schedule XX"): it would be difficult to argue that "necessary or appropriate to carry out Schedule XX" meant to exceed the bound rates therein. Third, any such additional duties would need to be non-discriminatory (i.e., they could not target a single Member or discrete group of Members) in order to comply with the MFN principle of the GATT.
  • Additional duties are also permitted under Section 1102(a)(B)(iii) of TPA 1988 (which governs the URAA's implementation) "as [the President] determines to be required or appropriate to carry out any such trade agreement" concluded pursuant to TPA, but Section 1102(a)(2)(B) limits these increased duties to the rate that applies on August 23, 1988.[6] Section 1102(a)(6) further clarifies that a duty increase going beyond those permitted in paragraph (2)(B) may take effect "only if a provision authorizing such reduction or increase is included within an implementing bill provided for under section 2903 of this title and that bill is enacted into law."
  • President Trump could therefore cite these provisions to issue a new proclamation or revoke earlier presidential proclamations, thus raising applied tariffs to the MFN bound rates set forth in the US goods schedule. As noted above, however, there are strong legal arguments, particularly the language of the SAA, that such actions were not intended by Congress.

Renegotiation

Outside of raising tariffs, President Trump also could seek to enter into negotiations to amend the WTO Agreements, something Trump and his advisors have mentioned with respect to VATs. This approach, however, would be limited by the WTO's rules requiring consensus among Members to amend the Agreements, as well as the general problems at the WTO with respect to future multilateral trade negotiations. These difficulties are addressed more fully in the WTO section below.

NAFTA

Given the powers conferred through the Constitution and the Trade Act of 1974, President Trump would very likely have the authority to trigger US withdrawal from the NAFTA without formal congressional approval; however, it is unclear whether withdrawal would automatically terminate the North American Free Trade Agreement Implementation Act ("the NAFTA Act").[7] Though the NAFTA Act arguably gives President Trump the unilateral authority to raise tariffs on imports from the NAFTA countries, it would likely prohibit him from raising such tariffs above the MFN bound rates set forth in the URAA.

Withdrawal

Withdrawal from the NAFTA is governed by Article 2205 of the Agreement:

Article 2205: Withdrawal

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.

US withdrawal under Article 2205 might not automatically terminate the NAFTA Act. The President could claim that the NAFTA Act self-terminates after he withdraws the United States from the NAFTA under Article 2205. In particular, Section 109(b) of the Act ("Termination of NAFTA Status") states: "During any period in which a country ceases to be a NAFTA country, sections 101 through 106 shall cease to have effect with respect to such country." The NAFTA Act itself does not clarify what constitutes "ceases to be a NAFTA country" (i.e., withdrawal under Article 2205 or congressional legislation); it is also unclear whether the term "NAFTA country" was intended to apply to the United States; and there is no recent (post-WWII) precedent relating to US withdrawal from an FTA. Furthermore, the precise legal effect of repealing only Sections 101-106 of the Act – all falling under Title I ("Approval and Entry into Force of the North American Free Trade Agreement") is unclear.[8] Finally, unilateral termination of the NAFTA Act would also be subject to the aforementioned constitutional questions with respect to the Presentment Clause.

However, there are legitimate arguments that the President's withdrawal from NAFTA under Article 2205 would also repeal the NAFTA Act. First, Section 101(a) of the NAFTA Act, which would cease to have legal effect under Section 109(b), contains Congress' actual, express approval of the NAFTA and its SAA[9], and Section 101(b) governs the Agreement's entry into force. Moreover, Article 2205 of the NAFTA does imply that the Agreement would no longer be "in force" for the United States upon US withdrawal from the Agreement. If the NAFTA Act did indeed terminate upon US withdrawal from the agreement, the President would likely be free to unilaterally raise relevant duties or other import barriers through Section 125(e) of the Trade Act of 1974.

Tariff Modification

The Act arguably gives President Trump the authority to raise zeroed tariffs on imports from the NAFTA countries to pre-FTA levels. Tariff reductions under NAFTA were implemented via presidential proclamation pursuant to Section 201(a) of the Act.

  • Such tariff modifications were implemented for the NAFTA parties on December 15, 1993 and published in the United States Federal Register.[10]
  • Section 201(b)(1)(D) of the Act grants the President, subject only to "consultation and layover"[11] provisions of the Act, the authority to issue a new presidential proclamation imposing "(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." The SAA accompanying the NAFTA Act simply reiterates this provision and does not address congressional intent.
  • These provisions could give the President the unilateral authority to undo the tariff reductions under NAFTA because (i) "consultations" are non-binding on the President and may be relatively superficial; and (ii) the provision's text is sufficiently discretionary and ambiguous so as to provide the President with a wide array of justifications to raise tariffs.
  • However, the President's power to impose these "additional duties" is not without limitation. Such action is also permitted under Section 1102(a)(B)(iii) of TPA 1988 (which governs NAFTA's implementation) "as [the President] determines to be required or appropriate to carry out any such trade agreement" concluded pursuant to TPA, but Section 1102(a)(2)(B) limits these increased duties to the "the rate that applies on August 23, 1988" (which has since been updated to the MFN rates under the URAA that implemented the WTO Agreements).[12] Section 1102(a)(6) further clarifies that a duty increase going beyond those permitted in paragraph (2)(B) may take effect "only if a provision authorizing such reduction or increase is included within an implementing bill provided for under section 2903 of this title and that bill is enacted into law."
  • President Trump could therefore cite these provisions to issue a new proclamation or revoke President Clinton's earlier proclamations, thus raising tariffs to, for example, the MFN rates that superseded the 1988 rates cited in TPA 1988. As indicated above, however, it is far from certain that Congress intended these provisions to be used by the President in this manner.

Renegotiation

Outside of raising tariffs, President Trump also could seek to enter into negotiations to amend NAFTA pursuant to Article 2202 of the Agreement.[13] Amendment may occur under Article 2202 between two or more parties and requires the fulfilment of their domestic legal procedures. US law (i.e., the NAFTA Act or TPA), however, is silent as to whether congressional approval would be required for any such amendments. There also have been no amendments to the NAFTA. However, the aforementioned tariff modification language, as well as Section 202(q) of the NAFTA Act permitting presidential proclamations to modify certain rules of origin, implies that substantive modifications of the NAFTA outside of tariffs and rules of origin would require congressional authorization.

CAFTA-DR

Given the powers conferred through the Constitution and Trade Act of 1974, President Trump would very likely have the authority to trigger US withdrawal from the CAFTA-DR without formal congressional approval. However, it is unclear whether such withdrawal would automatically terminate the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act ("the CAFTA-DR Act"). The CAFTA-DR Act also arguably gives President Trump the unilateral authority to raise tariffs on imports from the CAFTA-DR countries, but a strong argument can be made that President Trump would only be able to increase duties on such imports to those levels that were in place on the date of enactment of the TPA law that authorized the CAFTA-DR (i.e., August 6, 2002). These conclusions generally follow those above for NAFTA and thus are not repeated herein; the relevant legal text is provided in the Annex.

Outside of raising tariffs, President Trump also could seek to enter into negotiations to amend CAFTA-DR pursuant to Article 22.2 of the agreement. Amendment may occur under Article 22.2 between two or more parties and requires the fulfillment of their domestic legal procedures. US law (i.e., the CAFTA-DR Act or TPA), however, is silent as to whether congressional approval would be required for any such amendments. The only previous amendment to CAFTA-DR occurred in 2004 before congressional passage of the agreement's implementing legislation.[14] However, the aforementioned tariff modification language, as well as Section 203(o)(1) of the CAFTA-DR Act permitting presidential proclamations to modify certain rules of origin, imply that substantive changes to CAFTA-DR outside of tariffs and rules of origin would require congressional authorization.

Bilateral FTAs with Australia, Chile, Colombia, Korea, Panama, Peru, and Singapore

Given the powers conferred through the Constitution and the Trade Act of 1974, President Trump would very likely have the unilateral authority to trigger the United States' withdrawal from its bilateral trade agreements with Australia, Chile, Colombia, Korea, Panama, Peru, and Singapore. Moreover, a strong argument can be made that such termination would automatically terminate the implementing acts for these agreements, thereby undoing the United States' FTA commitments with respect to these countries. Any such argument, however, would also be subject to the aforementioned constitutional questions with respect to presidential termination of US law without formal congressional action (i.e., bicameralism and presentment).

Alternatively, President Trump would arguably have the unilateral authority to raise tariffs on imports from these countries to those levels that were in place on the date of enactment of the TPA law that authorized the relevant bilateral agreements (i.e., August 6, 2002). The relevant legal text for each agreement is provided in the Annex; because these provisions are essentially the same, they are summarized together in the following sections.

Termination

The United States' bilateral trade agreements with Australia, Chile, Colombia, Korea, Panama, Peru, and Singapore provide that such agreements will terminate six months after one party notifies the other that it wishes to terminate the agreement. For example, termination of the US-Korea Free Trade Agreement (KORUS) is governed by Article 24.5. (Entry Into Force and Termination), the relevant excerpt of which reads as follows:

2. This Agreement shall terminate 180 days after the date either Party notifies the other Party in writing that it wishes to terminate the Agreement.

Upon the United States' termination of its bilateral FTA with Australia, Colombia, Korea, Panama, or Peru, the other party would be free to terminate immediately preferential treatment afforded to the United States under such agreement.

President Trump also would have a legitimate claim under the implementing acts for each of these FTAs that the laws actually self-terminate after he terminates the relevant FTA, because the implementing acts state that the provisions set forth therein have no legal effect upon termination of the relevant FTA. For example, Section 107(c) of the KORUS implementation act states:[15]

(c) TERMINATION OF THE AGREEMENT.—On the date on which the Agreement terminates, this Act (other than this subsection and title V) and the amendments made by this Act (other than the amendments made by title V) shall cease to have effect.

The implementing acts for the Colombia, Korea, Panama, and Peru FTAs contain similar or identical language on termination. Thus, there is a strong argument that the implementing acts for each of these FTAs self-terminate after the President terminates the relevant FTA though such actions might be challenged under the Constitution’s Presentment Clause. Upon termination of a bilateral trade agreement, the President would likely be free to unilaterally raise relevant duties or other import barriers through Section 125(e) of the Trade Act of 1974.

Tariff modification

The implementing acts for these bilateral trade agreements grant to the President the same tariff modification authority as the NAFTA and CAFTA-DR implementation acts (i.e., the authority to issue new presidential proclamations imposing "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 the other party or parties provided for by the relevant agreement.) These provisions could give the President the unilateral authority to undo the tariff reductions under these agreements, subject only to consultation and layover requirements.

Imposing "additional duties" is further permitted under Section 2103(a)(1)(B)(iii) of TPA 2002 (which governed the implementation of the bilateral FTAs listed above, as well as the CAFTA-DR) "as the President determines to be required or appropriate to carry out any such trade agreement" concluded pursuant to TPA. However, Section 2103(a)(2) limits these increased duties to the "rate that applied on the date of enactment of this Act" (i.e., August 6, 2002).

Renegotiation

Outside of raising tariffs, President Trump also could seek to enter into negotiations to amend these agreements pursuant to the provisions on amendment contained in each FTA. These provisions state that amendment may occur between the two parties and requires the fulfilment of each party's domestic legal procedures. For example, amendment of the KORUS is governed by Article 24.2:

ARTICLE 24.2: AMENDMENTS
The Parties may agree, in writing, to amend this Agreement. An amendment shall enter into force after the Parties exchange written notifications certifying that they have completed their respective applicable legal requirements and procedures, on such date as the Parties may agree.

US law (i.e., the implementing acts or TPA), however, is silent as to whether congressional approval would be required for any such amendments. However, the aforementioned tariff modification language implies that substantive modifications to these agreements outside of tariffs would require congressional authorization.

Potential for US Litigation

Given the ambiguity of the relevant legal texts, as well as the serious economic and constitutional questions at issue here, the actions mentioned above would, if pursued unilaterally by the Trump administration without congressional consent, very likely encounter opposition from Congress, the US business community and US trading partners, thus leading to numerous court challenges. However, corrective legislation or court rulings (especially those related to complex constitutional issues) would take significant time and create substantial economic uncertainty in interim. It is unclear whether the courts would enjoin the Executive Branch and President Trump from acting while any such litigation is pending. The economic implications of such uncertainty are significant.

 

Likelihood of Termination or Modification of US Trade Agreements

Although the course of Trump Administration trade policy remains unclear, we see future actions described in this section falling into three categories:

  • Most likely. It appears likely that President Trump will seek to renegotiate certain US trade agreements. Indeed, it appears likely that he will seek the renegotiation of NAFTA shortly after taking office. However, to date the Trump transition team has declined to provide details regarding the specific elements of NAFTA that the Trump administration will seek to renegotiate. Thus it remains to be seen whether the negotiations will cover relatively uncontroversial updates to the agreement (e.g., e-commerce or consultations) or more contentious issues such as lumber trade, country of origin labeling, domestic taxes or bilateral trade balances. Canada and Mexico have appeared to be amenable to modest changes to the agreement, but have already expressed opposition to new trade barriers or trade balancing mechanisms. Furthermore, as noted above, significant changes to US FTAs would likely require congressional approval.
  • Less likely. It is possible, though less likely than the aforementioned actions, that President Trump will seek to unilaterally raise tariffs on US trade agreement partners under the tariff modification authority set forth in TPA and various FTA implementing bills. President Trump might also seek to enter into negotiations to amend the WTO Agreements, something he and his advisors have mentioned with respect to VATs. This approach, however, would be limited by the WTO's rules requiring consensus among Members to amend the Agreements, as well as the general problems at the WTO with respect to future multilateral trade negotiations.
  • Least likely. Though Mr. Trump and his advisors have discussed publicly a potential withdrawal from the WTO Agreements, NAFTA, and other US trade agreements, in our view the Trump administration is unlikely to take such actions because of their potential legal and economic implications. If the Trump administration were to pursue outright withdrawal from a US trade agreement, the President would very likely seek Congressional support to alter or repeal the relevant implementing legislation. Failure to do so would likely generate substantial legal and economic uncertainty and could raise serious constitutional issues. Congressional support cannot be guaranteed (despite the Republican Party having control of both houses of Congress, at least for the first two years), as various constituents would likely lobby to protect the relevant trade agreement commitments and their substantial investments based thereon. Moreover, withdrawal from major agreements such as the WTO Agreements and the NAFTA would likely have severe market consequences (and, in the case of the WTO Agreements, would conflict with Mr. Trump's written campaign promise to initiate WTO disputes against US trading partners such as China).

 

Implications of the 2016 US Presidential Election for Trade Policy

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[1] These termination and withdrawal provisions are listed in Annex I.

[2] Some legal scholars have questioned whether US TPA laws restrict this authority, but there are no specific provisions doing so.

[[3] Clinton v. City of New York, 524 U.S. 417 (1998).

[4] 19 U.S.C. § 3535.

[5] 19 U.S.C. § 3521.

[6] 19 U.S.C. § 2902.

[7] 19 U.S.C. § 3301 et seq.

[8] The sections are titled as follows:

Sec. 101. Approval and entry into force of the North American Free Trade Agreement;

Sec. 102. Relationship of the Agreement to United States and State law;

Sec. 103. Consultation and layover requirements for, and effective date of, proclaimed actions;

Sec. 104. Implementing actions in anticipation of entry into force and initial regulations;

Sec. 105. United States Section of the NAFTA Secretariat;

Sec. 106. Appointments to chapter 20 panel proceedings.

[9] (a) APPROVAL OF AGREEMENT AND STATEMENT OF ADMINISTRATIVE ACTION.—Pursuant to section 1103 of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2903) and section 151 of the Trade Act of 1974 (19 U.S.C. 2191), the Congress approves—

(1) the North American Free Trade Agreement entered into on December 17, 1992, with the Governments of Canada and Mexico and submitted to the Congress on November 4, 1993; and

(2) the statement of administrative action proposed to implement the Agreement that was submitted to the Congress on November 4,1993.

Section B.1.a of the SAA adds: "Section 101(a) of the bill provides Congressional approval for the NAFTA and this Statement."

[10] "Proclamation 6641—"To Implement the North American Free Trade Agreement, and for Other Purposes" presidency.ucsb.edu/ws/?pid=62460

[11] Section 103(a) of the Act States that the President may issue a proclamation subject to consultation and layover provisions only if—

(1) the President has obtained advice regarding the proposed action from—

(A) the appropriate advisory committees established under section 135 of the Trade Act of 1974, and

(B) the International Trade Commission;

(2) the President has submitted a report to the Committee Reports on Ways and Means of the House of Representatives and the Committee on Finance of the Senate that sets forth—

(A) the action proposed to be proclaimed and the reasons therefor, and

(B) the advice obtained under paragraph (1);

(3) a period of 60 calendar days, beginning with the first day on which the President has met the requirements of paragraphs (1) and (2) with respect to such action, has expired; and

(4) the President has consulted with such Committees regarding the proposed action during the period referred to in paragraph (3).

[12] 19 U.S.C. § 2902.

[13] Article 2202: Amendments

1. The Parties may agree on any modification of or addition to this Agreement.

2. When so agreed, and approved in accordance with the applicable legal procedures of each Party, a modification or addition shall constitute an integral part of this Agreement.

[14] See, e.g., sice.oas.org/TPD/USA_CAFTA/Implementation/ammend_22_e.pdf

[15] 19 U.S.C. § 3805 note.

 

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