WASHINGTON – The White House is telling U.S. media that it’s mulling a notice of withdrawal from NAFTA, applying shock treatment on other parties to get cracking on negotiations under the threat of having the seminal trade deal obliterated.
Various media say Trump is considering detonating the trade equivalent of a nuclear option: An executive order to withdraw from the trade agreement, which would instill fear in members of Congress, industry and Canadian and Mexican trade negotiators.
The administration has complained lately that American lawmakers are dragging their feet on naming a trade czar and excessively slow in approving the 90-day legal notice to kick off negotiations.
It may now stir them to act.
The White House has let it be known, through the Washington Post, Politico, and CNN, that President Donald Trump is considering an executive order threatening withdrawal, and the New York Times reported late Wednesday that he’s actually leaning toward issuing that order.
Such a move might appear more dramatic than it actually is.
There are still multiple layers between an announcement and actual withdrawal, says a veteran of Canada-U.S. free trade. First, will Trump announce it? If he does announce it, will he follow through? And if he follows through, will Congress undo the NAFTA implementing legislation?
One thing’s certain: the move would scare people.
”It would be a nothing. But it would be inflammatory,” said Jon Johnson, a negotiator in the original Canada-U.S. trade agreement, a government adviser on NAFTA and now a C.D. Howe Institute analyst.
”I suspect many in the press would freak. I would.”
He pointed out that NAFTA does not have an automatic-exit clause.
Its only reference to withdrawal is a single 34-word sentence, Article 2205, which says: A party may withdraw after providing six months’ written notice, which means that any president declaring a pullout would simply be allowed to do it six months later.
What a withdrawal threat could do is frighten multiple actors: Canadian and Mexican negotiators, U.S. lawmakers and markets. A Canadian official said last week the government doesn’t intend to be intimidated: “We have time. And we don’t freak out.”
But markets appeared slightly jolted by the latest news. The Canadian dollar lost more than a third of a cent Wednesday and the Mexican peso got hit harder: it was down more than 1.5 per cent on the day.
There were also jitters in Congress.
Pro-NAFTA senators urged Trump to be careful. The Republican majority whip, Sen. John Cornyn, warned: ”I think we’d better be careful about unintended consequences.” Sen. John McCain told CNN, of a NAFTA withdrawal: “It will devastate the economy in my state . . . I hope he doesn’t do that.”
One trade expert said he viewed this as a negotiating tactic — a threat to Congress.
”I think he is bluffing,” said Canada-U.S. trade lawyer, Mark Warner.
”I think by threatening a nuclear option he is hoping to get Congress to speed up . . . (and) stop getting in way. If there is an executive order, it’s probably more likely to be weaker than his rhetoric.”
The White House has expressed frustration at lawmakers’ failure to share its sense of urgency on NAFTA.
The clock is ticking, in part because of the Mexican election. The Mexican government says it can’t conclude a NAFTA deal after the first quarter of next year, with an election in 15 months and the populist left on the move there.
Trump’s point man on the negotiation, Commerce Secretary Wilbur Ross, has acknowledged that it gets harder if talks linger too much into next year. After the election, there’s a five-month lame-duck period in Mexico. And in the midst of all that, U.S. lawmakers will be embroiled in their own midterm elections, complicating the task of trade-related tradeoffs.
Which means the next few months might be the only window to renegotiate NAFTA — a key Trump campaign promise.
By law, the U.S. Congress must be involved at multiple steps: in approving a formal notice to renegotiate, in developing the negotiating positions, and then in voting to ratify a deal.
”It’s been frustratingly slow,” Ross said earlier this month, of Congress. ”They’ve been very, very slow on completing the hearings and voting on our new U.S. trade representative Bob Lighthizer. That’s been not helpful.”
As for terminating NAFTA, Trump can do it. He can cancel NAFTA with six months’ notice. But the aftermath of that is soaked in uncertainty. There are competing legal views on whether he can cancel the implementing legislation, whereby NAFTA’s contents were made law by Congress.
Many of the tariffs eliminated in NAFTA might not revert to pre-1993 levels either. Subsequent global trade negotiations whittled down tariffs at the World Trade Organization. There’s also the open question of where the cancellation of the 1993 NAFTA would leave the earlier Canada-U.S. agreement.
Warner predicted two certain results: confusion, and litigation.