Tuesday, September 5, 2017

Terminator 5: The NAFTA Implementation Act

Can Trump withdraw from NAFTA? At a rally in Phoenix on August 22, President Trump said, “[w]e’ll probably end up terminating NAFTA at some point.” Can he? More specifically, can Trump dump U.S. trade obligations with a stroke of the pen, or would it require cooperation from Congress?

If Trump’s threat to withdraw from the trade deal is more of a bargaining chip in the NAFTA renegotiations, as his comments last week suggested, questions about the legality of that action are even more immediately relevant. How much should Mexico and Canada worry that Trump will unilaterally exit the talks and the deal?

NAFTA as a Problem in Constitutional Law

Under the agreement, it’s clear that the United States could withdraw from NAFTA just by giving six months’ notice. Article 2205 of NAFTA says, “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.”

For purposes of international law, that should do it. President Trump sends a letter to the Mexican president and Canadian prime minister and as far as they’re concerned, we’re out.

But as a matter of domestic law, it’s not quite that simple. This is where international trade law morphs into a constitutional law problem, or actually two of them.

First, it’s unclear whether the Constitution allows the President to withdraw from congressional-executive agreements like NAFTA without consulting Congress and, perhaps, receiving their approval.

Second, even if he can, it’s not clear whether withdrawal from the agreement would automatically terminate the underlying U.S. trade obligations toward Canada and Mexico. Because trade agreements are generally not self-executing, trade deals have to be implemented into U.S. law by Congress. Congress did that for NAFTA obligations in 1995 when it passed the NAFTA Implementation Act. Even if Trump withdraws from NAFTA, the NAFTA Implementation Act continues in force – unless it expires by its terms or Congress repeals it.

A lot of research will be needed to answer both of these questions. Below are some preliminary observations and relevant legal authorities.

Getting Out of NAFTA Free: Section 109(b)

Let’s take the second question first because it may be the easier (though not easy) one. There’s a good argument that Trump wins here.

The NAFTA Implementation Act has a provision, Section 109(b), that provides for situations in which the Act will cease to have effect. Basically, it’s a Terminator provision inserted by Congress under which the Act self-destructs if certain conditions occur.

The trouble is, the provision is hardly a model of clarity, so both false detonations and dead wires are possible. Section 109(b) says:

(b) Termination of NAFTA Status. – During any period in which a country ceases to be a NAFTA country, [the implementing provisions of the Act] shall cease to have effect with respect to such country.

Okay, but when does a country “cease[] to be a NAFTA country”? Does that only refer to withdrawal by Mexico or Canada, or could it include a case where the United States withdraws? “NAFTA country” is defined as

(A) Canada for such time as the Agreement is in force with respect to, and the United States applies the Agreement to, Canada; and

(B) Mexico for such time as the Agreement is in force with respect to, and the United States applies the Agreement to, Mexico.

Comparing Termination Provisions of Other Implementation Acts

Now, this is not nearly as clear as the termination provisions in a number of U.S. bilateral trade agreements. For example, Section 107 of the United States-Colombia Trade Promotion Agreement Implementation Act says,

(c) Termination of the Agreement. – On the date on which the Agreement terminates, this Act … and the amendments made by this Act … shall cease to have effect.

That one’s pretty clear, but that one’s also easy – as a bilateral agreement, the underlying agreement between the U.S. and Colombia would terminate if either party withdrew. Drafting is understandably more complicated where there are multiple parties to the agreement.

Termination of a Multilateral Trade Agreement: CAFTA-DR

So let’s consider the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (yes, that’s really its name). The underlying agreement, better known as CAFTA or CAFTA-DR, is a trade deal between the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. As with NAFTA, one of the parties could withdraw and the agreement could remain in force.

The CAFTA-DR Implementation Act is more clear about the effects of termination than the NAFTA Implementation Act is. Section 107 of the CAFTA-DR Implementation Act says,

(c) Termination of CAFTA-DR Status. – During any period in which a country ceases to be a CAFTA-DR country, the provisions of this Act (other than this subsection) and the amendments made by this Act shall cease to have effect with respect to that country.

(d) Termination of the Agreement. – On the date on which the Agreement ceases to be in force with respect to the United States, the provisions of this Act (other than this subsection) and the amendments made by this Act shall cease to have effect.

A “CAFTA-DR country” is defined for each country in the following manner:

[T]he term ‘CAFTA-DR country’ means –

(A) Costa Rica, for such time as the Agreement is in force between the United States and Costa Rica; ….”

Well, that makes a lot more sense. Nothing here about the United States  “apply[ing] the agreement to” anybody. As long as the agreement is in force between the U.S. and a particular country, they’re a CAFTA-DR country. If the agreement ceases to be in force between the U.S. and that country, the Implementation Act terminates with respect to that country (and that country only). But if the agreement “ceases to be in force with respect to the United States,” then the Implementation Act terminates completely.

What should we make of the difference between the termination provisions in the NAFTA and CAFTA-DR Implementation Acts?

Making Sense of the NAFTA Termination Provision

Maybe nothing. The CAFTA-DR Implementation Act was passed ten years after the NAFTA Implementation Act. Perhaps Congress had just gotten better at expressing the two conditions in which the Act’s provisions might terminate.

Under the CAFTA-DR Implementation Act, it’s clear that that may occur either where (1) the Agreement ceases to be in force between the U.S. and a particular country; or (2) the Agreement ceases to be in force with respect to the U.S., period.

The first seems to contemplate withdrawal by the particular trade partner (or maybe selective withdrawal by the U.S. as to that partner only, though such a thing isn’t provided for in the Agreement). The second seems to contemplate withdrawal by the U.S. from the Agreement as a whole (or maybe the other parties kicking the U.S. out of the deal, though again, there’s no provision for that).

In contrast, the NAFTA Implementation Act says the act terminates when a country ceases to be a NAFTA country, and it requires that two conditions be met for a country to be considered a “NAFTA country”: both “the Agreement is in force with respect to” that country, and “the United States applies the Agreement to” that country.

Compare that to the CAFTA-DR termination provisions. The first condition, “the Agreement is in force with respect to” Canada or Mexico, seems to contemplate withdrawal by Canada or Mexico. So what could the second condition, “the United States applies the Agreement to” Canada or Mexico, mean?

Scant Clues from Legislative History

The only authoritative sources of legislative history are the House and Senate Reports. Those reports are cursory in their discussion of Section 109(b). The House Report pretty much just repeats the language of the statute: “[The implementing provisions of the act] shall cease to have effect with respect to a country during any period in which that country ceases to be a NAFTA country.”

The Senate Report doesn’t say much more, but it does paraphrase, which might shed a little light on the Senate’s understanding of the provision. The Senate Report says that the implementing provisions of the act “shall cease to have effect with respect to a country during any period in which that country ceases to be a party to the NAFTA.” This seems to contemplate only cases where Canada or Mexico withdrawal, not where the U.S. withdraws.

But in that case, what does the text mean when it says that the act terminates unless the agreement is in force with respect to, and the United States applies the agreement to, Canada or Mexico? According to core principles of statutory interpretation, the second clause must mean something. The Senate Report’s description seems to make it redundant, if the act’s provisions terminates only when the other party pulls out. Isn’t that already covered by the first clause, “for such time as the agreement is in force with respect to” Canada or Mexico?

The debates aren’t authoritative as to statutory interpretation and they’re not that extensive anyway, since NAFTA was passed under the procedures of the Trade Act of 1974, which is designed precisely to curtail congressional debate on our trade agreements. That wouldn’t necessarily have prevented Senators and Representatives from talking about termination, but it doesn’t appear that anyone worried too much about it (though further research will be needed to confirm).

What Could It Mean to Say “the United States Applies the Agreement to” Canada or Mexico?

So how are we to understand this second condition on which the act might terminate? Saying that “the United States applies the Agreement to” Canada or Mexico could mean any of the following:

(1) That Canada or Mexico withdraws from NAFTA (like the Senate Report says);

(2) That the United States refuses to “apply the Agreement” to either Canada or Mexico, but not both; or

(3) That the United States withdraws from NAFTA entirely.

The first case seems to create a redundancy in the statute, which is disfavored in statutory construction. The second case is a plausible reading, but it’s probably still a win for Trump’s stated agenda – it may be a sufficient bargaining chip if he has the power to “rip up” NAFTA and press the Terminator button in the Act only as to Mexico but not as to Canada. The third case allows him to pursue his agenda of tough bargaining backed by the power of complete escape from the U.S. trade obligations set out in NAFTA.

Unless …

All of this assumes that the Constitution gives the President, acting alone, the power to withdraw from an agreement like NAFTA.

And that’s not a foregone conclusion. Even if Section 109(b) can be read to provide that the implementing law terminates upon U.S. withdrawal from NAFTA, that provision does not specify how that withdrawal may or must be accomplished.

It might seem obvious that the President alone holds that power, since the Supreme Court has long recognized the President as holding the power to act for the country in foreign affairs. If NAFTA were a true treaty, entered into as an express power of the President under Article II, section 2 of the Constitution, that would likely be true (although the process for withdrawal from treaties has never been definitively resolved either).

But NAFTA is not a treaty, at least not under U.S. law. (If you’re a lawyer and you didn’t know that, don’t worry, you’re in a big club.) NAFTA was not entered into pursuant to the Treaty Power of Article II, which would have required submission to the Senate for ratification by a two-thirds majority.  

Instead, NAFTA is a strange sort of bird called a congressional-executive agreement. You won’t find it mentioned in the Constitution, and as recently as post-NAFTA passage, litigants were still challenging its constitutional legitimacy. (Speed briefing: the U.S. Court of Appeals for the Eleventh Circuit called the issue a political question and declined to resolve it, and the Supreme Court denied cert.)

Instead, as the name implies, a congressional-executive agreement is an organism arising from a special procedure that devotes some responsibilities to the President and others to Congress (but not a ratification by two-thirds of the Senate).

So we can argue about Section 109(b) of the NAFTA Implementation Act all day and still not address the elephant in the room: If the President doesn’t have the power to get into a congressional-executive agreement by himself, does he have the power to get out by himself? I’ll turn to the elephant in a future post.

But that’s going to be a political question too, you might reasonably object. If a federal court wouldn’t rule on the constitutionality of congressional-executive agreements, how likely are the federal courts to rule on the constitutional procedure for getting out of one? But even if courts won’t hear it (and that’s not a sure thing), a Congress that feels its constitutional powers have been usurped would have other, political remedies available to counter Executive action that oversteps its bounds. A future post will begin to explore the respective powers of the President and Congress in making – and withdrawing from – these Fast Track trade agreements.

http://lawprofessors.typepad.com/inttradelaw/2017/09/terminator-5-the-nafta-implementation-act.html

| Permalink

Comments

Post a comment