President and Congress Face Thorny Legal Issues Amid NAFTA Withdrawal Possibility
Though It would be difficult for Congress to prevent President Donald Trump from withdrawing from NAFTA, and it also appears the president would need congressional approval to restore any pre-NAFTA tariff rates after termination, trade analysts said during a Nov. 15 Washington International Trade Association event. Section 125(e) of the Trade Act of 1974 says tariffs enacted through free trade agreements will remain in effect for one year after termination or withdrawal, unless the president moves to accelerate the process by proclaiming that tariff rates be restored to non-FTA levels. That section also requires the president to recommend to Congress within 60 days of termination the appropriate tariff rates for all goods affected by the withdrawal.
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Covington & Burling attorney John Veroneau said his interpretation of Section 125 is that the proclamation authority doesn’t allow the president to skip the standard recommendation-and-approval process. “Any president any day of the week can make all sorts of recommendations to Congress, but I don’t see how that changes the law unless Congress acts on that recommendation and sends the president back a statute implementing that,” he said. Noting that he wasn’t speaking for his law firm or any clients, Wiley Rein attorney Stephen Claeys generally agreed with Veroneau, but speaking earlier during the panel, left open the question of whether Trump could withdraw unilaterally, saying the proclamation language in the Trade Act implies “there could be something there.” Section “125 is getting a lot of attention, but I think it’s a fairly narrow authority for the president, and that’s only to more quickly move to WTO/U.S.-Canada tariff rates. That’s the extent of his legal authority,” Veroneau said.
A U.S. NAFTA withdrawal would probably mean that Mexican imports would rise to World Trade Organization most-favored nation tariff rates and Canadian imports would move back to U.S.-Canada Free Trade Agreement rates, as that FTA never technically expired, Veroneau said. Vanessa Sciarra, National Foreign Trade Council vice president for legal affairs and trade and investment policy, said it’s her group’s understanding that there has been “vigorous discussion” in the White House about withdrawal since Trump threatened to withdraw in April (see 1704260049). The discussion was hypothetical before that, which “defined some lines at the White House,” she said. “This is a real topic. It’s affecting companies every day.”
The dilemma that Congress faces in advancing legislation to prevent Trump from withdrawing is that any bill it passes would either have to be signed into law or garner enough votes to override a veto. So even if Congress passes legislation that would amend the NAFTA Implementation Act to prevent Trump from withdrawing from the agreement, or that would amend the Harmonized Tariff Schedule to lower tariffs for Canadian and Mexican imports outside of NAFTA, those bills would face a tough path to enactment, Claeys said. Another possibility is for Congress to use an appropriations bill to try to prohibit any funds from being used for NAFTA withdrawal. “The horse will be out of the barn, though. If the president announces that he is withdrawing from NAFTA and has effectuated that withdrawal, then you’d have to go through an appropriations process the following fiscal year,” Claeys said. "The appropriations bill does have to get signed by the president. So you’d run into that situation again.”