What’s next for NAFTA?

After some turbulence earlier this year, the North American Free Trade Agreement (NAFTA) now appears headed toward formal renegotiation.

First came rumors that the United States was pulling out of the 23-year-old trilateral trade agreement with Canada and Mexico. Then came President Trump’s announcement — after receiving feedback from business leaders, cabinet members, senior advisors and foreign officials — that the United States would not immediately withdraw from the pact. But he made it clear that if renegotiations were unsuccessful, the United States might decide to withdraw. 

 A few weeks later, after Robert Lighthizer was confirmed as the U.S. Trade Representative, the administration notified Congress of its intent to renegotiate NAFTA. This letter marked the beginning of the process to reform NAFTA and served as an important indicator that the administration will likely adhere to Trade Promotion Authority (TPA) by consulting with Congress throughout the negotiation process. 

What is TPA and what does it mean for NAFTA renegotiations?

Trade Promotion Authority, also called “fast track,” sets an expedited process by which Congress can approve or reject, but cannot amend or filibuster, a trade deal negotiated by the president. In order for Congress to bring forward implementing legislation for an up-or-down vote the administration must follow TPA. While it is likely that all three countries will talk informally about priorities and expectations for renegotiations, in accordance with TPA, Lighthizer’s letter on May 18 started the clock on the 90 days until formal NAFTA renegotiation could officially commence.

During the 90 days the administration will consult with the appropriate committees in both the House and Senate to craft renegotiation objectives and strategies in line with both the president’s and congressional priorities. Lighthizer’s letter indicated that updating provisions on intellectual property, labor practices and the environment among others would be priorities during renegotiation. The administration’s letter also identified the negotiating objectives already included in the TPA statute as the starting point for NAFTA renegotiations.

At the end of 90 days, in accordance with TPA, the United States can officially start formal negotiations.

Once objectives are finalized, and 30 days prior to the start of formal renegotiation, they will be made public on the U.S. Trade Representative’s website along with how the administration plans to achieve these objectives and how the objectives would benefit the United States.

At the end of 90 days, in accordance with TPA, the United States can officially start formal negotiations; however, the actual start date will also depend on Canada and Mexico.

Can the president withdraw if renegotiations fail?

According to Chapter 22 Article 2205 of NAFTA, any party can withdraw from the agreement six months after providing written notice to the other parties, meaning that the United States need only give Canada and Mexico formal notice six months in advance of a potential withdrawal. Therefore, President Trump has the power to pull the United States out of the agreement relatively swiftly if he chooses. 

However, formally withdrawing does not completely extricate the United States from the trilateral trade agreement. NAFTA provisions that require changes to existing laws and regulations regarding trade with Canada and Mexico would not automatically expire with U.S. withdrawal. Full withdrawal would require significant legal and regulatory action in order to change existing statutes.

At the End of 90-days will we have a new NAFTA?

Probably not. Formal negotiations among the United States, Canada, and Mexico are set to begin no earlier than August 16 and will likely involve extensive talks prior to legislative and regulatory implementation. This is a lengthy and time-consuming process so in the near-term there will be no significant changes in formal trade relationships with NAFTA partners. However, continued talk of possible withdrawal, and prolonged informal negotiations, could certainly have an impact on the broader relationships we have with Mexico and Canada.

Mexico’s upcoming presidential elections create internal political pressure for our southern neighbor to wrap-up negotiations this calendar year. When the notification letter was sent to Congress, Lighthizer also indicated in remarks to the media that he was hopeful negotiations could be concluded before the year was out. If history is any indication, that timeframe may be a challenge as the original trade agreement between the United States and Canada took 20 months to negotiate, and 18 months more to incorporate Mexico. It remains to be seen how the negotiations will unfold over the coming months, but for now, the agreement remains intact and the formal letter of notice is a positive sign that there will be a transparent and collaborative process throughout renegotiations.