The Trump administration has alarmed Canada, Mexico, and business groups in numerous ways during the renegotiations for the North American Free Trade Agreement, but one particularly audacious proposal has been to go “bilateral”: Break NAFTA into two separate trade deals, one with Canada and one with Mexico.
“As President Trump has said, we hope for a successful completion of these talks, and we would prefer a three-way, tripartite agreement. If that proves impossible, we are prepared to move on a bilateral basis, if agreement can be made,” U.S. Trade Representative Robert Lighthizer said in Mexico City at the conclusion of the seventh round of talks in early March.
The administration has been leaning that way in recent months. In a closed-door meeting with Senate lawmakers in February, Lighthizer said the U.S. had made more progress with Mexico in the renegotiations than with Canada and that the U.S may try completing those first and then pursuing separate talks with Canada, Rep. Ron Kind, D-Wis., told reporters afterward.
It is easy to understand the administration’s thinking, NAFTA watchers say: Canada and Mexico have worked as a united front to stymie the Trump administration’s efforts to rewrite the trade deal. The U.S. would have far more leverage to extract concessions in separate deals.
It’s not clear that the administration can legally make that move, and such an effort would face resistance from all sides, but that doesn’t mean the Trump White House wouldn’t try. That has stakeholders struggling to figure out how to respond. For now, most are hoping it’s just an attempt by the administration to gain leverage.
“Is it a bluff? That is the question. Time will tell,” said a lobbyist for one top trade association who requested anonymity.
Canada and Mexico both strongly oppose such a move. “Our preference is to work constructively with our American and Mexican partners and negotiate a modernized NAFTA that provides win-win-win solutions. In the event the U.S. did withdraw from NAFTA, the agreement would still apply between Canada and Mexico,” the Canadian embassy said.
A source with knowledge of the Mexico’s negotiators’ thinking echoed that sentiment, saying, “Mexico fundamentally sees NAFTA as a three-way deal.”
A Labor Department spokeswoman declined to comment.
Whether the administration can pull the U.S. out of NAFTA is a matter of lively debate among legal scholars. There is little precedent for an administration pulling the U.S. out of an existing trade treaty.
Under the official terms of NAFTA, the administration can leave the treaty after giving six months’ notice. However, trade laws that were passed by Congress under the NAFTA Implementation Act would be expected to remain in effect. NAFTA would still apply to Canada and Mexico. Both countries are also members of the recently signed Trans-Pacific Partnership trade deal.
“It would create a kind of Zombie NAFTA where the U.S. would not be a member but most of the agreement would remain in effect,” said Roosevelt Institute fellow Todd Tucker.
On top of that, he notes, the U.S. signed a free trade agreement with Canada in 1987 that was effectively a precursor to the 1993 NAFTA, and that remains in effect.
It is unlikely that Congress would go along with dismantling NAFTA’s provisions. Republicans and most Democrats would oppose that effort as they have with Trump’s recent plan to impose tariffs on steel and aluminum imports. Trump’s efforts have already driven a wedge between the administration and the more business-friendly congressional GOP.
“Over the years, Congress has ceded way too much authority to the executive branch in a variety of [areas], but few more so than in the trade space,” Sen. Pat Toomey, R- Pa., told the Wall Street Journal after the tariffs were announced. “More of that should be in the hands of Congress. We are in the process of exploring how one might achieve that.”
The administration could try to convince the courts that it has the ultimate authority to withdraw from NAFTA agreements, but trade associations such as the Chamber of Commerce would be certain to fight that tooth and nail.
For those reasons, Trump critics see the bilateral threat as lacking credibility. “With a different administration, you could imagine them using the threat to have separate deals as leverage, but that is not the circumstance we are living in,” Tucker said flatly.
The U.S. trading partners are counting on it being only a strategic ploy. “Having met with U.S. stakeholders and members of Congress, it’s clear that a withdrawal from the agreement would harm U.S. workers and industry,” the Canadian Embassy said.
But stakeholders in NAFTA still fear the chaos and uncertainty that could ensue should the administration pursue that path. Asking if they think Canada and Mexico would turn away trade negotiators from the U.S. if it left NAFTA tends to produce long, awkward silences followed by variations of “I just don’t know.”
