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One of the key points during the 2016 U.S. Presidential campaign was free trade, and in particular—NAFTA. The two major candidates both seemed to be in agreement on one major point and that was that NAFTA needed to be revised.
The president is well into his first 100 days in office. He has been clear he would like NAFTA to be revised to help American workers by bringing jobs back to the United States. However, we have yet to see specific details about the renegotiation of NAFTA, outside of a draft notification letter that was circulated by the U.S. Trade Representative’s office to members of Congress for review in late March, according to Reuters.
This is uncharted territory because the U.S. has never before participated in a renegotiation of a free trade agreement. There are different regulations that grant the president power to renegotiate an agreement like this yet it remains to be seen what direction the president will take.
In the U.S., we learn in fifth grade that the president is the head of the executive branch. In essence, that means he is to execute the laws established by Congress. Each power the president has is given to him by the Constitution or Congress either expressly provided or inferred from the constitution. The president must operate within these bounds. Even executive orders, which seem to be unilateral, must have a basis in current legislation.
There are a few places that grant the president authority to renegotiate free trade agreements. The president is permitted some power by the implementation act of the free trade agreement itself and also by the Trade Promotion Act (TPA) recently re-enacted in 2015.
The TPA regulation is a transfer of Congressional power to the president that allows him to make international agreements that impose duties and tariffs. The TPA grants the president power to complete these types of free trade agreements by putting the approval of the agreement on the “fast track” meaning that Congress doesn’t have the ability to amend. Congress only gets the ability to vote yes or no, limiting Congressional input on the agreement. Surprisingly, all but one of the U.S. free trade agreements has been passed under the TPA.
As far as renegotiation is concerned, the TPA allows the president the power to renegotiate these agreements as long as he meets some of the imposed requirements.
The president must notify congress 90 days before initiating the renegotiation. This requires the president to disclose his objectives in regards to negotiation as well as consulting with the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.
30 days before initiation, the president must publish the objectives on the USTR (United States Trade Representative) website. This publication must describe how the objectives of these renegotiations will benefit the United States.
The implementation act of NAFTA also grants the president power to modify an agreement. This implementation act is a domestic law, passed by congress that basically says “yes, the U.S. will adhere to the NAFTA regulations, here are the laws that we will follow to do so.” The act or law tells the president and other agencies what they should do to follow the NAFTA agreement. This regulation explicitly allows the president to unilaterally modify the import taxes or duty rates and modify the rules of origin. This can be done by executive order or presidential proclamation.
This unilateral action of modifying rules of origin can be done without the approval of Congress and has actually been used in the past to modify the NAFTA. In the past the three party countries have made changes to the agreement in regards to rules of origin. These changes were all within the powers granted to the president by the implementation act. Congress was not required to approve these changes; however, changes beyond the rules of origin and import duties, requires that the president provide congress and the public proper notification before re-negotiation begins.
Long story short, the president has the power to renegotiate NAFTA and not just change the rules of origin. The president may modify rules of origin and import duties without congressional approval but must take additional action for any other changes. The president must notify congress of his re-negotiation points and publish his objectives on the USTR website.
We all know this president will do something to renegotiate NAFTA, as the recently seen draft notification letter indicates, we just do not know how soon. Companies that use NAFTA can be assured that they will have a 90-day notice of what is intended to be renegotiated.
Kellie Gryga is an FTA Analyst for Thomson Reuters ONESOURCE Global Trade.