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Path to US bilateral trade deal with Mexico remains murky

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Path to US bilateral trade deal with Mexico remains murky

Legal and political questions surround President Donald Trump's proposal to secure a bilateral trade deal with Mexico in the context of negotiations over revamping the North American Free Trade Agreement.

Trump has threatened to move forward with a trade deal with Mexico if the administration cannot secure a deal with Canada, the other partner in the 24-year-old NAFTA.

SNL Image

Canada's Foreign Minister Chrystia Freeland, left, Mexico's Economy Secretary Ildefonso Guajardo Villarreal, center, and U.S. Trade Representative Robert Lighthizer after discussing the second round of NAFTA renegotiations in Mexico City in September 2017.

Source: Associated Press

Administration officials have said they are confident the U.S. is complying with all regulations necessary to secure a new trade deal with Mexico, but trade experts are divided over whether the president has the authority to essentially abandon NAFTA and move forward with a Mexico-only trade pact.

The U.S. and Mexico announced an agreement toward a bilateral trade deal on Aug. 27, and Trump notified Congress four days later of the proposed deal, formally beginning a 90-day clock for legislative action, allowing Trump to sign a deal beginning Nov. 30.

Where Canada stands in the talks is uncertain, although it has reportedly been making some progress in narrowing differences with the U.S. this week, including American access to its restrictive and high-tariff dairy market, according to Reuters.

Trade Experts Weigh In

Clifford Sosnow, an Ottawa-based trade attorney at Fasken Martineau DuMoulin LLP, told S&P Global Market Intelligence that the U.S. could only withdraw from NAFTA if it does so with regard to both countries, not just Canada. Sosnow said the U.S. can forge a bilateral deal with Mexico, which could be done as an amendment to the existing agreement.

But Trump has repeatedly expressed a desire to replace NAFTA with an entirely new deal, something that Sosnow said could only be done by withdrawing outright.

A U.S. withdrawal from NAFTA would create the possibility of three separate agreements, Sosnow said: a new U.S.-Mexico bilateral deal, an existing U.S.-Canada free trade deal, and a Mexico-Canada trade deal under the current NAFTA.

"This sets up potential legal challenges and obstacles," Sosnow said. "It's one thing to discuss legality and one thing to discuss negotiating dynamics. This has the potential for a legal mess."

Trump would have to provide a six-month notice of intent to leave NAFTA, pushing a congressional vote on any new deal well into 2019. The Trump administration is in a time crunch, hoping to squeeze in a vote before the midterm elections, which could see the U.S. House flip to Democratic control.

Democrats hesitant to advance the Trump trade agenda could thwart more than a year of negotiations to rework NAFTA.

Should the House flip to the Democrats, Peter Allgeier, president of international trade at consulting firm Nauset Global LLC and former U.S. Ambassador to the World Trade Organization, said he does not "see anything close to a NAFTA rewrite" passing.

Allgeier said in an interview that he believes the administration has provided sufficient notice to Congress by including language that said Canada could be part of a new deal if it was willing. But Allgeier remained skeptical that Congress, even members in Trump's own Republican party, would pass a deal without Canada, particularly since the northern neighbor is the largest export market for 33 states.

"It would be so disruptive to economies in so many states, and not just northern-tier states," Allgeier said. "Even in the current Congress it wouldn't get through because many of these Republicans are in states that would be badly impacted."

A bilateral deal would have to clear requirements under the Trade Promotion Authority, or TPA, which allows for expedited trade negotiation and implementation by the sitting U.S. administration. The legislation — renewed for an additional three years in July — requires that Trump notify Congress 90 days before he signs a new trade deal, a clock that began ticking Aug. 31. TPA also requires that the text of the agreement be sent to Congress within 30 days, or by Sept. 30 in this case.

The TPA gives Congress the authority to both review and decide whether a proposed trade agreement is implemented, allowing for an up-or-down vote.

"It's not a question of whether it's meeting TPA guidelines," Allgeier said. "It's the question of whether it's a politically acceptable deal. They may do all the TPA procedures within guidelines, but it isn't going to be politically acceptable to Republicans."

Chris Sands, director of the Center for Canadian Studies at Johns Hopkins University, believes that negotiators have met all the legal requirements for expedited review under TPA. However, he remained skeptical that Congress would be champing at the bit to pass a bilateral U.S.-Mexico deal.

"They can say, 'Thanks for the Mexico bill, but we're not ready to start the clock on this one until we get the Canadian one,'" Sands said in an interview. "It's much more efficient than one set of bills. If that's what [House Ways and Means Committee Chairman] Kevin Brady wants, then he can insist on it."

"It's not a question of law, but more a question of politics," Sands added. "In terms of meeting the requirements of the law, that's where [U.S. Trade Representative Robert] Lighthizer has been brilliant, cautious and prudent. He hasn't missed deadlines."

Should talks fall apart between the U.S. and Canada, trade regulation would revert to the 1989 free trade deal between the two countries.

Republicans, Democrats skeptical

The idea of pushing the bilateral deal through under the TPA prompted skepticism from Sen. Pat Toomey, R-Pa. In a statement, Toomey said a bilateral deal with Mexico would not be eligible for a 51-vote approval in the Senate.

"Any change, such as NAFTA's termination, would require additional legislation from Congress," Toomey said. "Conversion into a bilateral agreement would not qualify for TPA's 'fast track' procedures and would therefore require 60 votes in the Senate."

On the House side, Brady has voiced his support for a trilateral deal, but has stopped short of saying how Congress would act on a bilateral deal with Mexico.

Congressional Democrats have voiced opposition to a bilateral deal with Mexico.

In a Sept. 10 letter to Lighthizer, seven Democratic members of the House Ways and Means Committee argued that the administration's May 2017 notification to Congress of its intent to renegotiate NAFTA made no mention of splitting the pact into two separate bilateral deals.

"We believe it is not in the spirit of TPA to send Congress an official notification letter until all three parties have formally agreed to move forward together with an updated trilateral agreement," the Democrats wrote.

The path to a revamped NAFTA deal with all three countries is a bit more cut and dried from a logistical perspective.

Trade and legal experts generally agree that a new NAFTA deal would simply have to be submitted before Sept. 30 and would meet all requirements for TPA, allowing for expedited review and possible implementation under the current Congress.

However, the timing on congressional consideration in the current Congress, whether for a U.S.-Mexico bilateral deal or revamped NAFTA with all three partners, remains a challenge.

"Historically, Congress has waited until the [International Trade Commission] has issued its [economic] report of the impact of the agreement before considering it," Joshua Teitelbaum, an attorney with Akin Gump in Washington, said in an interview. The ITC has 105 days to complete that study.

"It would be the middle of March before they would do that, so it's not really this Congress that would be considering the U.S.-Mexico agreement — if that’s the agreement that Congress is considering. It's up to Congress to enforce TPA, and we'll see if they're able to do that," Teitelbaum added.