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Economy Trump threatens to ‘terminate’ NAFTA to press Congress to approve USMCA

U.S. President Donald Trump is vowing to “terminate” the original NAFTA to increase pressure on Congress to approve the U.S.-Mexico-Canada Agreement set to replace it.

Mr. Trump told reporters Saturday night aboard Air Force One, as he was flying back to Washington from a Group of 20 summit in Buenos Aires, that he would trigger NAFTA’s six-month withdrawal process “in the not-too-distant future.”

“I will be formally terminating NAFTA shortly,” he said. “So Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.”

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Pulling out of NAFTA without approving USMCA would leave the United States with no free-trade deal governing more than US$1-trillion in annual commerce with two of its largest trading partners. Among other things, the North American free-trade agreement and USMCA ensure that there are no tariffs on nearly all goods that move between the three countries and establish tribunals to resolve trade disputes.

Mr. Trump signed USMCA, which retains most of NAFTA’s text but makes a few key changes, at the G20 on Friday, with Prime Minister Justin Trudeau and now-former Mexican president Enrique Pena Nieto on his last day in office.

Under NAFTA’s article 2205, any country can quit the deal after six months’ notice to the other two countries. Providing notice, however, does not make withdrawal automatic; it effectively starts a countdown, at the end of which the country would have the option to pull out.

Whether Mr. Trump – who has previously threatened to tear up NAFTA without following through – actually has the power to pull the United States out of the deal without congressional approval is uncharted waters. The consensus among most trade experts is that the President could theoretically abrogate the deal itself – but would need Congress to repeal the implementing legislation for the abrogation to take full effect. Triggering 2205 could set up a court battle with Congress or American businesses over the extent of the President’s executive authority.

USMCA is not expected to come to a vote until some time next year, when a Democratic-controlled House of Representatives – elected in early November – will be in place. The Republicans will still control the Senate.

The trade pact is facing congressional opposition from both sides of the aisle.

Mr. Trump has long been at odds with his own Republican Party on trade, with the GOP opposing many of the key provisions the President demanded in USMCA. Republicans strongly favour provisions allowing corporations to sue governments before special trade tribunals, for instance; in USMCA, these provisions were eliminated between the United States and Canada and scaled back between the U.S. and Mexico.

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The GOP is also ideologically opposed to the sort of strict rules USMCA will now impose on the auto industry in a bid to discourage it from opening new plants in Mexico.

In a statement Friday, Kevin Brady, the Republican head of the House committee with oversight of trade policy, declined to endorse the deal.

“For USMCA to gain widespread support, it must increase certainty as to the durability of the agreement, be fully enforceable to hold our trading partners accountable across all sectors, and increase – not diminish – our ability to sell into these markets,” he wrote.

Senator Marco Rubio tweeted that the deal is “unacceptable” because it doesn’t do enough to protect Florida vegetable growers from Mexican competition.

Democrats, meanwhile, argued that the pact does not go far enough in imposing tougher labour and environmental standards on Mexico, and preventing the loss of U.S. manufacturing jobs to the country’s southern neighbour.

“Trump’s deal won’t stop the serious and ongoing harm that NAFTA causes American workers. It won’t stop outsourcing, it won’t raise wages and it won’t create jobs,” Senator Elizabeth Warren said last week in a speech at American University in Washington.

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House Democratic Leader Nancy Pelosi said USMCA was “still a work in progress” and that she wanted to see more “enforcement provisions” on the pact’s labour and environmental rules.

The Democrats are generally more aligned with Mr. Trump’s trade policies ideologically – favouring more protectionism – than the GOP. But they have political reasons not to give him a victory on one of his signature files.

One option for sating the Democrats without revisiting the entire deal would be for the three countries to negotiate side letters strengthening labour and environmental provisions; this is what the countries did in 1993 to ensure passage of the original NAFTA through a Democratic Congress.

Inu Manak, a trade expert at the Cato Institute think tank in Washington, said Mr. Trump may not even have to go that far: He could strengthen USMCA’s labour provisions by guaranteeing that, if a U.S. trade union complains about a labour practice in Mexico, the administration will launch a case on the union’s behalf under USMCA’s dispute-resolution mechanism. This guarantee could, for instance, be included in a USMCA implementation bill that Congress will have to pass to put the deal into effect.

As for the Republicans, Ms. Manak pointed out that they have so far reliably fallen in line behind Mr. Trump on trade policy even when they do not agree. Last spring, for instance, GOP congressional leaders declined to allow a vote on measures to rein in the President’s ability to impose tariffs on other countries.

“At the end of the day, they haven’t shown many principles on trade to begin with,” she said.

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The Democrats could also delay passage of the deal to squeeze concessions from Mr. Trump on unrelated policies, such as an infrastructure-building package or immigration.

The President already offered a sop to his party’s hard right by watering down USMCA provisions meant to protect LGBTQ people from discrimination in the work force. Earlier this month, a group of 46 congressional Republicans complained in a letter to Mr. Trump about a passage in USMCA’s labour chapter that mandates all three countries will ensure LGBTQ people are not discriminated against in the workplace. The group included Mark Meadows, chair of the powerful House Freedom Caucus.

Ahead of the USMCA signing Friday, the three countries inserted a footnote into the deal that says the United States does not have to do anything further to comply with the LGBTQ protection requirement.

On NAFTA, it is unclear whether the President even has the power to terminate the trade pact without Congress’s approval.

NAFTA’s implementing legislation put in place some provisions of the deal directly, while delegating others – such as setting some tariff rates – to the President. This means that if Mr. Trump pulled out of NAFTA, trade experts say, he could unilaterally reverse some of its provisions but would need a vote in Congress to reverse others.

The President has threatened repeatedly to pull out of NAFTA in the past, and even had the withdrawal letter drawn up on at least one occasion last year. In that instance, he backed down after members of Congress, his cabinet, the U.S. business community, Mr. Trudeau and Mr. Pena Nieto all lobbied him not to.

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He gave no precise timeline Saturday for the withdrawal. At one point, he said he was “delaying” the pullout, without elaborating.

“I’ll be terminating it within a relatively short period of time. We get rid of NAFTA. It’s been a disaster for the United States,” he said. “It’s caused us tremendous amounts of unemployment and loss and company loss and everything else.”

According to World Bank data, the United States’s real GDP per person grew by 39.3 per cent between 1993 – the last year before the start of NAFTA – and 2015.

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