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Presidential Withdrawal from FTAs Could Have Real Impact, Report States

Friday, October 20, 2017
Sandler, Travis & Rosenberg Trade Report

A recent Congressional Research Service report finds that a White House decision to withdraw the U.S. from NAFTA or other existing free trade agreements could have substantial impacts even without accompanying congressional action. The report comes amid increasing concerns that the Trump administration may pull the U.S. out of NAFTA if Mexico and Canada do not agree to the administration’s proposed changes.

According to the report, Congress could find it difficult to prevent the president from withdrawing from an FTA. The Constitution does not specifically address withdrawal from congressional-executive agreements (which FTAs have historically been approved as), and there is no historical precedent for the president’s unilateral withdrawal from an FTA approved as such. However, the report states that the weight of judicial and scholarly opinion suggests that the president possesses the exclusive constitutional authority to communicate with foreign powers, which might provide the president with a constitutional basis for withdrawing from at least some types of international agreements. On the other hand, the precise subject matter of an agreement might be relevant to a legal analysis; for example, the Constitution gives Congress specific authority to regulate foreign commerce, which is a primary function of FTAs.

Beyond terminating an FTA with respect to the U.S. as a matter of international law, a unilateral presidential withdrawal could effectively terminate the FTA in practice as well. The report explains that this is because most of the congressionally-approved laws implementing FTA provisions provide for their own full or partial repeal in the event that the underlying FTA ends. However, the report notes that Congress could enact legislation to ensure that implementing laws remain in effect. In addition, the repeal provisions could be subject to a constitutional challenge in court because they arguably represent an implied delegation of authority to the president to unilaterally and permanently repeal existing provisions of law.

Even if FTA implementing laws remain in place, the report states, the president could rely on constitutional or statutory authorities to repeal or limit the effect of federal regulations, orders, or practices that implement those laws. For example, a federal agency could narrow the scope of an existing rule, issue guidance indicating a more relaxed interpretation of the rule, or exercise enforcement discretion. In addition, the president could utilize any available discretionary authority to not implement FTA obligations. Such actions may be subject to judicial review on various grounds, the report notes, including that an agency has exceeded its statutory authority or failed to enforce the law.

With respect to tariffs in particular, the report points out that section 125 of the Trade Act of 1974, which Congress has made applicable to most FTAs (including NAFTA), appears to provide for the continuation of preferential tariff rates under an FTA for a year after the U.S. terminates or withdraws from it. However, the president can short-circuit this provision by issuing a proclamation adjusting tariff rates to those that would be in effect if not for the FTA. The report notes that this provision does not appear to have been interpreted by a court.

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