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Will NAFTA be Trumped?

by Veronique Malka
Barrister & Solicitor (Ontario, Canada) & Foreign Legal Consultant (New Jersey, USA) Founding Partner of the Canadian Law Group.

Canadian and U.S. immigration lawyers have been concerned about the future of the NAFTA, a treaty which has been serving as a useful vehicle to facilitate the cross-border admission of foreign workers in North America since 1994.  Throughout his campaign for the Presidency of the U.S.A, President Trump announced that he would be withdrawing from the NAFTA, the North American Fair Trade Agreement, an agreement signed by Mexico, the United States, and Canada, allowing for more open commercial trade between the three countries. It became into force in 1994.  Trump’s reasoning for withdrawing from NAFTA is that the agreement’s downfalls outweigh its benefits to the United States. However, his decision to Trump NAFTA encompasses many obstacles which will need to be overcome in order to move forward with this plan.

Is It Really that Bad?

President Trump’s main argument in withdrawing from NAFTA lies in the premise that the agreement is hurting the U.S. economy, and that Mexico is receiving the most profit out of this Agreement. When looking at statistics, however, the numbers reveal a much different story.  In fact, in 2016, nearly 5 million U.S. jobs were dependent on trade with Mexico. Moreover, the trade agreement has allowed for an increase in U.S. capitalization in Mexico, as the Foreign Business Interests (FBI) increased exponentially, reaching 107.8 billion dollars in 2014; this
effect resulted primarily from the availability far more cost-effective labor, which encouraged companies to set up manufacturing processes in Mexico.

These rather positive trade effects are the result of the deeply thought-out strategic techniques which gave rise to the creation and ratification of NAFTA in the first place. The very phrasing of the Agreement, combined to a background of  established trade between the countries, was designed to increase levels of trilateral trade.  It should come as no surprise, thus, that since NAFTA’s enactment in 1994, Canada and Mexico have become the top trading partners of the U.S. on a global scale.

Following the enactment of NAFTA, trade between Mexico and the U.S. increased substantially.  Consider the following numbers:

  • 1993: 50 billion
  • 2000: 100 Billion
  • 2015: 300 Billion!

U.S. companies have greatly benefited from NAFTA.  Consider GM and Ford,  two of the many companies taking advantage of the trade benefits and affordable labour created by the Treaty.  It is said that cars being manufactured and sold in the U.S. sometimes have parts that can go over the border to and from Mexico, back and forth, as many as 30 times, before they reach sales levels.

Although most NAFTA repeal or modify discussions has centered around the subject of Trade with Mexico, in reality, Canada’s leading trade partner, in the world, is Canada.  The top products imported by the U.S. from Canada are snacks, red meat, vegetable oil, processed foods, vehicles, mineral fuels, natural gas, machinery, and plastics.  In 1994, imports to the U.S. from Canada totaled just over $47,000.  The U.S. Census Bureau reports that we have reached import totals of $42,000 in the first quarter of 2017 alone.

Can Trump Withdraw From NAFTA?

When first elected, Trump was expected to repeal NAFTA, or at least take a pen and “strikeout” the Mexico references from the Treaty. In the first days of his presidency, Trump withdrew from the Trans-Pacific Partnership (TPP), an economic trade deal earlier signed by Obama, leading many to exp
ect a similar withdrawal from NAFTA: Can the U.S. simply unilaterally withdraw from this effective Agreement through an Exectuive Order signed by Trump?

It is important to recognize that free trade agreements are international treaties which require Congressional Executive sanction. In other words, there needs to be  cooperation between the Executive Branch and the Legislative Branch of government, which have interrelated powers: The Legislative branch that is Congress has the legislative power, which includes regulating commerce, and the Executive branch that is the President has the executive power, including regulating foreign relations. Thus is created a system
of checks and balances which was set up to specifically ensure that the President cannot just take a pen out and affect foreign relations unilaterally.

One important distinction between TPP and NAFTA is that the TPP had not yet been ratified by the U.S. at the time of the withdrawal.  In other words, it had not yet been incorporated into domestic law by Congress, which made the U.S.’ removal from the partnership a lot simpler. By contrast, NAFTA has been in place since 1994, has been ratifi
ed by Congress, and has been established within domestic law, signaling a far different process for the U.S. to modify or withdraw from its application.

Another idea which Trump is considering is to impose certain taxes or tariffs on particular goods. However, we must remember that the World Trade Organization (WTO) is the body which governs tariffs; thus, in order for certain regulations to be approved, t
he WTO needs to approve of them.  By consequence, should Trump impose tariffs, Mexico could actually also raise the tariffs substantially on U.S. goods.

We believe, perhaps just like President Trump does, that “money talks.”  NAFTA has actually created jobs for U.S. workers, even though he has vehemently argued that trade can take away jobs.  NAFTA has made money for the U.S. and has increased its international trade, both with Canada and Mexico.  Perhaps this explains why Trump originally spoke of a withdrawal from N
AFTA while on the campaign trail, but then softened his position to one of possible “renegotiation.”

The Immigration Aspect of NAFTA

We believe that the focus of any NAFTA renegotiaton will be in the area of Trade, and not the Immigration part of the treaty which governs mobility of Canadian, U.S. and Mexican workers.  That portion, which contains an important Appendix of Professional Designations, is in serious need of a “facelift” to reflect current trends of employment.  Since its drafting and enactment in 1994, NAFTA professions have hardly been modified, with only a few new categories added (e.g. foreign legal consultants) over the years.  Yet, times have changed and designations such as “Computer Systems Analyst” or “Management Consultant” are archaic terms that cover so many occupations today.  These expansions of industry have created loopholes wherein Immigration officers who assess applications for work visas under NAFTA are forced to exercize far too much discretion in fitting an application into one of the listed categories.  We believe it is far time for the Appendix to be re-designe
d to update and better define the professions, while leaving largely intact the provisions that pertain to Treaty/Trader movement and business visitors.

Some NAFTA attorneys in both the U.S. and Canada have wisely suggested that a Working Group be set up by each country to sit and review the Treaty, with a view to revising it at least once yearly.  With an ongoing and established review system, NAFTA could continue to exist, while a me
chanism of modification and updating could be in place to address concerns as they arise.  Even the concerns expressed, at any time, by President Trump.

For questions in regards to NAFTA and its role and effect in the U.S. and Canada, contact  Veronique joined a panel of cross-border experts on June 8, 2017 at the Ontatio Bar Association, in Toronto, for a seminar entitled: Building Bridges or Building Walls? Crossing the Canadian – U.S. Border in the Era of Trudeau and Trump.

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