Trade has always been a controversial issue. The original Tea Party in Boston was a reaction to a tariff on tea imposed by the British on the American colonies. And, many people are unaware that when the Constitution was established, there were no political parties in the United States. It was the controversy over the Jay Treaty in Washington’s second term that gave Great Britain Most Favored Nation trading status that led to the creation our two-party system. The Federalists led by Washington, Adams, and Hamilton supported of the Treaty while the Democrat-Republicans led by Jefferson, Madison, and Monroe opposed the Treaty and favored an agreement with France instead.
Certainly, when it comes to economic agreements, a review from time to time is probably healthy. But Canada and Mexico are two of our biggest trading partners, and, thanks to NAFTA, some of our largest companies with subsidiaries or branches in Canada will be able to take advantage of Canada’s new free trade agreement with the European Union. There is even a future prospect of a trade agreement with British Commonwealth nations after Brexit gets sorted out. So, the announcement not to begin withdrawal from NAFTA is a good thing for our economy both now and in the future.
Most countries, not us yet, have figured out that the way to get the greatest economic benefit through trade is through a territorial-based cash accounting system like a Value-Added Tax. This system allows countries to tax imports and exempt exports from taxes. The House Republican Better Way proposal includes a provision that works in a similar way to how most of our allies tax our goods when we export them to their country. Adopting the Border Adjusted Tax would be the best way to improve the U.S. advanced manufacturing sector and create high paying jobs that raise the standard of living for working and middle-income Americans.
While any of the three countries can withdraw from NAFTA, renegotiation is a more complicated process. Having said that, the United States has not actually withdrawn from a trade agreement since 1866 – 150 years ago, so almost all talk of withdrawing from a trade agreement is without modern precedent.
For President Trump to renegotiate a trade agreement, he must get Trade Promotion Authority from Congress (TPA) also known as “fast track.” This law allows a President to represent the United States at the negotiation table but gives Congress the final say on whether a trade agreement is adopted. TPA allows a President to negotiate an agreement, with the understanding that any agreement must be ratified by Congress. This has the beneficial effect of only one person negotiating on behalf of the nation (through the President’s Trade Representative) but having the people’s representatives in Congress required to approve any trade agreement. A trade agreement presented by the President to Congress is considered under a unique series of expedited procedures and is not subject to filibuster in the Senate.
The Constitution is very clear on this: “The Congress shall have Power To… regulate Commerce with foreign Nations” … and to “lay and collect Taxes, Duties, Imposts and Excises…” – Article I, Section 8. The Supreme Court ruled: “Because of Congress’s express power in this area, the President may not impose, reduce, or effect any other change in existing duty rates through an executive agreement unless he has been delegated the authority to do so by Congress” (United States v. Yoshida Int’l Inc., 1975). And this: “Indeed, when the President exercises authority in regulating foreign commerce, he or she does so as Congress’ ‘agent.'” (United States v. Guy W. Capps, Inc., 1953). And finally, “Imports from a foreign country are foreign commerce subject to regulation, so far as this country is concerned, by Congress alone” (Consumers Union of U.S., Inc. v. Kissinger, 1975).
The most important point is that a trade agreement is not a treaty under the Constitutional definition of the word. It is a Congressional-Executive agreement that requires the consent of the House and the Senate. NAFTA is a Congressional-Executive trade agreement, and as a result, it can only be modified or revised with Congressional approval. However, if an agreement approved by Congress contains an explicit provision allowing the President to terminate an agreement, and NAFTA does, the President can terminate the agreement without Congressional approval.
Even when it comes to punitive tariffs, like the ones President Trump imposed on Canadian lumber (a long-standing dispute that pre-dates the Trump presidency) he can only impose these tariffs if delegated to do so by law. U.S. laws allow the president the flexibility to impose punitive tariffs for unfair trade practices, with the idea that the tariff is a temporary wake-up call that will create an incentive to resolve the trade dispute.
One-fourth of U.S. jobs are related to trade, so it makes sense that both the President and the Congress have an important role to play in trade policy. Since our two neighbors are our two largest trading partners, it makes sense for us to have a trade agreement that makes us a powerful trading block with the understanding that it will help all three countries maximize their competitive advantages. The European Union started out as a trade union to maximize the trading competitiveness of the countries involved. That is because, the bigger the economy, the greater the negotiating leverage of the entity negotiating a trade agreement.
As an aside, technically speaking, the European Union would be our biggest trading partner, but we do not have any formal trade agreement with the EU, but rather have them with individual countries. This creates a kind of nebulous situation where we have preexisting trade agreements with individual member states of the EU that are superseded by decisions made in Brussels. This whole matter would be clearer if we could negotiate a free trade agreement with the EU, but the most recent effort stalled out last year. For now, we formally count our trade volume bilaterally – that is with each European country. However, the Commerce Secretary Wilbur Ross reiterated the interest for the TTIP agreement started under the Obama Administration. “We never canceled TTIP. We sort of suspended the negotiations, but we never canceled,” Mr. Ross said. “It wasn’t like TPP.”
Mark Strand is the President of the Congressional Institute and Anca Butcaru is a senior advisor to the president. The Sausage Factory blog is a Congressional Institute project dedicated to explaining parliamentary procedure, Congressional politics, and other issues pertaining to the legislative branch.