Thread by @TheLastRefuge2

1. There has been some confusion about whether NAFTA is indeed actually "dead", and whether the newly announced bilateral pact with Mexico needs Congressional approval. The short answer is, it depends.

2. President Trump has two routes (both good for the U.S.), depending on what Canada does, based on the existing NAFTA pact and the 1993 implementation act passed by both branches of Congress.

3. Originally NAFTA superseded a pre-existing bilateral between US and Canada. It came about when Mexico approached US for a deal of its own, then Canada got worried and asked to joint to make it trilateral.

4. In 1992 Ross Perot was campaigning against the Mexican part, not the pre-existing Canada pact.

5. So as one can imagine, there are many Canada and Mexico specific provisions and carve outs, some in the main text and many in the detailed annexes. (For example, Mexican maquiladora content origin rules.)

6. In effect, the original NAFTA is two bilaterals inside a common framework and set of objectives. [309 NAFTA pages - doc is available at idatd.cepal.org ] w/ zero unique Mexico-Canada provisions or specific trilateral provisions....

7. ...as opposed to general principles and administrative things requiring trilateral negotiations as most Canadian media and business talkers seem to assume.

cc: @ezralevant

8. Therefore ROUTE #1: Canada comes to the table and revamps its US-Canada terms along Mexico lines (e.g. its dairy carveout highlighted by Trump). Then Article 2202 comes into play. A2202 (1) says the Parties may agree to ANY modification or addition to the agreement.

9. A2202 (2) says such become automatically incorporated when approved by the parties respective legal processes. [Here is the Trump strategic brilliance.] The 1993 US implementation act apparently did not require new congressional approval for modifications/additions underA2202

10. The legal process under A2202 is, as USTR Lighthizer said, just a simple 90 day written notification to Congress.

11. To block the U.S./Mex agreement under A2202... congress would have to pass, and Trump would have to sign, (or have Congress 2/3 over ride his veto) an amendment to the 1993 Implementation Act. That's not going to happen.

12. Which takes us to ROUTE #2: Canada foolishly *does not* come to the table.

Then Trump invokes A2205 [The US automatic withdrawal after 6 months written notice] And on 6 months plus 1 day, Canada gets slapped with 25% vehicle duties as Trump has already promised.

13. In Route #2 the U.S./Mexico bilateral pact only needs simple majority approval by Congress, something very likely after the midterm elections.

14. Canada really has no choice but to come to the table. The issues with Mexico were much greater and more difficult, and they have been resolved to both countries satisfaction. With full support of Mexican President-elect AMLO.

15. Congress will have no say in the final Trump new NAFTA deal; hence some of Trump’s language today as putting a ‘loaded negotiating gun’ to Trudeau’s head. It doesn’t matter whether MSM and congress critters and MSM get a bit confused. Trump and his wolverines are not.

16. By choosing politics over fundamental trade economics Justin and Chrystia from Canada have painted themselves into an isolated position on a renegotiated North American Trade deal. @ezralevant Here’s the basic Canadian conundrum.

17. The U.S. and Mexico have agreed to manufacturing content origination terms; wage and labor improvements; elimination of AG subsidies and non tariff barriers; and removal of all protectionist tariffs – so long as the structural terms of commerce are upheld.

18. In order for Canada to join they need to:
(1) eliminate soft-wood lumber subsidies;
(2) eliminate protectionist tariffs (Dairy) sector;
(3) accept 75% rules of origin, eliminating NAFTA loophole;
(4) agree to enforcement mechanisms
(5) allow U.S. banks to operate in Canada

19. Each of these five issues, now locked-in and agreed by the U.S. and Mexico, are “take-it-or-leave-it” terms for Canada to join the agreement.

20. Given the intentional decision to politicize the Canadian economy, it will be interesting to see if Justin and Chrystia can find a way to agree to those terms and yet somehow keep their fragmented political base appeased. It seems unlikely.

21. It is more likely Justin/Chrystia will choose to keep their soft-wood lumber subsidies; keep their protectionist Dairy tariffs; keep their banking rules blocking U.S. access; and rebuke the 75% North American content demand within the auto sector.

22. Thus the simple and predictable outcome is that Canada will need to negotiate an entirely different bilateral trade deal with the U.S., and face a 25% duty on U.S. auto exports, effectively destroying the Canadian auto manufacturing sector in the interim.

/END