By | December 28, 2017

Here are some comments on the various possibilities for Canada-US trade relations as we move into 2018, overlain with the threat of Mr. Trump terminating US adherence to the NAFTA.

Regarding the resurrection of the 1988 Canada-US Free Trade Agreement (FTA), it’s true it remains suspended but not terminated as a bilateral treaty. It could re-enter into full legal effect if the US withdraws from the NAFTA early next year, should Mr. Trump trigger Article 2205 (the 6-month notice requirement). However, the re-entry of the FTA into full legal force wouldn’t be automatic: Canada would have to agree to that as a matter of treaty law.

One of the main red-line positions in the NAFTA negotiations is the US demand to end the Chapter 19 panel review process. The bilateral FTA has virtually the same panel review chapter and if the FTA were to re-enter in force after US withdrawal from the NAFTA, the FTA panel system would then also be applicable as part of that treaty. The question is whether the Trump White House be prepared to accept that.

The interesting point here is that the FTA panel system has a 5-year sunset provision (with an automatic 2-year extension) under Article 1906 thereof, something rarely mentioned by policy commentators and the media.

The FTA panel process already ran for 5 years (1989-1994) before the NAFTA entered into force. Thus, if the FTA snapped back into operation, its binational panel process would then at most have 2 operational years left. Maybe the US could accept this.

Should this scenario unfold, the softwood and aircraft subsidy and any other cases initiated under NAFTA Chapter 19 would presumably continue to the end even if US treaty obligations under the NAFTA were terminated.

After US withdrawal from the NAFTA was completed, any new panel reviews would take place under the bilateral FTA – until the sunset provision ended the process.

The 1988 FTA has the same 6-month withdrawal provision (under Article 2106). If the binational panel system as well as other parts of the FTA are as abhorrent to the Trump administration as the NAFTA, the White House could end US adherence to the FTA and trigger US withdrawal from that treaty at the same time as invoking withdrawal under NAFTA Article 2205.

Of course, none of this is 100% clear. But the various possible scenarios make for interesting speculation as we move forward into 2018.