Ambiguities in U.S. Trade Laws Imperil Our Economy and Constitutional Order

In yesterday’s Investor’s Business Daily, Club for Growth President David McIntosh and I had a short piece on the perilous implications of President-elect Trump’s threats to unilaterally withdraw the United States from our trade agreements or impose punitive and wide-ranging tariffs on imports. The economic effects of Trump’s promises have been explored at length (see, e.g., this new one on NAFTA and Texas), but most trade law experts are just now digesting the legal issues. What we’re finding is, to use the technical term, a big mess that could have unforeseen economic and constitutional implications in the Age of Trump. As we note:

For almost a century, American trade policy has been formed and implemented by a successful "gentlemen's agreement" between Congress and the president. Congress delegated to the president some of its Article I, Section 8 powers to "regulate Commerce with foreign nations" so that the president may efficiently execute our domestic trade laws. The president negotiates and signs FTAs with foreign countries, while Congress retains the ultimate constitutional authority over international trade, for example by approving or rejecting agreements or by amending US trade laws.

As a result of this compromise, the United States has entered into 14 Free Trade Agreements with 20 different countries and imposed targeted unilateral trade relief measures — all without significant conflict between Congress and the President.

The question now is whether Mr. Trump, as president, could and should single-handedly implement his trade agenda on Jan. 20, 2017 without any congressional action.

The IBD op-ed scratches the surface of these legal issues, but below are more details on just a few of the many ambiguities lurking in U.S. trade law—ambiguities that, if not properly clarified, could be exploited by a protectionist U.S. president against the original intent of the Congress that delegated their constitutional authority over trade policy under the (incorrect!) assumption that the president would always be the U.S. government’s biggest proponent of free trade.

NAFTA

Under U.S. Law, FTAs are negotiated and signed by the president, but have limited legal force in the United States until they are converted into implementing legislation (which would amend current law), passed by Congress, and then signed into law by the president. In the case of NAFTA, this meant that President Clinton signed the deal, but it was Congress who ultimately approved and implemented it through the North American Free Trade Agreement Implementation Act, which President Clinton subsequently signed into law.

Such a process indicates that a similar one would be needed to terminate NAFTA, but the law is far from clear in this regard. The President’s constitutional authority over foreign affairs (under Article II) and “termination and withdrawal authority” under the Trade Act of 1974 could give him the authority to withdraw, without congressional approval, from NAFTA under Article 2205 of the Agreement. At that time, Canada and Mexico would immediately be free to withdraw any and all trade concessions (e.g., preferential tariff treatment) made under NAFTA with respect to the United States.

Withdrawal, however, might not automatically terminate the Implementation Act, thus leaving U.S. duties and other NAFTA commitments in place while Canada and Mexico do as they please. The only certain way to terminate the Act would be through Congressional passage of another piece of legislation, but the President could claim that the Act self-terminates after withdrawal under Section 109(b) of the Act (“During any period in which a country ceases to be a NAFTA country, sections 101 through 106 shall cease to have effect with respect to such country”). The Act and its supporting documents do not clarify this provision, and there is no post-WWII precedent relating to U.S. termination of an FTA. Thus, the President could theoretically instruct Customs and other agencies to raise US trade barriers to non-NAFTA levels on his view that the Implementing Act has terminated, while Congress claims he has no such authority.

Similar ambiguity exists in the NAFTA Implementation Act with respect to raising “additional duties” on NAFTA imports via presidential proclamation when the President determines that they are “necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada or Mexico.” None of this is defined or explained in the Act or elsewhere and, again, there is no historical precedent.

Making things even more complicated, the Trade Act of 1974 and the 1988 Trade Promotion Authority (“fast track”) law governing NAFTA negotiations and implementation each contain their own, unclear provisions on the President’s unilateral authority to raise duties on trade agreement partners via presidential proclamation.

The relationship between all of these overlapping, ambiguous laws is a complex matter of statutory interpretation—certainly not something a President should simply pursue without congressional input, especially given what’s at stake here.

Other U.S. Trade Agreements

Similar provisions in other U.S. FTAs and implementing Acts—particularly those in the US–Korea FTA (Article 24.5 of the Agreement and Section 107(c) of the implementing law) and other bilateral FTAs—raise similar, perhaps even more pressing problems. Even the WTO Agreements and the Uruguay Round Agreements Act (URAA) implementing them in the United States, while expressly foreclosing unilateral termination of the URAA by the President (thank heavens), raise other concerns about new executive branch protectionism without congressional consent.

Tariffs and Other Unilateral Protectionism

Finally, various U.S. laws permit the President to unilaterally impose duties for reasons not thoroughly explained in law, regulation or practice. These ambiguities exist for much the same reasons as those in our trade agreement laws: the President has constitutional power over foreign affairs and the execution of U.S. law, and is traditionally the most trusted person in the U.S. government not to use these protectionist tools to reward discrete domestic constituents. For example, President-elect Trump has threatened to impose tariffs under Section 232 of the Trade Expansion Act of 1962, which only permits them when a certain product is “being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” However, neither Section 232 nor the relevant regulations define the term “national security.” Past agency practice would argue against using Section 232 in ways envisioned by Candidate Trump, but this is hardly reassuring when President Trump appoints the head of the agency. Trump might therefore try to block imports under Section 232 in ways never envisioned by Congress or past Presidents.

* * *

So could a President Trump carry out his many campaign threats without congressional input? As shown in the examples above, the law is unclear in many cases—primarily because Congress in the modern era never anticipated a president more protectionist than its House and Senate majorities. Indeed, Congress’ broad delegation of authority to the President is based on the implicit understanding that the executive branch was more insulated from discrete constituent interests and thus in the best position to advocate free trade, which provides broad and significant national benefits but smaller, concentrated costs. Now, however, things may have changed, and our laws aren’t prepared for a president who views open trade as a threat and protectionism as a weapon.

Indeed, the reality of the President-elect’s trade intentions has shined a bright light on the many ambiguities in U.S. trade law—ambiguities that confuse both the practical operation of our laws and the proper separation of powers intended by Congress therein, but were ignored (including by me!) because of the longstanding bipartisan consensus in favor of trade liberalization, congressional–executive cooperation on trade, and the implicit understanding of the president’s special role in promoting U.S. trade liberalization. With the “free trade consensus” now clearly frayed—if not completely torn apart—we should seriously reconsider Congress’ historical delegation of trade powers.

During the Bush and Obama years, Congresses controlled by the opposition party have railed against executive overreach and pushed for limits on powers delegated or assumed by the President through liberal interpretations of poorly-drafted laws. By acting now to clarify various ambiguities in current U.S. trade law, our political leaders can finally match their words with their deeds and, in the process, avoid not only economic calamities but also a potential constitutional crisis. Only time will tell if congressional Republicans are up to the task.

The views expressed herein are those of Scott Lincicome alone and do not necessarily reflect the views of his employers.