What Happens When NAFTA Is Abrogated?

Dear CAP Friends, A number of people are asking and wondering about how Canada will change when NAFTA is abrogated (abolished).

Here is a concise overview in answer to that question.

--- Question: Suppose we were to abrogate NAFTA, what would happen and what would we do next?

Answer: Apart from the inevitable anger on the part of the U.S. government there would be very little, if any, immediate consequence of significance. There are two possible scenarios.

Case I: Canada would immediately offer to negotiate a Fair Trade Agreement with the U.S. and Mexico which would maintain the status quo on tariffs, dispute settlement mechanisms, etc. but which would not include the unacceptable “national treatment” clause on investment, the energy sharing provisions, etc.

If the U.S. and Mexico agreed, trade would not be affected but Canada would have regained the right to reinstate the Foreign Investment Review Agency which would be able to screen foreign investment and apply conditions as well as limits on the level of foreign ownership acceptable in any industrial or resource sector. We would encourage foreign investment but only when it would be of benefit to Canada. Jobs would not be lost and might even be enhanced if we stop selling companies that are subsequently downsized or shut down completely. In sum we would regain control of our own destiny. (Existing investment is not affected.)

Case II: In the event that the U.S. and Mexico refused to sign Fair Trade Agreements, Canada would revert to reliance on the General Agreement on Trade and Tariffs (GATT) which served us so well before the FTA was signed.

We would then rely on the WTO dispute settlement mechanism.

Our tariff advantage with the U.S. prior to 1988 would be re-instated.

We would achieve the same investment advantage that we are seeking vis-à-vis the U.S.

The only negative – which might turn out to be a positive for Canada in repatriating some of its talent – would be that the TN Visas under NAFTA would not be renewed when they expire.

N.B. Under both scenarios Canada should ensure that it doesn't give away more sovereignty under the WTO General Agreement on Trade in Services (GATS) which the Liberal government is in the process of doing.