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Trump could use NAFTA withdrawal letter as negotiating leverage

Reuters  |  WASHINGTON 

By David Lawder

(Reuters) - A termination letter from U.S. Donald could become the ultimate sleight of hand from as it seeks to gain negotiating leverage over and in talks to update the 24-year-old pact.

While such a letter would start a six-month exit clock ticking, the would not be legally bound to quit the North American Free Agreement once it expires.

Unlike the irreversible missile that Britain fired when it triggered a two-year countdown to its exit from the last March, quitting would still be optional for And an exit would almost certainly face court challenges over Trump's authority to leave without consent from

sources told on Wednesday that they are increasingly convinced that will soon announce the U.S. intention to pull out of The sent Canadian and Mexican currencies lower and hurt stocks across the continent.

Sending a termination letter would allow Trump, who has been frustrated with Mexican and Canadian reluctance to meet aggressive U.S. demands on the sourcing of automotive parts and on dispute settlement, to take a key step toward meeting his campaign promise of quitting if it cannot be revised to shrink U.S. deficits.

"He can gain political mileage out of a big announcement to quit without actually doing it," said Gary Hufbauer, a senior fellow and expert at the for International Economics who has written extensively on termination issues.

"He could say that from sometime after the six-month deadline if we don't get better results in the negotiations," Hufbauer said.

Using a withdrawal letter in this manner fits in with a scenario that some industry lobbyists and observers say is increasingly likely: If there's no deal after two more scheduled negotiating rounds in late January and March, talks would be put on hold for several months as Mexico's campaign gets under way.

By the time talks resume, the withdrawal threat could have more potency as a negotiating tactic.

NAFTA's Article 2205 states: "A party may withdraw from this agreement six months after it provides written notice of withdrawal to the other parties. If a party withdraws, the agreement shall remain in force for the remaining parties."

The would be then free to declare the restoration of U.S. tariffs to levels agreed at the World Organization, although experts say that would revert to the terms of a 1987 U.S. agreement that predated

Any move by to invoke this clause is almost certain to be met with immediate legal challenges from U.S. business groups that would argue that congressional consent would be required because the U.S. Constitution grants authority over matters.

In recent weeks, Republican lawmakers have been raising increasing concerns about the dangers of quitting NAFTA, particularly in U.S. farm states that count as their biggest grains customer.

On Wednesday, called quitting a "grave mistake" that would send the U.S. "five steps back."

Because implementing legislation would remain on the books, many provisions of would still be active, including and that the administration wants to change.

"I think this is headed for a huge legal morass if the were to unilaterally send a notice of withdrawal," Jennifer Hillman, a and former WTO appellate judge, told in November.

(Reporting by David Lawder; Editing by Leslie Adler)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, January 11 2018. 05:38 IST