Law Times

Page 14 November 6, 2017 • Law Times www.lawtimesnews.com Advising clients amid NAFTA uncertainty BY DALE SMITH For Law Times A s NAFTA renego- tiations drag on, and with the United States administration mak- ing demands that are deemed to be non-starters while mak- ing threats to tear up the agree- ment completely, uncertainty is spreading around those who do cross-border business with Americans. There is also speculation that if NAFTA was torn up that the original Canada-U.S. Free Trade Agreement would not au- tomatically come back into force — something seen as a "Plan B" — unless it were "un-suspended" in legislation, increasing the un- certainty. Trade lawyer Mark Warner of boutique firm MAAW Law in Toronto says the situation may be even more complicated than that, as there's debate over whether the executive or the legislature in the U.S. has the power to tear up NAFTA or un- suspend the original FTA. He suspects that any decisions or attempts to make a decision will wind up in litigation that could last for a year to 18 months. "It's probably not good advice to tell clients that Congress holds the pen in all of this, because they'll end up being surprised when this stuff bubbles through the courts," says Warner, who practises in both Canada and the United States and used to teach law at the University of Baltimore. "I would be very surprised if the Supreme Court of the Unit- ed States would deny executive authority over foreign relations. It's just not something American courts have done." Robert Kreklewetz, partner with Millar Kreklewetz LLP in Toronto, says that even a return to the original FTA would be a problem because of problems that NAFTA was designed to ad- dress, including clarity around Rules of Origin to ensure that there is little room for protec- tionist interpretation that were common under the FTA. Kreklewetz says that in No- vember 1992, the U.S. govern- ment of the day indicated that "NAFTA provides for dearer rules to govern North American trade. They will reduce the risk of unilateral interpretation by cus- toms officials. "That certainly does not bode well for a Canada, with- out NAFTA, trying to deal with U.S. border agents carrying the protectionist torch for the U.S. government of the day," adds Kreklewetz. He says other pro- visions not seen in Canada for 25 years may come back into vogue, such as drawbacks — re- funds available on inputs for goods produced in Canada and exported to the U.S. As well, "ex- port taxes" currently prohibited under NAFTA could be used to generate revenues. "While it might be political suicide for a Canadian govern- ment to start up export taxes, this is just another part of the Al ice in Wonderland world that would be out there if somehow the FTA came back into force with the NAFTA disappearing," says Kreklewetz. Another side effect will be the particular work visas tied to NAFTA used by many profes- sionals, including lawyers, ac- countants, nurses and others. So how do lawyers propose to deal with the potential dis- appearance of NAFTA? While Kreklewetz says nobody knows for certain, trade lawyers will have to wait on direction from the Canada Border Services Agency and jump on whatever requirements are indicated. "Certainly, from a f low of goods perspective, the tariff classification and values are not going to change — just the po- tential duties," says Kreklewetz. "So, open up the wallets and get ready for some short-term pain. Bottom line is more work for the accountants and the law- yers and more money paid to the respective governments as free trade becomes a little less free," he adds. Warner says that for a lot of companies who are thinking of investing in Canada to export into the U.S., the better advice is to find some place to be in the United States. "Maybe there's a perception that Canada will be a much more welcoming and inviting place, and you'll be able to attract more immigrants from South Asia who would have trouble cross- ing the border," says Warner. "My feeling is that's probably not very many companies for whom that will be a major decision." Susana Lee, international trade counsel with Cassidy Levy Kent (Canada) LLP in Ottawa, notes that World Trade Organi- zation rules will still be in place even if there is no NAFTA or revived FTA. Lee says lawyers need to look at the situations from a business perspective to assess the worth. "They should always keep in mind that [clients] are the ex- perts in their industry," says Lee. "They know their products, they know what value they're giving to their customers, they know their supply chain, how it oper- ates — they know what's best for them." LT INTERNATIONAL/CROSS-BORDER LAW Two decades ago, a leading Canadian lawyers magazine called Millar Kreklewetz LLP a Super Boutique, describing us a Not much has changed. We are proud to be recognized by World Tax as a leading Canadian Tax Law Firm – on the strength of our GST/HST and Customs client base, which they noted as "stellar"! 24 Duncan Street, 3rd Floor Toronto, Canada M5V 2B8 Robert G. Kreklewetz rgk@taxandtradelaw.com W. Jack Millar wjm@taxandtradelaw.com John G. Bassindale jgb@taxandtradelaw.com Tel: (416) 864 - 6200 Fax: (416) 864 - 6201 www.taxandtradelaw.com Helping You. Help Your Clients. ® "brand name for commodity tax and related international trade work". MillarKreklewetz_LT_Nov6_17.indd 1 2017-11-01 10:25 AM Susana Lee says World Trade Organization rules will still be in place even if there is no NAFTA or revived free trade agreement. Certainly, from a flow of goods perspective, the tariff classification and values are not going to change — just the potential duties. Robert Kreklewetz

• Cover