Trade Act Restrictions on the Extension

of Most-Favored-Nation Rights

A trade agreement negotiated with Canada to be implemented pursuant to the “fast track” 

authority provided by the Trade A ct of 1974, as amended, is subject to § 102(b)(3) o f the 1974 

Act, 19 U.S.C. § 2112(b)(3). That section prohibits the extension to other countries of any 

trade benefits received by a country under a “fast track” agreement if such agreement provides 

for a reduction or elimination o f any duty imposed by the United States. As a matter of 

domestic law, this prohibition was intended to, and does, impair the automatic operation of 

m ost-favored-nation clauses in various treaties to which the United States is a party. The 

impairment caused by § 2112(b)(3) can be reduced in this instance by simultaneously concluding an agreement with Canada addressing non-duty benefits and a separate agreement 

addressing duty reductions. Section 2112(b)(3) would prevent only the benefits given to 

Canada under the latter agreement from being extended to third countries enjoying applicable 

m ost-favored-nation rights. Furthermore, any legislation implementing the trade agreement 

with Canada would not operate to repeal the operation o f § 2112(b)(3) in this case unless 

Congress expressly provided to that effect in the legislation. Finally, the United States’ 

international obligations with respect to most-favored-nation agreements have force even if 

such agreements were concluded after enactment of § 2112(b)(3).

August 31, 1987 

M e m o r a n d u m O p i n i o n f o r t h e C o u n s e l t o t h e P r e s i d e n t

I. Introduction

This memorandum responds to your request for our views on certain legal 

issues that may arise upon the conclusion of a U.S./Canadian trade agreement 

(Agreement) which the Administration is presently negotiating in the expectation of submitting it to Congress for implementation under special “fast track” 

authority provided by the Trade Act of 1974, as amended. Specifically, your 

Office has asked whether § 102(b)(3) of the Trade Act, 19 U.S.C. § 2112(b)(3), 

which applies to agreements negotiated under “fast track” authority, restricts as 

a matter of domestic law the extension of trade benefits received by Canada 

under the Agreement to other foreign nations which have most favored nation 

rights (MFNs) under Friendship, Commerce, and Navigation, Treaties (FCNs) 

or other bilateral agreements.1 By operation of applicable MFN clauses in

1 The President, of course, has independent authority to negotiate free trade agreements as an aspect of his 

plenary pow er to conduct foreign affairs. See generally, United States v. Curtiss-Wright Export Corp., 299 

U.S. 319 (1936). This independent authority may not be restricted in any way Accordingly, the President 

may conclude the Agreem ent under his ow n independent authority and avoid entirely the restrictions imposed 

by § 2112. Congress may, however, agree, as it has under § 2112, to consider legislation implementing an 

agreem ent on an expedited basis only on th e condition that the President comply with certain requirements 

that are otherw ise constitutional.

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such agreements the United States may be obligated under international law to 

extend benefits received by Canada under the Agreement to certain third 

countries. If § 2112(b)(3) frustrates the operation of any such MFN clauses, 

you have asked whether legislation implementing the Agreement could be 

deemed to repeal these restrictions insofar as they affect the Agreement. 

Finally, you have asked whether MFN clauses in agreements which were 

concluded after the enactment of § 2112(b)(3) into our domestic law require 

the extension of trade benefits included in agreements negotiated under 

§ 2112(b)(3). We have concluded that 19 U.S.C. § 2112(b)(3) does prohibit the 

automatic extension to third countries of trade benefits received by Canada 

under the Agreement, but only if the Agreement provides for the elimination or 

reduction of any duty imposed by the United States. In other words, if the 

Agreement were to provide Canada solely with benefits other than tariff or duty 

reductions, the United States would be at liberty to comply with any international obligation that requires it to extend to a third country by operation of 

treaty the trade benefits Canada received.2 On the other hand, if the Agreement 

eliminated or reduced a United States duty, the United States would not be able 

to comply with applicable MFN clauses by automatically extending to third 

countries benefits granted to Canada. Moreover, we believe that if the Agreement were to reduce United States duties, § 2112(b)(3) would frustrate the 

automatic extension of any benefits, regardless of whether the trade benefit to 

be extended is itself a reduction of a duty or a benefit unrelated to duty 

reduction.

Second, we have concluded that the legislation implementing the Agreement 

cannot be viewed as an implicit repeal of § 2112(b)(3)’s prohibition on the 

automatic extension to third countries of benefits provided to Canada under the 

Agreement. Accordingly, in order to permit the extension of these benefits to 

third countries Congress must explicitly provide for the extension.

Finally, we believe that the international obligations of the United States 

under treaties concluded after enactment of § 2112(b)(3) into domestic law are 

not modified by § 2112(b)(3)’s prohibition on the automatic extension of MFN 

rights, unless the text of the treaty or its negotiating history indicates that the 

foreign signatory agreed that trade benefits included in agreements negotiated 

under § 2112(b)(3) did not have to be extended under applicable MFN clauses.

II. Analysis

A. M ost Favored Nation Rights under Existing Treaties

Certain Friendship, Commerce and Navigation Treaties or other bilateral 

treaties entered into by the United States which accord most favored nation

2 Consequently, in order to reduce the number of international obligations that § 2112(b)(3)’s prohibition 

may cause to be impaired, the United States may wish to conclude one agreem ent with Canada addressing 

non-duty trade benefits and a separate agreem ent addressing duty reductions. Only benefits granted under the 

latter agreem ent would be subject to § 21 12(b)(3).

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rights to foreign countries require the United States to extend to such countries 

the benefits Canada might receive under a U.S./Canadian trade agreement. 

Although we have not had the opportunity to consider closely each individual 

treaty currendy in force which grants MFNs to foreign countries and have had 

to rely on the views of the State Department concerning the scope of such 

treaties,3 we have nevertheless reviewed a representative sample of FCNs 

which grant unconditional MFN rights and concur in the State Department’s 

judgment that certain treaties would, by their terms,4 obligate the United States 

to grant their signatories the same trade benefits the United States might accord 

to Canada. Therefore, assuming that at least some treaties would impose this 

obligation under international law, and that some United States treaty partners 

could request equal treatment, our principal focus here has been to determine to 

what extent Congress under domestic law has precluded United States compliance with these international obligations.5

B. Trade A ct o f 1974

Under 19 U.S.C. § 2112 (§ 102 of the Trade Act), Congress has provided the 

President with authority to receive special consideration of free trade agreements he negotiates, but has circumscribed this authority through a variety of 

restrictions. If the President uses this authority to negotiate an agreement, 

legislation implementing the agreement will be put on a “fast track” and

3 See State D epartm ent Memorandum, “ Im pact on U.S. Friendship, Commerce and Navigation Treaties." 

The State D epartm ent is o f the view that the scope of some treaties granting MFN rights by their terms would 

not grant a foreign state all the benefits o f a trade agreem ent with Canada. See State Department M emorandum at 1-2. For exam ple, the standard FCN treaty provides an exception for “goods” if the agreement relating 

to goods is perm itted by the General Agreem ent on Tariffs and Trade and if the FCN treaty partner consults 

w ith the other. Id. at 1. In the few treaties w here such exception is not made (those with Saudi Arabia, Yemen, 

Liberia, Iraq, El Salvador, Honduras, Costa R ica and Bolivia) trade with the signatories is said to be small. Id.

M ore com plicated is the situation for services and investment. Both our FCN treaties with major trading 

partners (e.g. G erm any, Japan, Italy, Netherlands, Israel and K orea) and Bilateral Investment Treaties (which 

have been signed with ten countries, but not yet ratified) evidently accord fairly unconditional MFN rights. 

Id. at 3 -4 . In addition, the United States has entered into various Organization for Economic Co-Operation 

and Developm ent “U ndertakings With R egard to Capital M ovements” and “Undertakings With Regard to 

C urrent Invisible O perations” which also are said to grant broad MFN obligations in services and investment. 

Id. at 4.

4 The State D epartm ent Memorandum states:

[T]he standard FCN imposes a sweeping MFN obligation with respect to the right of alien 

nationals or com panies to:

(a) establish and maintain branches, agencies, offices, factories and other establishments 

appropriate to the conduct of their business;

(b) organize com panies under the general company laws of such other Party, and to acquire 

m ajority interests in the companies o f such other Party;

(c) control and m anage enterprises which they have established or acquired; and

(d) engage in all types o f commercial, industrial, financial and other activity for gain (services) 

w ithin the territory of each Party.

Id. at 2 -3 . M oreover, the standard FCN provides that “ ‘nationals and companies of either party . . . shall in 

any event be accorded most-favored-nation treatment with reference to the matters treated in the present 

A rticle.’” Id.

5 C ongress can, o f course, by statute override and nullify the domestic effect of any treaty obligations the 

U nited States m ight have. See generally Whitney v. Robertson, 124 U.S. 190 (1888).

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receive expedited consideration for congressional approval. See generally 19 

U.S.C. § 2191.6 This grant of authority includes both the power to conclude 

bilateral agreements which do not result in the reduction of duties or tariffs and 

the authority to conclude bilateral agreements making reductions in duties. 

Section 2112, however, imposes a variety of additional requirements when the 

President is engaged in the negotiation of an agreement that reduces duties.7

Moreover, Congress has prohibited any trade benefit included in a treaty that 

reduces a duty of the United States from being extended to third countries 

simply by operation of MFN clauses in a treaty between the United States and 

the third country. Section 2112(b)(3) provides:

Notwithstanding any other provision of law, no trade benefit 

shall be extended to any country by reason of the extension of

6 Under the fast track authority, the President negotiates the trade agreements and notifies Congress ninety 

days before they are to take effect of his intention to enter into the agreements. After consultation with certain 

congressional committees, the trade agreements may be signed and together with a draft implementing bill 

and a statement o f proposed administrative actions are submitted to Congress. Once in Congress, the bill is 

entitled to expedited consideration. For example, the bill can be automatically discharged from committee 

evaluation to allow consideration by the full House or Senate after 45 days. No amendments may be attached 

to the bill, and there is imposed a time limit on debate in both the House and Senate The proposed legislation 

must be acted upon by Congress within approximately sixty legislative days. 19 U.S.C. §§ 2112,2191 (1982).

It should be noted that the present statutory scheme denies the “fast track” option to the President if “the 

Committee on Finance o f the Senate or the Committee on Ways and Means of the House of Representatives 

disapproved of the negotiation o f such agreem ent.” 19 U.S.C. § 2 1 12(b)(4)(B)(ii)(U). This provision is 

unconstitutional. Congressional committees may not exercise legislative power by making decisions that 

have “the purpose and effect of altering the legal rights, duties, and relations of persons . . . outside the 

Legislative Branch.” INS v. Chadha, 462 U.S. 919, 952 (1983).

We believe, however, a strong argument can be made that § 211 l(b)(4)(B)(ii)(II) is severable under the 

reasoning o f Alaska Airlines v. Brock, 480 U.S. 678 (1987). The general rule concerning severability is that 

“unless it is evident that the Legislature would not have enacted those provisions which are within its powers, 

independently o f that which is not, the invalid part may be dropped if what is left is fully operative as law .” 

Buckley v. Valeo, 424 U.S. 1, 108 (1976) (per curiam ) (quoting Champhn Refining Co. v. Corporation

Comm’n o f Oklahoma, 286 U.S. 210-234 (1932)). In Alaska Airlines, the Court applied this general rule to 

hold that an unconstitutional legislative veto provision was severable from the Airlines Deregulation Act of 

1978.480 U.S. at 684-97. The Court reasoned that C ongress would have enacted the statute even without the 

objectionable provision. Id. at 697.

It appears to us that the “fast track” authority like the legislative veto considered in Alaska Airlines, is not 

so controversial that Congress would have been unwilling to make the delegation without it. M oreover, the 

detailed requirements imposed on the President in other parts of the statute, see, e.g. 19 U.S.C. § 2112(b)(4)(A), 

suggest that the legislative veto provision is not crucial. 480 U.S. at 688 (detailed requirements imposed on 

Executive Branch indicated that veto provision could affect only relatively insignificant actions by Secretary 

of Transportation). Finally, nothing in the legislative history of § 2112 suggests that Congress was particularly concerned about the Congressional disapproval mechanism. See 480 U S. at 691 (Congress' scant 

attention to legislative veto suggests that Act would have been passed in its absence). Thus, it is our view that 

a court would find § 21 12(b)(4)(B)(ii)(lI) severable.

7 These procedures are described in 19 U.S.C. § 21 12(b)(4)(A):

Notwithstanding paragraph (2) [limiting authority to negotiate a tariff reduction agreem ent 

with Israel], a trade agreem ent that provides for the elimination or reduction of any duty imposed 

by the United States may be entered into under paragraph (1) with any country other than Israel i f —

(i) such country requested the negotiation of such an agreement, and

(ii) the President, at least 60 days prior to the date notice is provided under subsection (e) (1)

of this section —

(I) provides written notice o f such negotiations to the Committee on Finance of the Senate and 

the Committee on W ays and Means o f the House o f Representatives, and

(II) consults with such committees regarding the negotiations of such agreement.

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any trade benefit to another country under a trade agreement

entered into under paragraph (1) with such other country that

provides fo r the elimination or reduction o f any duty imposed by

the United States.

19 U.S.C. § 2112(b)(3) (emphasis added.) Congress appears to have intended 

that this section frustrate the automatic operation of MFN clauses in FCN 

treaties. See H.R. Rep. No. 1092, 98th Cong., 1st Sess. 16 (1984) (subsection 

precludes any possibility, as a matter of domestic law, of extension through 

court decision or executive action of trade benefits to other countries pursuant to any 

existing treaties or executive agreements without further congressional approval).

It is also clear that Congress intended § 2112(b)(3), as presently formulated, 

to apply only to trade agreements that reduce United States duties, because 

prior to a technical correction made in 1985 to the Trade Act, § 2112(b)(3) 

applied to all trade agreements negotiated under the “fast track” authority.8 The 

change made in 1985 purposely limits the scope of § 2112(b)(3) to a trade 

agreement negotiated under the authority of the Trade Act “that provides for 

the elimination or reduction of any duty imposed by the United States.” Pub. L. 

No. 99-47, 99 Stat. 82 (1985).9

Accordingly, we are of the opinion that under § 2112 trade benefits that 

Canada may receive under an agreement that does not reduce United States 

duties can be extended to countries with appropriate MFN clauses under FCN 

treaties by operation of those treaties and without additional congressional 

approval. We also believe that in order to reduce the number of international 

obligations which the § 2112(b)(3)’s prohibition may cause to be impaired the 

United States may simultaneously conclude an agreement with Canada addressing non-duty trade benefits and a separate agreement addressing duty 

reductions.10 Section 2112(b)(3) would prevent only the benefits given to

8 Section 2 1 12(b)(3) then provided:

N otw ithstanding any other provision o f law, no trade benefit shall be extended to any country by 

reason o f the extension o f any trade benefit to another country under a trade agreement entered 

into under paragraph (1) with such other country.

9 The H ouse W ays and M eans Committee report concerning the technical correction makes the purpose of 

the change clear beyond doubt:

Section 8 [of H.R. 2268, a bill to im plem ent the free trade agreem ent with the United States and 

Israel] makes five technical corrections to the Trade and T a n ff Act o f 1984 and to the Trade Act 

o f 1974 related to the authorization and administration o f the [U.S./Israel] Agreement.

* * *

Paragraph (1) of subsection (b) am ends section [2112(b)] o f the Trade Act o f 1974 as added by 

section [2112(b)(3)] o f the Trade and Tariff Act of 1984, to clarify that the prohibition on 

extension o f any trade benefit under a trade agreem ent being extended to any other country 

applies to trade agreem ents providing for the elim ination or reduction of any U.S. duty, as 

opposed to agreem ents on nontariff barriers.

H.R. Rep. No. 64, 99th C ong., 1st Sess. 18-19 (1985). See also S. Rep. No. 55, 99th Cong., 1st Sess. 10 

(1985).

10 O f course, insofar as the non-duty and duty agreem ents were related to one another (e.g. through 

provisions which treat a breach of one agreem ent as equivalent to the breach of the other), it would be more 

difficult to argue that the agreements w ere separate. As long as the agreem ents, however, are not textually 

integrated and are subm itted to Congress fo r separate consideration and implementation, we believe that the 

agreem ents are to be considered as separate for the purposes of § 2112(b)(3).

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Canada under the latter agreement from being extended to third countries under 

applicable MFN clauses.

On the other hand, § 2112(b)(3) by its express terms prohibits trade benefits 

that Canada receives under an agreement reducing United States duties from 

being extended by operation of treaty to those who hold MFN rights under FCN 

treaties or other agreements. Moreover, we have concluded that the term “trade 

benefits” encompasses both benefits in the form of duty reductions and trade 

benefits that are unrelated to duty reductions. First, § 2112(b)(3) uses the term 

“duty” as well as “trade benefit.” It is an axiom of statutory construction that 

different terms, particularly technical terms, in a statute are to be given different meanings unless the context indicates otherwise. See e.g., Ocasio v. Bureau

o f Crimes Correction Division o f Workers Compensation, 408 So. 2d 751, 753 

(Fla. Dist. Ct. App. 1982). Moreover, it is clear from the conference report on 

the 1984 amendments to the Trade Act that Congress enacted § 2112(b)(3) to 

prevent certain U.S. treaties from being interpreted “to extend automatically to 

[anjother party, by virtue of most-favored-nation provisions, any tariff or other

trade benefit." H.R. Rep. 1156,98th Cong., 1st Sess. at 152 (emphasis added).11

You have also asked whether future legislation implementing a U.S./Canadian trade agreement could be viewed as repealing, pro tanto, § 2112(b)(3)’s 

prohibition on the extension of MFN benefits by the operation of treaty on the 

ground that the implementing legislation was enacted by Congress subsequent 

to § 2112(b)(3). In the absence of explicit language repealing the § 2112(b)(3)’s 

prohibition, we believe that the mere passage of implementing legislation 

would leave the prohibition intact. Section 2112(b)(3) specifically contemplates that the limitation on extending MFN rights would apply despite the 

conclusion of a treaty that reduced United States duties unless Congress 

specifically approved the extension.12 Accordingly, it is not possible to view 

legislation implementing a U.S./Canadian tariff reduction trade agreement as 

pro tanto repealing § 2112(b)(3)’s limitation.

The final question you have asked concerns the status of any bilateral trade 

agreements containing MFN rights entered into after enactment of § 2112(b)(3) 

in 1984. You have asked whether the fact that § 2112(b)(3) existed at the time 

such an agreement was concluded would be deemed to release the United 

States from obligations under the agreement that are inconsistent with that 

provision. We believe that the United States could not successfully argue that 

the existence of § 2112(b)(3) under its domestic law modified its obligation 

under an agreement concluded after its enactment unless the text of the agreement or its negotiating history demonstrate that the foreign signatory agreed 

that the obligation should be so modified. It is a fundamental principle of the

11 There is no doubt that the words "trade benefit" include benefits related to both goods and services 

because the term “international trade" is defined in the statute as including:

(A) trade in both goods and services and

(B) foreign direct investment by the United States persons, especially if such investment has 

implications for trade in goods and services.

19 U.S.C. § 2 1 11(g).

12 See H.R. Rep. No. 1092, 98th Cong., 1st Sess., at 16.

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interpretation of international agreements that, with exceptions not relevant 

here, “a party may not invoke the provisions of its internal law as a justification 

for its failure to perform a treaty.” Article 27 of the Vienna Convention on the 

Law of Treaties, U.N. Doc. A/Conf. 39/27, May 23,1969 (Vienna Convention) 

(signed by the United States April 24, 1970 and awaiting ratification by the 

Senate).13 A contrary rule would make it extremely difficult, if not impossible, 

for one nation to ascertain the treaty obligations that another undertakes.14

J o h n O . M c G i n n is

Acting Deputy Assistant Attorney General

Office o f Legal Counsel

13 A lthough we have not yet ratified the Convention on the Law of Treaties, we believe that the Convention 

generally reflects the international custom ary law which would be applied to international agreements.

Further support for our view may be found in Article 46 o f the Vienna Convention:

1. A State may not invoke the fact that its consent to be bound by a treaty has been expressed in 

violation o f a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of 

fundam ental importance.

2. A violation is manifest if it w ould be objectively evident to any State conducting itself in the 

m atter in accordance with normal practice and in good faith.

W e do not believe that § 2112 would be considered an “internal law o f fundamental importance,” as this term 

is reserved for provisions o f constitutional law.

14 See Brow line, Principles o f Public International Law 610-11 (3d ed. 1979).

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