Wiggle room on U.S. demand

CANADA MEXICO READY TO ENGAGE ON U.S. STICKING POINT

Canada and Mexico are prepared to engage the United States on one of its most contentious demands for NAFTA, in an early indication of how proposals currently deemed nonstarters could, in theory, be redesigned into something all three countries can live with.

It involves a U.S. idea deemed so hideous by the other parties that they refused to even look at it in the previous round of negotiations. But with a significant facelift, the other countries say, the U.S. proposal could be turned into something a little more palatable, or at least worthy of discussion.

That idea is the five-year sunset clause the U.S. dropped on its partners last month.

Also referred to as a termination clause, the proposal would end NAFTA after five years unless all three countries agree to extend it. The idea has been blasted by business, American lawmakers and the other countries as a recipe for permanent uncertainty, antithetical to the spirit of a trade agreement which is supposed to provide investor confidence.

But as the latest round of talks kicks off in Mexico City, the two other partners are revealing a willingness to discuss modifying the idea. They say the termination clause could be turned into a review clause, meaning the agreement would still undergo regular assessments without creating a climate of constant uncertainty, in which the deal could be cancelled by default.

The Mexican government has publicly and explicitly acknowledged its willingness to discuss this revised version; Canadian officials are saying similar things privately.

“We are going with a counterproposal: Let’s put more force into evaluations, but let’s not establish an automatic phase-out mechanism,” Mexico’s economy minister, Ildefonso Guajardo, said this week. “Let’s establish a commitment that every five years we will evaluate what is happening, an analysis, what effects the agreement is having. And based on those results, each country can decide what to do in the future.”

That’s compatible with the Canadian position.

Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland have frequently spoken about the value of reviewing trade agreements, but have not publicly discussed the idea of embedding such a practice in a formal clause of NAFTA.

Yet one Canadian official speaking on background Thursday opened the door to discussing the idea.

He said the notion of periodic NAFTA performance reviews is not new in trade agreements, nor is it something Canada would be unhappy to discuss should other countries wish to.

But he said the original proposal of a so-called sunset clause remains out of bounds. He said it would make for permanent uncertainty, and would be unnecessary, as NAFTA already has a six-month termination clause that can be invoked at any time by any signatory unhappy with the agreement.