Canada, Mex­ico re­ject ‘sun­set clause’ in NAFTA

The Globe and Mail (BC Edition) - - NEWS - ADRIAN MORROW

The Trump ad­min­is­tra­tion is push­ing for a “sun­set clause” in the North Amer­i­can free-trade agree­ment that would au­to­mat­i­cally kill the deal af­ter five years un­less all three sides agreed to keep it in place.

Canada and Mex­ico im­me­di­ately re­jected the idea, ar­gu­ing that it would cre­ate un­nec­es­sary un­cer­tainty for busi­nesses, which would not want to make in­vest­ments with­out re­as­sur­ance that mar­ket ac­cess be­tween the three coun­tries is here to stay.

Such a pro­vi­sion, if in­serted into NAFTA, would all but guar­an­tee that the cur­rent tradere­lated drama would play out in the United States again in five years’ time.

The three coun­tries are in the midst of rene­go­ti­at­ing NAFTA at the be­hest of U.S. President Don­ald Trump, who blames the ac­cord for mov­ing jobs out of the United States and has re­peat­edly threat­ened to “ter­mi­nate” it if it’s not rewrit­ten to his satisfaction.

U.S. Com­merce Sec­re­tary Wil­bur Ross con­firmed the sun­set pro­posal on Thurs­day, say­ing both he and U.S. Trade Rep­re­sen­ta­tive Robert Lighthizer, who is over­see­ing the NAFTA rene­go­ti­a­tions, are in favour of the idea.

“The five-year thing is a real thing, would force a sys­tem­atic re-ex­am­i­na­tion,” Mr. Ross told a Wash­ing­ton con­fer­ence or­ga­nized by news web­site Politico.

Politico had re­ported ear­lier in the day that the ad­min­is­tra­tion was mulling such a clause. The plan, Politico said, was to put it on the ta­ble at the third round of NAFTA talks, sched­uled for Sept. 23 to 27 in Ot­tawa.

The three coun­tries are try­ing to fin­ish the deal by the end of the year to al­low Mr. Trump to ful­fill a key cam­paign pledge and en­sure talks don’t run into the cam­paign pe­riod for Mex­ico’s pres­i­den­tial elec­tion next year. Such a sched­ule is tight: Most trade ne­go­ti­a­tions last three to five years.

Writ­ing in a sun­set pro­vi­sion would al­low the United States to take an­other crack at the deal in a few years.

“The fore­casts that had been made at the ini­ti­a­tion of NAFTA and of the other trade agree­ments mostly had been wildly op­ti­mistic as to the re­sults, and the re­sults have been quite dif­fer­ent,” Mr. Ross said. “If there was sys­tem­atic re-ex­am­i­na­tion af­ter a lit­tle ex­pe­ri­ence pe­riod, you’d have a fo­rum for try­ing to fix things that didn’t work out.”

Mr. Ross said pulling the United States out of NAFTA, as Mr. Trump has talked about, is “not the pre­ferred op­tion” but re­mains on the ta­ble if a deal can’t be reached.

Cana­dian Am­bas­sador to the United States David MacNaughton dis­missed the five-year pro­posal in a panel dis­cus­sion at the Politico con­fer­ence with his Mex­i­can coun­ter­part, Geron­imo Gu­tier­rez.

“Not to try to make light of it, but if every mar­riage had a fiveyear sun­set clause on it, I think our di­vorce rate would be a heck of a lot higher than it is right now,” Mr. MacNaughton said. “The best thing you can do in these things is to try to have good­will and try to work through tough times rather than set an ar­bi­trary date.”

Mr. MacNaughton, who said mem­bers of the Trump ad­min­is­tra­tion had floated the sun­set­clause idea to him months ago, ar­gued that Mr. Ross would face a fight with Amer­i­can in­dus­try over the idea.

“I think he may get some push­back from U.S. busi­nesses who are say­ing, ‘My good­ness, how do we make a 20-, 25-, 30-year in­vest­ment when it could be over­turned in five years?’ ” he said.

Mr. Gu­tier­rez said a sun­set clause would not be a good way to cre­ate a favourable in­vest­ment cli­mate.

“It would prob­a­bly have very detri­men­tal con­se­quences to the busi­ness sec­tor of the United States, Mex­ico and Canada,” he said. “Let’s look at what they are think­ing in more de­tail, but ‘cer­tainty’ is the key word here.”

Speak­ing with re­porters af­ter­ward, Mr. MacNaughton said it would make sense to put pro­vi­sions in NAFTA to al­low the deal to be amended down the road if all three coun­tries agree. But he said a sun­set clause was point­less be­cause the deal al­ready has a pro­vi­sion that al­lows any coun­try to pull out with six months’ no­tice to the other two. “I don’t un­der­stand what the ben­e­fit is, frankly,” he said.

The three coun­tries have held two rounds of rene­go­ti­a­tion talks so far, and are aim­ing to do seven be­fore the end of the year.

They are far apart on nu­mer­ous ma­jor pro­vi­sions in the deal: The United States, for in­stance, wants to abol­ish a process for re­solv­ing trade dis­putes be­tween coun­tries us­ing bi­na­tional pan­els, and has floated a U.S. con­tent re­quire­ment for cars and trucks made in the NAFTA zone – both pro­pos­als Canada and Mex­ico op­pose.

On Thurs­day, Mr. MacNaughton mocked the Trump ad­min­is­tra­tion’s ob­ses­sion with the bal­ance of trade, the core think­ing that un­der­pins its in­ter­na­tional eco­nomic agenda.

Mr. Trump, Mr. Ross and Mr. Lighthizer con­tend that the United States’ trade deficit is a prob­lem that must be solved by cut­ting back on im­ports. Many econ­o­mists, how­ever, ar­gue over­all eco­nomic growth is the only thing that mat­ters and it is of lit­tle con­se­quence whether trade is in bal­ance.

“I’d just like to re­mind the Amer­i­cans that they have a $34bil­lion sur­plus in man­u­fac­tured goods with Canada, and I’d be in­ter­ested to know what it is that the United States is propos­ing to do to re­duce that sur­plus,” Mr. MacNaughton dead­panned. “I’m as­sum­ing when they come to Ot­tawa, there will be some of those ideas … I’ll be look­ing for it.”

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