Canada, Mexico reject ‘sunset clause’ in NAFTA
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.”