U.S. Offers Proposal That Could Kill Nafta in 5 Years

Updated on
  • ‘Sunset clause’ requires nations to decide to maintain accord
  • Canada, Mexico say measure would create business uncertainty

Nafta Negotiations: What Canada, U.S., Mexico Need

U.S. negotiators on Wednesday presented a proposal for a so-called “sunset clause” that would see the North American Free Trade Agreement expire after five years unless the parties can agree to extend it, according to two people familiar with the talks.

The proposal was presented to a small group of negotiators, according to the people, who asked not to be identified discussing private negotiations. The White House declined to comment on the Nafta talks, and the U.S. Trade Representative’s press office didn’t respond to a request for comment.

Canada and Mexico rejected the idea of a sunset clause after Commerce Secretary Wilbur Ross floated it last month, saying it would create so much uncertainty for businesses that it could hurt long-term investment. The idea of a sunset clause has been among the most contentious proposals for a pact that already has a relatively straight-forward exit provision -- a country can leave after giving six-months’ notice of withdrawal.

The U.S. has “miscalculated badly” in proposing the provision, said Nate Olson, director of the Trade21 program at the Stimson Center in Washington. The U.S. “doesn’t understand how much damage the uncertainty would do to private sector investment,” Olson said.

“The White House has not even begun to make a credible case how we’d construct a post-Nafta world without doing huge damage to the blue-collar constituencies it purports to champion.”

American Push-Back

U.S. President Donald Trump has repeatedly threatened to exit the pact if he can’t get more favorable terms. Negotiators began the fourth round of discussions to rework Nafta on Wednesday outside Washington. Asked about the sunset clause Wednesday at an event in Washington, Ross said “Yes, that’s our proposal.”

The proposal will be unpopular in Congress and it’s likely to be abandoned as negotiations continue, said Welles Orr, a former assistant U.S. Trade Representative under George H. W. Bush who is now a senior international trade adviser in law firm Miller & Chevalier’s international trade practice in Washington.

“I don’t think the sunset clause really helps anybody. I think that provides a level of uncertainty we’ve never seen in a trade agreement, and I don’t think it passes muster in Congress,” he said. The administration is “not going to fall on their sword on that one.”

Mexico, Canada

Mexico’s Ambassador in Washington Geronimo Gutierrez has said a termination clause would erode business confidence in the region, while his Canadian counterpart has said the Trump administration probably wouldn’t find much domestic support for the proposal.

“If every marriage had a five-year sunset clause on it, I think our divorce rate would be a heck of a lot higher,” Canada’s Ambassador to Washington David MacNaughton said last month. “We can have that discussion, but I really do think it won’t be Mexico and Canada that are pushing back against the secretary, it will be a lot of Americans.”

The U.S. Chamber of Commerce has warned against so-called “poison pill” proposals by the U.S., including the sunset clause. Those “could doom the entire deal,” Thomas Donohue, the Chamber’s chief executive officer, said Tuesday.

— With assistance by Saleha Mohsin

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