Canada and Mexico pushed back Thursday against a U.S. proposal to incorporate a provision in NAFTA 2.0 that would automatically terminate the trade agreement after five years unless all three countries agree before then to renew it.
The Office of the U.S. Trade Representative began circulating the so-called “sunset” provision among U.S. government agencies late last week — as POLITICO first reported on Thursday — in anticipation of formally proposing it at the third round of NAFTA negotiations, slated to begin next weekend in Ottawa.
But David MacNaughton, Canada’s ambassador to the United States, criticized the idea, citing not only Canadian concerns, but also those he said were sure to emerge from U.S. businesses.
One of the reasons countries establish trade agreements in the first place is to “create an environment within which business can make investments, and in many of those investments people look for 20, 25 years for payback,” MacNaughton said at the POLITICO Pro Policy Summit in Washington, D.C., this afternoon. He added that the Trump administration “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?’”
A USTR spokeswoman declined to comment on Wednesday night after sources told POLITICO the proposal was being considered, but Commerce Secretary Wilbur Ross confirmed on Thursday that both he and USTR Robert Lighthizer “have been in favor of this concept for quite awhile.”
“The five-year thing is a real thing,” Ross said, adding that it “would force a systematic re-examination” of the free trade deal.
“If there were systematic re-examination after a little experience period, you’d have a forum for trying to fix things that didn’t work out the way you thought they would,” he said at the summit.
But MacNaughton and Gerónimo Gutiérrez, Mexico’s ambassador to the United States, said that re-examination would introduce economic instability, which would harm industries across all three countries.
“Let’s look at what they are thinking about in more detail,” Gutiérrez said, “but certainty is the key word here.”
Such a provision would also make it easier to terminate the deal — thus increasing the likelihood that would happen, MacNaughton said.
“If every marriage had a five-year sunset clause, I think our divorce rate would be a heck of a lot higher than it is right now,” he said. The better solution “is to try to have good will and work through tough times, rather than set an arbitrary date at which if you don’t agree to something, it’s going to terminate.”
It remains unclear at this point whether the Trump administration will formally put the proposal on the table during the next negotiating round or during subsequent talks. When USTR began circulating the concept within government agencies, officials from at least two of them — the Agriculture and State departments — voiced strong opposition to it, echoing arguments that MacNaughton and Gutiérrez would later make at Thursday’s summit.
“Termination of NAFTA would be devastating for the U.S. agricultural economy, and making such termination automatic substantially increases its likelihood,” a USDA official argued in an emailed reply to USTR, according to one source who viewed the email.
Ross himself acknowledged that the administration’s consideration of the provision remains in the early stages.
“Whether it will be agreed is a whole different question,” he said, “and, obviously, is tied to many, many other issues.”