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NAFTA Would Get Automatic Expiration Under U.S. Proposal

Monday, September 18, 2017
Sandler, Travis & Rosenberg Trade Report

The U.S. may propose at the upcoming third round of NAFTA renegotiations a provision that would automatically terminate the agreement after five years unless all three partner countries specifically agree to extend it. The idea was announced at a Sept. 14 event in Washington by Commerce Secretary Wilbur Ross, who said it would force the U.S., Canada, and Mexico to conduct a “systematic re-examination” of NAFTA and make it easier for them to “fix things” as necessary.

However, the proposal quickly came under fire. A Politico article reports that the departments of Agriculture and State have “voiced heavy opposition to the idea,” with USDA arguing that it would create uncertainty that would “significantly dampen investment and trade” and State asserting that it would make it more difficult to “sell domestic stakeholders” in all three countries “on the resulting agreement.”

The Canadian and Mexican ambassadors to the U.S., who spoke immediately following Ross at the Sept. 14 event, also rejected the idea, citing similar concerns. “One of the reasons you do (a trade agreement) is to create an environment within which business can make investments,” Canada’s David MacNaughton said. “If you have to [renew the agreement] every five years, the pricing of political risk is very high.” Mexico’s Geronimo Gutierrez agreed, noting that a sunset provision “would probably have very detrimental consequences” for the business communities of all three countries, which both ambassadors expect will oppose it.

The controversial nature of the sunset proposal, which Ross acknowledged, calls further into question the feasibility of concluding the renegotiation talks by the end of 2017, which Trump administration officials have said is their goal. Based on press reports, Ross appeared to suggest that if no agreement is reached by that deadline Trump could make good on his threat to withdraw the U.S. from NAFTA, though he said that “is not the preferred option.”

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