US, Mexico Agree to 'Alternative' Sunset Provision; Canada Expected to Begin Talks Soon

The U.S. and Mexico agreed to a major step forward in talks to renew the trade relationship between the countries in NAFTA, the White House announced on Aug. 27. Canada remains on the outside of the deal but that country will begin similar discussions with the U.S. as soon as Aug. 27, a senior administration official said during a call with reporters. The U.S. and Mexico will use an "alternative" sunset provision to allow for more frequent reviews of the deal, another official on the call said.

President Donald Trump intends to move away from the name "NAFTA" for the agreement because NAFTA has "a bad connotation," he said. For now, the deal will be known as the U.S.-Mexico Trade Agreement, which would change if Canada eventually signs on, an official said. Trump said he will soon be "terminating" NAFTA and the U.S. will have some kind of agreement with Canada eventually. "It'll either be a tariff on cars or it'll be a negotiated deal," Trump said.

Discussions for updating NAFTA started about a year ago with Mexico and Canada and "we've now come out the other side of that process with Mexico," U.S. Trade Representative Robert Lighthizer said during the call with reporters. "We hope that Canada can join in now and I expect them to begin that process very soon." The administration is optimistic that "solving the problems we had in our trading relationship will hopefully be a springboard off of which we can address a lot of other issues we share together," said Jared Kushner, senior adviser to the president, while on the same call.

The USTR plans to inform Congress of the deal this week, Lighthizer said at the White House announcement. Trade Promotion Authority requires notifying Congress 90 days prior to the U.S. signing any trade deals. "What we will do is -- ideally Canada will be in and we'll be able to notify that -- if Canada's not in, we'll notify that we have an agreement with Mexico and we're open to Canada joining it," an administration official said. "Clearly it's something we believe is consistent with the statute."

Both sides agreed to a somewhat softer "sunset provision" than what the U.S. previously pushed for and had held up negotiations over. Instead, there will be agreement for a 16-year period and a review would be allowed after six years "where we would hope to work out problems," an official said. After that review "we would expect that the agreement would be extended for another 16 years," he said. There will be "real opportunity for review in a way that will keep both modernizing on track and keep disputes from festering." If the countries decide not to renew the deal at year six, the parties will continue to review the agreement every year from then and consider whether issues have been resolved and if a full renewal should occur, another official said.

Investor-state dispute settlements, another area of contention, will also see some changes, the official said. The ISDS process will be limited to cases of expropriation, failure to give national treatment or most-favored nation tariffs, the official said. Some sectors, including telecommunications, infrastructure and energy generation, that have contracts with either government "will get the old-fashioned ISDS," he said. Mexico also agreed to double its de minimis threshold to $100, the USTR said in a fact sheet.

The deal with Mexico "wasn't designed to put pressure on anyone or anything like that," an administration official said. "It's a normal orderly way to come to an agreement with three people." The notion of terminating NAFTA by the president was a reference to the fact that two agreements can't be in place at the same time and the previous agreement will either be supplanted or gotten rid of, he said. "How do you do that is something we're still in the process of looking at," the official said.

Several lawmakers said they were pleased with the announcements. Senate Finance Committee Chairman Orrin Hatch, R-Utah, applauded the deal in a statement, as did House Ways and Means Committee Chairman Kevin Brady, R-Texas, in a news release. Several industry groups, including the American Iron and Steel Institute and the American Apparel and Footwear Association, also celebrated the deal but asked that Canada be part of the final agreement.