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US raises tension in NAFTA talks with 'sunset clause' proposal


According to Market Intelligence, December 2022


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US raises tension in NAFTA talks with 'sunset clause' proposal

The U.S. on Oct. 11 proposed a "sunset clause" that would cause the North American Free Trade Agreement to expire after five years unless Canada, Mexico and the U.S. agree it should continue, Reuters reported, citing two officials familiar with the negotiations.

Canada and Mexico rejected the idea, saying it would stunt investment by sowing uncertainty about the future of the agreement.

In addition to the sunset clause, the U.S. wants to raise how much North American content autos must contain to qualify for tax-free status. The U.S. also wants to remove dispute settlement mechanisms that Canada insists must stay.

Meanwhile, Mexico's Finance Minister Jose Antonio Meade said Oct. 12 that the government is working on plans to alter tariffs and identify substitute markets such as Argentina and Brazil in case the NAFTA talks failed, Reuters reported. Meade did not disclose details of what tariffs were being analyzed.

His comments drove the Mexican peso to a nearly five-month low of 18.92 against the dollar, a fall of more than 1% in the session. The peso has shed nearly 4% since Oct. 3 on concerns about the future of NAFTA, Reuters reported.

Trade between the United States, Canada and Mexico has quadrupled under NAFTA, topping $1.2 trillion a year, said Reuters.

As of Oct. 12, US$1 was equivalent to 18.77 Mexican pesos.