Mexico pushes for three-way NAFTA pact, says sunset clause is deal breaker

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Mexico says it still regards Donald Trump’s insistence on a five-year termination clause in the North American free-trade agreement as a deal breaker and emphasizes it is only interested in a three-way deal between Canada, the United States and Mexico.

Unequivocal statements from the two Mexican ministers responsible for NAFTA negotiations – Economy Secretary Ildefonso Guajardo and Foreign Affairs Secretary Luis Videgaray – followed a meeting with Foreign Affairs Minister Chrystia Freeland in Mexico City on Wednesday.

They serve as a counterpoint to expressions of optimism from Mr. Trump in recent days that the United States is getting closer to reaching a deal with Mexico and that he may secure one separately with the Mexican government before dealing with Canada later.

Mr. Guajardo noted that negotiators are looking, at the urging of Washington, for better conditions for workers not just in Mexico, but throughout North America. The United States is seeking a minimum-wage floor and a requirement for 70-per-cent North American content in cars manufactured on the continent to qualify for duty-free entry to the U.S. market.

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He said a sunset or termination clause – where NAFTA is dissolved in five years unless all three governments agree to extend it – would be damaging to investment in North America.

“You cannot ask the auto industry to design a new business model, [but] at the same time you tell them, ‘Look, in five years, we may change our minds,’” Mr. Guajardo said.

“Nobody is going to invest a single Canadian dollar, a Mexican peso, a [U.S.] dollar in an industry that does not [have] certainty for the long term,” the Economy Secretary added. "That responds clearly to your question about [the] sunset [clause].”

The pressure on Canada and Mexico to reach an agreement with the United States on NAFTA may have risen, however, with ​an understanding between the EU and the Trump administration on Wednesday to hold off further new tariffs while they negotiate eliminating all existing tariffs.

The EU challenged U.S. steel and aluminum tariffs at the World Trade Organization, as Canada has, and could have been an ally in a battle by all U.S. trading partners against Washington’s tariffs on vehicle and parts imports.

In Mexico on Wednesday, Mr. Videgaray echoed support for NAFTA: “I can tell you that for Mexico, NAFTA is a trilateral agreement and we will continue to work like that. We understand … the challenges, but this is fundamentally based on our value and convictions.”

A Mexican presidential election earlier this month handed power to Andres Manuel Lopez Obrador, but he and his cabinet do not take power until Dec. 1 under the country’s lengthy transition rules. So the existing Enrique Pena Nieto government has full negotiating authority until then and is continuing to work on a deal in consultation with advisers from president-elect Mr. Lopez Obrador.

Perrin Beatty, president of the Canadian Chamber of Commerce, the largest business lobby group in the country, said he was extremely relieved to hear the Mexican government’s comments on Wednesday, saying there has been real concern about where Mr. Trump is trying to steer negotiations.

“It is good news. The President’s strategy has been to divide and conquer and to try and make separate deals with Canada and Mexico,” Mr. Beatty said.

“Our members are deeply invested in all three countries and anything that might change that fundamental aspect could cost billions of dollars for North American businesses.”

Mr. Guajardo and U.S. Trade Representative Robert Lighthizer are set to meet on Thursday in Washington – without Canada – but the Mexican Economy Secretary played down the significance of this one-on-one gathering.

“The fact that this time we are going to Washington for a bilateral is just a sequence that has been part of these trilateral efforts to modernize NAFTA,” Mr. Guajardo said.

“Let’s not get confused. It is clear it is just a method. It is not moving into any direction that is not a trilateral [deal].”

Jesus Seade, an adviser to president-elect Mr. Lopez Obrador, will accompany Mr. Guajardo.

In Mexico City on Wednesday, Ms. Freeland, Finance Minister Bill Morneau and new International Trade Minister James Carr met with Mr. Pena Nieto.

They also met with Mr. Lopez Obrador, who wrote Mr. Trump a letter in recent days calling for a resumption of negotiations – without mentioning Canada – and whose trade adviser, Mr. Seade, told Mexican radio he believes it’s almost inevitable a deal can be reached within months.

Ms. Freeland was circumspect about the meeting with Mr. Lopez Obrador. The Canadian ministers met with him for more than one hour and then afterward with his cabinet-in-waiting.

She would not say whether he voiced commitment to opposing a sunset clause, once he takes office in December, or negotiating for a trilateral deal. She described it as a “really good meeting” but declined to speak for the president-elect on his views concerning NAFTA.

Mr. Trump last week mused about cutting a deal with Mexico first. And this week he talked about how his administration might be able to work something out with Mr. Lopez Obrador. “We’re talking to Mexico on NAFTA and I think we’re going to have something worked out.” He added that "the new president” – referring to Mr. Lopez Obrador – is a “terrific person,” adding the United States is talking to Mexico “about something very dramatic, very positive for both countries,” but gave no details.

A separate deal with Mexico carries the threat, at least, of replacing the trilateral North American free-trade deal with two bilateral accords in a spoke-and-hub arrangement that gives an advantage to the United States over its two neighbours and is something Canada sought to avoid by pursuing the original NAFTA deal in the 1990s.

Ms. Freeland on Wednesday reaffirmed how important it is for Mexico and Canada to stick together and how Ottawa could not accept a new NAFTA deal with a five-year termination clause.

“Canada is strongly opposed to the addition of a sunset clause because we feel it runs counter to the whole idea of NAFTA and of NAFTA modernization,” she said. “We think it would be destructive for the trading relationships to build in … uncertainty every five years and, in this position, we are strongly supported not only by Canadian business, but also by Mexican business and the U.S. business community.”