Trump's desire for a 5 year sunset clause is a sticking point for Canada

No 5 year NAFTA sunset clause, says Trudeau

 In Compliance Updates

The Trudeau government has told U.S. President Donald Trump that they will not entertain a  5 year NAFTA  sunset clause and that he needs to get rid of the punishing U.S. tariffs on Canadian steel and aluminum if there is any hope of successfully renegotiating the North American Free Trade Agreement (NAFTA).

Finance Minister Bill Morneau said that message was communicated clearly to Trump at the G7 summit with fellow leaders. As well as in his face-to-face talk with Prime Minister Justin Trudeau.

Before departing the G7 summit in Quebec on Saturday, Trump said he wants to make a deal on NAFTA. That he’s open to working with the current pact or striking separate agreements with Canada and Mexico. However, only as long as they agree to a NAFTA sunset clause and renegotiate every five years.

Canada wants a deal too, but the Trudeau government views the U.S.’s proposed 5 year NAFTA sunset clause as a non-starter.

And now, Morneau added the tariffs to Canada’s list of deal breakers on NAFTA. He said progress is being made, but more work needs to be done to conclude the negotiations.

“We’re not going to be able to do that work under the threat of tariffs. And we’re not going to be able to do that work when our retaliatory tariffs, which are real, they’re significant,” Morneau said in a Saturday interview.

The government announced it would impose more than $16.6-billion in retaliatory tariffs, effective July 1, on a variety of U.S. goods. Mexico and the European Union have also planned retaliatory tariff packages.

Canadian - US retaliatory tariffs map valued by millions

Canada Retaliatory Tariffs map (by millions)

 

Tariff Retaliation

Trump said that would be a bad idea, threatening that  “If they retaliate, they’re making a mistake”, he went on to confidently state that  “They do so much more business with us than we do with them … the numbers are so astronomically against them, we win that war a thousand times out of a thousand.”

Morneau said the tariff retaliation would cause “increasing friction” that would impede progress on NAFTA, but added there is a need “to step back from that destructive action so that we can actually get to the real work.”

Morneau said he is engaged in intense talks with his U.S. counterparts in the hopes of finding a way forward.

Trudeau and other G7 leaders used their meeting to try to persuade Trump to abandon the tariffs. In reality, the tariffs affect all of America’s G7 allies.

Trump said they are based on legitimate national security concerns, and he said he stood firm against the concerns of his fellow G7 leaders during their talks.

Once again, he emphasized that the days of the U.S. getting the short end of the stick in its trading relationships were over under his watch.

And he made clear that extends to the current deal the U.S. is renegotiating with its continental neighbours, Canada and Mexico.

“We’re either going to have NAFTA in a better negotiated form or we’re going to have two deals,” the U.S. president said.

 

US Insisting on Sunset Clause

By insisting on a NAFTA sunset clause and re-negotiating every five years, Trump is diametrically opposed with Canada. Canada’s position being that clause would create perpetual uncertainty and harm long-term investment.

Disagreement over the 5 year NAFTA sunset clause was the deal breaker that scuttled a possible meeting between Trump and Trudeau. The pair were to meet in Washington in an attempt to bring the NAFTA talks to a conclusion.

Vice President Mike Pence told Trudeau he would have to agree to that before Trump would agree to meet him.

Trudeau refused, and the meeting was off. But the lead ministers from both countries talked trade on the sidelines of the G7 leaders’ meeting on Friday.

“On NAFTA we either leave it the way it is as a three-some deal with Canada, the United States and Mexico and change it very substantially — we’re talking about very big changes. Or we’re going to make a deal directly with Canada, directly with Mexico,” Trump said Saturday.

“If a deal isn’t made, that would be very bad for Canada and very bad for Mexico. To the United States, frankly, it would be a good thing but I’m not looking to do that. I’m not looking to play that game.”

 

US Criticism of Canadian Dairy Industry

Trump repeated his criticism of Canada’s dairy industry, one of his favourite targets in Twitter posts, including this week prior to his arrival in Canada.

“Let’s say Canada, where we have tremendous tariffs. The United States pays enormous tariffs on dairy. As an example, 270 per cent, nobody knows that.”

Pierre Lampron, the president of Dairy Farmers of Canada, shot back at Trump’s claims about his industry.

“President Trump is targeting the dairy sector because he wants to dump U.S. dairy into Canada,” Lampron told The Canadian Press. Lampron also adding that Canada imports five times more dairy from the U.S. than it exports.

“President Trump wants nothing less than wiping out Canadian dairy farming.”

Continued uncertainty remains on the future of NAFTA, with the July 1st deadline quickly approaching.

 

 

To help you navigate through the complex compliance landscape (and avoid the penalties that can come from non-compliance), Community Customs Brokers’s team of professionals can provide answers to these and many other pressing questions related to doing business in Canada as an Importer/Exporter.

 

Contact us today for a free consultation.

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