×

UPDATE 1-Mexico to propose NAFTA review mechanism to counter U.S. sunset clause

clause@ (Recasts with five-year reviews, minister comments)

MEXICO CITY, Nov 15 (Reuters) - Mexican negotiators will propose that the North American Free Trade Agreement be rigorously reviewed every five years rather than the U.S. idea of automatic expiration, an official said on Wednesday as the fifth round of talks between the United States, Canada and Mexico to update the pact got under way.

The latest round of talks in the Mexican capital are proceeding under the shadow of tough U.S. demands and without the presence of trade ministers.

Mexico's top trade official, however, proposed a five-year review to counter a U.S. proposal to include a sunset clause that would kill the deal if it is not renegotiated after five years, an idea widely criticized as undermining long-term investments.

"We are going to make a proposal... a compromise so that every five years we evaluate what is happening and what effects it's having, and based on those results each country will decide," said Economy Minister Ildefonso Guajardo.

He described the proposal as a "more rigorous evaluation mechanism" than currently exists. Under current rules, each country has the right to leave the deal when it wants.

Guajardo emphasized that the counterproposal would not let the trade agreement automatically expire and said he thought it is unlikely that the U.S. President Donald Trump would trigger the existing deal's termination clause later this year.

But the minister, who served as part of Mexico's NAFTA negotiating team in the early 1990s, added he could not rule out the possibility that Trump would decide to trigger a U.S. withdrawal from the 23-year-old accord in the first quarter of 2018.

At the sprawling hotel hosting the negotiations in the capital's posh Polanco district, lower level officials were taking part in the talks, which in the first two days were set to focus on textiles, services, labor and intellectual property, according to two officials familiar with plans.

In statements released on Wednesday, the United States, Mexico and Canada said their respective ministers would not attend, meaning these would be the first such negotiations without ministerial representation.

"Ministers agreed not to attend the fifth round so negotiators can continue to make important progress on key chapters," the statements said.

The NAFTA talks were launched this year after the new U.S. president took office, promising that Washington would withdraw from the 1994 pact if it were not revamped to better serve U.S. interests.

A Canadian source with knowledge of the talks said that too much should not be read into ministers' absence, since they just met at the Asia-Pacific Economic Cooperation (APEC) summit, in the Vietnamese resort of Danang. The source said the last minute decision for ministers not to attend was taken on Tuesday.

A Mexican official close to the talks agreed, saying that the three sides would take stock of negotiations at the end of the round as planned. Two officials at the talks, one Mexican, one American, said the absence of the ministers would relieve pressure on negotiators and allow the three sides to focus on substance.

Trump's threat to withdraw from NAFTA if he cannot rework it to the benefit of the United States has spooked investors. The peso sunk to an eight-month low on Wednesday.

Other members of Trump's administration have been more optimistic. On Tuesday, U.S. Secretary of Energy Rick Perry said he is confident the pact will be successfully renegotiated.

(Writing by Gabriel Stargardter and Michael O'Boyle; Additional reporting by David Ljunggren; Editing by Frances Kerry and Cynthia Osterman)