A sunset clause constitutes an important vehicle for bringing partners to the negotiating table and restoring balance through mid-course amendments
This hilarious season features three classic American Christmas comedies in which the protagonist is subject to a legal specialty known as “Santa Claus” (also the movie’s title) and must accept all of Santa’s duties and responsibilities. You can easily recall the trilogy: By the time the third sequel was made, the producers added the title “Escape Clause.”
These days, you can think of the uproar caused by the recent US-Mexico-Canada Free Trade Agreement or the Sunset Clause of the USMCA (the successor to the expired NAFTA). The sunset clause provides that the agreement will terminate 16 years after it enters into force unless certain conditions are met. Terms begin with a “joint review” of the agreement after six years. If the three governments express their intention to continue the agreement at this review, the period will be extended by another 16 years from the time of this review.
After another six years have passed since the first review, another review will take place and the process will be repeated with each review extending for the next 16 years.
Critics argue that while there is nothing wrong with renewing agreements to respond to economic changes and to fix any deficiencies found, such a sunset clause provision would prevent the agreement from being “reviewed.” It claims to take it to a whole new level.
Let’s take a step back here and look at the lifespan of trade agreements historically. We know that it was not until his 19th century that the idea of free trade arose. The world’s first free trade agreement, the Cobden-Chevalier Treaty, was signed between Great Britain and France in 1860, and many similar treaties were signed in Europe. But this “golden age of free trade” in Europe lasted only until his 1880s. After that, protectionism rose in Germany, the United States, etc., and the treaty became meaningless.
In fact, the evolution and demise of trade agreements is rooted in a series of flip-flops between liberalization and protectionism in developed world trade policies. After World War II, however, with the formation of the GATT, the larger objectives of Western democracies became a full-scale pursuit of more ambitious and permanent tariff reductions, and the need for countries to withdraw concessions. weakened the ability.
Yet today, the “winners and losers” mentality in trade liberalization following FTAs is increasingly influencing domestic politics in the West as well. Many criticize what they say is a “democratic flaw in trade agreements” due to their limited ability to modify in response to long-term changes in the ecosystem.
Compounding the predicament for developing countries, developed countries, which tend to coerce their trading partners to maximize their tariff concessions, are using non-tariff measures to undermine those concessions. That’s the fact. This often discourages developing countries from pursuing ambitious FTAs.
Article 62 of the Vienna Convention on the Law of Treaties provides for unilateral rights to terminate or suspend the treaty if circumstances change fundamentally, but it sets a fairly high bar for terminating an FTA. increase.
The question arises of how to realign signed FTAs and successfully initiate steps to realign commitments to trading partners.
A sunset clause with an “opt-in” option to continue encourages partners to take affirmative action to realign, perhaps with an “opt-out” option where the default option is to continue More effective than the sunset clause. FTAs.
There is an argument that the entrenchment effect of not having this “opt-in” clause reduces the incentive to amend along the way, especially if one party is reluctant to come to the negotiating table. of unfair advantage. Unless coerced, why would a winner come to the negotiating table to cede a favorable position? A good example is the Japan-India CEPA, whose mid-term review has been significantly delayed.
The traditional liberalist narrative expresses deep concern about using the Sunset Clause to regulate temporary and transitory issues, but in the long run, the Sunset Clause will keep partners out of negotiations. It takes you to the table and configures important and underrated levers to restore balance through fixes along the way. If a valid continuation depends on it.
Simply put, regular reaffirmation and rebalancing of commitments is always a good idea in any relationship, trade relationship or not.
(The author is a retired senior official of the Department of Commerce)
