Trump was on the brink of a massive trade deal with Mexico and Canada, but one confounding demand blew it up

Reuters/Carlos Barria

Canadian Prime Minister Justin Trudeau (R) is greeted by U.S. President Donald Trump prior to holding talks at the White House in Washington, U.S., February 13, 2017.

• Canadian Prime Minster Justin Trudeau said the US, Canada, and Mexico were at a "final dealmaking moment" on the North American Free Trade Agreement.
• Trudeau said President Donald Trump agreed to meet and hash out final details.
• But on Tuesday, Trudeau said, Vice President Mike Pence called and requested the inclusion of a controversial sunset clause.
• Trudeau called the precondition unacceptable and canceled the meeting.

A monumental trade deal may have slipped away because of a controversial US demand, Canadian Prime Minister Justin Trudeau told reporters Thursday.

Trudeau held a press conference to announce Canada's response to President Donald Trump's steel and aluminum tariffs. He said that the US and Canada were inches away from locking down a new version of the North American Free Trade Agreement, known as NAFTA.

But the Trump administration made one demand a precondition of talks, Trudeau said, ruining chances of a deal.

Trudeau said the three countries were down to a "final dealmaking moment" for NAFTA last Friday. Being so close, the Canadian leader told Trump that the two should meet with Mexican President Enrique Pena Nieto to hash out final details. Typically, such high-level talks only come later in the negotiations.

But Trudeau received word on Tuesday from Vice President Mike Pence that any sit down would require that Canada agree to a sunset clause for the new version of NAFTA.

A sunset clause would require the three countries to reevaluate NAFTA after five years at a time. The sunset clause could allow any of the countries to walk away from the deal at those intervals.

Canada and Mexico are staunchly opposed to the sunset clause because the provision would introduce significant uncertainty into their respective economies. For example, a business considering where to place a new factory may not want to build in Canada if there a chance the US would pull out of NAFTA before it built the factory.

Instead of a sunset clause, Canada and Mexico have proposed a five-year review to study the effects of NAFTA on the members countries. In contrast to the US proposal, this type of review would not give the countries the option to jump out of the deal.

Given Canada's opposition to the sunset clause, Trudeau told reporters that he called off the meeting.

In addition to the sunset clause, the three countries are also hung up on rules pertaining to auto imports and investor disputes with governments of the other members.