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Canada, U.S. and Mexico reach deal to lift Trump administration’s steel and aluminium tariffs

Adrian Morrow, Lawrence Martin, Globe and Mail
May 17, 2019

Prime Minister Justin Trudeau and Foreign Minister Chrystia Freeland have scheduled an announcement in Hamilton Friday, where they are expected to announce a deal to lift the Trump administration’s steel and aluminum tariffs on Canada and Mexico.

Mr. Trudeau spoke with U.S. President Donald Trump Friday on tariffs and other trade matters, the Prime Minister’s office said. A Canadian official said Mr. Trudeau and Ms. Freeland will announce the deal today.

The agreement will end the continental trade war that has raged for most of the last year. But sources in industry and government on both sides of the border cautioned that Canada is not out of the woods yet: Canada will likely have to agree to tough new export rules on its metals industry that will benefit the U.S. in exchange for the end of tariffs.

In exchange for getting the tariffs lifted, Canada and Mexico would agree to actions meant to stop steel and aluminium from China and other countries being sent to the U.S. through Canada and Mexico. They would also lift their retaliatory tariffs on the U.S.

Industry sources listed two specific measures: One is a “rules of origin” requirement on Canadian and Mexican-made steel and aluminium that would mandate a specific per centage of the metal had originated in Canada and Mexico – a move meant to discourage, for instance, a Canadian company importing scrap from China and melting it down for sale to the U.S.

The other measure would require Canada and Mexico to better track and monitor steel shipments to make sure China wasn’t passing the product through them to get around U.S. tariffs.

One industry source said a tariff deal would likely be tied to the ratification of the renegotiated NAFTA, dubbed the U.S.-Mexico-Canada Agreement by Washington. None of the three countries has yet ratified. Canada has said it will not bring the deal for a ratification vote in parliament until the tariffs are lifted. In the U.S., meanwhile, congressional Democrats are still calling for changes to the deal before they will vote for it.

The rules of origin requirement could also be an impediment to Canadian exports, creating additional red tape for U.S. companies importing steel and aluminium from Canada and pushing them to choose American suppliers instead.

Daniel Ujczo, an Ohio-based trade lawyer, said the Trump administration will still find a way to impose import rules even without the tariffs in place.

“The idea we’re going to have unbridled free trade in steel and aluminium – that’s unlikely,” said Mr. Ujczo, a laywer with Dickinson Wright who represents companies in all three countries.

U.S. President Donald Trump imposed the tariffs of 25 per cent on steel and 10 per cent on aluminium nearly a year ago on Canada and Mexico. At the time, his administration said the measures were meant to pressure the two countries in NAFTA talks. But even after a NAFTA deal was made in September, Mr. Trump left the tariffs on.

Canada and Mexico imposed a suite of retaliatory tariffs on U.S. steel and aluminium and other goods, ranging from bourbon to ketchup to lawnmowers.

The U.S. demanded Canada and Mexico agree to quotas capping their exports in exchange for lifting the tariffs. Canada and Mexico said they would not accept quotas, though one Canadian official said Ottawa would agree to a quota provided it was far higher than Canada’s pre-tariff exports.

After months of deadlock, the U.S. agreed in recent weeks to discuss a metals deal without a hard quota requirement, the industry and government and sources said.

Mexico’s point-man on the file, Jesus Seade, told The Globe and Mail this week that his country initiated the most recent talks with the U.S. three weeks ago. They paused the discussions to give Canada time to negotiate with the U.S., he said.

A flurry of negotiations over the last two weeks – including phone calls between Prime Minister Justin Trudeau, Mr. Trump and Vice President Mike Pence – culminated in Foreign Minister Chrystia Freeland jetting to Washington Wednesday to sit down with U.S. Trade Representative Robert Lighthizer.

That meeting ended without a deal, but the sources said the two sides have remained in touch to keep negotiating.

Flavio Volpe, the head of Canada’s auto parts industry group, said the tenor of talks had markedly improved.

“This is the most optimistic we’ve been in a while that there is a deal to be done,” he said. “It appears all parties are negotiating in good faith this time.”

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