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U.S. lifts tariffs on Canadian, Mexican metals in boost for trade pact

[May 18, 2019] By David Lawder and Steve Scherer

WASHINGTON/OTTAWA (Reuters) - The United States struck deals on Friday to lift tariffs on steel and aluminum imports from Canada and Mexico, the three governments said, removing a major obstacle to legislative approval of a new North American trade pact.

The separate agreements, which will not impose U.S. quotas on Canadian and Mexican metals shipments, will also eliminate Mexican and Canadian retaliatory tariffs on a broad range of U.S. products, including pork, beef and bourbon.

The United States and Canada said their agreement will be implemented by Sunday afternoon, and includes new curbs aimed at preventing dumped steel and aluminum from China and other countries from entering the U.S. market via Canada.

President Donald Trump had imposed the global "Section 232" tariffs of 25% on steel and 10% on aluminum in March 2018 on national security grounds, invoking a 1962 Cold War-era trade law.

Both Canada and Mexico argued for 14 months that their metals industries posed no security threat as their economies are integrated with the United States, and challenged the tariffs before the World Trade Organization.

"This is just pure good news for Canadians," Canadian Prime Minister Justin Trudeau told reporters after announcing the deal to workers at Stelco Holdings Inc's steel mill in Hamilton, Ontario.

Stelco shares soared 11 percent on the news, while top U.S. steelmaker Nucor fell 3.1 percent and U.S. Steel Corp, which had seen massive profit improvement because of the tariffs, fell 1.2 percent.

Spokesmen for U.S. Steel and Nucor, which had advocated for maintaining strong tariff protections, could not be reached for comment.

TRADE DEAL VOTE

The metals tariffs were a major irritant for Canada and Mexico and had caused them to halt progress toward ratification the new U.S.-Mexico-Canada Agreement, the trilateral trade deal to replace the 25-year-old North American Free Trade Agreement.

U.S. lawmakers with constituents suffering from Canadian and Mexican retaliation, including Senate Finance Committee Chairman Chuck Grassley, also said they would not consider a USMCA vote with the tariffs in place.

After the deal, Grassley tweeted: "Thank u Mr President for really helping the farmers of Iowa w this important step in USMCA. w lifting metal tariffs @realdonaldtrump just proved he can deliver on negotiations. China ought to take note/start dealing in good faith & take Pres Trump seriously."

Trudeau said Canada would now work with the United States on the timing of USMCA ratification and said he was optimistic Canada would be "be able to move forward well in the coming weeks".

U.S. Vice President Mike Pence said he would meet with Trudeau in Ottawa on May 30 to discuss "advancing" ratification.

Several U.S. Democrats applauded removal of the tariffs, but said USMCA was not yet ready for their support.

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Flags of the U.S., Canada and Mexico fly next to each other in Detroit, Michigan, U.S. August 29, 2018. REUTERS/Rebecca Cook

"When it comes to the new agreement, House Democrats continue to have a number of substantial concerns related to labor, environment, enforcement, and access to affordable medicines provisions. Those issues still need to be remedied," said House Ways and Means Committee Chairman Richard Neal.

Neal added that the deal does not address global steel overcapacity and criticized Trump's handling of trade negotiations with China, which deteriorated significantly in the last two weeks.

Trump, speaking to realtors in Washington, called the pact "a fantastic deal for our country" and said Congress would hopefully approve the USMCA quickly. "Then the great farmers and manufacturers and steel plants will make our economy even more successful than it already is."

Jesus Seade, Mexico's deputy foreign minister for North America, said the deal "measurably increases the probability" the USMCA will be approved before the U.S. Congress' summer break in August. Some U.S. lawmakers say passage would become more difficult after the recess due to budget battles expected in the fall and increased 2020 presidential campaign activity.

TRANSSHIPMENTS, SURGES

Trump's metals tariffs have been largely aimed at keeping excess production from China out of the U.S. market, and the deal includes a new monitoring mechanism aimed at preventing steel and aluminum from China and other countries from being transshipped through Canada and Mexico to the United States.

But the U.S. Trade Representative's office also said the deal allows it to reimpose tariffs in the event of "surges" in imports of specific steel products. If tariffs are reimposed, retaliation would be limited to the steel and aluminum sectors.

Carmakers, which have announced hundreds of millions of dollars in higher U.S. costs due to the tariffs, praised the deal and said it brought USMCA passage a big step closer.

"While many automakers already source the vast majority of their steel and aluminum domestically, tariffs drive those prices up which decreases investment and harms auto workers and ultimately consumers," said the Alliance of Automobile Manufacturers, a trade group representing most major brands including General Motors Co, Toyota Motor Corp Volkswagen AG and others.

The National Pork Producers Council, which says retaliatory tariffs have cost its members $12 per animal, or a total of $1.5 billion, also expressed relief at the end of "a trade dispute that has placed enormous financial strain on American pork producers."

(Additional reporting by David Shepardson, Andrea Shalal and Doina Chiacu in Washington and Anthony Esposito and Stefanie Eschenbacher in Mexico City; Writing by David Lawder; Editing by Susan Thomas and Tom Brown)

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