No NAFTA 2.0 signing before steel tariffs end, Mexico says

A senior trade negotiator is holding firm to Mexico's position that American steel and aluminum tariffs must end before the new U.S.-Mexico-Canada Agreement is signed. Juan Carlos Baker wouldn't rule out retaliation against Canada if surtaxes imposed Thursday on Mexican steel aren't reconsidered.

Mexican negotiator won't rule out retaliatory tariffs against Canada for steel surtax imposed Thursday

Juan Carlos Baker, Mexico's deputy minister for foreign trade, is seen here in a file photo. He met with reporters in Ottawa Friday following meetings to discuss reforms to the World Trade Organization earlier in the week. (Martin Acosta/Reuters)

A senior Mexican trade negotiator is holding firm to his government's position that American steel and aluminum tariffs must end before the new U.S.-Mexico-Canada Agreement (USMCA) is signed.

Juan Carlos Baker, the current undersecretary for foreign trade in Mexico's economy ministry, told reporters in Ottawa Friday he is "working every day" on this issue. The Mexican government changes hands Dec.1.

"We need to solve that issue before the signing takes place," Baker said. Mexico has "exchanged some ideas" with the Americans, he said, but they were "not concrete."

An USMCA signing ceremony is expected on Nov. 29 or 30, the earliest dates allowed by the fast-track requirements of the U.S. Congress.

Like Canada, Mexico strenuously objects to the U.S. tariffs imposed on it on "national security" grounds, particularly given the integration of North American manufacturing supply chains.

Mexico, Canada and other countries have gone to the World Trade Organization for arbitration, arguing the tariffs have little to do with national security and are meant to shield U.S. steelmakers from competition.

Mexico, like Canada and the European Union, brought in retaliatory tariffs on U.S. products. The U.S. is challenging this retaliation at the WTO, arguing it's also against the rules.

Retaliation put pressure on U.S.

Mexico's retaliatory tariffs put political heat on the Trump administration. They target sensitive agricultural products like pork and cheese, for example.

The U.S. farm community is increasingly angry and anxious, demanding a solution to damaging tariffs against the agriculture sector that are significantly hurting U.S. exports.

Baker said the U.S. had an "appealing reason to withdraw" its tariffs, since Mexico would then withdraw its retaliation.

However, no formal negotiations have taken place on the American tariffs, Baker said.

Mexico's Secretary-designate of Foreign Affairs, Marcelo Ebrard, met with Foreign Affairs Minister Chrystia Freeland in Ottawa Monday. Ebrard told reporters he thought U.S. steel tariffs would lift when the USMCA is signed. (Adrian Wyld/Canadian Press)

During a visit to Ottawa Monday, the incoming foreign minister for Mexico's next government, Marcelo Ebrard, said that the U.S. steel tariffs would lift when the USMCA is signed.

At the same press conference, his Canadian counterpart, Chrystia Freeland, did not speculate on when the tariffs would end, although she said Canada is ready to lift its tariffs when the U.S. does.

Prime Minister Justin Trudeau spoke to incoming Mexican president Andres Manuel Lopez Obrador by telephone Thursday. A readout from the Prime Minister's Office said the pair "shared views on the U.S. section 232 steel and aluminum tariffs in effect on exports."

Quotas on the table?

Baker was asked whether Mexico would give in to a U.S. demand for export quotas on future steel production in return for an exemption from national security tariffs, as South Korea and Brazil did.

"That's what they did with their particular reality, given the circumstances that those countries had at the moment when they spoke with the U.S.," he said. "In our case, we will see how that discussion takes place on the moment it takes place."

The terms Mexico agreed to for its automotive industry in the USMCA included export restrictions under specified conditions.

Baker said there might be "several ways" to end the tariffs. He didn't reject quotas out of hand.

"We want to solve the issue. There might be several elements that help solve the issue. We need to get these tariffs lifted," he said.

Freeland appeared to rule out accepting quotas for Canadian steel exports in a recent interview with CBC Radio. She met with steelworkers in Saskatchewan Friday afternoon, although the event was closed to media.

Foreign Affairs Minister Chrystia Freeland toured Tree Island Steel, in Richmond, B.C. in late August. Cabinet ministers have held frequent photo ops at Canadian steel mills over the last year. (Darryl Dyck/The Canadian Press)

While the Mexicans are communicating with Canada, Baker said no formal talks have been held between all three countries to lift the tariffs.

'Disappointed' about Canada's steel surtax

Mexico is upset with Canada over a different tariff issue. Emergency safeguard measures have been applied to two types of Mexican steel — energy tubular products (like the ones pipelines use) and wire rod.

As of Thursday, Canada is adding a surtax of 25 per cent on those Mexican imports, although other types of Mexican steel products are exempt.

The two taxed products represent 20 per cent of Mexico's global steel exports, according to recent statements by Mexico's economy minister.

Canada's emergency safeguards target seven kinds of foreign steel overall. Finance Minister Bill Morneau said his unusual move would protect Canada's domestic steelmakers from a sudden influx of foreign steel displaced from the U.S. by its new tariff measures.

Basically, Canada's extended the Trump administration's tariff wall farther north.

Even before the U.S. tariffs kicked in, global steel production was exceeding demand.

But Canada's construction industry, as well as other domestic manufacturers who need steel, warn of supply shortages and severe damage to their businesses if Morneau doesn't reconsider. Canada's domestic mills will not meet their needs, they say.

Finance Minister Bill Morneau, seen here during an announcement about his emergency steel safeguards at the ArcelorMittal Dofasco mill in Hamilton last summer, went ahead with a 25 per cent surtax on specified foreign steel products Thursday. (Peter Power/Canadian Press)

"We do not disagree with Canada's objective," Baker said, "which is the overcapacity issue that affects everyone, including Mexico.

"What we disagree with Canada is that Mexico is the source of such excess capacity. We are disappointed that we were not excluded from this measure."

Retaliation not ruled out

Morneau's measure is temporary. Mexico has already filed to argue against a permanent steel surtax when the Canadian International Trade Tribunal hears the case in January.

Baker said he expects Mexico eventually to be excluded.

Some advocates for Canada's domestic industries suggest Canada was under pressure from the U.S. to take more measures to keep foreign steel out of North America, but it's unclear why these two kinds of Mexican steel would be problematic — especially when the pipeline products are in short supply in Canada.

"I cannot speculate on the reasons Canada did what it did," Baker said. "The measures that Canada is applying will have some effects in the region, that is without question. That's just basic trade integration results."

Morneau told a House of Commons committee earlier this month that he was not expecting any retaliation over the safeguard measures.

But Baker told reporters Friday that Mexico is considering "every option" to push Canada to lift the surtax.

"Nothing is ruled out as of now," including retaliatory tariffs or an additional WTO case against Canada, he said.


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