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Negotiations over steel, which is subject to a 25-per-cent tariff, have been more difficult than talks on aluminum, which faces a 10-per-cent levy.Peter Power/The Canadian Press

Canada and the United States are trying to negotiate an end to U.S. President Donald Trump’s tariffs on steel and aluminum, with the goal of reaching a deal before the formal signing of the proposed United States-Mexico-Canada Agreement at the end of November.

Talks have focused on Canada agreeing to a quota on exports of those metals to the United States in exchange for the Trump administration lifting the tariffs, people in both countries with knowledge of the talks said. The Globe and Mail granted anonymity to five sources because they were not authorized to speak publicly on the matter.

Foreign Minister Chrystia Freeland and U.S. Trade Representative Robert Lighthizer discussed the matter last week at Ms. Freeland’s Toronto home, a Canadian government source said, and agreed they had to reach a resolution. The sit-down – over a roast-beef dinner cooked by Ms. Freeland – included one of Mr. Lighthizer’s deputies, C.J. Mahoney; Canada’s ambassador to Washington, David MacNaughton; as well as members of Ms. Freeland’s family.

Negotiations over steel, which is subject to a 25-per-cent tariff, have been more difficult than talks on aluminum, which faces a 10-per-cent levy, said the source, as well as another Canadian government source. A deal on steel is unlikely before the Nov. 6 midterm elections, the sources said, although an aluminum one might be possible.

Mexico and the United States, meanwhile, are increasing the pressure on each other: Mr. Trump on Thursday hinted he might not sign the USMCA if Mexico doesn’t do more to stop Central American migrants from arriving at the U.S. border. And a representative of Mexican president-elect Andres Manuel Lopez Obrador threatened not to close the trade pact without a deal on tariffs.

The U.S. also planned to take Canada, Mexico, the European Union and China in front of an arbitration panel at the World Trade Organization over the retaliatory tariffs they imposed in response to the Trump administration’s metals tariffs, a U.S. official told Reuters Thursday. Another official told Reuters the other countries also planned to ask for a WTO panel to adjudicate the U.S. tariffs.

Ms. Freeland’s spokesman, Adam Austen, described the U.S. tariffs as “unjust and illegal,” but did not rule out Canada agreeing to quotas to get them lifted. “The best outcome for both countries would be for the U.S. to rescind their tariffs,” he wrote in an e-mail.

Mr. Lighthizer did not respond to requests for comment.

Mr. Trump hit Canada and Mexico with metals tariffs in June, in what he said was a bid to gain leverage in renegotiations of the North American free-trade agreement. Both Canada and Mexico hit back with tariffs of their own.

In August and September, the countries finished talks on NAFTA – renamed the United States-Mexico-Canada Agreement – but Mr. Trump left the tariffs in place.

One of the Canadian government sources said that, ahead of reaching the USMCA deal on Sept. 30, the Trump administration insisted on a hard quota that would have cut into Canada’s metals exports to the United States – similar to a deal South Korea agreed to in the spring to slash exports by nearly one-third.

Canada was only willing to cut a tariff deal that set quotas far above current exports, the source said. The gap between the two positions was so large that Ottawa decided it was better to set the issue aside and focus on completing the USMCA first.

Daniel Ujczo, an Ohio-based trade lawyer who works with companies in the auto and steel industries, said Mr. Trump deliberately chose not to conclude a tariffs deal at the same time as the USMCA in order to keep some leverage over the other two countries to close the deal in November.

“The idea was to keep the tariffs in place to make sure the parties sign the deal, to make sure there wouldn’t be any buyers’ remorse,” said Mr. Ujczo, of Dickinson Wright.

Keeping the tariffs on longer also makes the United States seem tougher in its trade dealings with other countries, Mr. Ujczo said, and raises some money for the American treasury.

One U.S. industry source said the White House wanted some distance between the USMCA and the lifting of tariffs to keep up the pretext that the tariffs were put in place for national-security reasons rather than purely to gain negotiating leverage. Making it obvious the tariffs were not actually related to security, as the White House maintained, would make it easier for other countries to challenge them at the WTO.

The source said Canada might ultimately avoid having to agree to quotas at all and instead make some kind of deal that builds on existing commitments to supply the United States with the metals it needs for military and other national-security purposes.

However, four other sources – the two Canadian government sources, as well as two Canadian industry sources – said quotas have been the basis for discussion. The two industry sources said Ottawa has been sounding out steel and aluminum producers in recent days on what sort of quota levels they could live with.

A deal on aluminum may land sooner than one on steel: The United States imports 85 per cent of the former, compared with only a third of the latter, meaning the U.S. constituency for maintaining aluminum tariffs is relatively small compared with the companies that want the levy lifted.

The Beer Institute, which represents American brewers, estimates the aluminum tariff has saddled its members with US$347-million in additional costs and will ultimately lead to 20,000 job losses as a result of an increase in the price of cans. Brewers are also hit by the steel tariff when they buy kegs or expand operations.

“This is definitely sending shock waves through the beer-brewing community,” Jim McGreevy, the Beer Institute’s chief executive, said in an interview. “Beer is getting hit in several different ways.”

The picture is more complicated for steel, which has a larger presence in the United States. Even there, however, some powerful voices are advocating for Canada.

United Steelworkers president Leo Gerard supports tariffs generally but argues Canada should be excluded. The problem, he says, is countries such as China that subsidize steel and dump it in the U.S. market – not Canada, which is heavily integrated with the U.S. industry.

“To be saying that Canada should be included in these tariffs, it’s ridiculous,” he said. “Go after the damn cheaters.”

With a report from Reuters

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