EU and US End Steel and Aluminium Tariff War; Pledge Arrangement on Sustainable Steel and Aluminium

On 31 October 2021, the European Commission announced the suspension of trade restrictive measures relating to steel and aluminium imposed on exports from the US. This is in response to the US suspending the application of their own measures to EU exports of the same kind. In addition, the EU and the US have together pledged to conclude a Global Arrangement on Sustainable Steel and Aluminium, which will be open for participation to “like-minded economies”.

As per the arrangement between European Commission President von der Leyen and United States President Biden, discussions on the potential Global Arrangement on Sustainable Steel and Aluminium will focus on solutions to ensure the durability of the steel and aluminium industries, both in terms of their environmental impact and economic viability. Indeed, the potential agreement will serve two main purposes according to the Commission: it will facilitate the decarbonising of the steel and aluminium industries as well as address the issue of overcapacity in these industries caused by certain non-market practices.

A precise date for discussions to begin has yet to be designated, but the Commission has announced that an agreement is intended to be reached within two years. Also, it has noted that the Global Arrangement on Sustainable Steel and Aluminium will be open to “like-minded economies”. Japan or the UK are not currently involved in discussions, but could potentially participate in the agreement. Indeed, the U.S. Chamber of Commerce has expressed support for dropping duties and quotas with respect to imports of other “close allies”.

In anticipation of the agreement, both the EU and the US have announced the suspension of trade restrictive measures that are currently applicable. On 1 January 2022, US Section 232 tariffs will no longer apply to EU steel and aluminium exports up to historical volumes. Any increase in exports from the EU, as compared to historical volumes (that is, steel and aluminium exports prior to the imposition of Section 232 and the volume of aluminium exports prior to 2020, except aluminium foil, for which the baseline is annualised 2021 data), will still be subject to Section 232 tariffs. In response, the EU will suspend rebalancing measures imposed in June 2018 and will refrain from imposing the additional measures that were scheduled to enter into force on 1 December 2021. In order to do so, the EU will initiate its decision-making procedure under the EU Trade Enforcement Regulation. Additionally, both sides will pause their ongoing proceedings related to measures affecting steel and aluminium under the World Trade Organisation’s dispute resolution mechanism (namely cases DS544, DS547, and DS548).

Hong Kong traders may know that the steel industry is believed to be amongst those responsible for the highest global carbon emissions. Promoting an increased environmental focus in that context is therefore a central objective of the Global Arrangement on Sustainable Steel and Aluminium. Ursula von der Leyen stated that “[t]he global arrangement will add a powerful new tool in our quest for sustainability.” According to the Commission, the agreement will require participants to facilitate trade in steel and aluminium products which meet certain environmental standards, support domestic, low carbon, production, and support government investment in technologies and projects facilitating these goals.

The other principal objective of the agreement will be to restore market-oriented conditions in the steel and aluminium trade and address overcapacity issues. As stated by Executive Vice-President and Commissioner for Trade Valdis Dombrovskis, the planned discussions will be a useful framework to “work on a comprehensive solution to tackle global overcapacity”. According to the Commission, this will be achieved by the parties refraining from non-market practices that contribute to non-market-oriented capacity. The parties are also expected to screen inward investments from non-market-oriented actors.

Hong Kong traders may be familiar with the trade dispute between the EU and the US in relation to steel and aluminium. In 2018, the Trump administration imposed a 25% tariff on a number of steel products, and a 10% tariff on a range of aluminium products. These tariffs affected products equivalent to €6.4 billion of EU steel and aluminium exports. In February 2020, further tariffs were imposed, affecting around €40 million of EU exports of certain derivative steel and aluminium products. EU rebalancing measures affected US exports of a value of €2.8 billion. The further rebalancing measures, planned for December 2021, were due to affect exports of a value of €3.6 billion.

It is interesting to note that the newfound transatlantic common ground is generally important to the welfare of this trade relationship. Indeed, Valdis Dombrovskis characterises this development as “another significant step in the wider reset of transatlantic relations”. There are other indications of the betterment of the relationship, including the establishment of an EU-US Trade and Technology Council and the conclusion of the Boeing-Airbus dispute (please click on the following for more information on the Boeing-Airbus dispute and the EU-US Trade and Technology Council).

For further information on the EU-US steel and aluminium agreement, please see the Commission press release and its accompanying Q&A document.