EU Rejects US Offer: Unravelling the Steel Tariff Dispute

Background

The US-EU trade dispute over steel and aluminium tariffs has been ongoing for several years, and there is no clear resolution in sight. The dispute began in 2018 when then-US President Donald Trump imposed tariffs on steel and aluminium imports from the EU, citing national security concerns. The EU responded with retaliatory tariffs on US goods including bourbon whiskey, Harley-Davidson motorcycles, and motorboats.

The two sides reached an agreement in October 2021 to end the dispute over steel and aluminium tariffs. The deal was a significant breakthrough. However, there are still significant disagreements between the two sides on how to define "sustainable steel" and how to enforce emissions standards.

Source: Economist Intelligence Unit

The US has proposed allowing club members to set their own emissions standards for steel production. This would give countries with lower emissions standards an unfair advantage, as they would be able to produce steel more cheaply. The EU has rejected this proposal, arguing that it would undermine the integrity of the Global Arrangement on Sustainable Steel and Aluminium (GSA).

Developments

Now, the EU and the US are at an impasse in their negotiations to end the tariffs on steel and aluminium. The EU has rejected a proposed US solution, saying that it is not WTO-compliant and discriminates in favour of domestic producers.

The dispute is also multifaceted. The EU has said that the US proposal would allow countries to set their own emissions standards for steel production, which would give them an unfair advantage. The US has said that its proposal is WTO-compliant and that it is necessary to protect American jobs. The two sides have also been unable to agree on how to define "green steel." The EU wants to include steel produced with EAF and DRI technology, while the US wants to include only steel produced with zero-carbon emissions.

The dispute is fuelled by several factors. One is the lack of a CO2 allowance trading system in the United States. The EU has heavily invested in the carbon border adjustment mechanism (CBAM) to protect its domestic steel industry, which is one of the biggest CO2 emitters in the world. However, the US steel industry is a much cleaner producer by international standards and relies more heavily on Electric Arc Furnace (EAF) and Direct Reduced Iron (DRI) technology than the European Union.

Another factor is the EU's apparent lack of interest in reducing its own steel capacity. The US government has a greater interest in fighting overcapacity, but the EU is more concerned with protecting the jobs of its steelworkers. This is especially true in Germany, one of the world's largest steel producers.

Implications

The outcome of the negotiations between the EU and the US on steel and aluminium tariffs will have a significant impact on the global steel market. The tariffs are 25% on steel and 10% on aluminium from Europe, while EU measures target products such as bourbon whiskey and Harley-Davidson motorcycles. If the two sides reach a deal, it could help to reduce tensions and prevent a trade war. However, if they cannot come to an agreement, the tariffs will go back into effect in October, which could disrupt the global steel market and lead to higher prices for consumers. The dispute is also a test of the strength of the WTO. If the two sides cannot reach a deal, it will be a blow to the WTO and could make it more challenging to resolve future trade disputes

However, the chances of an agreement are slim. The US is demanding that the EU reduce its steel capacity, while the EU is refusing to do so. The US is also concerned about the EU's carbon border adjustment mechanism (CBAM), which could give European steelmakers an unfair advantage. The US presidential elections in 2024 are also likely to make an agreement even more difficult. The current US administration is willing to make concessions to reach a deal, but the next administration may not be as willing. This means that the two sides may be unable to reach a deal before the tariffs go back into effect in October.

On July 20, the EU's trade commissioner reiterated his position that the US cannot resolve its steel dispute with Europe through a deal that discriminates against other countries. This underscores the challenge of finding a compromise to end the standoff. Ultimately, the outcome of the negotiations between the EU and the US on steel and aluminium tariffs is uncertain. If the two sides cannot reach a deal, it could have a significant impact on the global steel market and lead to higher prices for consumers.