US, EU compromise on steel levy, seek carbon deal to curb China

Agreement looks to reduce tensions between U.S. and European Union over steel and aluminum tariffs

A steelworker attends to rolled steel at Lehigh Heavy Forge in Bethlehem, Pa.  (Tom Williams/CQ Roll Call file photo)
A steelworker attends to rolled steel at Lehigh Heavy Forge in Bethlehem, Pa. (Tom Williams/CQ Roll Call file photo)
Posted November 1, 2021 at 9:30am

A deal to ease stiff tariffs on imported European steel and aluminum will also lay the groundwork to use international climate policy to curb China’s overproduction of steel, according to the Biden administration.

President Joe Biden told the travel press pool Sunday that the agreement “demonstrates how by harnessing our diplomatic and economic power, we can reject the false idea that we can't grow our economy and support American workers while tackling the climate crisis.”

Biden said the climate portion of the agreement, which is still under development, will “incentivize emission reductions in one of the most carbon-intensive sectors of the global economy; restrict access to our markets for dirty steel from countries like China; and counter countries that dump steel in our markets, hammering our workers and harming them badly along with the industry and our environment.”

He made a joint appearance in Rome with European Commission President Ursula von der Leyen where the two briefly discussed the deal and took no questions.

“We will work together with the United States to ensure the long-term viability of our industry and to encourage the production and trade of low-carbon steel,” von der Leyen said.

The two leaders’ comments come after Biden administration officials outlined the agreement Saturday in a briefing call.

In the near term, Commerce Secretary Gina Raimondo, U.S. Trade Representative Katherine Tai and National Security Adviser Jake Sullivan said the agreement would reduce tensions between the U.S. and the European Union over U.S. tariffs of 25 percent on steel and 10 percent on aluminum imposed by the Trump administration under Section 232 of the Trade Expansion Act of 1962.

Raimondo, whose department oversees the steel and aluminum tariffs, said in a statement that the the agreement would protect the American steel and aluminum industries, particularly from excess capacity driven by China dumping steel into the markets.

“For far too long, China was routing its cheap steel into the U.S. via Europe and other markets, which drove down prices and made it essentially impossible for America's steel and aluminum industry to compete and, of course, in so doing, hurting the industry and hurting our workers,” Raimondo said.

The contentious tariffs stem from two executive orders President Donald Trump used in April 2017 to direct the Commerce Department to investigate the national security threat posed by steel and aluminum imports under Section 232.

The department concluded that foreign-made steel and aluminum were economic and national security threats and that imports forced domestic plants to close. As a result, the department said the United States had become increasingly dependent on steel and aluminum imports for commercial and military uses.

Raimondo said the Biden administration’s agreement with the EU will protect national interests while providing relief to U.S. businesses and consumers who have paid steeper prices for steel used in appliances, cars and homes.

Tai said the agreement represents the Biden administration’s principles of international cooperation to push China to follow trade rules while also keeping U.S. workers and communities in mind.

Raimondo, Tai and Sullivan spoke on the record during the Saturday call with reporters, while other Biden officials spoke on condition that they be identified only as senior administration officials.

One senior official said the agreement allowing negotiated levels of EU steel and aluminum into the U.S. tariff-free would remove “one of the largest bilateral irritants between the U.S. and the EU.” The application of duty-free status to specific volumes of imported goods is known as a tariff-rate quota. Volumes above the agreed-upon limits would be subject to the full duties.

The volume of EU steel and aluminum not subject to the tariffs will be based on the U.S. import history for the metals.

Another administration official said companies that were granted and used Section 232 tariff exclusions or exemptions to import certain steel products in the past year could have those exemptions extended for up to two years by the Commerce Department. The department will continue to enable companies to seek Section 232 tariff exemptions for steel and aluminum products.

EU drops retaliatory tariffs

In return, the EU will end retaliatory duties on selected U.S. products, removing the threat of doubling those tariffs to 50 percent on Dec. 1. The U.S. and the EU also will end their respective Section 232 cases pending at the World Trade Organization against each other.

The Distilled Spirits Council has been vocal about its opposition to the tariffs, arguing that the duties on U.S. whiskeys have cut EU sales by 37 percent.

Raimondo and Tai said the agreement will apply the tariff breaks to EU steel “melted and poured” by the group's member nations, a step designed to reduce the use of steel imports from China by the 27-nation bloc. The U.S. and the EU will establish a monitoring system to track non-European steel products.

A senior administration official said the melt-and-pour standard offers a way “to work with the EU to ensure that Chinese steel doesn't get transshipped or doesn't get utilized in European steel products that come into the United States.”

The arrangement marks an increased effort to stop the overwhelming flow of cheaper steel from China that steel makers in the U.S., EU and other countries say is heavily subsidized and hard to compete against. China is the world’s top steel producer and accounted for more than half the world’s steel stocks. Most of China’s steel does not enter the U.S directly but its production drives down global prices.

Industry groups and Senate Finance Chair Ron Wyden issued generally positive assessments of the deal.

“I’m encouraged that this announcement takes significant steps to resolve the tariffs on European steel and aluminum and to begin a new phase of substantial cooperation on overcapacity, climate, and other issues facing the steel and aluminum industries,” Wyden, D-Ore., said in a statement.

Kevin Dempsey, CEO of the American Iron and Steel Institute, said the agreement offers important steps to guard against surges of steel imports that could undercut U.S. steel makers.

Dempsey, in a statement, called for the two trading partners to “now work on a common action plan for challenging non-market industrial policies and other government interventions that fuel overcapacity in steel. We urge the U.S. and EU to take active steps to hold China and other countries that employ trade-distorting policies to account.”

Scott Paul, president of the union- and industry-supported Alliance for American Manufacturing, said he is pleased the agreement doesn’t affect 40 trade enforcement cases against EU companies for selling steel and aluminum products below production costs or that are heavily subsidized.

Paul, who had urged the administration to take a firm line with the EU, said the agreement includes strong oversight of European exporters.

“Sensible tariff rate quotas, a ‘melted and poured’ requirement, adjustability when demand shrinks, and a focus on global overcapacity will allow American steelworkers and steelmakers to grow and contribute to rebuilding our nation,” Paul said.

The Coalition of American Metal Manufacturers and Users welcomed the tariff easing, but lamented what it called continued government barriers to affordable steel. The group is an umbrella organization for businesses and trade associations representing manufacturers and downstream supply chains for metal-using industries.

“CAMMU is concerned that replacing the tariffs with a tariff rate quota (TRQ) will hurt its members because the threat of tariff reinstatement looms with the surge in steel and aluminum demand expected when the bipartisan infrastructure bill passes,” the organization said in a statement.

“This type of government restriction on raw materials and intervention lead to market manipulations and allow for gaming of the system that could put this country’s smallest manufacturers at an even further disadvantage,” it said.

Raimondo and the senior administration officials said the agreement also includes provisions to create a framework to tackle carbon emissions. Steel production worldwide is a major source of the greenhouse gas carbon dioxide.

Raimondo said the framework under development would benefit the U.S. and the EU because “both produce steel and aluminum that is significantly cleaner, i.e. less carbon intensive, than the steel produced in China. And China’s lack of environmental standards is part of what drives down their cost, but it's also a major contributor to climate change.”

Tai said the U.S. and EU effort to negotiate the first-ever carbon-based arrangement on steel and aluminum trade underscored Biden’s focus on climate as both an environmental and economic issue.

“We know our allies and trading partners agree,” Tai said. “That is why we will create a global arrangement to encourage like-minded economies that share our collective commitment to market-based principles and addressing the carbon intensity of these industries.”

The EU and other countries are exploring the idea of imposing carbon taxes on high emission imported goods from countries that lack tough policies to reduce emissions. The border tax is seen as one way of reducing the likelihood of industries with high emission levels shifting production to countries with less stringent climate policy requirements or restrictions.

On Sunday, the Commerce Department said efforts to build the climate coalition are underway with discussions with Japan on steel and aluminum about “the need for like-minded countries to take collective action to address the root causes of the problem, and the climate impacts of the sectors.”