The future of the United States’ trade relationship with the European Union concerning steel imports is currently uncertain, with the potential reimplementation of a 25% tariff on European steel by January 1, 2024, if an agreement on eco-friendlier steel production isn’t reached by the end of this year.
This tariff, originally imposed by former US President Donald Trump in March 2018, has been on hold for EU imports since January 2022. Negotiations aimed at establishing a Global Arrangement on Sustainable Steel and Aluminium (GASSA) were expected to finalize a tariff-free trade deal between the US and EU on October 20. However, a summit in Washington between US President Joe Biden and European Commission President Ursula von der Leyen concluded without any announcement of an agreement.
The original deadline for these negotiations, set for October 31 and planned two years in advance, has been extended to the year’s end. A failure to secure an agreement might either trigger the reintroduction of the Section 232 levy and corresponding EU tariffs on US imports or extend the current suspension.
In 2022, the US imported 3.34 million tonnes of quota-covered steel, marking a 20.3% increase from the previous trade period under the Section 232 tariffs. EU imports of quota-covered steel from the US rose to 92,805 tonnes, up 26.4% from 2021.
Challenges in Negotiation and Impact on Global Trade
Divergent viewpoints have reportedly hindered the progress of the GASSA negotiations. The Financial Times attributes the delay to “irreconcilable differences,” noting the US’s insistence on the EU imposing a levy on Chinese steel imports – an action Washington deems necessary due to the influx of inexpensive metal from China. The EU, however, maintains that it requires a formal investigation to confirm China’s subsidization of its producers, as per international trade regulations, and such an investigation has yet to commence.
The international steel organization, Eurofer, emphasizes the need for an EU-US steel agreement to tackle the global excess steel capacity, which stands at about 600 million tonnes annually. The OECD anticipates an additional 150 million tonnes of steelmaking capacity by 2026, predominantly in Asia, the Middle East, and North Africa.
Following the October 20 summit, EU and US authorities jointly stated that significant progress had been made in identifying the origins of “non-market excess capacity” and in understanding the means to address the emissions intensity of the steel and aluminum industries.
Impact on the Steel Market and Emissions Policies
The ongoing negotiations are already influencing global steel trade. Some European distributors have reportedly halted orders from China due to apprehensions about a possible agreement leading to 25% tariffs on imports. Additionally, the introduction of the European Commission’s Carbon Border Adjustment Mechanism (CBAM) on October 1, which mandates the reporting of embedded carbon emissions, is diminishing the attractiveness of imports due to the increased administrative burden. Any forthcoming steel trade agreement between the EU and US will have to bridge the gap between their differing strategies for reducing steel industry emissions. The EU’s CBAM contrasts with the US’s approach of offering tax incentives and subsidies to assist steelmakers in lowering emissions.
The outcome of these talks could significantly affect steel prices as early as the first quarter of 2024, marking a critical juncture for the international steel industry.
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