The US Section 232 tariffs on steel and aluminium
The United States has decided to remove the Section 232 tariffs on steel and aluminium on EU imports up to a level in line with historical levels of trade. The European Union considers the US decision as a step in the right direction. It will reduce transatlantic trade tensions created under the Trump administration. It will help alleviate an important trade irritant and focus on a forward-looking and cooperative transatlantic relationship. The US action is an improvement for EU steel and aluminium producers and exporters accessing the US market, which had been burdened by additional cost due to the imposed tariffs.
In reaction to the US announcement, the European Union will take a step in the direction of the US. The Commission will propose to suspend the EU rebalancing measures against exports from the United States implemented since June 2018.
In the light of this development, the EU and the United States have also agreed to pause the bilateral World Trade Organisation (WTO) disputes on steel and aluminium.
As part of the effort to reboot the transatlantic trade relationship confirmed by the EU-US Leaders’ Summit in June 2021, European Commission President von der Leyen and US President Biden have also agreed to start discussions on a Global Arrangement on Sustainable Steel and Aluminium. This announced initiative to achieve the decarbonisation of the global steel and aluminium industries marks another milestone in the transatlantic partnership and demonstrates the dedication of the EU and US to fight against climate change. It also builds on the recent successes resetting the EU-US trade relationship, such as the launch of the EU-US Trade and Technology Council and the suspension of tariffs in the Boeing-Airbus disputes.
US replaces the tariffs on EU export of steel and aluminium with a tariff rate quota
The United States has decided to replace the US Section 232 tariffs on certain EU exports of steel and aluminium with a tariff rate quota (TRQ) up to a level in line with historical levels of trade. The US is also lifting the US Section 232 tariffs on EU exports of steel and aluminium derivatives.
Specifically, for steel products subject to US 232 measures, the US will remove the 25% tariff and allow duty-free access for EU exports for 3.3 million metric tonnes as well as extend the application of exclusions granted by the US administration on steel products imported from the EU in total volume of 1.1 million metric tonnes until December 2023. For aluminium products, the US will remove the 10% tariff for duty-free access of EU exports for 384 thousand metric tonnes.
Even though the EU considers the US announcement as favourable because it eliminates the ineffective additional tariffs, the US decision does not fully remove the 232 measures against the EU and its exports of steel and aluminium.
The EU therefore continues to call on the US for the full elimination of all US Section 232 measures against the EU and its steel and aluminium exports. The EU and its exports are not a security threat to the US.
EU will suspend its rebalancing measures for period of two years
Since the US is not fully removing its 232 measures on EU exports of steel and aluminium, the EU is not in a position to terminate its measures. A termination of EU’s measures, as well as of the WTO dispute, could only be envisaged in case the US removes its Section 232 measures entirely, which the EU continues to consider incompatible with WTO rules.
However, in the light of the US’ decision to restore historical trade flows, the EU will take the necessary steps to suspend its related rebalancing tariffs, in light of its obligation under the WTO Agreement that rebalancing measures be “equivalent” as provided by the Enforcement Regulation. Accordingly, the EU should suspend as of 1 January 2022, the rebalancing measures against the US that were introduced in June 2018 in response to the US Section 232 tariffs on steel, aluminium and derivative products (so-called “first tranche” measures). The EU should also continue without interruption the suspension of the increase in rebalancing measures (so-called “second tranche” measures) set to be applied otherwise as for 1 December 2021.
The suspension should be set to last initially until December 2023. The suggested period is considered adequate in light of the current developments and ongoing cooperation with the US. Such two-year suspension reflects the period of prolongation of the exclusions granted to importers by the US Administration of EU steel in the United States until December 2023. The proposed period of suspension will be subject to changes or prolongation as appropriate.
The European Commission will follow the established procedures under the EU Trade Enforcement Regulation to implement the suspensions of the EU’s rebalancing measures. This entails the adoption of a Commission implementing act, following the opinion of the representatives of all Member States within the Trade Barriers Committee.
Compatibility of the US decision with its international commitments
Criticism of the EU over the compatibility of the US decision as regards Section 232 tariffs on EU steel and aluminium with its international commitments has no basis.
The US has announced its intentions to lift the Section 232 tariffs on steel and aluminium on EU imports and to replace them with a tariff rate quota amounting to the past levels of trade. This is a decision attributable to the US and clearly not of a choice by the EU. It also relates to a tariff treatment by the US of imports into the US. The question of compatibility of the partial lifting with the obligation of most-favoured-nation treatment is therefore a question for the US and not one for the EU.
As it can be seen in the EU announcement of 31 October 2021, the EU separated itself from that US decision. It merely took note of the US announcement, while expressly stating that it continues to consider the US Section 232 measures (which remain in place, for out-of-quota EU exports and for exports from most other countries) as incompatible with the WTO rules.
At the same time, the EU treats the US measures as safeguards (albeit illegal) and thus it is under a WTO obligation not to rebalance the trade beyond what is needed for a proportionate response. To the extent that a residual rebalancing right continues to exist, the EU is not obliged to exercise that right. This is what the announced EU suspension is meant to achieve, while preserving the established EU rebalancing rights. The suspension, too, is without prejudice to the EU position as regards the WTO compatibility of the US Section 232 measures. The duties also were themselves not premised on the WTO-illegality of the US measures, but rather on their characterisation as safeguards.
When it comes to the occasionally tabled question whether the EU participated in a grey-area arrangement such as voluntary export restraints or similar, prohibited under Article 11.1(b) of the WTO Safeguards Agreement, it bears stressing, first, that the EU is not restraining any exports. Nor is the EU participating in any US import restraint, the EU also is not agreeing to any restraint (by the US; e.g. on out-of-quota exports). The EU merely takes note of the fact that the US unfortunately is ready at this stage to lift the Section 232 duties only for a specified quantity of EU exports.
The EU and the US announced the suspension of the WTO disputes
The EU and the US lodged their respective dispute settlement cases in 2018, in response to the US Section 232 measures and EU rebalancing measures. These cases are being litigated currently in the WTO.
The “pause” that has now been agreed between the EU and the US preserves the state at which these disputes currently stand, without eliminating them. The pause makes it possible to continue the disputes at a later point in time, in case the need would arise. It should enable the parties to pick up their dispute settlement case from the stage in the litigation process they currently are.
The Global Arrangement on Sustainable Steel and Aluminium
The Global Arrangement will seek to ensure the long-term viability of our industries, encourage low-carbon intensity steel and aluminium production and trade, and restore market-oriented conditions disrupted by non-market excess capacity.
The Global Arrangement is intended to be a framework for cooperation open to all like-minded partners that wish to address these issues. This initiative is an important addition to our toolbox to tackle climate change and address non-market practices causing harm to our producers. These challenges are truly global in nature and to solve them, international cooperation will be needed. The future Arrangement will be consistent with any other domestic climate action initiatives currently discussed by each party, such as the carbon border adjustment mechanism. The Arrangement will also need to be compatible with international trade rules, as set out by the WTO. This is clearly stressed in the joint EU-US statement.
The background of these developements
In June 2018, the US administration led by President Trump introduced tariffs on € 6.4 billion of European steel and aluminium exports, and further tariffs in January 2020 that affected around € 40 million of EU exports of certain derivative steel and aluminium products. The EU introduced rebalancing measures in June 2018 on US exports to the EU in a value of € 2.8 billion (a similar EU response followed the second set of US tariffs in 2020). The remaining rebalancing measures, affecting exports valued up to € 3.6 billion, were scheduled to enter into force on 1 June 2021 but later suspended until 1 December 2021 in order to give space for the parties to work together on a longer-term solution. As regards the US measures on steel and aluminium derivatives introduced in beginning of 2020, the first tranche EU rebalancing on first was introduced in May 2020.
The US announced on 31 October 2021 that it would replace the US Section 232 tariffs on steel and aluminium by a tariff rate quota to amount to past trade volumes. For steel, the referenced historical period is the three-year average preceding the imposition of the US measures, allowing for 3.3 million metric tonnes duty free access of steel products melted and poured in the EU (in line with US’ current conditions for such imports). On top of the duty-free steel export volumes, the US will extend the application of the current utilised exclusions granted by the US Department of Commerce for period of two calendar years. For aluminium, the US will remove the 10% tariff for duty-free access of EU exports of aluminium allowing for 384 thousand metric tonnes of EU exports. This corresponds to the historical levels of exported volume two years prior to 2020 with exception of aluminium foils for which the 2021 baseline will be used. The importer will be required to provide a declaration of a Certificate of Analysis for such aluminium products in line with US’ existing rules.