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The European Union has rejected a proposed solution from the United States to end tariffs on steel and aluminium. This rejection raises concerns about a potential reemergence of the transatlantic trade dispute.
Both sides previously paused a tariff war initiated by former US President Donald Trump in 2021. However, they must now reach a binding agreement on a new “green steel” club by October.
EU officials familiar with the situation believe that the proposed US solution is likely to violate World Trade Organization rules due to its favoritism towards domestic producers.
As time runs out to secure a breakthrough, EU Trade Chief Valdis Dombrovskis plans to travel to Washington next week.
If the two sides fail to reach an agreement, the US tariffs and EU retaliatory measures will automatically be reinstated in October. The US tariffs currently stand at 25% for steel and 10% for aluminium from Europe, while EU measures target products like bourbon whiskey and Harley-Davidson motorcycles.
During the temporary pause in the dispute, the US and EU agreed to establish a sustainable steel club that focuses on low carbon production, aiming to reduce reliance on Chinese imports.
The US proposal suggests that club members can set emissions standards and impose tariffs on those who do not meet them. To join, governments must also commit to avoiding overproduction of steel and aluminium and limiting the involvement of state-owned enterprises.
On the other hand, Brussels believes that its new carbon border adjustment mechanism (CBAM), which imposes tariffs based on carbon intensity, is the appropriate approach. They have suggested combining CBAM with traditional trade defense tools to address overproduction, forming the basis for the Global Arrangement on Sustainable Steel and Aluminium (GSA).
Unlike the EU, the US does not have a national carbon pricing system. The Biden administration is hesitant to impose charges on heavy industry in key states like Pennsylvania, Michigan, and Illinois to maintain support for the 2024 election. Dropping the tariffs, imposed by Trump for national security reasons, also raises concerns about job security in blue-collar sectors, especially with cheap imports from China.
The EU operates an emissions trading system that requires companies to purchase permits to pollute. The price of a tonne of carbon recently reached €90. Under the CBAM, importers would be required to pay the same price for sectors like steel and aluminium if the country of origin has a lower or no carbon price.
To facilitate trade between the EU and the US during the interim period, a temporary system of tariff-rate quotas was introduced. This system allows for exports of metals between the two parties with lower levies up to a certain volume.
The hope is to reach a deal by October and potentially sign it at an EU-US summit. Dombrovskis will also advocate for improved treatment of the EU under the US support scheme for electric vehicles. Currently, Washington’s Inflation Reduction Act limits subsidies to EVs and batteries substantially made in the US, Canada, and Mexico. The US has offered to include EU manufacturers sourcing or processing the five most common minerals for batteries, but some EU governments are pushing for expansion to all 50 metals listed in the IRA.
Miriam Garcia Ferrer, spokesperson for the European Commission, confirmed Dombrovskis’ travel plans and stated that contacts with the US are ongoing. She emphasized the commitment of both sides to achieve an ambitious outcome for the GSA while complying with international obligations and domestic climate policies. The US administration is yet to respond to these developments.
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