Beyond the initial goal of reducing low-priced steel imports into the EU, the European Commission’s new proposed trade measure can be seen as a signal to the US that the EU wants to pursue the idea of a closed US-EU steel trading club, Kallanish notes.
This comes as EU-US negotiations on the Global Arrangement on Sustainable Steel and Aluminium (GASSA) during the Joe Biden presidency were abruptly ended by the Trump administration’s re-imposition of Section 232 tariffs. The EU and US agreed a deal in July to reduce certain tariffs on EU-origin imports into the US, but steel remains levied at 50%.
While announcing its proposal on Tuesday to cut steel tariff-free quotas by almost half and raise out-of-quota tariffs to 50%, the European Commission made sure to point out it “shares many of the concerns of the US on this sector”.
In its Q&A sheet related to the new measures, it notes: “Both sides are aware of the importance of addressing the negative trade-related effects of global overcapacity. The Union is ready to work with like-minded countries with a view to ring-fencing their economies from global overcapacity while ensuring secure supply chains and increasing market access among them. We will continue exploring ways of working together with the US to achieve a successful outcome.”
Any future trading pact may include other “like-minded” countries such as the UK, whose steel industry fears the new EU trade measure represents an “existential crisis” (see Kallanish passim).
However, any agreement would need a justifiable purpose, in order to avoid trade tensions with other trading partners. While GASSA’s main focus was on sustainable steel, it is difficult to imagine the Trump administration will prioritise this approach. A more likely focus will be economic security amid global fragmentation.
Responding to concerns over the legality of the new trade measure, meanwhile, the Commission said a WTO member can take legitimate action – such as increasing its tariff commitments under WTO – in compliance with the rules under GATT Article XXVIII. But in doing so, other countries may be entitled to compensation or retaliation.
“Stakeholders, including third country governments, were invited to express their views on the EU’s proposal, but few countries availed themselves of this opportunity. Of those that did, several acknowledged the rationale for the EU to act against overcapacity,” the Commission notes.
The new measure aims to increase EU steel capacity utilisation to 80%. As for its impact on buyers, “the market will need to adjust to the new reality in the coming months, but we consider that the level of tariff quota combined with the existing capacity available in the EU would be sufficient to supply the EU market,” the Commission says. “In addition, the measure allows for the adjustment of volumes, including for specific product categories, should supply concerns arise including through an urgency procedure.”
As for its impact on FTA partners, the Commission will discuss solutions with each partner. However, “an exclusion of FTA partners’ imports is not possible. They represent two thirds of total imports, some of which contribute to overcapacity, and such an exclusion would make the measure totally ineffective,” it concludes.
Adam Smith Austria
