US, EU talks on global steel arrangement still have ‘long way to go’

The US and the EU still have a long way to go in establishing a global green steel arrangement, American Iron and Steel Institute CEO Kevin Dempsey said May 16.

“I think we agree on the principle that there needs to be a trade mechanism that discourages the use of much dirtier imports of steel, but we’re coming at it from different policy approaches, so whenever you’re trying to reconcile very different policy systems it’s a complicated process,” Dempsey said during a press conference at the AISI General Meeting in Washington.

As part of an agreement reached in October 2021 to replace the existing US Section 232 tariffs with a tariff-rate quota for EU countries, the two parties said they would negotiate further arrangements for trade in the steel and aluminum sectors that take into account both global non-market excess capacity as well as the carbon intensity of these industries. The negotiations are currently set to end in October.

At a fundamental level, the EU is still focused on building out its carbon border adjustment mechanism system, which is built off its emissions trading scheme that imposes a fee on domestic production that would then be applied to imports, Dempsey said.

“The US approach is a different one in that we don’t have a domestic fee on carbon; we don’t think that is necessary,” he said. “We think the right way to calculate carbon tariffs is based on the average intensity of steel production in the US for a product versus the imports. “We have a different structural problem.”

The purpose of the global arrangement would be to agree on some approaches using trade policy to incentivize the rest of the world to try to catch up to where the US industry already is, Dempsey said.

Cleveland-Cliffs CEO Lourenco Goncalves noted the US steel industry is 70% electric-arc furnace based and 30% blast furnace based while Europe, Japan, South Korea, Brazil, and Canada all have 30% or less of its steel production via the cleaner EAF route.

“The data put out by various outside groups all show the US industry, looking at different product categories, is producing steel cleaner than in the EU,” Dempsey said. “The EU is making progress but they are not as clean as we are. It’s a great opportunity but we still have a long way to go to reach an agreement.”

EU tariff-rate quotas

One of the sticking points in the negotiations between the two is that the EU would like to see the US drop the TRQ on its imports.

The aggregate annual steel import volume under the TRQ is set at 3.3 million mt across 54 product categories and allocated on an EU member state basis, in line with the 2015-2017 historical period.

From the US perspective, the Section 232 tariffs were implemented in 2018 to deal with the national security threat from global overcapacity, Dempsey said, adding that global excess steel capacity remains a problem.

“We will have to see just how effective a system they come up with that can deal with non-market excess capacity,” he said. “If there is not a very effective system that is comparable to the TRQs I think we need to keep those in place.”

Under the presidential proclamation issued by Biden in December 2021 setting up the TRQ system, the quotas for the EU are set to expire at midnight Dec. 31 meaning the Section 232 tariffs would automatically be reinstated if an agreement or extension is not in place, Dempsey noted.

Author Justine Coyne