What’s in the New U.S.-EU Steel and Aluminum Deal?
INSIGHTi
What’s in the New U.S.-EU Steel and
Aluminum Deal?
November 12, 2021
On October 31, 2021, the United States and European Union (EU) announced a multifaceted agreement to
address U.S. steel and aluminum tariffs on EU exports, imposed by the Trump Administration under
Section 232, and EU retaliatory tariffs on certain U.S. exports. The deal establishes a new tariff rate quota
(TRQ) to replace original Section 232 tariffs. It also creates a new forum to strengthen U.S.-EU
cooperation to address global overcapacity, ensure market-oriented conditions, and reduce carbon
intensity in these industries. In addressing the tariffs, President Biden sought to decrease trade tensions
with allies, build partnerships to tackle global issues, and protect U.S. jobs and industry from unfair
competition, stemming from China’s excess capacity and industrial policies.
Steel and Aluminum Exports and Tariffs
Effective March 23, 2018, President Trump applied 25% and 10% tariffs, respectively, on certain steel
and aluminum imports, under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862).
Although the United States negotiated various tariff exemptions with Brazil, South Korea, Argentina,
Australia, Mexico, and Canada, it has fully maintained the tariffs on EU exports since June 1, 2018.
The new arrangement replaces the existing tariffs with a complex TRQ system. Effective January 1, 2022,
the EU may export tariff-free 3.3 million tons of steel, 18 thousand metric tons (TMT) for unwrought
aluminum, and 366 TMT for semi-finished (wrought) aluminum. Any exports above those levels will be
subject to the higher tariff levels applied under Section 232. In addition to the overall quotas, each of the
three TRQs are broken into subcategories (54 product categories for steel, two and 14 categories for
unwrought and wrought aluminum), applied annually, administered quarterly for steel and semi-annually
for aluminum, and are allocated on a member-state basis for the 27 EU countries. Under the deal, the
United States will review and may adjust the TRQs annually.
The arrangement includes other conditions. Steel imports must be “melted and poured” in the EU so that
non-EU countries cannot avoid tariffs by exporting through the EU. Derivative products from the EU,
currently subject to tariffs under Section 232, will be exempt. The product exclusion process will remain
in place, allowing U.S. importers to request tariff exclusions for certain products; such imports are not to
count toward the TRQ limits, and the exclusions are not to expire until the end of 2023. The two-year
time limit adds a level of uncertainty.
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As part of the agreement, the EU committed to suspending its retaliatory tariffs on a variety of U.S.
exports, including American whisky and motorcycles, as of January 1, 2022. Additionally, the parties
agreed to further cooperate on trade remedies and customs issues. This will allow officials to provide
mutual assistance, monitor bilateral trade, and share information and best practices on topics like fraud
detection.
WTO Disputes
The United States and EU agreed to suspend their disputes at the World Trade Organization (WTO)
regarding these matters and not initiate new cases on them. The parties are now determining arbitration
procedures to formally terminate the disputes. The United States, however, continues to face challenges
against its Section 232 tariffs from some other WTO members, including Turkey, Switzerland, Russia,
Norway, India, and China.
Addressing Global Overcapacity and Carbon Intensity
The arrangement focuses largely on U.S.-EU opportunities to collaborate to restore market-oriented
conditions and reduce carbon emissions in the steel and aluminum sectors. The partners agreed to form a
technical working group to discuss establishing a “Global Arrangement on Sustainable Steel and
Aluminum,” with a two-year target timeframe.
They plan to invite like-minded economies to participate in the arrangement to promote trade in carbon-
friendly steel and aluminum. Compatible with international rules and obligations, members would restrict
market access to nonparticipants who do not meet market-oriented conditions, contribute to excess
capacity, or do not meet low-carbon intensity standards. The participants would be required to have
domestic policies that support lowering carbon intensity and to ensure market-oriented conditions,
including screening investment from nonmarket-oriented actors like China.
A goal of this new arrangement is to create a new global forum to tackle both overcapacity and
greenhouse gas emissions. It is unclear if the United States and the EU consulted with other economies
before making the joint announcement or how the parties might work with the OECD and Global Forum
on Steel Excess Capacity.
Stakeholder Reaction
The reaction from steel and aluminum stakeholders is mixed.
The United Steelworkers voiced support for the interim arrangement, stating it would allow U.S.
industries to remain competitive while addressing the nonmarket policies of China and others, but noted
the need for strict monitoring and enforcement. The American Iron and Steel Institute expressed similar
sentiments, adding that the U.S. industry has the lowest carbon-intensity steel of major steel-producing
countries. The European Steel Association also welcomed the deal as a “new, transatlantic partnership
tackling global trade distortions and climate change together.”
The aluminum industry was not as clearly aligned. The American Primary Aluminum Association
welcomed the agreement, while the Aluminum Association opposes the TRQ system, preferring joint
enforcement against China.
Others view the U.S.-EU announcement as positive, but insufficient. The Coalition of American Metal
Manufacturers and Users said the deal is “good news,” but voiced concern that the TRQ does not fully
eliminate the threat of tariffs if U.S. demand surges with new domestic infrastructure investment.
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The National Foreign Trade Council sees the shift to TRQs as “an unwelcome form of managed trade,”
and the U.S. Chamber of Commerce advocated terminating all steel and aluminum tariffs and quotas on
U.S. allies. One analyst pointed to the complexity of the TRQ system, calling it “just brutal for small and
medium steel-consuming companies.”
The New Democrats commended the deal and encouraged deals with other allies to remove tariffs. House
Ways and Means Committee Ranking Member Brady expressed cautious support, voicing concern about
the complexity of the TRQ system.
Outlook
The full impact of the deal will take time to emerge; it goes into effect in January 2022, and the new
Global Arrangement may not be finalized for two years. Potential areas of congressional interest and
oversight may include the impact of the tariff elimination and TRQ system on U.S. industry and bilateral
trade, the joint efforts to tackle China-driven global overcapacity, and the Biden Administration’s
announced consultations with Japan and the United Kingdom on the tariffs.
Author Information
Rachel F. Fefer
Analyst in International Trade and Finance
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