Talks between the European Union and the United States began in October 2021, where both parties announced the Global Arrangement on Sustainable Steel and Aluminium (GASSA), a partnership in which both parties would negotiate an arrangement to combat global overcapacity and climate change.
The discussions would include discouraging trade in high-carbon steel and aluminum that contributes to global excess capacity from other countries and ensure that domestic policies support lowering the carbon intensity of these industries.
The US suspended import tariffs on EU steel and aluminium imposed by then-President Donald Trump in 2018, on the condition that the pair agree by the end of October on measures to address overcapacity in non-market economies, such as China, and promote more environmentally friendly steel production.
“The effective collapse of the talks was surprising,” Dr. Todd Tucker, a director of industrial policy and trade at the Roosevelt Institute, told Fastmarkets on Monday October 23.
Tucker noted that the US had moved steadily towards the EU’s position over the course of the two years of negotiations, pointing to reports that the US had revised its proposal that would complement, and not replace, Europe’s carbon border tariff system, the Carbon Border Adjustment Mechanism (CBAM).
“Given the political mandate, policy feasibility and EU accommodations, a deal could have certainly been landed,” Tucker said.
Lewis Leibowitz, an international trade law attorney, told Fastmarkets, “I think both sides wanted to resolve their differences and failed to do so. Each side has its own reasons—but the inability of the US and EU to compromise on their differences in the middle of global crises is an unfortunate message.”
Negotiations targeting carbon intensity of imported steel can be challenging, sources said, with some noting that the negotiations will likely be stalled for at least the next two years.
“The US and EU are much more closely aligned at their core than the rhetoric would indicate. They both want to ensure that their economies can thrive under climate-safe trade policies like GASSA, but the reality is the details are quite challenging to get right and policymakers taking more time to get it right is a good sign,” Margaret Hansbrough, a campaign lead at SteelWatch, told Fastmarkets on Monday.
Hansbrough highlighted the importance that the pair collaborate on trade policies like these that “send demand signals for green steel” and pave the way for other countries to “benefit from trade if they are also decarbonizing their heavy industry in an aggressive enough manner.”
Tariff rate quota system needs to stay in place
A vital element of the negotiations between the EU and the US is the tariff rate quota system, under which, historically-based volumes of EU steel products can enter the US market without the imposition of a 25% tariff on EU steel products under Section 232.
“It is important to the domestic steel industry that the tariff rate quota (TRQ) system implemented in 2021 remains in place [while] negotiations continue,” Philip Bell, president of the Steel Manufacturers Association said in a release on Friday October 20.
The TRQ system is a necessary measure and needs to stay in place to combat excess capacity, source familiar with the matter told Fastmarkets on Monday.
“There’s a fear that the EU will ship products into the US far above historical norms,” the source said.
Hansbrough added, “The TRQ can indirectly have a benefit for the climate, but its needs to be coupled with strong progress on green primary steel production in the US.”
Now that both parties have decided to continue negotiations through the end of the year, the following steps in the GASSA negotiations between the pair over the next two months are uncertain.
Path forward is ‘unclear’
“It is unclear what the path forward is. The EU has been demanding deeper coordination with the US across a range of green transition questions. A deal around green steel would have been a down payment on further cooperation,” Tucker said. “That they were not able to land it on a ‘low-hanging fruit’ industry makes it less likely they will do so for industries that involve more complicated questions.”
Hansbrough added, “Product- and facility-level environmental product declarations (EPDs) are a good place to start. Steel emissions intensity targets for both primary and secondary steel would be wise too, to ensure both types of production are making progress needed and to make sure primary steel production cannot hide behind industry averages that benefit from a natural increase in scrap-based steel over time.”
The source familiar with the matter said that while there are strong incentives for both parties to reach some agreement by end of year, he expects the agreement to be a partial one and relating mostly to the TRQ system.
“Whatever agreement we see at the end of the year is going to be limited and not going to include the carbon piece,” the source said.
To keep up with the green steel discussion and to follow the critical developments in green steel pricing and low carbon steel production, visit our Green Steel Spotlight page.
