EU-US Make Moves to End Trade Dispute, with Eyes on Mainland China’s Overproduction of Steel

On 17 May 2021, the European Union and the United States announced the start of bilateral discussions to address the health of their steel and aluminium industries in the face of chronic global surplus. The statement highlighted the impact of excess metal capacity on industries, workers, and market economies in both regions. The parties also agreed to work towards ending WTO disputes initiated in response to the US application of global tariffs on steel and aluminium imports. Representatives committed to avoiding any changes to their respective tariff policies in this area. The joint statement singles out mainland China as a country to be “held accountable” by the EU-US partnership for supporting “trade-distorting policies”. 

The US-EU steel trade dispute began in June 2018, when former US President Donald Trump imposed global tariffs at a rate of 25% on steel imports and 10% on aluminium imports. In the face of dropping metal prices and a “steel crisis” (according to the American Iron and Steel Institute), these measures were aimed at bolstering metal manufacturing by American producers. These tariffs affected imports from the EU as well as from Hong Kong and other countries, and were justified as national security measures under Section 232 of the Trade Expansion Act of 1962. 

The EU retaliated with counter-tariffs on 2.8 billion euros of varied US products such as whiskey, motorcycles, boats, and approximately 180 other goods, at rates of up to 25%. An increase of these tariffs up to rates of 50% was scheduled for 1 June 2021 and expected to fully offset the effects of the Trump tariffs. Additionally, the EU filed a dispute against the US at the World Trade Organization, claiming that the US measures were inconsistent with international trade law. The US also requested WTO consultations over the EU counter-tariffs. The WTO panels expect to issue final reports to the parties no later than the second half of 2021. 

However, on 17 May 2021, United States Trade Representative Katherine Tai and European Commission Executive Vice-President Valdis Dombrovskis announced a joint effort to resolve the global overproduction of steel and aluminium, driven by third parties. Both parties have also agreed to work towards ending the related transatlantic tariff dispute and WTO complaints. To promote a constructive environment towards these goals, the parties have resolved not to make changes on bilateral trade policies in these areas. As such, the EU has temporarily suspended the planned June increase of tariffs against US products for up to six months. Meanwhile, Hong Kong exporters should note that the US will keep its global tariffs on steel and aluminium imports at the current levels. 

According to MLex, the suspension of the EU tariffs increase appears to be a “one-sided concession”. The EU bloc had previously sought a mutual suspension of tariffs for a six-month period, which the parties did not achieve. The new American administration is facing conflicting interests and has been reluctant to end their tariffs. A range of US industries suffering from the EU tariffs are advocating for a swift resolution to the dispute. On the other hand, steel-producing states are pressing for the maintenance of import restrictions, with the support of the United Steelworkers trade body, which welcomed the initiative to resolve metal oversupply but has also stressed the importance of upholding the strength of the American steel industry. 

Of possible relevance to traders operating from Asia, the joint statement highlights the parties’ intention to work together to hold “countries like China” accountable for supporting “trade-distorting policies” in the metals industry. According to the Mercator Institute, such policies which drive overproduction at low cost include asymmetric market access conditions, the provision of state-subsidies, and competition restrictions in mainland China. A 2020 OECD study showed that mainland China was the largest steel-exporting economy between 2014 and 2019, while the EU and the US have been the two largest importers of steel during that period.

This announcement has come about in a climate of lessening tensions between the US and the EU following President Biden’s transition into office. Indeed, in March 2021, both sides suspended punitive tariffs in a separate dispute concerning the aeronautics industry. In a concurrent disagreement on American digital taxes against EU nations, US tariffs have been suspended and a solution at the OECD is being sought. The release of the steel and aluminium statement comes weeks ahead of the 14 June NATO summit and the US-EU Summit, which will bring President Biden to Brussels.

In the words of Charles Michel, President of the European Council, the purpose of the upcoming summit is to rebuild “a strong transatlantic alliance based on common interests and shared values”.