What’s Next for the U.S.-EU Green Steel and Aluminum Talks?
In our most recent installment of our Trading Thoughts “Trade & Climate” series, we explored U.S. legislative proposals on carbon taxes and tariffs and the lack of consensus in Congress on how to move forward with such measures. In our third installment, we are taking stock of negotiations between the United States and European Union seeking to address green trade in steel and aluminum and the prospects of reaching a final agreement as the EU and U.S. forge ahead toward 2024 elections.
The Global Arrangement on Sustainable Steel and Aluminum
The vision of a Global Arrangement on Sustainable Steel and Aluminum (Global Arrangement) was rooted in President Biden’s effort to ease trade tensions with the EU over Trump-era Section 232 tariffs. The Biden administration saw an opportunity to use steel and aluminum as an avenue to address its trade and climate goals, which theoretically aligned well with the EU’s Green Deal. In October 2021, the U.S. replaced its Section 232 tariffs with a tariff rate quota (TRQ) system, the EU suspended its retaliatory tariffs, and the parties launched negotiations toward a Global Arrangement.
Negotiators for the Global Arrangement were tasked with an ambitious goal: develop a system that would discourage high-carbon steel and aluminum production and trade, and address market distortions stemming from non-market excess capacity—with an ambitious two year deadline. From the outset, the parties envisioned inviting like-minded economies to join them. Those outside the arrangement would have to choose between cleaning up their production and restoring market-oriented conditions or facing significant barriers to the American and European economies.
However, a number of hurdles quickly surfaced. The EU’s Carbon Border Adjustment Mechanism clashed with U.S. views on addressing carbon intensity, disagreement abounded over how to identify sources of excess capacity, and the EU could not get the U.S. to provide a clear roadmap for removal of the TRQs. Talks stalled ahead of a self-imposed October 2023 deadline when leaders from the two economies gathered for a summit. Ultimately, news was limited in the joint statement as leaders announced they would be punting negotiations to a later date in order to resolve sticking points.
At the end of 2023, the U.S. and EU extended the tariff truce to give the economies more time to establish a path forward on the negotiations. The U.S. extended the TRQ systems for steel and aluminum until the end of 2025, while the EU suspended its tariff retaliation until March 2025.
International Trade Commission Study on Emissions
In tandem with these negotiations, the U.S. International Trade Commission is investigating greenhouse gas emissions for U.S. steel and aluminum products in order to garner more industry data on the environmental impact of metals production. The results of the investigation, which are due in January 2025, will be used to inform a U.S. green trade policy, including future implementation of any Global Arrangement agreement.
What’s Next?
Notably, all of those deadlines fall after the EU parliamentary elections in June and U.S. presidential election in November, the outcomes of which could prove fateful for the Global Arrangement negotiations. The Section 232 tariffs are one of former President Donald Trump’s signature trade actions, and if elected, his penchant for using tariffs as leverage in negotiations and enacting his policy agenda at the expense of close allies and trading partners could put an end to the Global Arrangement altogether.
Meanwhile, little to no progress has been made since the tariff truce was extended. It’s possible both sides are hesitant to spend too much capital on negotiations ahead of the upcoming elections. But should the Biden administration hope to resolve differences with the EU and conclude an agreement on green steel and aluminum, there is little time to waste.
There are many moving parts to the complex issue of trade and climate, both here at home and across the globe. Whether Biden continues into a second term or Republicans win the White House, Lot Sixteen will be keeping a pulse on all things green trade.
