May 18, 2021
USTR, EC TEAM UP TO TACKLE STEEL, ALUMINUM OVERCAPACITY, DISCUSS TARIFFS
2021-07-14
The US government and European Commission will embark on discussions aiming to address the issue of global steel and aluminum overcapacity, and chart a path to end World Trade Organization disputes arising from the US application of taxes on imports from the EU under Section 232.
The initiative, which could herald both a partial easing of Section 232 tariffs and the EC’s steel imports safeguards due to expire June 30, was announced in a joint statement by US Trade Representative Katherine Tai, US Secretary of Commerce Gina M. Raimondo, and European Commission Executive Vice President Valdis Dombrovskis, May 17.
“During a virtual meeting last week, the leaders acknowledged the need for effective solutions that preserve our critical industries, and agreed to chart a path that ends the WTO disputes following the US application of tariffs on imports from the EU under section 232,” the statement said.
Market sources indicated the EU and US discussions will involve potential changes to the so-called “rebalancing” list of taxes introduced in June 2018 by the EU in response to the US Section 232 tariffs on steel and aluminum. These initially targeted a list of products worth Eur2.8 billion ($3.4 billion) and were scheduled to target a further Eur3.6 billion worth of trade in June 2021.
“It would seem the EU and US are mostly focusing on the next tranche of the rebalancing list for now,” said a spokesman for European Steel Association Eurofer, a producer group.
Steel safeguards
The introduction of Section 232 tariffs in March 2018 was followed later that year by the EU’s introduction of steel import safeguards, involving a quota system on imports from third countries and designed to prevent trade deviation from the US market.
The system has been gradually relaxed and it is expected that any extension beyond the three years for which it was initially designed could lead to a barrage of complaints via the WTO, especially at a time when some steel prices are at all-time highs as supplies remain tight on surging demand.
Independent market analyst Georges Kirps said he considered that “a re-conduction of EU steel safeguards under present market circumstances would be a major economic misstep, with negative impact on today’s main industry drivers of post-pandemic economic recovery in the EU and the UK.”
“Stringent antidumping and anti-subsidiary steel trade measures will continue to stay in effect on imports of main products like strip mill steels,” he said.
The market analyst added the Biden administration could be expected to continue with 232 restrictions regarding China.
Aluminum tariffs
Gerd Götz, director general of European Aluminium, a producers’ association, said the group “welcomes the news that the EU and US are entering discussions to chart a path that ends the WTO disputes following the implementation of the Section 232 tariffs.”
“Rather than slapping tariffs on each other, the US and EU should work together to address the root cause of the challenges faced by the aluminum industries on both sides of the Atlantic, namely the growing subsidized excess capacity of aluminum in China.”
Aluminum trade sources moreover noted that the EU had planned to increase retaliatory tariffs June 1, so the timing of the talks now announced may be “an effort to de-escalate the trade tensions between the EU/US.”
Partnering against overcapacity threat
The US/EC statement acknowledged the “serious threat” and “distortions” posed to the market-oriented US and EU industries, stemming from global excess capacity driven largely by third parties.
The USTR and EC have “agreed that, as the United States and EU Member States are allies and partners, sharing similar national security interests as democratic, market economies, they can partner to promote high standards, address shared concerns, and hold countries like China that support trade-distorting policies to account,” the statement said.
The US and EC will enter discussions on the mutual resolution of concerns in this area. addressing steel and aluminum excess capacity and the deployment of effective solutions, including appropriate trade measures, to preserve their critical industries, they said.
The aim is to find solutions before the end of the year that will “ensure the long-term viability of our steel and aluminum industries, and strengthen our democratic alliance.”
Eurofer, European Aluminium and US steel association AISI all welcomed news of the plan to tackle global excess capacity.
Global steel overcapacity was recently estimated by the OECD as standing at around 650 million mt in 2020. According to Eurofer, this is driven not only by China, but also increasing capacity in India, Turkey, Iran, South Korea, Vietnam, Russia and Indonesia.
Kirps noted that Chinese steel producers are increasingly compelled by party politics to turn their priorities to a fast-growing internal market and to be less reliant on export markets.
Therefore, “Chinese steel overcapacity will progressively be partly absorbed in the medium term by internal Chinese steel consumption growth,” he said.
Global excess primary aluminum capacity stood at some 14 million mt in 2018, European Aluminium reported. The industry group added that an OECD report released last week shows that below-market finance has been found to play a major role in favoring certain aluminum producers, the vast majority being Chinese.
— Diana Kinch
Source: Eurometal
