Experts Argue on Why US-EU Can't Reach Steel Deal

Think tank experts debated the outcomes of the U.S.-EU Summit, which Jorn Fleck, senior director of the Atlantic Council's Europe Center, suggested was a "bust," at least when it comes to trade.

From the U.S. perspective, the Global Arrangement on Steel, as it's known for short, is meant to build a fence around the EU market to keep cheap subsidized steel from China out. It is also meant to facilitate trade in steel and aluminum made with less embedded carbon and put up barriers to imports of dirtier metals.

Charles Lichfield, deputy director of the Atlantic Council's geopolitics center, blamed the inability of the two sides to reach an agreement on either plank in two years of negotiating on the U.S. demands for blocking steel made from non-market overcapacity. Lichfield, who said he is an EU citizen, said he is speaking more frankly than EU diplomats would, but he said that what he says is true -- he said the U.S. has its assessment of "what overcapacity is and how they see it penetrating the EU market," and they have demands of the EU on how to respond. "That’s where we’re still hitting a disagreement," he said.

Some observers had thought the overcapacity plank could be settled in October, even if the green steel plank would take longer (see 2310020070).

Mullaney said once an agreement on how to keep out products made through overcapacity is arrived at, it "could be a model or blueprint we could use in other sectors to do the same. We’re arguably doing something that addresses a current crisis, or a current challenge, but also one that is going to have some broader applicability."

The European parliament passed a law known as the Carbon Border Adjustment Mechanism, or CBAM, which charges tariffs on imported steel and aluminum equal to the carbon price that European producers pay. If the exporting country has its own price on carbon, that would be subtracted from the tariff.

While some U.S. states along the coasts have cap and trade systems that put a price on carbon, the major steel-producing states don't have any price on carbon. The CBAM covers electricity, fertilizers, hydrogen, steel, aluminum, cement and some precursors of those goods -- through 2025, only reports on carbon content are due. Tariffs begin in 2026.

None of the initial products is a major export of the U.S. to Europe, though kaolin and kaolinic clays, an input for cement, is something the U.S. exports to Belgium, Finland and Germany in some quantity. Across those three countries, U.S. exports were more than $100 million in 2021, according to Trendeconomy.com. If the CBAM expands to chemicals and plastics, it will affect U.S. exports more.

Mullaney suggested that CBAM, because it makes no provisions for measuring clean steel besides using a carbon price, could be considered a violation of the World Trade Organization's technical barriers to trade agreement. "You should be looking at equivalence of outcome and not necessarily equivalence of means," he said. "I raise this as an illustration of how complicated this is. If you're wondering why the parties were not able to reach an agreement even though they share the same objective ... that gives a flavor."

He characterized this as institutional rigidity in the EU, but it's the statute, not the bureaucracy, that's the limiting factor.

Lichfield said he thinks there does need to be compromise so that the EU can recognize when U.S. exports are sustainably made, even if it wasn't carbon taxes that drove them to be produced that way. However, he said he doesn't expect a wholesale exemption to CBAM for U.S. exports.

The panelists disagreed on whether at least a partial Global Arrangement on Steel would come before the end of the year, the new deadline for negotiations. The U.S.-EU joint statement also said a critical minerals agreement would be completed within weeks.

Frances Burwell, a senior fellow at the Atlantic Council's Europe Center, said she doubts either steel or critical minerals will be settled in late 2023 or even early 2024.

"It’s quite clear that this administration does not want to do anything that could be taken by their adversaries that would disadvantage U.S. steelworkers," she said, and so she doesn't even think a steel deal will be completed before November 2024.

However, she doesn't expect 25% tariffs on European steel and retaliatory tariffs from Europe to return, as, she said, neither side wants to bring them back. "We can continue to kick this can down the road for quite some time," she said.

Lichfield, who reminded listeners that the tariffs have been replaced by quotas, said he is hopeful that an agreement on steel overcapacity can be completed in the next two months.

He also said it is a "small little victory" that the joint statement noted that the critical minerals deal would allow critical minerals processed or mined or recycled in the EU to count for electric vehicle battery consumer tax credits.

Japan already has such an agreement.

"There is a little bit of frustration that Japan was not held to such high standards," Lichfield said. "The feeling is that the EU is being held to a higher standard."