While the EU and US are locked in a stalemate regarding the Global Arrangement on Sustainable Steel and Aluminium (GASSA), European steelmakers have urged Brussels to resume talks.
The US and EU vowed to work on a green steel agreement in 2021. Washington first pitched a “green steel” club in December 2022 to overcome the frozen retaliatory tariff dispute started by the Trump administration. Progress has been slow, and now steelmakers urge negotiators to step up efforts.
“Talks should be reactivated, building upon what has already been discussed, and possibly concluded,” said Axel Eggert, director-general of the European Steel Association (EUROFER).
“Global excess capacity is worsening each day and is unlikely to disappear regardless of the election outcomes on both sides of the Atlantic,” he told Euractiv in emailed comments.
Today, that steel club is known as GASSA.
With EU-US trade negotiators meeting at the Trade and Technology Council ministerial today, there is the possibility further GASSA details can be fleshed out.
The ‘China problem’
Steel production capacity severely outstrips demand, and the outlook is not promising. “The problem of overcapacity is expected to become even more acute in the future,” warned the Steel Committee of the OECD, a club of mostly wealthy countries.
China, where environmental issues and cheap labour are the norm, is home to slightly less than half of global steel production capacity. Meanwhile, 15% of production capacity went unused in 2023, and Western countries are aggravated by China opening the floodgates of cheap steel.
Meanwhile, Europe and the US look to kick-start the green transformation of the steel industry, an investment-intensive process that is not bankable unless the offtake of “green” steel is guaranteed at above-market prices.
The steel club would provide that by walling off “unsustainable” Chinese steel.
However, the details surrounding the deal are fluid, according to Mike Williams, a senior fellow at the Center for American Progress (CAP), a liberal Washington think tank.
Initiating talks about GASSA initially served as a peace offering from both sides after the Trump-era tariff row when European imports fell afoul of protectionist tariffs, prompting retaliatory tariffs from the EU.
Under the Biden administration, the US instituted a tariff rate quota that allowed a certain amount of EU steel and aluminium to be imported without being hit. The EU responded by lifting its tariffs temporarily — which EUROFER’s Eggert described as a “positive step.”
Still, the EU would prefer the tariffs to be abolished entirely rather than have to adhere to a quota.
The FT reported on EU plans to engage in litigation brinkmanship and take the US to court at the World Trade Organisation (WTO) to up the pressure — while negotiating the terms of a would-be steel club.
Doing so, however, would not be conducive to GASSA talks.
The current arrangement has been extended in December 2023, with the next deadline falling after the November 2024 election in the US, where a second Trump administration looms.
Negative outlook
“Steel yourself,” warned the trade experts at the Bertelsmann Foundation, adding that the return of Trump would bring new tariffs and destroy the steel club.
But, the biggest challenge may be the substantially different approach to industrial transformation.
The US looks to propose a tariff based on the carbon intensity of steel imported from other countries but leaves domestic production untouched because it is considered politically toxic.
“It will inevitably come up, but at this point, it is very difficult to discuss whether the domestic carbon price can be set up, and that’s what I see from Brussels,” said Irina Kustova, research fellow at the Centre for European Policy Studies (CEPS).
CAP’s Williams said the current political climate makes such a policy “nonstarters”.
Meanwhile, the EU has priced the CO2 emissions from domestic steel production and will now begin to subject imports to a tariff mechanism based on climate impact — known in Brussels as the Carbon Border Adjustment Mechanism (CBAM).
That approach has proven more popular in Washington.
According to Williams, there are at least two US Senate bills in the works that would establish a US CBAM, levying high tariffs on imports of materials like steel and aluminium from carbon-intensive countries like China, benchmarked against US emissions. One democrat US senator’s bill also proposes a domestic carbon tax.
Strategic component
Regarding carbon pricing, the EU is a world leader, and Washington knows that. There are concerns across the Atlantic that should the US succeed in wrangling a host of countries into a steel club that uses the European CBAM model, this could inadvertently boost Brussels’ influence.
“The US is not just going to follow along with their pricing scheme necessarily,” Williams said. “We’re going to reduce our emissions our way because we have to follow our politics.”
Another proposal in the works, Williams said, is to eliminate or significantly lower import tariffs on steel and aluminium traded within the hypothetical steel club.
That would mean a US company could import European steel at little-to-no added cost, while Chinese production or production from other nations outside the bloc would be hit with a hefty tariff.
[Edited by Zoran Radosavljevic/Nikolaus J. Kurmayer]
