USA, EU Fail to Reach Carbon Tariff Deal, Talks Continue on Excess Steel Tariffs

• November 7, 2023
• Jennifer Clement

In October 2023, the U.S. and EU failed to reach an agreement to replace the Section 232 steel and aluminum tariffs with a carbon-based tariff-system, which should have led to reinstatement of tariffs on the EU and retaliatory action on billions in U.S. exports.

In this video from The Franklin Partnership, contributing author Omar Nashashibi explains: 1) why a deal could not be reached, 2) what could happen next on steel and aluminum from the EU subject to tariffs, and 3) how close the U.S. may be to a carbon-based tariff program.

Background

As part of an agreement to suspend the Section 232 steel and aluminum tariffs on the European Union in 2021, the U.S. and EU pledged to implement a carbon-based tariff system for those products by January 1, 2024. To keep pressure on negotiators, the two sides said that failure to reach an agreement would result in reinstatement of the 25% tariffs on EU steel and 10% on aluminum and billions of dollars of retaliatory tariffs on U.S. exports.

As talks continue through the rest of the year, the U.S. and EU have said that they will not reimpose the steel, aluminum, nor retaliatory tariffs and will instead retain the current Tariff Rate Quota system (TRQ). When President Biden suspended the Section 232 tariffs on the EU, the U.S. imposed a TRQ that allows a set amount of imported steel and aluminum from the EU by product type and from each covered country to enter the U.S. tariff free. Once that quota level is reached, quarterly for steel and semiannually for aluminum, the 25% and 10% tariffs kick back in place for the remainder of the quota period.

Goals: US, EU

• The goal of EU negotiators is to fully eliminate these Section 232 tariffs on steel and aluminum.
• The goal of the Biden administration is to impose tariffs on both, carbon intense steel and aluminum, and on excess steel and aluminum from non-market economies.

Following meetings at the White House on October 20, 2023 between President Biden and the leaders of the European Commission and European Council, the parties announced that despite the failure to reach a deal by their October 31^st deadline, either carbon tariffs or excess metals, they would not reinstate the tariffs on steel and aluminum from the EU as talks continued. This is an important takeaway for anyone importing steel or aluminum from the EU as the 2021 agreement called for the U.S. reinstating those 25% and 10% tariffs on January 1, 2024.

This is also important for anyone exporting to the EU countries as the European Union imposed tariffs on U.S. exports in retaliation for the Section 232 steel and aluminum tariffs. In 2018, the EU placed countermeasures on U.S. exports including Harley-Davidson motorcycles, whiskey, orange juice, among other American goods worth billions. With the October meeting, the EU will also not reinstate those tariffs as both sides continue discussions the remainder of the year.

Shifting Start Dates

The Biden administration is still hopeful it could create a carbon-based tariffs through a program tentatively called, the Global Arrangement on Sustainable Steel and Aluminum. This is the agreement the Biden administration had hoped to reach with the EU to take effect in January 2024, though, we are now eyeing a start date more likely of January 1, 2026, pending the outcome of the presidential election. The Biden administration proposed to the EU to create a system where imported products that exceed a set carbon cost entering the U.S. or EU face a tariff. Steel and aluminum products (and aluminum castings and forgings) from countries not part of the arrangement are subject to a higher tariff rate, while products from countries within the club that exceed the carbon threshold face a lower tariff rate. The goal is to incentivize the use of products with a lower, or zero-carbon footprint, and as a result, imports of steel and aluminum below the set carbon price assigned to that product receive tariff-free treatment. The EU has not agreed to the terms but discussions remain focused on a carbon-based tariff system.

As the timeline for a final carbon-tariff slipped beyond January 2024, President Biden is asking that the EU impose a 25% tariff on excess steel and 10% on excess aluminum from nonmarket economies, which includes China and eleven other countries. This is another track of negotiations between the U.S. and EU in addition to the broader carbon-tariffs, which the Europeans want to permanently replace the Section 232 with.

The request for tariffs on excess steel, as talks continue on a carbon-based system, clearly demonstrates that the Biden administration remains committed to tariffs on steel. However, this approach differs from the previous administration as President Biden is working to create a broader coalition largely focusing on China rather than taking unilateral action on tariffs.

It Isn’t Over

Sources in Washington, D.C. are not taking the failure to secure a carbon-based tariff deal this fall as a sign that the parties will relent. The Biden administration in particular is committed to serious talks through the end of the year on bothan excess steel and aluminum regime and then on a longer term carbon tariff deal that could align with the EU’s Carbon Border Adjustment Mechanism that fully takes effect in 2026. 

The Bottom Line

The status quo remains in place for now with the Tariff Rate Quota system for EU steel and aluminum imports still in effect through at least December 2023.

• Importers of EU steel and aluminum and exporters of billions in U.S. goods are not facing a January 1, 2024 date for when tariffs could have come back in effect.
• As talks continue for a carbon-based tariffs, a final system will likely not come together until 2025, depending on the U.S. elections.

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