The U.S. and the European Union (EU) could reach a deal that would lead to the removal Section 232 tariffs from steel imports from the trade bloc as soon as this weekend, according to sources familiar with the matter.
The two sides would most likely agree to a tariff rate quota, or TRQ, which would replace the 25% national security tariffs imposed by the Trump administration in 2018, they said.
Details remain fluid, and what is outlined below could change. That big caveat aside, here is where things stand now as best as SMU can determine:
A TRQ would see imports under a certain quota threshold not subject to tariffs. Any import volumes from the EU over that limit would be subject to tariffs.
The quota limit currently being discussed for the EU is approximately 3 million to 3.5 million tons. Any tons above that threshold could be subject to tariffs.
Another approximately one million tons shipped to the U.S. from the EU over the last fiscal year and granted exemption to Section 232 tariffs would be grandfathered into the new agreement.
Section 232 features an exclusion process whereby steel consumers can ask that material not made in the U.S., or not made in sufficient quantities here, be granted exemption to the 25% tariffs.
Other notable features could be melted and poured language – long a feature of U.S. policy – being implemented in the EU as well. The aim of such an effort would be to prevent material melted elsewhere, notably China, from being diverted to Europe and then onward to the U.S.
U.S. steel executives have been saying at industry events, including SMU’s Steel Summit and earnings calls, that Section 232 was never intended to be permanent and that it had largely served its purpose. Case in point: domestic mills have invested billions of dollars to expand capacity by millions of tons – much of it via electric arc furnace (EAF) sheet mills.
But it’s not clear whether the volumes outlined above would sit well. It was widely known that Section 232 tariffs on the EU were on borrowed time. And some industry participants don’t view the EU as big threat in terms of potential import surges. But others would prefer to see fewer tons allowed in tariff-free so that they might better capitalize on the significant investments they have made, or are making, in expanding domestic steelmaking capacity.
A European Union spokeswoman confirmed that talks were underway. “We are engaging extensively in discussions with U.S. counterparts.”
Case in point: European Commission Executive Vice President and Trade Commissioner Vladis Dombrovskis has been in contact with U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo “several times in the last weeks,” she said.
The European Commission is the executive wing of the EU.
The office of the USTR did not respond to a request for comment for this article nor did the Commerce Department.
The EU spokeswoman declined to confirm or deny whether the two sides were negotiating toward a TRQ or what the features of such a deal might be if it were agreed to.
“As talks are still ongoing, we cannot pre-empt the solution at this stage. We can only reiterate our point that, as a trusted U.S. ally, the EU cannot be deemed to pose a security threat to the U.S.,” she said.
The spokeswoman also stressed that the EU is not the source of excess global steel- and aluminum overcapacity – which she said originates mainly, but not exclusively, from China.
“These tariffs have to go,” she concluded. “So, we need to find a solution which addresses these problems.”
When the agreement is reached, it will be implemented following EU rules requiring that member states be consulted. That process typically takes about a month, the spokeswoman said.
By Michael Cowden, Michael@SteelMarketUpdate.com
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