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U.S., EU agree to tariff rate quota deal to resolve steel, aluminum tariff disputes

Christian Fernsby |
The United States and the European Union (EU) have agreed to use a tariff rate quota (TRQ) system to help resolve their three year disputes over U.S. tariffs on steel and aluminum imported from the EU.

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The United States will replace the existing tariffs on EU steel and aluminum products under the so called Section 232 with a TRQ, according to a fact sheet released by the U.S. Commerce Department on Sunday.

"Under the TRQ arrangement, historically based volumes of EU steel and aluminum products would enter the U.S. market without the application of Section 232 tariffs to meet the demands of downstream users," the fact sheet said.

"Historically based volumes" refer to the volume of EU steel and aluminum that was exported to the United States prior to the imposition of the Section 232 tariffs in 2018, according to the EU.

Citing national security concerns, the U.S. administration of former President Donald Trump unilaterally imposed a 25 percent tariff on steel imports and 10 percent tariff on aluminum imports in 2018, under Section 232 of the Trade Expansion Act of 1962, drawing strong opposition domestically and abroad.

Failing to reach a deal with the Trump administration, the EU took the case to the WTO and imposed retaliatory tariffs on a range of American products.

As part of a resolution to their disputes over U.S. steel and aluminum tariffs, the EU intends to suspend its retaliatory measures against the United States that were introduced in June 2018. It will also suspend the increase in retaliatory measures against the United States set for December 1, the EU said.

"In the past year, the cost of steel used by America's auto and appliance manufacturers has more than tripled, creating increased costs for consumers," said U.S. Commerce Secretary Gina Raimondo.

"Today's news will provide much needed relief for those workers and industries, the workers and businesses who were threatened with overwhelming retaliatory tariffs of 50 percent and American consumers, who are worried about increasing prices," Raimondo said.

"In addition to the EU eliminating the retaliatory tariffs against the United States, we have agreed to suspend the WTO disputes against each other related to the 232 disputes," U.S. Trade Representative Katherine Tai added.

Valdis Dombrovskis, EU Commission executive vice president & EU trade commissioner, said the U.S. decision on steel and aluminum tariffs will "alleviate an important trade irritant" that has hampered EU U.S. trade relations.

"During the next two years we will work towards a global steel arrangement, which would allow us to remove 232 tariffs for good," Dombrovskis said.

While the deal is a step in the right direction, the "reliance on TRQs is an unwelcome form of managed trade" that will continue to bring about uncertainty for workers and businesses on both sides of the Atlantic, said Jake Colvin, president of the National Foreign Trade Council.

"Mechanisms such as these that manage international trade undermine competitiveness, create winners and losers, add significant supply chain costs and disproportionately affect small and medium sized companies," Colvin said.

The Coalition of American Metal Manufacturers and Users, representing more than 30,000 U.S. manufacturing companies, also expressed concerns that replacing the tariffs with the TRQ will hurt its members because "the threat of tariff reinstatement looms with the surge in steel and aluminum demand expected when the bipartisan infrastructure bill passes."

"This type of government restriction on raw materials and intervention lead to market manipulations and allow for gaming of the system that could put this country's smallest manufacturers at an even further disadvantage," the coalition said, urging the Joe Biden administration to immediately begin negotiations to "lift these damaging tariffs on our other close allies and trading partners."

"U.S. steel and aluminum using manufacturers cannot secure the raw materials that they need and at competitive prices, and are losing business to competitors in other countries who are paying far lower prices for steel and aluminum," the coalition said.

The U.S. imported 2.5 million tons of steel from the EU last year and 3.9 million tons in 2019, down from 5 million tons each in 2018 and 2017, according to Bloomberg.

Myron Brilliant, the U.S. Chamber of Commerce's executive vice president, said that the deal offers some relief for American manufacturers suffering from soaring steel prices and shortages, "but further action is needed." "Section 232 tariffs and quotas remain in place on imports from many other countries," Brilliant said.

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