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November 11, 2021

From: Jon Johnson

To: US Trade Policy Observers

Date: November 11, 2021

Re: Section 232 Tariffs – Pathway to Climate Protection or Managed Trade?

On October 30, the US and the EU announced a deal that replaces Trump-era US tariffs on EU steel and aluminum under Section 232 of the Trade Expansion Act of 1962 with a quota system.

Section 232 is the ‘national security’ bludgeon the US has used since 2018 to levy 25-percent tariffs on EU steel and 10 percent on its aluminum exports to the US.

The deal will replace the Section 232 tariffs with a tariff rate quota (TRQ) scheme allowing imports of steel and aluminum from the EU up to certain agreed annual volumes – reports suggest 3.3 million tons – to enter the US duty-free. Imports over those volumes will be subject to duty. Prior to the imposition of the Section 232 tariffs, imports of steel from the EU to the US amounted to about 5 million tons.

To be eligible, the steel must be melted and poured in the EU. Exemptions that the US granted respecting certain categories of steel will continue in effect.

In return, the EU will eliminate tariffs on several US-made goods – motorcycles, bourbon, peanut butter and jeans – imposed as retaliation. The EU is also dropping its Section 232-related WTO challenges.

On November 1, the US and the EU announced a “Global Sustainable Steel Arrangement” to tackle steel and aluminum overcapacity and climate change. US Trade Representative Katherine Tai praised the arrangement, stating that the US is “in a stronger position to address global overcapacity from China with an enhanced enforcement mechanism to prevent leakage of Chinese steel and aluminum into the U.S. market.” She also described the arrangement as “a significant win on one of President Biden’s top priorities – fighting climate change.”

Commerce Secretary Gina M. Raimondo joined in with the “US and the EU both produce steel and aluminum that is ‘cleaner’ than what is produced in much of the world. The lack of environmental standards in places like China is part of what drives down their costs, and it’s a major contributor to climate change.”

Continuing the drumbeat on November 2, Trade Representative Tai was telling the American Iron and Steel Institute and Steel Manufacturers Association General Meeting that “the gap between global steelmaking capacity and global demand . . . (is) nearly 600 million tons.” China is “the biggest driver of this global overcapacity,” said in her opening address, adding that EU deal will assist in preventing leakage of Chinese steel into the US market.

There is nothing in the Trade Representative Tai’s or Secretary Raimondo’s comments suggesting that US steel makers will be asked to do anything to curtail their own production.

Further, there was no hint in Ms. Tai or Ms. Raimondo’s comments that EU steel and aluminum present any problem for US steel and aluminum producers. Nonetheless, exports of steel from the EU to the US have been significantly reduced as a result of the Section 232 tariffs and this will continue with the TRQ. 

The Global Sustainable Steel Arrangement has been introduced with lofty rhetoric and has merit if implemented. However, the only hard consequence over recent days is a managed trade deal in the form of a TRQ imposed by the US on EU steel and aluminum producers.

Canada negotiated a more favourable exit in 2019 from its Trump administration Section-232 tariff attack on Canadian steel and aluminum, as set out in a Joint Statement. The key provision was that the Section 232 tariffs were eliminated, as were Canadian measures taken in retaliation. 

The Joint Statement contains some caveats, the most important of which is that tariffs can be re-imposed if imports of steel and aluminum surge meaningfully beyond historical volumes. The Trump administration tried to invoke the surge provision in August 2020 against Canadian non-alloyed, unwrought aluminum but backed off when faced with the threat of strong Canadian retaliation.

If the Biden administration or any subsequent US administration attempts to invoke the Joint Statement surge provision, Canada should insist on strict compliance with the emergency action provisions of GATT 1994, the WTO Safeguards Agreement, and the safeguard provisions of CUSMA Chapter Ten.

Jon Johnson is a former advisor to the Canadian government during NAFTA negotiations and is a Senior Fellow at the C.D. Howe Institute.

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.