US Trading Partners Weigh Next Steps After Steel, Aluminium Tariff Announcements

15 March 2018

The state of the global steel and aluminium sectors has come under renewed focus in recent weeks, as various major exporters have been holding talks with US officials following Washington’s confirmation last week that it would be setting hefty tariffs on steel and aluminium later this month. 

The announcement, along with the broader challenges that face these industrial sectors, has also prompted calls for additional cooperation among major producers and exporters. Meetings of international committees and forums devoted to the steel sector are already planned for the coming months, with that objective in mind. 

US tariffs confirmed; countries discuss exemptions

The new US tariffs have been set up under Section 232 of a 1960s era trade law, known as the Trade Expansion Act. Section 232 refers to the provision under which the US Commerce Department can conduct trade probes on whether imports are negatively affecting the country’s national security, with the US president then being able to act on the agency’s recommendations if they choose.

The steel and aluminium tariffs are due to take effect from 23 March, lasting for an unspecified period of time. According to the proclamations, the Secretary of Commerce is due to release details on how countries may request exemptions within 10 days of the proclamation being signed – in other words, by the end of this weekend.

In response to US President Donald Trump’s decision to sign off on the tariffs, Secretary of Commerce Wilbur Ross said that these were “the result of a long and well-thought-out process” undertaken by his agency.

One week prior to the signing, news of Trump’s intention to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminium had already prompted intense pushback, including by US lawmakers, manufacturers, and major trading partners. It has drawn tentative support from some lawmakers, as well as producers of US steel. (See Bridges Weekly, 8 March 2018)

The presidential proclamations refer to the possibility of specific exemptions for countries, subject to certain conditions. Specifically, Trump has called on countries to pitch “alternative ways” to address the alleged national security risk from imported steel and aluminium from that country.

Should Trump “determine that imports from [specific] country no longer threaten to impair the national security,” the proclamations allow for the White House to exempt a country from those tariffs, or revise them.

Argentina, Australia, Brazil, the EU, Japan, and South Korea are among those countries which have indicated an interest in discussing other ways to address US national security concerns and potentially avoid the new duties.

The proclamations currently exclude Canada and Mexico, which are the US’ partners in the North American Free Trade Agreement (NAFTA), from the tariffs. The documents reaffirmed that Canada, Mexico and the US have a “shared commitment to supporting each other in addressing national security concerns,” along with citing other factors such as the deeply integrated nature of the North American market.

Meanwhile, China's Commerce Minister Zhong Shan told reporters in Beijing on Sunday that “China does not want a trade war, nor will it actively initiate a trade war.” The Asian economy is the world’s top steel producer, though only making up a small portion of steel imports entering the US. China has previously indicated that it is looking at ways to respond in coordination with other partners, should it be affected by the new tariffs.

“However, we are capable of handling any challenge, and we resolutely defend the interest of the country and the people,” the Chinese official continued, according to comments reported by CNN.

US, EU, Japan trilateral meet

Industrial overcapacity also topped the agenda during a meeting this weekend between EU Trade Commissioner Cecilia Malmström, Japanese Minister for Economy and Industry Hiroshige Seko, and US Trade Representative Robert Lighthizer.

Trade ministers from the EU, Japan, and US had met last December on the margins of the WTO’s ministerial conference in Buenos Aires, Argentina, and subsequently issued a brief statement promising to pursue “trilateral cooperation” to address industrial overcapacity, referring to a list of “unfair market distorting and protectionist practices by third countries.” (See Bridges Daily Update, 13 December 2017)

At this weekend’s meeting, which was billed as a follow-up to the Buenos Aires talks, ministers endorsed various initial joint actions “to address non market-oriented policies and practices that lead to severe overcapacity, create unfair competitive conditions for our workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade.”

The actions include collaboration on WTO disputes and within the global trade body’s committees; improving the sharing of relevant information; working together on investment screening; and otherwise collaborating in various steering bodies and coalitions, naming among these the OECD, G7 and G20, and the Global Steel Forum on Excess Capacity.

The EU-US-Japan meeting also served as an opportunity for the EU and Japan to discuss the issue of tariffs with the US, with both advocating for exemptions. Officials are due to continue talks on the tariff issue this week.

“As a close security and trade partner of the US, the EU must be excluded from the announced measures. No immediate clarity on the exact US procedure for exemption however, so discussions will continue next week,” said Malmström on social media site Twitter on Saturday after the meeting.

The EU has previously made clear that, should it face negative ramifications from the US tariffs, it will pursue three tracks of work. This include WTO dispute settlement consultations in coordination with other trading partners; “WTO-compatible” safeguard measures to protect against a potential surge in imported steel into the EU; and the potential enactment of duties on a list of US products to “rebalance benefits” given to the US in the past, and thus compensate the EU for the economic loss caused by the US tariffs.

The last of these would be conducted in line with WTO safeguard rules on compensation, according to EU officials.

The WTO’s Agreement on Safeguards outlines how countries can apply safeguard measures, including the obligation that members have to “endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing under [the General Agreement on Tariffs on Trade, or GATT] 1994 and the exporting members which would be affected by such a measure.”

WTO rules also outline terms for consultations on compensation, as well as the timeframe for affected exporting members to then suspend concessions if no agreement is reached. (See Bridges Weekly, 8 March 2018)

“The EU is entitled use the WTO Safeguards Agreement to rebalance the benefits we have granted to the US in the past,” said Malmström this week in remarks to the European Parliament.

OECD steel committee chair: market improvements, though risks remain

Shortly before the White House confirmed the steel and aluminium tariffs, the Organisation for Economic Co-operation and Development (OECD) Steel Committee met to discuss the state of global steel markets and related trade tensions.

Afterward, committee chair Lieven Top issued a statement noting a “modest improvement overall” in the state of the global steel market, while noting that production increases at the country level vary.

Top also warned of various risks facing the sector going forward. “A sustained and resilient recovery remains unlikely as megatrends associated with lower steel intensity (e.g. ageing population, digitalisation, climate change, and circular economy) are likely to weigh down on long-term global steel demand.”

Another topic that came up in the OECD meeting, according to Top, was that countries must be ready to take “swift and resolute action, and avoidance of major trade disruptions,” capitalising on the “improved conditions” seen in the sector.

The statement did not refer specifically to the US, but it did note the continued “trade frictions” involving steel.

“Trade tensions continue to increase including recent announcements by members of the Steel Committee, which are of strong concern given the potential impact and implications,” the statement said.

Global steel forum: ministers to meet in June

OECD Secretary-General Ángel Gurría said last week that the Global Forum on Steel Excess Capacity, a mechanism that was set up during the Chinese G20 presidency two years ago, will meet at ministerial level in June.

According to the OECD chief, this meeting would be within the wider context of the current Argentine G20 presidency. He also urged the forum to “accelerate” its efforts to address the problem.

The forum had previously met at ministerial level in late 2017, issuing a report with policy recommendations for members to consider going forward.

Busy week in US trade policy

While the steel and aluminium announcements dominated US trade headlines, other developments have also emerged from Washington in recent days. This includes the swearing in of some new trade officials, including Dennis Shea as the US’ WTO ambassador, Greg Doud as Chief Agricultural Negotiator, and C.J. Mahoney as Deputy US Trade Representative for Investment, Services, Labour, Environment, Africa, China, and the Western Hemisphere.

Separately, the US also confirmed on Wednesday that it had filed a request for consultations with India, referring to specific export subsidy programmes which it claims are not in line with global trade rules and which have implications for products such as steel, chemicals and pharmaceuticals, textiles and apparel, and information technology goods. (More details on the case will be available in the next edition of Bridges.)

ICTSD reporting; “Beijing: 'No winners' in any trade war with US,” CNN, 11 March 2018; “China will use Trump's tariffs to its advantage,” CNN, 2 March 2018; “Brasil decide recorrer aos EUA por isenção de tarifas para aço e alumínio,” O GLOBO, 10 March 2018; “Argentina pedirá a EE.UU. ser eximida de tarifas a acero y aluminio,” REUTERS, 9 March 2018; “China, Japan, South Korea bristle over Trump’s tariffs,” REUTERS, 8 March 2018; “Deal with excess steel capacity in global forum, OECD says,” REUTERS, 6 March 2018.

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