The recent EU-US agreement on steel and aluminium tariffs appears to reinforce EU Green Deal and US domestic economic priorities combined with the wish of weakening China. This comes at the cost of undermining fundamentals of the World Trade Organization. This carries some risk, particularly for the EU.
Any trade deal between the EU and US is important, and inevitably the subject of intense interest and scrutiny. While no longer able to force through multilateral agreements, the two economic superpowers carry significant global weight.
The recent steel and aluminium arrangement that brought to an end a dispute dating back to President Trump is no exception. Most obviously, there is a continuation of the momentum brought to transatlantic relations since President Biden took office, with the Boeing / Airbus dispute put on hold and the Trade and Technology Council established and meeting.
At the most fundamental level, given the turbulence of the Trump years, talking must be better than endless disputes. Steel and aluminium will also not be joining subjects including agriculture and data flows on the list of long-term US-EU disputes. Indeed, in a little-noticed announcement, the two also agreed on a new platform for discussing agriculture cooperation, the lack of fanfare perhaps suggesting low expectations.
However, we shouldn’t ignore the suspicions of other players when the EU and US agree, in particular as these often seem somewhat justified.
Even at first sight an agreement to bring in new quotas and rules seems difficult to reconcile with WTO rules. It is also an implied vote of no confidence in multilateral settings. On closer inspection this new agreement seems almost explicitly to put the WTO secondary to domestic political concerns in both EU and US.
Plaudits for talking must therefore be somewhat qualified.
The original disagreement between the US and EU over steel and aluminium was relatively straightforward. In June 2018 the US introduced tariffs claiming a national security justification under section 232 of the Trade Expansion Act of 1962. The EU retaliated with tariffs on goods including Bourbon and Harley-Davidson motorbikes.
The US will now adopt tariff-rate quotas for products previously covered by Section 232 tariffs as from January 1 2022. The details of this are complex, but start with quotas for 54 steel and 16 aluminium products, on each of the 27 EU member states, based on its historical exports of those goods to the United States. There are annual adjustments, and strict rules of origin.
More interesting to many was the “commitment to negotiate the world’s first carbon-based sectoral arrangement on steel and aluminium trade by 2024”. The details of this are to be negotiated, but the intention seems to be that this becomes an ‘open plurilateral agreement’, i.e. an agreement among a subset of WTO members.
These commitments were enough to see EU retaliatory trade measures dropped, while further details are agreed.
Meanwhile the US will also start discussions with the UK and doubtless other countries, who would be expected to join this arrangement in the future.
There are those that think plurilateral arrangements inherently undermine the WTO, with others thinking this the only way to go absent sufficient compromise to reach multilateral deals. But in this specific case, it seems rather clear that the EU and US are undermining the WTO.
Going only by the broad thrust of what has happened, i.e. using national security exemptions to raise tariffs than reducing them for select trade partners – this is quite clearly counter to any reasonable interpretation of the core Most-Favoured Nation principle of the WTO. The US has imposed new tariffs, then reduced them in an arrangement with the EU that only covers these items.
This is a dangerous precedent, of exactly the sort of selective trade policy that the foundational WTO text, the GATT, was expressly designed to avoid. That it is the EU and US, in the past two of the main defenders of the global order, doing so, makes matters even worse.
It isn’t necessary for other countries to take disputes against the US and EU to see that this move away from core fundamentals towards 21st-century managed trade is a fundamental challenge to the WTO.
Perhaps what is happening an attempt to shape a new global trading system.
Excluding China and prioritising the environment
Washington is clear about their motivation for the new deal with Brussels. As the first paragraph of their press notice states, “today’s announcement demonstrates that we can protect and create good-paying union jobs at home.”
If restoring US manufacturing jobs has been one constant, the other has been seeing China as the adversary, and the second paragraph emphasises this. Using language that demonstrates an underlying hostility to open trade, it suggests the agreement “toughens enforcement mechanisms to prevent leakage of Chinese steel and aluminum into the US market.”
This carries more than a suggestion that the US does not think a fair world trading system can include China.
This has not been the attitude of the EU to date – so the deal can be seen as a US success in shifting the EU position.
But how can such an agreement be worthwhile for the EU? This is where the yet-to-be-negotiated low-carbon provisions surely come into the story. These reduce the chances of the US challenging the EU carbon border adjustment mechanism proposals for the next three years.
More than this, perhaps the prospect of other countries entering the arrangement plays to one of the great concerns of the Green Deal – namely that extra costs imposed on EU industry will render it uncompetitive. Bringing in other countries should reduce that risk.
For the EU and US, a bilateral deal addressing their fundamental concerns is more important than the future of the WTO. But there is quite some risk though that building the intended provisions on low-carbon production and including other countries will simply not happen.
David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.