The New EU Proposal For Regulating Iron And Steel Imports

On 7 October, the Commission of the EU published a series of proposals to protect its steel industry from the turmoil unleashed by the US imposition of 50 % ad valorem tariffs on steel imports into the United States. In this note, we recall the context, examine the measures and explain the policy rational of the Commission in order to venture a forecast of how international trade in steel products may develop.

The context

International trade in iron and steel products has long been the subject of controversy and disputes and reached a new level of sensitivity in 2018 when the first Trump administration imposed "national security" duties on steel products. This created the risk of excess steel capacity flooding the EU markets and the EU responded, firstly, by declaring the US measures to be unlawful safeguard measures and imposing "rebalancing duties" on US products and, secondly, by adopting its own safeguard measures to protect the EU steel industry from diversion of excess steel production to the EU. These safeguard measures consisted of duties of 25% ad valorem on a range of iron and steel products subject to tariff rate quotas under which only the "normal" bound duties would apply. The tariff rate quotas were designed to allow established trade flows to continue and avoid creating shortages and excessive burdens on users of steel products.

The US measures (that have since been formally declared to be inconsistent with the WTO obligations of the US) have been maintained and increased under the second Trump administration, notably by being doubled to 50%.

The WTO Safeguards Agreement only allows safeguard measures to be imposed for a maximum period of eight years, during which time the affected industry is supposed to adapt, and the safeguard measures should be progressively liberalised. That eight-year period of protection ends for the EU in June 2026.

The latest EU proposals

The latest Commission proposal is to halve the level of tariff rate quotas and increase the duties to 50% ad valorem from June 2026 and is combined with an offer to negotiate with affected countries.

At first sight, the EU would appear to be following the US approach of negotiating under threat of draconian measures. The duty level of 50% reflects that of the US. In addition, the EU measure proposes a "melt and pour" origin rule for steel. This will provide that the origin of a steel product will be deemed to be where the raw steel was first melted and poured into its initial solid shape, not where it was later processed or transformed. This is designed to prevent "circumvention" of tariff rate quotas through imports of unrefined iron or steel (e.g. billets) and is also inspired bythe latest US measures. However, there are important differences.

The EU is in fact proposing a renegotiation of its WTO tariff bindings for iron and steel products as allowed under Article XXVIII GATT. This GATT provision provides for modifications of tariff bindings following negotiations with the WTO Member with which the binding was originally negotiated and other WTO Member that are considered to have a "principal supplying interest". A large number of countries are likely to claim negotiation rights against the EU under Article XXVIII GATT and may therefore be able to demand reductions in tariffs or other trade concessions from the EU to compensate for the trade lost by virtue of the proposed EU measures. Due to the large number of tariff lines involved and the complexity of international trade in steel products resulting from the prevalence of trade defence measures and preferential agreements, these negotiations are likely to be complex and lengthy.

The EU is proposing to also apply the increased duties to its free trade partners (with the sole exception of the EEA counties, Norway, Iceland and Liechtenstein) even though the whole point of free trade agreements is to offer trading conditions more favourable than WTO bindings. In order to allow the application of the proposed new regime to free trade partners, the EU would presumably have to invoke the bilateral safeguard clauses in those agreements. This will therefore require the necessary procedures and negotiations under those agreements to be launched.

To take the example of the UK-EU Trade and Cooperation Agreement (TCA), the EU would presumably need to invoke the safeguard clause in Article 773 TCA. This would entitle the UK to adopt equivalent rebalancing measures against the EU. Given the high volume of steel exports from the UK to the EU, this could, in the absence of a negotiated solution, significantly undermine the TCA.

In light of this and the references to negotiations in the accompanying materials and the recitals to the proposal to open negotiations, the objective of the latest proposal appears to be to give impetus to the ongoing discussions on the management of steel trade, in particular through the Global Forum on Steel Excess Capacity (GFSEC). Coincidently, the GFSEC will be meeting in South Africa on 10 October and the Commission's proposals will doubtless be discussed there. Even though the Commission does not yet have a formal authorisation to negotiate, it has, unusually, made its negotiating objectives public with the publication of the recommendation for a Council decision.

The Future

The future of international steel trade is not easy to predict. The proposed regulation merely sets the scene for negotiations within the EU and, more importantly, internationally. It is not at all clear how other steel-producing countries will react and they may also wish to negotiate with their own "guns on the table". Also, the Commission proposal is not for temporary relief to respond to a crisis but appears to envisage a permanent change to international trade in steel products. Changes to WTO tariff bindings take a long time to secure and once in place are generally only removed after further trade negotiations. The potentially long-term nature of the regime is also clear from the fact that the Commission proposal provides for two-yearly reviews of product scope and five yearly reviews of effectiveness.

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