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The U.S. and European Union Initiate New Trade Plan to Fight Climate Change

factory smoke stacks - climate change© by Alexander Tsang

The U.S. and the European Union (EU) announced a new agreement aimed at re-establishing historical transatlantic trade flows for aluminum and steel, as well as the negotiation of an arrangement to address carbon intensity and global overcapacity.

In a joint statement, the U.S. and European Union noted,

The European Union and the United States have a shared commitment to joint action and deepened cooperation in these sectors and are taking joint steps to defend workers, industries and communities from global overcapacity and climate change, including through a new arrangement to discourage trade in high-carbon steel and aluminum that contributes to global excess capacity from other countries and ensure that domestic policies support lowering the carbon intensity of these industries.

As a result, the U.S. intends to remove Section 232 duties and allow for duty-free imports of aluminum and steel from the EU, replacing the current system with a tariff rate quota (TRQ) based on historic volumes. In return, the EU will also suspend related tariffs on a wide-range of U.S. products.

The two governments intend to work together “to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply.” In addition, this agreement will be open to other countries that meet the necessary criteria for market orientation and carbon reduction.

Aluminum Industry Response

Both the Aluminum Association and European Aluminium have expressed some reservations about these measures.

“While the Aluminum Association continues to disagree with a TRQ as a replacement for Section 232 tariffs, we were pleased to see the administration commit to tackling unfair trade together with our allies. One easy way to demonstrate this commitment would be for the European Commission to reimplement tariffs on unfairly traded Chinese aluminum,” said Ryan Olsen, vice president of market growth & development at the Aluminum Association. “Fully 97% of the more than 166,000 direct aluminum industry jobs in the U.S. are in mid-and-downstream production and processing. These American workers depend on an integrated supply chain that allows for fair trade among allies to meet demand and support growth. And while we fully support efforts to spur meaningful investment in domestic primary aluminum production, it is simply a fact that we cannot continue to invest in U.S. manufacturing and grow American aluminum jobs without open but rules-based trade with other market-oriented economies.”

Instead, the Association encourages the Biden administration to renew its focus on strong trade monitoring and enforcement; work with like-minded trading partners to address unfair Chinese trade practices; and continue making reforms to the Section 232 product exclusion process to avoid market manipulation. They further noted that the administration should pursue policies that increase the availability of recycled aluminum as inputs, which would support increased U.S. aluminum production and domestic job growth along with significant environmental benefits. Finally, the Association believes the administration should facilitate industrial access to affordable and reliable energy — which they feel is the best way to spur sustainable investment in U.S. primary aluminum production and support international climate goals.

“Policymakers need to recognize the unique position of the U.S. aluminum industry in the global marketplace – including key differences between steel and aluminum. We need trade strategies that work for all U.S. aluminum companies rather than a few select market segments,” added Olsen. “That’s the path to sustainable growth and investment for the domestic industry, which makes some of the cleanest aluminum and aluminum products in the world.”

On the other hand, European Aluminium is directly opposed to the scheme, believing it will create further market instability.

“It seems the EU and U.S. administrations assumed that trade policies that work for steel will work equally well for aluminum without taking into account our industry’s specificities and our continued opposition against tariff-rate quotas,” stated Gerd Götz, director general of European Aluminium. “Replacing the Section 232 tariffs with another trade-distorting measure is a lose-lose situation for the aluminum industry and their downstream customers on both sides of the Atlantic. The quota system will only create a two-tier price system and additional unpredictability. Metal traders will use this to their advantage to manipulate aluminum prices at the expense of aluminum producers and manufacturers. We’re also extremely disappointed the quotas are based on historical volumes from 2018-2019, rather than a future-proof quota system which takes into account the growing demand for aluminum.”

European Aluminium stated that while it welcomes the decision to develop a global arrangement for aluminum and steel that would reduce global carbon emissions and address Chinese subsidized excess capacity, they believe that the arrangement should incentivize the production of sustainable aluminum on a global scale. They also believe that the negotiation period on the agreement should be used to permanently remove the Section 232 tariffs and the quota system, which penalize free and fair aluminum trade.

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