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The EU and the US want to unite against China’s coal-fired blast furnaces in a green steel alliance – but no one is sure how that will happen.
The proposal for a common front against Beijing was a cornerstone of the ceasefire on steel tariffs concluded between Washington and Brussels in late October to end the trade war ignited by Donald Trump in 2018. Instead of fighting each other with duties on each other’s metal, America and Europe promised to fight the common enemy.
However, they have been trying this kind of mobilization against Beijing for years. In fact, in a barely veiled reference to Chinese steel, the US, the EU and Japan submitted at the end of 2017 to rein in global sectors with overcapacity.
The problem is that it has always proved easier to accept planning action, rather than do something.
No one doubts that China is a huge problem, both in terms of subsidized overproduction and environmental damage. That produces more than half of the world’s steel and its output is also one of the most carbon dioxide intensive in the world. If there was a way to force China to go green, it would be very important as the global steel industry accounts for about 11 percent of total global CO2 emissions.
It should come as no surprise that the transatlantic joint declaration October agreement was short on details. An official from the European Commission acknowledged that both sides had not gone into the details of the future agreement. “There is a political obligation to try this … but it will take a while to figure out what it will look like,” the official said.
At their meeting last week, EU trade ministers barely touched on the plan to work on making steel greener because it was “too early”, said a senior EU diplomat.
Previous attempts to address overcapacity such as the Global Forum on Steel Excess Capacity or the trilateral negotiations between the EU, the US and Japan on industrial support have not yielded much. “What has been tried between the US, the EU and Japan, which was to put pressure on China in terms of subsidies, I do not feel is going anywhere,” said Pascal Lamy, former EU Trade Commissioner and WTO chief.
The extra goal of decarbonizing steel and aluminum production complicates the exercise even more.
To date, US and EU approaches to curbing CO2-heavy imports have not been compatible, which has raised concerns about future trade disputes. In July, the EU unveiled a carbon tax on imports of steel, iron, cement, fertilizer, aluminum and electricity to subject foreign competitors selling more dirty goods to the same conditions as their EU counterparts. Washington has opposed this, calling it a “last resort.”
In theory, global trade could benefit from transatlantic carbon price convergence. But if the US plan is to set up a carbon club to make the EU forget its CO2 limit tax, the Commission’s response is simple “none. ”
Todd Tucker, director of governance studies at the Roosevelt Institute, a think tank in Washington, DC, sees several avenues for the United States and the European Union to adapt to carbon standards for the steel industry. They could develop a system that gives credit to each other’s producers for investing in greener production facilities and complying with national rules, he said.
People involved in the forthcoming negotiations acknowledge that the drawing board is still empty. The first step will be a technical working group to develop a common method for measuring the amount of carbon emitted during steel and aluminum production.
Steel cartel
Even if the two sides were to agree on a common, carbon-based standard, the next challenge is to encourage others to follow that standard.
The most straightforward approach would be to impose tariffs on steel and aluminum products from non-compliant countries, as both sides have suggested.
“One of the elements that we will discuss is how to restrict market access for those participants who do not meet the market orientation conditions or who do not meet the low carbon intensity standards of their products,” said EU Trade Director Valdis Dombrovskis. journalists when publishing the agreement.
The idea is that this will increase the cost of dirty steel and secure domestic policies to support lower carbon dioxide production. At best, this would cause other large emitters to increase their climate efforts.
Industry leaders expressed optimism that the deal could force China to reform at least some of its trade practices.
“Anything that can be done to force the Chinese to pay to account for the higher level of carbon emissions they do, I think, will put some pressure on them to take some action,” said Kevin Dempsey, president. and CEO of the American Institute of Iron and Steel.
The European steel organization Eurofer called the agreement “an extremely important step forward.”
“Two of the three major players share the same values when it comes to market economy, climate and democratic values,” said Axel Eggert, CEO of Eurofers. “We, or I should say, the EU, have long hoped that China would move towards a more Western approach to a market economy. That has not happened.”
Trade friction
However, creating this kind of pure steel groupings – protected by barriers – can also easily create fragmentation, walls, retaliation and friction. The approach is also likely to encounter opposition from the World Trade Organization.
Brussels desperately wants to avoid the notion that the climate argument is being used as a cover a kind of transatlantic steel cartel and insisted in the negotiations that the future regime should be in line with the rules of the World Trade Organization.
Again, it does not know how to square that circle yet.
“It is one of the headaches, one of the challenges we are going to have: to find a way in which we can actually, in a non-discriminatory way, translate our commitment to the steel agreement into something that works for everyone. , “said a Commission official. . “I have to be honest. I do not really know how to do it, because we have not gone into any of these details.”
It’s not impossible. Tucker said the United States and the European Union could not only rely on their political influence to defeat the opposition, but could make a convincing argument that their trade policy is justified because it is designed to achieve an environmental goal.
The World Trade Organization provides a limited number of reasons why countries can be exempted from its rules. One of them is measures related to the “conservation of inexhaustible natural resources.”
“It’s discriminatory, but it can be justified,” said Lorand Bartels, trade adviser at global law firm Freshfields and professor of international law at the University of Cambridge. “Provided the mechanism is properly designed and calibrated to combat climate change, it can survive study.”
Worldpeace
Much of it will come down to the degree of trust between the transatlantic allies. In a announcement, Commission President Ursula von der Leyen called the steel and aluminum agreement “a milestone in the renewed EU-US partnership.”
Cooperation on steel was at the heart of European integration after World War II. Determined to prevent another such catastrophe, European governments hoped to consolidate coal and steel production would make war between the historical rivals France and Germany “not only unthinkable, but materially impossible.”
But do not hold your breath for world peace – or even better transatlantic relations – because of a global steel alliance.
Behind the scenes, EU officials and diplomats are skeptical of all the transatlantic declarations of love. There has apparently been an improvement in the willingness to cooperate since Trump left the presidency. But the hostile American arrogance under Trump has been replaced by the polite arrogance that has characterized transatlantic conditions for decades. The bitter pill that Brussels had to swallow to get out of the steel and aluminum tariffs – accepting quotas on its own exports – is only the latest proof that Joe Biden is not going easy for the EU.
A concrete example of this mistrust is a clause in the customs agreement which requires the EU’s steel exports to be melted down and poured into the EU. US steelmakers lobbied for this rule to prevent China’s steel from being passed on as an EU product. “For far too long, China has been directing its cheap steel to the United States via Europe,” said US Trade Secretary Gina Raimondo.
It shows how industries on both sides of the ocean will ultimately remain competitors, with tensions over capital investment in making their plans environmentally friendly.
“Europe has consistently sought to hijack the environmental message, and they are without imagination… is even close to what we have achieved here in the United States,” said Lourenco Goncalves, CEO of Cleveland-Cliffs, an American steel and iron company.
Sarah Anne Aarup contributed with reporting.
This article is a part of POLITICS‘s premium policy service Pro Trade. From transatlantic trade wars to Britain’s future trade relations with the EU and the rest of the world, Pro Trade gives you the insights you need to plan your next move. Email [email protected] for a free trial.
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