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30 Dec 2021

Econ Digest

US strengthens ties with EU to resolve steel and aluminum tariff dispute


         The agreement between the United States (US) and the European Union (EU) to resolve the steel and aluminum tariff dispute on October 31, 2021, reflects a turning point for the US to reshape its international relations. Under the agreement, tariffs imposed under Section 232 on steel and aluminum products imported from the EU on national security grounds will be exempted for 2 years, from January 1, 2022, to December 31, 2023.   
         The US will only eliminate tariffs imposed on EU steel and aluminum products under Section 232. Imports from the EU that exceed the quotas still be subject to tariffs under Section 232 as before, and the tariff rate quotas (TRQs) will be reviewed and adjusted annually. The preliminary requirements include: 1) steel products must be melted and forged within the EU, and the annual duty-free import quota is 3.3 million covering 54 products such as round/flat bars, hot rolled/cold rolled steel sheets, wire rods, steel pipes, oil pipes, pressure pipes, etc.; 2) the annual duty-free import quota of aluminum products are divided into: 2.1) 18 thousand metric tons (TMT) of unwrought aluminum under 2 product categories, namely alloy and non-alloy; 2.2) 366 TMT for wrought aluminum covering 14 products such as bars, hollow alloys, foils, seamless pipes, welded pipes, wires, formed and unformed sheets, etc. However, the EU exports no less than 5 million tons of steel to the US each year, so some steels are subject to high tariffs anyway.
         In exchange, the EU will exempt tariffs imposed on US products such as whiskey, motorcycles and jeans, which were previously tariffed in retaliation for Section 232. The tariffs on steel and aluminum products were imposed by former President Donald Trump, aiming to protect domestic operators by using Section 232, and becoming the beginning of a trade dispute between the US and many countries that has been ongoing from March 2018 to present. The additional most-favored-nation MFN tariffs resulted in additional duties of 25% and 10% on steel and aluminum products imported from the EU respectively. In fact, other countries such as Turkey, China, the UK, and Thailand (Thailand is exempted for some product categories) are subject to similar tariffs as well.
         The end of the dispute between the US and EU implies an indirect ban on Chinese products, as only steel forged in EU member states is exempted, which implicitly blocks the channels for China and other countries to export steel to the US by using the EU as a processing base. The US restoration of relations with the EU is another step towards global cooperation on steel and aluminum sustainability, with the aim of putting pressure on China, the world’s largest steel producer, to curb China’s polluting steel trade. This is because China’s steel production costs are low but polluting, unlike in the US and the EU where production and technology are costly but more environmentally friendly. In addition, as the first phase of the US-China trade agreement is set to expire at the end of 2021 and there are still many uncertainties, the steel issue may become another factor being used by the US in US-China trade negotiations.
         KResearch views that Thailand does not benefit from the above-mentioned US-EU agreement. Although Thai goods are taxed under Section 232, Thailand exported USD233.5 million of steel and aluminum products to the US in 2020 without having tariffs imposed. This accounts for 8.5% of Thailand’s total steel and aluminum, as the measure under Section 232 allows countries to negotiate exemption with the US from time to time. However, the focus of the above new agreement is that the US, under the administration of Joe Biden, has restored ties with countries that were alienated during the Trump administration. This could emerge as an effective tool to exert stronger pressure on China by the leadership of the US and its allies, especially as measures on environmental and carbon emissions issues have become a new trend in global trade. From now on, Thai business operators must closely monitor the development of the situation and be prepared for it.

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