USTR General Counsel Sees EU Steel TRQs as Temporary Measure

Tariff rate quotas on European steel are really meant to be a gap-filler while the U.S. and the European Union figure out a way to offer import preference to cleaner steel, said Greta Peisch, general counsel at the Office of the U.S. Trade Representative. Peisch, the European Commission staffer responsible for trade relations with the U.S., the General Motors counsel on Legal Affairs and Trade and a former Trump administration trade official were speaking on a panel about the shift from tariffs to tariff rate quotas, and what the next step would look like.

Rupert Schlegelmilch, a director in the European Commission's Trade Directorate-General, emphasized that while the EU dropped its retaliatory tariffs when the U.S. announced the shift to TRQs, it never agreed to the replacement. "We don’t like managed trade, and we don’t necessarily like the TRQs," he said. But, he added, after the 25% Section 232 tariffs on steel, EU countries' steel exports to the U.S. fell by half. "We have to do something about this," he said.

Akin Gump partner Clete Willems said during the Jan. 26 panel co-hosted by the Atlantic Council and the Eurasia Group that he had proposed TRQs instead of tariffs on steel from allies. They would have mitigated the spike in steel prices, Willems said, since they allow historical trade flows. "It also has a surge protector, it’s basically built in. We can make sure there isn’t transshipment and other dislocations that end up flooding the U.S. market," he said.

But he lost that argument with former President Donald Trump. Now, Willems said, the U.S. should make the quotas on South Korea and Brazil more like the arrangement with the EU, and the USTR should reach settlements with the United Kingdom, Japan and other steel exporters as soon as possible.

He said a metric ton of hot-rolled steel costs $17.50 in the U.S., $10.40 in Europe and $6.50 in China. "That puts our companies at a disadvantage," he said.

General Motors' Amanda Blunt did not explicitly say that the cost of steel in the U.S. needs to come down as part of any solution, but said that GM "and other manufacturers have been challenged by both price changes and availability challenges of key inputs."

Peisch responded to Willems' suggestion by saying that the administration has to balance its desire "to get a greater community of like-mindeds on the same page" when it comes to pushing back on steel overcapacity, with the need to maintain high ambition for any solution, both in confronting overcapacity and in greening steel production to fight climate change.

"Both of these would favor keeping a small group at least initially," she said.

Schlegelmilch agreed that past efforts to confront overcapacity at the Organization for Economic Cooperation and Development stalled because countries had diverging interests.

"Not only China, but also other countries, in the end, when they saw this becoming serious … refused to participate in some of the parts of the work," he said. "We have to be mindful of that. Carefully see what will be the entry criteria before just taking a decision to open it up."

Schlegelmilch said that the agreement the U.S. and the EU aim to reach within two years will have to address subsidies for steelmakers, but cautioned that subsidies that are aimed at helping companies decarbonize may be beneficial to the other plank of the agreement.

In many places, the subsidies are not to make steel cleaner, he said, but rather are cheap credit, cheap land or purchasing guarantees.

Willems said the entire Section 232 regime in steel is built on the premise that the industry needs 80% utilization to have enough capital to reinvest, but he said that utilization numbers have fluctuated between 76% and 82% even as tariffs and quotas have been steady. He suggested that the utilization has more to do with domestic demand than the level of imports.

Peisch responded, "I think it’s true capacity utilization is only one measure," but she said the administration would still like to see more domestic steel production. And she questioned Willems' assumption that the price difference between the U.S. and other major steel markets is because of Section 232. She said it "can't be all because of the tariffs."

She also reminded listeners that the state of steel trade before 2018 was not free trade. It was a time when China's industrial planning, decisions that weren't made on market conditions, affected steel producers around the world. "We are trying to correct for that," she said, if imperfectly. "We have decided as an administration and a country we can’t just accept somebody else’s market terms that they are imposing on the rest of the world."