EU and US face tough road to confront China’s dirty steel – POLITICO – Community News
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EU and US face tough road to confront China’s dirty steel – POLITICO

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The EU and US want to collude 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 united front against Beijing was a cornerstone of the steel tariff truce signed between Washington and Brussels in late October to end the trade war unleashed by Donald Trump in 2018. Rather than fight each other with tariffs on each other’s metal, America and Europe vowed to fight the common enemy.

However, they have been trying these kinds of mobilizations against Beijing for years. In a thinly veiled reference to Chinese steel, the US, EU and Japan pledged in late 2017 to curb overcapacity global sectors.

The problem is that it has always been easier to agree on planning for action, rather than actually doing something.

No one doubts that China is a potent problem, both in terms of subsidized overproduction and environmental damage. It 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 of great importance, 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 statement on the October deal was lacking in detail. A European Commission official acknowledged that both sides had not commented on the details of the future agreement. “There is a political commitment to try this… but it will take some time to figure out what it will look like,” the official said.

EU trade ministers barely discussed the plan to work on greening steel at their meeting last week, saying it was too “premature”, a senior EU diplomat said.

Previous efforts to tackle overcapacity, such as the Global Forum on Steel Excess Capacity or the trilateral negotiations between the EU, the US and Japan on industrial subsidies, have not yielded much. “What has been tried between the US, the EU and Japan to pressure China with subsidies is, in my opinion, going nowhere,” said Pascal Lamy, former EU trade commissioner and WTO chief.

The added goal of decarbonising steel and aluminum production further complicates the exercise.

To date, US and EU approaches to restrict imports of carbonaceous substances have been incompatible, raising concerns about future trade disputes. The EU announced a carbon border tax on steel, iron, cement, fertilizers, aluminum and power imports in July to subject foreign competitors selling dirtier goods to the same terms as their EU counterparts. Washington has opposed this, calling it a “last resort.”

In theory, global trade could benefit from transatlantic convergence in carbon pricing. But if the US plan is to create a carbon club to make the EU forget its carbon border tax, the Commission’s answer is simple”new.”

Todd Tucker, director of governance studies at the Roosevelt Institute, a Washington, DC-based think tank, sees several avenues for the US and EU to align carbon standards for the steel industry. They could develop a system that gives each other’s producers credit for investments in greener production facilities and compliance with domestic regulations, he said.

However, people involved in the upcoming negotiations recognize that the drawing board is still empty. The first step will be a technical working group to develop a common method to measure how much carbon is emitted during steel and aluminum production.

steel cartel

Even if the two sides agree on a shared carbon-based standard, the next challenge is to encourage others to follow that standard.

The most obvious approach would be to impose tariffs on steel and aluminum products from countries that don’t comply, something both sides have hinted at.

“One of the elements we will discuss is how we can limit 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 chief Valdis Dombrovskis. . journalists announcing the deal.

The idea is that this would drive up the cost of dirty steel and provide domestic policies to support lower carbon-intensive production. At best, this would prompt other major emitters to step up their climate efforts.

Industry leaders expressed optimism that the agreement could force China to reform at least some of its trade practices.

“Anything that can be done to force the Chinese to pay for the higher carbon emissions that they are doing will, I think, put some pressure on them to take action,” said Kevin Dempsey, president and chief executive of the U.S. business. 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 economies, climate and democratic values,” said Axel Eggert, Director General of Eurofer. “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 clean steel grouping — protected by barriers — can also easily lead to fragmentation, walls, retaliation and friction. The approach is also likely to meet with resistance from the World Trade Organization.

Desperate to avoid the perception that it is using the climate argument as a cover for some sort of transatlantic steel cartel, Brussels insisted in negotiations that the future settlement must comply with World Trade Organization rules.

Again, he doesn’t yet know how to square that circle.

“That’s one of the headaches, one of the challenges we’ll face: finding a way to actually turn our commitment to the Steel Agreement into something that works for everyone in a non-discriminatory way,” the Commission official said. . . “I’ll be honest. I don’t really know how we’re going to do that because we haven’t gone into these details.”

It’s not impossible. Tucker said the US and EU can rely not only on their political might to crush opposition, but also convincingly demonstrate that their trade policies are justified because they are made to achieve an environmental goal.

The World Trade Organization lists a limited number of reasons why countries can be exempted from its rules. One of these are measures related to “the conservation of exhaustive natural resources”.

“It’s discriminatory, but it can be justified,” said Lorand Bartels, a commercial adviser at global law firm Freshfields and a professor of international law at the University of Cambridge. “Provided that the mechanism is properly designed and calibrated to combat climate change, it can survive scrutiny.”

world peace

Much will have to do with the level of trust between the transatlantic allies. In a statement, Commission President Ursula von der Leyen called the steel and aluminum agreement “a milestone in the renewed EU-US partnership”.

Steel cooperation was at the heart of European integration after the Second World War. Determined to avoid another such catastrophe, European governments hoped that pooling coal and steel production would make war between historic rivals France and Germany “not only unimaginable, but materially impossible”.

But don’t 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 any declarations of transatlantic love. There has clearly been an improvement in the willingness to cooperate since Trump left the presidency. But the hostile US arrogance under Trump has been replaced by the more polite arrogance that has characterized transatlantic relations for decades. The bitter pill Brussels had to swallow to get out of steel and aluminum tariffs – by accepting quotas for its own exports – is just the latest proof that Joe Biden isn’t having an easy time with the EU.

A concrete example of that mistrust is a clause in the tariff agreement that requires EU steel exports to be melted and poured into the EU. American steelmakers have lobbied for that rule to prevent steel from China from being passed through as an EU product. “For far too long, China has been channeling its cheap steel to the US through Europe,” said US Commerce Secretary Gina Raimondo.

That shows how ultimately the industries on both sides of the ocean will continue to compete, with tensions over capital investment to make their plans eco-friendly.

“Europe has consistently tried to hijack the environmental message, and without any imagination they’re even close to what we’ve accomplished here in the United States,” said Lourenco Goncalves, CEO of Cleveland-Cliffs, an American steel and iron company.

Sarah Anne Aarup contributed reporting.

This article is part of POLITICSPro Trade’s premium policy service. From transatlantic trade wars to the UK’s future trade relationship with the EU and the rest of the world, Pro Trade gives you the insight you need to plan your next step. E-mail [email protected] for a free trial lesson.

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