Press play to listen to this article
The EU and the US want to ally against China’s coal-fired blast furnaces in a green steel alliance – but no one knows how that will happen.
The united front proposal against Beijing was a keystone of the steel tariff truce concluded between Washington and Brussels at the end of October to end the trade war unleashed by Donald Trump in 2018. Instead of clashing with rights to the metal on the other. , America and Europe have sworn to fight the common enemy.
However, they have tried this kind of mobilization against Beijing for years. Indeed, in a thinly veiled reference to Chinese steel, the US, EU and Japan promised at the end of 2017 to curb global sectors with excess capacity.
The problem is, it has always proven to be easier to agree to plan actions rather than do anything.
No one doubts that China is a major problem, both in terms of subsidized overproduction and environmental damage. This 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, that would be very important because the global steel industry accounts for around 11% of total global CO2 emissions.
It is not surprising that the transatlantic joint statement on the October affair was at a loss for details. A European Commission official admitted that the two sides had not gone into any of the details of the future deal. “There is political commitment to try this… but it will take some time to understand what it will look like,” the official said.
At their meeting last week, EU trade ministers barely touched on the work plan on greening steel because it was too “premature”, a senior EU diplomat said.
Previous attempts to tackle overcapacity, such as the Global Forum on Excess Steel Capacity or the trilateral negotiations between the EU, the United States and Japan on industrial subsidies, have not yielded much. thing. “What was attempted between the US, the EU and Japan, which was to put pressure on China on subsidies, I think is not going anywhere,” said Pascal Lamy, former EU trade commissioner and head of the WTO.
The additional goal of decarbonising steel and aluminum production further complicates the exercise.
To date, US and EU approaches to restricting high-carbon imports have not been consistent, raising concerns about future trade disputes. The EU unveiled a carbon border tax on imports of steel, iron, cement, fertilizers, aluminum and electricity in July to subject foreign competitors selling dirtier products to the same conditions than their EU counterparts. Washington opposed it, calling it a “last resort”.
In theory, global trade could benefit from transatlantic convergence on carbon pricing. But if the American project is to create a carbon club to make the EU forget its carbon tax at the borders, the Commission’s response is simple “no. ”
Todd Tucker, director of governance studies at the Roosevelt Institute, a Washington, DC think tank, sees several avenues for the United States and the EU to align with carbon standards for the steel industry. They could develop a system that gives credit to each other’s producers for investments in greener production facilities and compliance with national regulations, he said.
Those involved in the upcoming negotiations, however, recognize that the drawing board is still empty. The first step will be a technical working group to develop a common methodology to measure the amount of carbon emitted during the production of steel and aluminum.
Even if both parties agreed to a common carbon-based standard, the next challenge would be to get others to follow that standard.
The simplest approach would be to impose tariffs on steel and aluminum products from countries that do not adhere to them, which both sides have suggested.
“One of the things we will discuss is how to restrict market access for participants who do not meet market orientation requirements or who do not meet the low carbon standards of their products.” said EU trade chief Valdis Dombrovskis. journalists when the agreement was announced.
The idea is that this would increase the cost of dirty steel and ensure national policies to support low carbon production. At best, this would prompt other major emitters to step up their climate efforts.
Industry leaders have 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 for the higher level of carbon emissions they are doing, I think, will put some pressure on them to take action,” he 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 main players share the same values in terms of market economies, climate and democratic values”, said Axel Eggert, CEO of Eurofer. “We, or should I say the EU, have long hoped that China would move towards a more Western approach to a market economy. This has not happened.”
However, creating this type of clean steel cluster – protected by barriers – can easily lead to fragmentation, walls, retaliation and friction. The approach is also likely to meet resistance at the World Trade Organization.
Brussels is desperate to avoid the impression that it is using the climate argument as a cover for a kind of transatlantic steel cartel and insisted during the negotiations that the future arrangement must comply with the rules of the World Trade Organization.
Again, he doesn’t yet know how to square the circle.
“It’s one of the headaches, one of the challenges we’re going to have: finding a way to truly translate our commitment to the steel agreement in a non-discriminatory way into something that works for all.” , said the head of the Commission. . “I’ll be honest. I’m not sure how we’re going to proceed because we haven’t gone into any of those details.”
It is not impossible. Tucker said the US and EU could not only rely on their political clout to crush opposition, but could also make a convincing case 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 concerns measures related to “the conservation of exhaustible natural resources”.
“It’s discriminatory, but it can be justified,” said Lorand Bartels, business 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 tackle climate change, then it could survive scrutiny. ”
Much will depend on the degree of trust between the transatlantic allies. In a declarationCommission President Ursula von der Leyen called the agreement on steel and aluminum “an important step in the renewed partnership between the EU and the United States”.
Cooperation on steel was at the heart of European integration after World War II. Determined to prevent another such disaster, European governments hoped the pooling of coal and steel production would make war between historic rivals France and Germany “not only unthinkable, 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 all transatlantic declarations of love. There has obviously been an improvement in the willingness to cooperate since Trump stepped down as president. But hostile American arrogance under Trump has been replaced by the more polite arrogance that has characterized transatlantic relations for decades. The bitter pill that Brussels had to swallow to get out of tariffs on steel and aluminum – by accepting quotas on its own exports – is just the latest proof that Joe Biden is not easy with the EU .
A concrete example of this mistrust is a clause in the tariff agreement that requires EU steel exports to be melted down and cast in the EU. US steel producers have been pushing for this rule to prevent Chinese steel from being touted as an EU product. “For far too long, China has been channeling its cheap steel to the United States through Europe,” said US Secretary of Commerce Gina Raimondo.
It shows how, ultimately, industries on both sides of the ocean will remain competitors, with tensions over capital investments to make their plans environmentally friendly.
“Europe has constantly tried to deflect the environmental message and they are far from imaginative … are even close to what we have achieved here in the United States,” said Lourenco Goncalves, general manager of Cleveland-Cliffs, a American steel company and iron company.
Sarah Anne Aarup contributed reporting.
This article is part of POLITICSPro Trade’s premium policing service. From transatlantic trade wars to the UK’s future trade relations with the EU and the rest of the world, Pro Trade gives you the information you need to plan your next move. E-mail [email protected] for a free trial.