On October 31, 2021, the United States and the European Union announced that they had reached agreement on the lifting of US tariffs of 25 percent on imports of steel from the EU and 10 percent on imports of aluminum from the EU that were imposed under Section 232 of the Trade Expansion Act of 1962. In exchange, the EU will lift its own retaliatory tariffs on products from the United States and will agree to limit exports of steel and aluminum to the United States. The agreement will become effective on January 1, 2022 and will apply to US imports made on or after that date.
In this alert, we offer a concise review of the UE-EU agreement and a quick look at the negotiations with Japan.
To be eligible for tariff-free entry into the United States, steel must be “melted and poured” in the EU (ie, be entirely produced in the EU, starting with the electric arc furnace or basic oxygen furnace mode of production). Imports from the EU will be limited by a “tariff rate quota” (TRQ) that allows duty-free imports of qualifying EU steel up to a maximum of 3.3 million metric tons per year. The quota is allocated to steel in 54 product categories and divided on an EU member state basis, in line with historical levels of imports of those products from such states during the 2015-2017 period. Imports exceeding the quota will be subject to a 25 percent tariff.
The US Department of Commerce will administer the TRQ on a quarterly basis. Any unused TRQ volume from the first quarter of each year, up to 4 percent of the allocated quota for that quarter, will roll over to the third quarter; any unused TRQ volume from the second quarter of the year, subject to the same limit, will roll over into the fourth quarter, and any unused TRQ volume from the third quarter, subject to the same limit, will roll over into the first quarter of the following year.
The TRQ will be allocated on a first-come, first-serve basis for each product category from each EU member state. Commerce will publicly provide information on the utilization of the quarterly quota for each product category, including information on the transferred, unused TRQ volumes from one quarter to another.
Commerce will also conduct annual reviews of the TRQ to calculate the level of US steel demand (apparent consumption) in the previous year. For each 6 percent that this calculated level is above or below US steel demand in 2021, the TRQ volume would increase or decrease by 3 percent, respectively, for the subsequent twelve-month period. If the calculated level of US steel demand is not at least 6 percent above or below the US fiscal year 2021 level, then the TRQ volume in the subsequent year would be set at the level from the prior year.
Importers will have to provide relevant documentation confirming their compliance with US requirements. Such documentation will include evidence (such as mill test certificates) demonstrating that the imports meet the “melted and poured in the EU” requirements. Failure to provide adequate evidence when the merchandise enters the United States could result in the imposition of tariffs, penalties, or both.
Commerce will continue the existing Section 232 exclusions process for steel products imported from the EU but will not count imports of excluded steel products from the EU against the TRQ. Existing holders of exclusions can continue to use any exclusions that they received and used during US fiscal year 2021 (ie, October 1, 2020 – September 30, 2021) to import products specified in that exclusion. Such “extended” exclusions will be valid until December 31, 2023, without the need to re-apply.
To be eligible for tariff-free treatment, imports of aluminum must also be produced entirely within the EU. As proof, importers must provide a “Certificate of Analysis” demonstrating the origin and place of manufacture of imports into the United States. Tariff-free imports will be subject to a TRQ that is capped each year at 18,000 metric tons for unwrought aluminum under 2 product categories, and 366,000 metric tons for semi-finished (wrought) aluminum under 14 product categories. Any imports that exceed the quota will be subject to the 10 percent tariff.
The TRQ will be administered on a semi-annual basis; no more than 60 percent of the TRQ will be filled in the first half of the year. Commerce will publish updated information on the utilization of the semi-annual quota for each product category.
The quota import volumes will be allocated on an EU member state basis in line with the 2018-19 historical period, with the exception of aluminum foil, which will be subject to 2021 annualized data. The existing exclusion process will continue for imports of aluminum from the EU; but, unlike steel exclusions, current fiscal year 2021 aluminum exclusions will not be extended.
Background on Section 232 tariffs on EU products
Section 232 tariffs or other restrictions may be imposed by the President on imports which Commerce determines threaten national security. In 2018, Commerce concluded that importation of certain steel and aluminum products impaired the national security of the United States; subsequently, then-President Donald Trump imposed 25 percent and 10 percent tariffs on steel and aluminum imports, respectively. EU steel and aluminum products were temporarily excluded at first, but the Trump Administration eventually applied the tariffs to those products, prompting the EU to place retaliatory tariffs on US goods.
The Biden Administration announced in May 2021 that it would attempt to find a solution to the trade impasse between the US and EU by the end of 2021.
Negotiations with Japan
In conjunction with the announcement of the US-EU agreement, Commerce announced that it was continuing negotiations with Japan regarding a similar agreement to remove Section 232 sanctions on Japanese steel and aluminum products. Likely, the conclusion of the agreement was delayed in part by the Japan general election that took place on October 31, 2021. No formal statement has yet been made as to the timing or content of any such agreement, but an announcement may be imminent. It is reasonable to conclude that the terms of any such agreement would be similar to the US-EU accord.