What does the U.S.-EU Agreement on steel and aluminum imply for the upcoming 12th WTO Ministerial Conference?

On October 31, 2021, the United States and the European Union took steps to lower the conflict over the 232 tariffs imposed in 2018 by President Trump on steel and aluminum and to start work on a new steel agreement that would protect both industries from the challenges posed by global excess capacity while moving towards a low carbon steel producing future. The Joint Statement released on October 31 is reproduced below and indicates that a tariff rate quota based on 2015-2017 volumes of steel and aluminum imports from the EU will be accepted in the U.S., duty free with volumes above that, that are not subject to exclusions entering at existing additional duty rates (25% on steel and 10% on aluminum) with periodic review. The EU will remove its additional duties that were imposed as result of the 232 action. WTO challenges by each party on the other will be stayed. And the countries will work on a new steel agreement over the next two years that will address both global excess capacity and reducing the carbon intensity of the products involved. Here is the joint statement.

“U.S.-EU Joint Statement
“October 31, 2021

“Given the joint desire of the United States and the European Union (“EU”) to address non-market excess capacity so as to preserve their critical steel and aluminum industries, the United States and the EU agree to the following:

1. Ongoing cooperation

“a. Trade Remedy/Customs Cooperation: To advance their efforts to address excess capacity, both sides agree to expand U.S./EU coordination involving both trade remedies and customs matters. The United States will also share public information and best practices with EU officials and/or member state officials, as appropriate, on topics including how detection of fraud/evasion and circumvention of duties is approached and possible self-initiation. Officials could also coordinate industry engagement with relevant sectors to hear their views and share observations/concerns. Insofar as customs cooperation is concerned, it may take the form of mutual administrative assistance in accordance with the U.S.-EU Agreement on customs cooperation and mutual assistance in customs matters.

“b. Monitoring: The United States and the EU will monitor steel and aluminum trade between them.

“c. Cooperation on Non-Market Excess Capacity: The United States and the EU agree to regularly meet to consult with a view to developing additional actions in order to contribute to adjustments and solutions and address non-market excess capacity in the global steel and aluminum sectors.

“d. Review: The United States and the EU agree to review the operation of this arrangement, and ongoing cooperation, on an annual basis, including in light of changes in the global steel and aluminum markets, U.S. demand, and imports.

2. Global steel and aluminum arrangements to restore market-oriented conditions and address carbon intensity

“Steel and aluminum manufacturing is one of the highest carbon emission sources globally. Excess capacity generates unnecessary greenhouse gas emissions, deflates prices of high emissions products and hinders the development and scaling up of competitive solutions for lower emissions production. For steel and aluminum trade to be sustainable, producers and consumers must address both global non-market excess capacity as well as the carbon intensity of the industries. Against this backdrop, the United States and the EU are resolved to negotiate, in accordance with their respective institutional frameworks, future arrangements for trade in these sectors that take account of both issues. The United States and the EU will invite like-minded economies to participate in the arrangements and contribute to achieving the goals of restoring market-oriented conditions and supporting the reduction of carbon intensity of steel and aluminum across modes of production. The United States and the EU will seek to conclude the negotiations on the arrangements within two years. In order to encourage similar efforts by other steel producing economies, the United States and the EU will consult with respect to bringing these matters into relevant international fora for discussion, as appropriate.

“Compatible with international obligations and the multilateral rules, including potential rules to be jointly developed in the coming years, each participant in the arrangements would undertake the following actions: (i) restrict market access for non-participants that do not meet conditions of market orientation and that contribute to non-market excess capacity, through application of appropriate measures including trade defence instruments; (ii) restrict market access for non-participants that do not meet standards for low-carbon intensity; (iii) ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; (iv) refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; (v) consult on government investment in decarbonization; and (vi) screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.

“To enhance their cooperation and facilitate negotiations on a global sustainable steel and aluminum arrangements, the United States and the EU agree to form a technical working group. Through the working group, the United States and the EU will, among other things, confer on methodologies for calculating steel and aluminum carbon-intensity and share relevant data.

3. WTO Disputes

“The United States and the EU agree to suspend by November 5, 2021, pursuant to DSU Article 12.12, the WTO disputes they have initiated against each other regarding the U.S. Section 232 measures (DS548) and the EU’s additional duties (DS559). Regarding the matters that are before these panels, the United States and the EU mutually agree to resort to arbitrations pursuant to DSU Article 25, as set out below and so as to fully preserve the work of the parties and the panels and procedural steps in these disputes. The United States and the EU will agree by 17 December 2021 on the procedures to be followed in an arbitration of those matters, in accordance with the present arrangement. Upon agreement on these procedures, the EU and the United States will terminate their respective disputes before the panels, and the arbitrations will be suspended, without temporal limit. The United States and the EU intend for DSU rules and practices on panel proceedings to govern the arbitration and to be reflected as appropriate in the agreement on arbitration procedures.

“The arbitration procedures will permit the complaining party in each dispute to bring the matter forward from the panel into the arbitration, so as to preserve the work in each dispute and allow the arbitrators to continue the panel process on the basis of the procedural steps and work already performed and make findings on that matter. The three panelists in each dispute will serve as arbitrators, if available, and otherwise will be replaced by agreement of the parties or by the Director-General of the WTO, within one week from the complaining party’s request.

“Before resuming an arbitration, a complaining party will first seek to consult at the ministerial level with the other party with a view to reaching an alternative solution. A complaining party may request to resume the arbitration at any time after the lapse of a 30-day consultation period and no sooner than 12 months after the issuance of the present statement.

“An arbitration may be resumed only if a complaining party considers that this arrangement is not providing the benefits envisioned. The United States and the EU also intend not to initiate any new WTO dispute relating to these matters for so long as each party considers this arrangement to be operating satisfactorily.”

USTR press release, Joint US-EU Statement on Trade in Steel and Aluminum, October 31, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/october/joint-us-eu-statement-trade-steel-and-aluminum.

Under the Biden Administration, the U.S. and EU have found solutions to various trade and other bilateral conflicts (Boeing-Airbus; international taxation) and launched a the Trade and Technology Council. See, e.g., European Commission – Statement, Statement by President von der Leyen on a new Global Sustainable Steel Arrangement and EU-US steel and aluminium dispute
Brussels, 31 October 2021, https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_21_5679 (“Since the beginning of the year, as you said Mr President, dear Joe, we have restored trust and communication. We put to rest our disputes on aircraft subsidies. We set up our Trade and Technology Council. We created a vaccine partnership. We reached an agreement on global minimum tax. And now, we have found a solution on EU-US steel and aluminium trade.”); White House Briefing Room, Remarks by President Biden and European Commission President Ursula von der Leyen on U.S.-EU Agreement on Steel and Aluminum
Trade, October 31, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/10/31/remarks-by-president-biden-and-european-commission-president-ursula-von-der-leyen-on-u-s-eu-agreement-on-steel-and-aluminum-trade/ (statement of President Biden)(“Over the past nine months, the United States and the European Union have come together to take on major global challenges by looking to all that unites us and the shared interests we have both in Europe and the United States. We resolved the 17-year Boeing-Airbus dispute. And we’ve been close partners to the — to address COVID-19 and combat climate change. As we move forward, we’re going to continue together to update the rules of the road and the 21st century economy, and prove to the world that democracies — democracies —are taking on hard problems and delivering sound solutions. And the European Union and the United States will continue to be the closest of friends and partners as we work together to solve the 21st century challenges.”)

The closer cooperation of the U.S. and the EU could be good news for the World Trade Organization and portend potential positive progress at the upcoming 12th Ministerial Conference in Geneva that starts in just four weeks.

Possible implications for MC12

The WTO’s Director-General has been anxious for the WTO Members achieving meaningful deliverables for the upcoming Ministerial Conference. The U.S. and EU are supportive of many initiatives — a meaningful fisheries subsidies agreement, several of the joint statement initiatives (“JSIs”) that have been pursued by certain WTO Members since the last Ministerial Conference in Buenos Aires in 2017, improved transparency and compliance with notification requirements, WTO reform particularly in terms of increased disciplines of industrial subsidies, rules of state-owned and state-invested enterprises, intellectual property theft and more.are supported by both Which of these elements will advance in Geneva at the MC12 is uncertain although two of the JSIs (services regulation; MSMEs) are reportedly complete though facing opposition from some countries (e.g., India and South Africa) in terms of being brought into the WTO. Some late progress has been reported on the fisheries subsidies negotiations which could mean an agreement may be reached in Geneva during the Ministerial Conference after 20 years of effort. For all of the above issues, progress in terms of meaningful outcomes depend on the membership as a whole. U.S.-EU solidarity are helpful, but not sufficient to resolve the issues.

In addition, there are issues where the U.S. and the EU have not been aligned including on starting a process of reform of the DSU to get back to a two tier dispute settlement system and what, if any, waiver of TRIPs rights/obligations should occur during the COVID pandemic. These are issues on which alignment of the two would likely result in resolution of the issue at least for purposes of the 12th Ministerial Conference. The EU has had as a high priority getting agreement from the U.S. to have a process start by the Ministerial with a defined deadline to find solutions on the Appellate Body and other DSU issues. If the U.S. accepts at the Ministerial the establishment of a two year program to understand the problems in the dispute settlement system and find solutions, that would be a significant victory for the EU and many other WTO Members. While not guaranteeing a resolution in two years (that would depend on whether Members will actually address the underlying problems in a way to ensure a process consistent with original DSU intent), creating a process for discussions would be a positive step forward.

Similarly, the U.S. position on the proposed waiver of TRIPs rights/obligations during the pandemic has been opposed by a number of countries with the EU having the largest voice. Efforts by the EU, U.S. and others to expand production of vaccines in Asia, Africa and South America are significant steps to address access to vaccines from regional or local sources, as are increased global production and increased shipments to COVAX. However, the U.S. could accept the EU’s more limited proposal for flexibilities under TRIPs, or the EU could move in the direction of a waiver of at least some TRIPs rights. Movement by the US to supporting the EU position or movement by the EU would likely result in some announced victory at the Ministerial.

While I have previously written extensively on both dispute settlement and on the waiver request from many TRIPS rights/obligations during the pandemic, and have supported the U.S. position on dispute settlement (and an unwillingness to proceed until there is greater agreement on the causes of the problems) and been supportive of the EU position on the proposed TRIPs waiver (not seeing practical benefits from the waiver during the pandemic), I believe that MC12 may prove to be more successful than many have thought possible. If so, it will likely flow from a decision by the U.S. and EU to find common ground on these two important issues and will be consistent with the increased level of cooperation between these historic leaders of the GATT and WTO. We will find out in the coming month if the increased cooperation can result in short term benefits at the WTO.

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