[author: Isabella Peek]

On October 31, 2021, the Secretary of Commerce and United States Trade Representative released a statement confirming that the United States and the European Union (EU) have come to an agreement (Agreement) that will modify the current section 232 tariffs on steel and aluminum imports.

Section 232 of the Trade Expansion Act of 1962 authorizes the President to impose tariffs on items that the Secretary of Commerce identifies as a threat to national security. In March 2018, with the authority granted to him by section 232, President Trump issued Presidential Proclamations 9704 and 9705 on aluminum and steel imports, respectively. Proclamation 9704 placed a 10% ad valorem tariff on aluminum articles and Proclamation 9705 placed a 25% ad valorem tariff on steel articles. These tariffs continue to apply to imports of steel and aluminum from Europe and other countries. Steel and aluminum from Canada and Mexico are currently exempted.

A fact sheet detailing the Agreement can be found here.

The US-EU Agreement will be a welcome relief for many industries in both the US and the EU. It will replace section 232 tariff requirements on aluminum and steel and will halt retaliatory tariffs on US products entering the EU. The general scope of this Agreement is to roll back section 232 tariffs on EU products by imposing a tariff rate quota (TRQ) with an aggregate import quota of 3.3 million metric tons for steel and 18,000 metric tons for aluminum. If the TRQ is reached, EU countries may still import subject steel and aluminum to the US but will be subject to the section 232 tariff rate of 25% or 10%. The TRQ will begin on January 1, 2022. It will be “calculated each year and administered quarterly.” The US will periodically consult with the EU to address any underuse of the quota. The aggregate amounts of steel and aluminum will be allocated to EU member states based on the 2015-17 and 2018-19 historical periods, respectively. Notably, for steel imports, there will be a roll-over allowance of 4% per quarter at the end of each quarter. This allowance will allow a roll-over of up to 4% of the unused TRQ into the quarter after the next (e.g., 1st quarter allowance applies to 3rd quarter, 2nd quarter allowance applies to 4th quarter). There is no such rollover allowance for aluminum.

The specific details regarding implementation have yet to be worked out by the US and the EU. Two main areas identified in the Agreement that will need to be addressed are the “melt and pour” requirement and the exemption of derivatives from 232 tariffs.

Subject steel articles “must be ‘melted and poured’ in the EU according to current U.S. requirements and rules implementing this arrangement.” The current “melted and poured” rule was updated last year and is defined in 19 C.F.R. 103(c) as:

The field in the license application requiring identification of the country where the steel used in the manufacture of the product was melted and poured applies to the original location where the raw steel is

(A) First produced in a steel-making furnace in a liquid state; and then

(B) Poured into its first solid shape…The first solid state can take the form of either a semi-finished product (slab, billets or ingots) or a finished steel mill product.

…

Under the melt and pour rule, countries must report the melt and pour country on import license applications. The Agreement requires importers to provide “relevant documentation substantiating compliance with [these requirements].” It is already a requirement to include the country where steel is “melted and poured” on an import license application so this may be no change in current practice. But it is unclear if this is a requirement for further documentation or if the current requirements for documentation will be enough.

This “melt and pour” requirement only applies to steel. For aluminum, there is a required Certificate of Analysis. This certificate appears to be commonplace in the industry and does not appear to create any new or additional requirements.

Currently, derivative products of steel and aluminum are subject to section 232 tariffs. This derivative product rule was implemented after Proclamations 9704 and 9705 by Presidential Proclamation 9980 to address alleged circumvention of section 232 tariffs by importing items that were mostly steel or aluminum such as stranded wire, nails, cables and parts of motors. In the initial US-EU statement, derivative products of both steel and aluminum will be exempt. The Agreement defines derivative products using the same definition as in Proclamation 9980:

For purposes of this proclamation, the Secretary determined that an article is “derivative” of an aluminum article or steel article if all of the following conditions are present:

• the aluminum article or steel article represents, on average, two-thirds or more of the total cost of materials of the derivative article;
• import volumes of such derivative article increased year-to-year since June 1, 2018, following the imposition of the tariffs in Proclamation 9704 and Proclamation 9705, as amended by Proclamation 9739 and Proclamation 9740, respectively, in comparison to import volumes of such derivative article during the 2 preceding years; and
• import volumes of such derivative article following the imposition of the tariffs exceeded the 4 percent average increase in the total volume of goods imported into the United States during the same period since June 1, 2018.

This exemption for derivative products will cover those items like stranded wire, cables, nails, and motor parts that are not otherwise covered by the TRQ. This exemption is separate from the main Agreement that covers 54 different product categories of steel and aluminum like cold-rolled steel, hot-rolled steel, billets, aluminum foil, aluminum pipe fittings, etc. The original derivative product rule was intended to make circumvention of section 232 tariffs more difficult. Thus, it follows that the deal would involve an exemption for these derivative products since EU products will now not be subject to the underlying steel and aluminum tariffs.

Current reports from the Department of Commerce’s International Trade Administration (ITA) show that the United States’ top three source countries for steel are Canada, Brazil, and Korea. However, if the EU were a country, it would be the third largest source of steel, pushing Korea out. Canada is exempt from section 232 tariffs altogether and the US and Brazil have a TRQ structure in place in lieu of section 232 tariffs. Following this Agreement, the top three sources of steel for the US will now be exempt or partially exempt from section 232 tariffs.

A similar trend holds for aluminum imports based on current reports from the ITA. The top three source countries for aluminum are Canada, the United Arab Emirates (UAE) and Russia. However, as with steel, if the EU were a country, it would be the third largest source of aluminum, pushing Russia out. Canada is exempt from the 232 tariffs and there is no such agreement with the UAE. Following this Agreement, two out of the top three sources for aluminum will now be exempt or partially exempt from 232 tariffs. With the top sources of aluminum and steel covered by either this agreement or other agreements, manufacturers should be able to lower prices, which should trickle down to reduce the prices of everything from cars that utilize steel and aluminum and building materials like sheet metal.

This Agreement has also opened the door for other negotiations with similarly-situated countries like the United Kingdom (UK) and Japan. On October 31, 2021 the Department of Commerce issued statements that talks with the UK and Japan for similar section 232 tariff rollbacks are in progress. From the US-EU joint statement, it appears that an informal trade group may emerge. The joint statement states “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.” But it remains to be seen what countries will participate.

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