The United States has asked for its steel and aluminum exports to be exempted from the European Union's carbon border levy, complicating work on a broader metals accord and leading the allies into reimposing billions of dollars in tariffs and retaliatory measures on each other's goods.
It's unlikely the EU will agree to the American request since the bloc's legislation doesn't easily provide for this kind of provision, and such a move likely runs afoul of World Trade Organization rules, according to people familiar with the situation.
The Biden administration and the EU are working on a global arrangement on sustainable steel and aluminum, called the GSA, after the two sides agreed to temporarily suspend tariffs that had been imposed by former president Donald Trump on national security grounds.
If an agreement isn't found by October, tariffs are expected to return on more than $10 billion of EU and U.S. exports annually.
European Commission spokeswoman Miriam Garcia Ferrer said the carbon border adjustment mechanism is the external adjustment for the decarbonization costs incurred internally by EU-based companies. Ferrer said no such costs are being incurred by U.S.-based producers. There is no carbon price in the U.S.
The U.S. Trade Representative's office declined to comment beyond pointing to past comments from the office that the agency will work with Congress as the GSA negotiations advance.
Talks between the U.S. and EU are ongoing and are expected to intensify in the coming weeks, said the sources familiar with the negotiations, who spoke on condition of anonymity.
As part of its Green Deal strategy, the EU agreed to impose a carbon price on imports of certain goods to shield its producers from cheaper competition from countries with less strict climate-protection rules. The measure effectively means that products including steel, aluminum, cement and fertilizers brought into the EU will face a levy based on emissions footprints. Reporting requirements will start in October as part of a gradual phase-in.
The EU is concerned that an exemption for the U.S. to its carbon border adjustment mechanism doesn't comply with WTO rules, the sources said. And the measure's legality would depend on the details of how it is notified and implemented.
Nondiscrimination is one of the core elements of the WTO's rule book. The organization's most favored nation principle is a commitment by its 164 members to treat other signatories in an indiscriminate manner or else provide compensation in the form of trade concessions.
The two sides have made progress in other areas of the GSA negotiations, such as working together to deploy emerging technologies for decarbonization. However, other issues for the EU side include the possibility the U.S. will retain the ability to apply tariffs on European exports and the lack of clarity over what form the agreement will take in the U.S., the sources said.
The legal form of the arrangements matters as it would influence the type of ratification procedure needed in the E.U., they said.
Biden and European Commission President Ursula von der Leyen said last month they were committed to achieving an ambitious outcome in the GSA by October.
"The arrangement will ensure the long-term viability of our industries, encourage low-carbon intensity steel and aluminum production and trade, and restore market-oriented conditions globally and bilaterally," Biden and von der Leyen said in a joint statement. "Together, we will incentivize emission reductions in these carbon-intensive sectors."
Bloomberg previously reported that the U.S. and EU were considering climate-based tariffs on Chinese steel and aluminum as part of the arrangements.
The dispute the GSA is aiming to permanently overcome started in 2018, when Trump imposed duties on steel and aluminum from Europe, Asia and elsewhere, citing risks to national security. The EU subsequently retaliated, targeting products including Harley-Davidson motorcycles, Levi Strauss jeans and bourbon whiskey. With that deal, the EU agreed to drop those retaliatory tariffs.
Mississippi County is the nation's leading steel producer and a leader in rolled steel production, according to the Great River Economic Development Foundation. Steel mills in the county are also leaders in sustainability practices, the foundation said.
Information for this article was contributed by Bryce Baschuk and Ewa Krukowska of Bloomberg News (WPNS).