The US has asked for its steel and aluminum exports to be exempt from the European Union’s carbon border levy, complicating work on a broader metals accord that could lead to the allies 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 would likely run afoul of World Trade Organization rules, according to people familiar with the situation.

President Joe Biden’s 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 could return on more than $10 billion of EU and US exports each year.  

WTO Rules

European Commission Spokeswoman Miriam Garcia Ferrer said that the US isn’t incurring any costs related to the carbon border adjustment mechanism since those are borne internally in the EU.

“Such an exemption would also constitute a breach of WTO rules (most favored nation rule) if CBAM were not to apply to the US steel and aluminum sectors covered by the GSA,” Ferrer told Bloomberg. 

The US Trade Representative’s office declined to comment beyond pointing to past comments from USTR Katherine Tai that the agency will work with Congress as GSA negotiations advance. 

Talks between the US and EU are ongoing and are expected to intensify in the coming weeks, said the people, who spoke on the condition of anonymity. 

As part of its Green Deal strategy, the EU agreed to a regulation that would 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, aluminium, cement and fertilizers brought into the EU will face a levy based on their emissions footprint. Reporting requirements will start in October, as part of a gradual phase-in.

The EU is concerned that an exemption for the US to its carbon border adjustment mechanism wouldn’t comply with WTO rules, the people said. And the measure’s legality would depend on the details of how it is notified and implemented. 

Non-discrimination is one of the core elements of the WTO’s rulebook. 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 decarbonisation. However, other issues for the EU side include the possibility the US could retain the ability to apply tariffs on European exports and the lack of clarity over what form the agreement would take in the US, the people said. 

The legal form of the arrangements matters as it would influence the type of ratification procedure needed in the EU, the people said.

Biden and European Commission President Ursula von der Leyen said last month that they were committed to achieving an ambitious outcome in the GSA by October 2023. 

“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.”

Trade Dispute

Bloomberg previously reported that the US 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 Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey. With that deal, the EU agreed to drop those retaliatory tariffs.