Smartman finance has learned that on Tuesday, the European Union announced that it will suspend its dispute over steel and aluminum tariffs with the United States until March 31, 2025. As part of the exchange, the United States has agreed to provide further tariff exemptions for EU exporters. The extension will save EU steel and aluminum exporters around €1.5 billion in tariffs each year. However, the EU has not convinced the United States to adjust its current tariff quota (TRQ) rates. The United States must complete its own procedures by January next year to extend the tariff quota system for the same period.

Under the agreement, the United States will also exempt the 25% tariff on EU steel imposed by former President Trump in 2018 and the 10% tariff on EU aluminum, thus putting the dispute on hold until after the US and EU elections. In 2018, the United States imposed tariffs on €6.4 billion worth of European steel and aluminum exports. In retaliation, the European Union introduced rebalancing tariffs worth €2.8 billion for some US exports. In 2022, the EU completely suspended these measures until December 31, 2023, in order to have time to jointly develop longer-term solutions. The United States, on the other hand, agreed to suspend tariffs for two years from January 2022 and replace them with quotas.

The European Commission complained that the system is too rigid, including quarterly quotas for 54 steel factory product categories and 16 aluminum factory product categories, which means that EU steel was subject to US tariffs of about $264 million last year, and the EU canceled retaliatory tariffs. The EU has been calling on the United States to improve, including annual quotas for the European market. The US quota system allows up to 3.3 million tons of EU steel and 384,000 tons of aluminum to enter the United States duty-free, reflecting only the past trade level, and there are more quantities that need to be subject to tariffs.

"The EU will continue to engage constructively with the US to uphold its legitimate rights and permanently eliminate the 232 clause tariffs on exports to the EU by the US," the European Commission said in a statement. The 232 clause tariff refers to a provision in US law that gives the president the power to impose tariffs on certain imported products for national security reasons.

As the announcement was made, time is running out for the Global Sustainable Steel and Aluminum Agreement (GSA) signed by both sides. The agreement will preserve the tariff exemption until after the US presidential election in November 2024. The EU and the United States have failed to reach an agreement so far on the so-called global sustainable steel and aluminum arrangement, which aims to end the US-Europe trade conflict during the Trump era.At that time, Trump imposed taxes on steel and aluminum from the EU on the grounds of national security, and the EU subsequently took retaliatory measures against the US.

In the process of seeking negotiations on the GSA agreement, the United States and Europe agreed to a ceasefire in 2021, with the United States partially lifting restrictions and imposing taxes only on portions exceeding specific quotas, while the European Union froze all restrictive measures. The EU believes that this has led to an imbalance in the positions of the two sides, with EU exporters paying more than US$350 million in taxes each year.

The European Union hopes that the United States will abolish the quota system, but the United States refuses to do so. If the two sides cannot reach an agreement before the final deadline, suspended taxes will be restored. The European Union now believes that the United States will not abolish tax quotas because it is difficult for Biden politically.

The European Commission expects that an agreement on the global sustainable steel and aluminum arrangement will not be reached before the end of next year. Therefore, the two sides are discussing improving the ceasefire terms under the current quota mechanism to correct the trade imbalance. The European Union may consider filing a lawsuit against the United States with the World Trade Organization (WTO) or reimposing part of the tariffs on US products.

However, this move lacks broad support among EU member states, who fear that the trade tension may intensify ahead of next year's election. Although Trump has not yet won the Republican nomination for the 2024 election, the EU is already worried about the possibility of his re-election. Other reasons include protecting the economic interests of the European Union and not wanting to affect its alliance with the United States ahead of the European Parliament elections in June next year.