United States to Replace Section 232 Tariff on UK Steel with Tariff-Rate Quota; UK to Eliminate Retaliatory Tariffs on US Goods

On March 22, 2022, the United States announced that it will replace its Section 232 tariffs on steel and aluminum from the United Kingdom (UK) with tariff-rate quotas (TRQ) that will allow "historically-based sustainable volumes" of 0.5 million metric tons (MMT) of steel and 21.6 thousand metric tons (TMT) of aluminum to enter the United States free of Section 232 tariffs each year.  The TRQs will take effect on June 1, 2022.  In exchange, the UK will terminate the retaliatory tariffs it has imposed on approximately $500 million worth of annual imports from the United States, including distilled spirits, various agriculture products and consumer goods.  

In addition to the TRQs and the removal of UK retaliatory tariffs, the United States and the UK have pledged in a Joint Statement to cooperate on trade remedy and customs issues, monitoring of steel and aluminum trade, and "non-market excess capacity and carbon-intensity."  However, the UK will not immediately join the negotiations between the United States and the EU for a "Global Arrangement" addressing carbon intensity and excess capacity in the steel and aluminum industries.  The United States and the UK have also announced a series of new "U.S./UK Dialogues on the Future of Atlantic Trade," but US officials have downplayed the likelihood that they will lead to a bilateral free trade agreement (FTA).  We provide an overview of these developments below.

TRQ arrangements for UK steel and aluminum

The US Department of Commerce (DOC) has provided the following details regarding the TRQs for UK steel and aluminum, which will take effect on June 1 2022:¹

Steel TRQ  

• TRQ volume and tariff rate.  The aggregate annual import volume of steel under the TRQ "is set at 0.5 million metric tons (MMT) under 54 product categories and allocated in line with the 2018-2019 historical period."  Steel products from the UK that are within-quota will enter free of any Section 232 duty, while all steel products entering above-quota will continue to be subject to a Section 232 duty of 25 percent, provided that they are not subject to an exclusion.  

• Derivative Products.  Imports of "derivative" steel products from the UK will not be subject to Section 232 duties.²

• Eligible products.  In order to be eligible for duty-free treatment under the quota, steel imports generally must be "melted and poured" in the UK and have a UK country of origin, according to current US requirements and rules implementing the TRQ arrangement.  Importers will be required to "provide relevant documentation substantiating compliance with U.S. requirements."

  Additionally, UK steel exports that are melted and poured in the UK, but further processed in the EU, conferring an EU country of origin, and subsequently imported into the United States may be eligible for duty-free treatment under the quota and count against the UK TRQ volume rather than the EU TRQ, provided that such exports are "not to exceed 37.8 thousand metric tons annually under 54 quota product categories and allocated in line with the 2021 historical period."  The United States will develop a mechanism by June 1, 2022 to allow entry of such imports, and the UK similarly "will work with industry to develop a mechanism by June 1, 2022 to monitor the utilization and compliance in relation to access to the [37.8 TMT] TRQ[.]"

• "Strategic audit" and attestation for China-affiliated steel producers.  In a Joint Statement, the United States and the UK have expressed their commitment "to ensuring that steel exports from the UK to the United States under the applicable TRQ for steel are not supported by market distorting practices."³  To this end, the UK will provide an annual "attestation" to the United States "in the case of any known UK steel producer that is owned or controlled by a company registered in China or a Chinese entity, and which exports steel to the United States under the applicable TRQ for UK steel[.]"⁴  The attestation will be based on an annual "strategic audit" conducted by an independent third party, "to the effect that there is no evidence of market distorting practices by that producer in the UK that would materially contribute to non-market excess capacity of steel."⁵  The results of the audit will be made available to the United States upon completion.

  According to the Joint Statement, steel from any UK steel producer that is "owned or controlled by a company registered in China or a Chinese entity" will be eligible for entry at the in-quota rate for 6 months from June 1, 2022 (i.e., until December 1, 2022).  Within this period, the UK will provide the first annual attestation.  If the attestation is not provided by December 1, 2022 and then annually on December 1 thereafter, the United States "reserves the right to temporarily deny access for the UK steel producer to the in-quota rate for the applicable TRQ."  Where at any time access has been denied, and where the UK submits an attestation, the United States will restore the access of the affected producer to the in-quota rate within 8 weeks. 

• Exclusions.  The United States "will maintain its exclusions process, as implemented under Section 232 of the Trade Expansion Act of 1962, available for steel products imported from the UK."  DOC's statement does not clarify whether imports covered by an exclusion will count against the quota.  
• Administration.  The TRQ will be calculated for each year of the measure and administered on a quarterly basis for each product category.  The quota will be allocated on a first come, first served basis.  Any unused TRQ volume from the first quarter of the year, up to 4 percent of the allocated quota for that quarter, will roll over to the third quarter; any unused TRQ volume from the second quarter of the year, subject to the same limit, will roll over into the fourth quarter; and any unused TRQ volume from the third quarter, subject to the same limit, will roll over into the first quarter of the following year.  DOC's statement does not discuss the treatment of unused TRQ volumes from the fourth quarter.
• Adjustment.  The TRQ will be adjusted each year based on the level of US steel demand (apparent consumption) in the previous year.  For each 6 percent that this calculated level is above or below US steel demand in 2021, the TRQ volume would increase or decrease, respectively, by 3 percent relative to the initial level of 0.5 MMT in the subsequent twelve-month period.  Should the calculated level of US steel demand not be at least 6 percent above or below the US fiscal year 2021 level, then the TRQ volume in the subsequent year would remain at 0.5 MMT. 

Aluminum TRQ

• TRQ volume and tariff rate.  The aggregate annual import volume under the aluminum TRQ is set at 0.9 TMT for unwrought aluminum under 2 product categories and 11.4 TMT for semi-finished (wrought) aluminum, other than foil (HTSUS heading 7607), under 12 product categories.  The import volumes for these categories will be allocated "in line with the 2018-19 historical period."  For foil (7607) the annual import volume under the TRQ is set at 9.3 TMT under 2 product categories.  The import volumes for foil will be allocated "in line with the 2021 reference period."  Aluminum products from the UK that are within-quota will enter free of any Section 232 duty, while aluminum products entering above quota will continue to be subject to a Section 232 duty of 10 percent, provided that they are not subject to an exclusion.
• Derivative products.  Imports of derivative articles of aluminum from the UK will not be subject to Section 232 duties.⁶
• Eligible products and entry documentation.  In order for semi-finished (wrought) aluminum products to be eligible for duty-free treatment under the quota, "they must not contain primary aluminum from the People's Republic of China, the Russian Federation or the Republic of Belarus."  Importers will be required to provide a Certificate of Analysis for each aluminum product entered into the United States, "as required by current U.S. law and rules implementing [the TRQ arrangement]."  In addition, importers will be required to provide the Certificate of Analysis for the smelted (i.e., unalloyed) primary aluminum used in the manufacturing of the product entered into the United States.
• Exclusions.  The United States will maintain its exclusion process, as implemented under Section 232 of the Trade Expansion Act of 1962, available for aluminum products imported from the UK.

• Administration.  The TRQ will be "calculated for each year of the measure and administered on a semi-annual basis."  The parties have not provided a specific formula that will determine the annual adjustment of the aluminum TRQ, as they have done for the steel TRQ.

  The terms of the TRQs for UK steel and aluminum are similar to those of the TRQs that the United States implemented for EU steel and aluminum as of January 1, 2022, as well as the TRQ that will take effect for Japanese steel on April 1, 2022.⁷  However, the United States and the UK were silent on certain key points that were addressed in the US-EU arrangement.  Most notably, as part of its TRQ arrangement for the EU, the United States agreed to extend the duration of exclusions granted in US fiscal year 2021 for EU steel products for a period of two calendar years without the need to reapply, i.e., until December 31, 2023.  In addition, the United States agreed that it would not count imports of excluded steel products from the EU against the TRQ volumes.  DOC's statement provides no indication that the United States will afford the same treatment to UK steel products that are subject to exclusions.⁸  DOC has also touted certain elements of the UK arrangement that were not included in the arrangements with the EU and Japan, namely the "novel smelt and cast requirements on aluminum" and the requirement for annual audits of UK steel producers that are owned or controlled by Chinese entities.[9]  US labor unions and groups representing domestic steel producers have welcomed these provisions and the broader TRQ arrangements with the UK.¹⁰

US-UK Joint Statement

In their Joint Statement of March 22, the United States and the UK have pledged to take a series of actions "to address non-market capacity so as to preserve their critical steel and aluminum industries":

• Trade Remedy/Customs Cooperation.  Both sides agree "to expand U.S./UK coordination involving customs matters."  The two countries "will also share public information and best practices, as appropriate, on topics including how detection of fraud, evasion and circumvention of duties is approached."  They also will "share publicly available information on trade remedies and best practices, including on possible self-initiation of trade enforcement actions."
• Monitoring.  The United States and the UK "will monitor steel and aluminum trade between them."

• Cooperation on "Non-Market Excess Capacity and Carbon Intensity."  In order to establish more "market-oriented conditions" for steel and aluminum, the two governments "will continue to take effective and appropriate domestic measures, such as antidumping, countervailing duty, and safeguard measures or other measures."  The two governments will "confer on non-market excess capacity and on the situation in global steel and aluminum markets," and will meet regularly to consider additional actions to address non-market excess capacity.  Additionally, upon request of either government, the United States and the UK will confer "on market-distorting influence or ownership in their respective steel and aluminum industries[.]"

  The UK will not immediately join the negotiations between the United States and the EU for a Global Arrangement addressing excess capacity and carbon intensity in the steel and aluminum industries.¹¹  Rather, as an initial step, the United States and the UK "will confer on entering into discussions" on the Global Arrangement.  To facilitate these discussions and "seek shared understandings," the UK and the United States will (1) share publicly available data and analysis on non-market excess capacity and its effects on their respective steel and aluminum industries and (2) confer on methodologies for calculating steel and aluminum carbon-intensity and share relevant data to the extent feasible, including relating to emissions in the steel and aluminum sectors.  The United States agreed to hold similar preliminary discussions with Japan when it announced the creation of a TRQ for Japanese steel imports last month.

• Review.  The United States and the UK will review the operation of the 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."

Outlook

The TRQ arrangements will provide significant tariff relief for UK exporters of steel and aluminum to the United States.  

The initial TRQ volumes of 0.5 MMT for steel and 21.6 TMT for aluminum are higher than the volumes of US steel and aluminum imports from the UK in recent years.  The TRQ volume for steel is roughly equivalent to the average annual import volume from the UK during the three-year period prior to the imposition of the Section 232 duties (2015-2017), and is almost double the 2021 import level.  

The TRQ volume for aluminum is nearly double the average annual import volume from the UK during the 2015-2017 period, and is approximately 40 percent above the 2021 import level.  However, the UK is a relatively small exporter of these products to the United States, and the TRQ volumes for UK steel and aluminum are equivalent to approximately 1.5 percent and 0.4 percent of total US imports of these products in 2021.    

The Biden Administration has touted the new agreement with the UK as "another example of President Biden's focus on strengthening relationships with our vital Allies and partners, and working with them to address unfair practices by countries like China together."¹²  Secretary of Commerce Gina Raimondo stated that the agreement "will benefit America's steel and aluminum industries and workers by protecting manufacturing, as well as consumers by easing inflationary pressures in the U.S."¹³  US industries that have been negatively affected by the UK's retaliatory tariffs, such as the alcoholic beverage industry, have also welcomed the agreement.¹⁴

Like Japan, the UK will not immediately join the US-EU negotiations for a Global Arrangement addressing excess capacity and carbon intensity in the steel and aluminum industries.  On March 22, US Trade Representative Katherine Tai emphasized that the United States' vision for the Global Arrangement "requires that other leading countries and economies participate too."¹⁵  However, the United States and the EU have not stated when they will invite additional countries to participate in the negotiations, nor have they outlined specific criteria for participation.  US officials have also suggested that the United States would prefer to negotiate at least some elements of the Global Arrangement bilaterally with the EU to ensure that they reflect "high ambitions."¹⁶

At this stage, the Biden Administration has not expressed interest in negotiating TRQ arrangements with any additional countries subject to the Section 232 measures.  South Korea has recently expressed interest in negotiating a TRQ arrangement for its steel exports to the United States, but Secretary Raimondo stated on March 23 that negotiating a TRQ for South Korea is "not a high priority of ours right now," despite the "extremely strong" bilateral relationship.¹⁷  The Biden Administration has also downplayed suggestions that the TRQ arrangement with the UK, and the recent launch of "U.S./UK Dialogues on the Future of Atlantic Trade," will lead to the resumption of FTA negotiations with the UK.  When asked about this possibility at a March 22 press conference, Ambassador Tai declined to "prejudge" the outcome of the new bilateral dialogues, but described FTAs as a "very 20th century tool" and warned against spending "years and…a lot of blood, sweat and tears working on something that isn't going to be relevant to the needs of our people and our economies[.]"¹⁸  
 

_{1 "Announcement of Actions on UK Imports Under Section 232," US Department of Commerce, March 22, 2022.
² "Derivative" steel products were added to the scope of the Section 232 measures by Proclamation 9980 of January 24, 2020.  Derivative steel products included nails, tacks, staples, bumper stampings, and body stampings for tractors listed in the Annex to the proclamation.
³ "U.S.-UK Joint Statement," March 22, 2022.
⁴ DOC's statement does not mention any specific UK steel producers that would be subject to this provision.  However, it has been widely reported that the provision is intended to apply to British Steel Limited ("British Steel").  British Steel is a subsidiary of Jingye Steel, which has its headquarters in Shijiazhuang, China.  See ",Raimondo says British Steel provision was 'critical' to U.K. deal" Politico, March 23, 2022.
⁵ According to the Joint Statement, the audit will include "an assessment of the steel producer's and its (if any) UK parent company's financial records including any subsidy provided by any Government controlled or directed entity in China, and any other relevant records to allow the auditor to evaluate whether there are any market distorting practices in the UK by that producer that would materially contribute to non-market excess capacity of steel."  
⁶ "Derivative" aluminum products were added to the scope of the Section 232 measures by Proclamation 9980 of January 24, 2020.  Derivative aluminum products included certain stranded wires, cables, plaited bands, bumper stampings, and body stampings for tractors listed in the Annex to the proclamation.
⁷ For an overview of the EU TRQ arrangement, please refer to the W&C US Trade Alert dated November 2, 2021.
⁸ DOC's statement on the TRQ arrangement for Japanese steel also omitted such commitments.  
⁹ "Raimondo, Tai Statements on 232 Tariff Agreement with United Kingdom," US Department of Commerce, March 22, 2022.
^[0 "SMA Applauds Section 232 Agreement with the UK," Steel Manufacturers Association, March 23, 2022, "USW Supports Section 232 Deal with UK," United Steelworkers, March 22, 2022.
¹¹ The proposed "Global Arrangement" would require participants to:
    1. 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 defense instruments; 
    2 Restrict market access for non-participants that do not meet standards for low-carbon intensity;
    3. Ensure that domestic policies support the objectives of the arrangements and support lowering carbon intensity across all modes of production; 
    4. Refrain from non-market practices that contribute to carbon-intensive, non-market oriented capacity; 
    5. Consult on government investment in decarbonisation; and
    6. Screen inward investments from non-market-oriented actors in accordance with their respective domestic legal frameworks.
See "Steel and Aluminum U.S.-EU Joint Statement," October 31, 2021. 
¹² "Raimondo, Tai Statements on 232 Tariff Agreement with United Kingdom," US Department of Commerce, March 22, 2022.
¹³ Id.
¹⁴ "Toasts Not Tariffs Coalition Hails the Removal of U.S.-UK Retaliatory Tariffs on the U.S. Beverage Alcohol Sector," Distilled Spirits Council, March 23, 2022.
¹⁵ "Tai: Vision for green steel deal with EU ‘requires' more participants," Inside US Trade, March 22, 2022, s.
¹⁶ Remarks by Ms. Greta Peisch (General Counsel, Office of the U.S. Trade Representative) on "Leveraging transatlantic cooperation for industrial decarbonization: Pathways for green steel," December 10, 2021
¹⁷ "Raimondo says British Steel provision was 'critical' to U.K. deal," Politico, March 23, 2022.
¹⁸ "U.S., U.K. Seek to Deepen Ties in Absence of Free-Trade Deal," Yahoo News, March 22, 2022.}

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