Over at the Roosevelt Institute blog, there are some new pieces on the Global Arrangement on Sustainable Steel and Aluminum (GASSA). Todd Tucker and Tim Meyer have a piece that responds to a paper by Bruegel. Maha Rafi Atal has a piece on development aspects. And Ben Heath and Tim Meyer have a piece in which they argue for pursuing the GASSA even if it violates WTO rules. Putting aside the WTO-consistency issue (and the broader issue of trade conflict and retaliation that will likely be a result of implementing this agreement), I disagree with something at the core of the arguments for GASSA: I don't think it's very likely that GASSA will reduce carbon emissions.
Here's what Ben and Tim say about how GASSA could reduce carbon emissions:
US and EU negotiators have given themselves an October 2023 deadline to finalize a deal on the Global Arrangement on Sustainable Steel and Aluminum (GASSA). As envisioned by US negotiators, the GASSA will combine tariffs and other trade policies to create a market for less-carbon-intensive steel and aluminum, while also combating the market-distorting subsidies that have led to global overcapacity. In so doing, it will give US and European steel producers breathing room to invest in decarbonizing their production processes without fear of being undercut by the cheap, dirty, and heavily subsidized imports that have led to massive global overcapacity in the metals sector and put pressure on the industry on both sides of the Atlantic.
A problem with analyzing the impact of the U.S. GASSA proposal is that no text has been made public, as far as I know. However, some media sources have seen it and reported on it, and here's how Ana Swanson of the NY Times described it last December:
The Biden administration on Wednesday sent a proposal to the European Union suggesting the creation of an international consortium that would promote trade in metals produced with less carbon emissions, while imposing tariffs on steel and aluminum from China and elsewhere, according to a copy viewed by The New York Times.
The document, a concept paper drafted by the Office of the United States Trade Representative, provides the first concrete look at a new type of trade arrangement that the Biden administration views as a cornerstone of its approach to trade policy.
The proposed group, known as the Global Arrangement on Sustainable Steel and Aluminum, would wield the power of American and European markets to try to bolster domestic industries in a way that also mitigated climate change. To do so, member countries would jointly impose a series of tariffs against metals produced in environmentally harmful ways.
The levies would be aimed at China and other countries that did not join the group. Countries that did join would enjoy more favorable trade terms among themselves, especially for steel and aluminum produced more cleanly.
To join the arrangement, countries would have to ensure that their steel and aluminum industries met certain emissions standards, according to the document. Governments would also have to commit to not overproduce steel and aluminum, which has pushed down global metal prices, and to limit activity by state-owned enterprises, which are often used to funnel subsidies to foreign metal makers. While the concept paper does not mention China, these requirements appear likely to bar it from becoming a member.
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The concept paper proposes a tiered system of tariffs that would rise with the level of carbon emitted in the production of a particular steel or aluminum good. Additional tariffs would be levied on any product coming from countries outside the consortium.
The tariff rate would start at 0 for the cleanest products from member countries. Beyond that, the paper does not specify rates, instead representing them as X, Y or Z.
The idea seems to be that, through the use of tariffs, there will be an incentive for countries to join the agreement, and an incentive for companies from the countries in the agreement to lower their carbon emissions.
If my understanding of all this is roughly correct, I think it's very unlikely that this approach will reduce carbon emissions in these sectors to any significant degree. Here's why.
First of all, it's important to keep in mind that even beyond the U.S. Section 232 tariffs on steel/aluminum imports, trade in these products is not particularly free. For countries both inside and outside the prospective GASSA, no matter how much they lower the emissions from making their steel/aluminum, those products can still be subject to very high AD/CV duties, as they often are now. This is a little out of date, but still informative: "As of April 19, 2017, [the U.S. Commerce Department] has 152 antidumping (AD) and countervailing duty (CVD) orders in place on steel from 32 countries." (The "breathing room" Ben and Tim mention seems like it already exists.) The AD/CVD regime operates under a particular set of rules that are well understood based on decades of experience, and it seems pretty clear that if foreign steel/aluminum companies have any success in exporting their low emissions products to the U.S., they will be at high risk of being hit with AD/CVDs. (Also safeguards, but I'm trying to simplify things a bit.)
As a result, there will be little incentive under the GASSA for foreign companies/governments to reduce carbon emissions in these sectors, as doing so would not have much impact on the ability of foreign producers to export to the U.S. Avoiding a 25% "green steel" tariff doesn't help much if a 100% anti-dumping tariff is still out there.
To be clear, it's not that a 25% tariff doesn't matter at all. As we've seen, when foreign producers are suddenly hit with tariffs at this level, they complain. But the suggestion here is that these tariffs will lead to a reduction in carbon emissions, and that's where I have doubts. Lowering carbon emissions is going to cost someone some money, and when considering whether that expense is worth it, companies will be thinking about what the payoff is in terms of increased sales. In this regard, the threat of anti-dumping tariffs on these exports is something that they will need to take into account. In addition, if the government offers subsidies to help the companies lower their carbon emissions (which seems to be a likely way that companies will be convinced to do this), there's a potential CVD waiting for them.
If people are thinking here about China (and they clearly are!), China's exports of steel to the U.S. are pretty limited because of existing AD/CVDs imposed on them. As a result, the GASSA doesn't provide much of an incentive for China to decarbonize. China knows more than any country that any low emissions steel/aluminum it tries to export to the U.S. would be hit with AD/CVDs. Anyway, as Ana Swanson notes, certain requirements "appear likely to bar [China] from becoming a member." But of course, if we want to reduce carbon emissions, getting China to act is crucial, so this seems like a major flaw in the plan. Perhaps the idea is that creating a club that excludes China will prompt China to act? If so, I have doubts.
I've made all these points before, but I haven't heard a response to them, so I'm not sure what to do except make them again. If Tim or Todd or Ben, or anyone else, has an explanation for how the GASSA tariff plan will have an impact on carbon emissions when AD/CVDs on steel/aluminum are out there, I'd love to hear it. How exactly do people expect the GASSA tariffs to play out in a way that would lead any steel/aluminum companies, in the U.S. or abroad, to lower their carbon emissions? I've been very skeptical about all of this, but walk me through it and try to convince me.
Finally, while I said at the outset that I would be "putting aside the WTO-consistency issue (and the broader issue of trade conflict and retaliation that will likely be a result of implementing this agreement)," let me just note that this is a serious issue. The trade conflict that GASSA tariffs create could be substantial. I think it is likely that many governments will retaliate rather than go along with this, in part because they see the U.S. as one of the biggest problem countries in terms of carbon emissions.