US Reaches Steel Dispute Settlement with Japan Following EU... South Korea Has Yet to Start Negotiations

Japan Steel Tariffs on 1.25 Million Tons Abolished by 25%
Concerns Over Discrimination Against Korea Tied to Quota System Amid Rising US Steel Demand

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The United States announced on the 7th (local time) that it has resolved the steel tariff dispute with Japan, following the European Union (EU). While the Biden administration is steadily resolving the steel tariff disputes that arose during the Donald Trump administration, South Korea has yet to even begin related negotiations with the US. There are concerns that export conditions for domestic companies could worsen amid increasing US steel demand.

On this day, local media including Reuters reported that the US and Japan agreed to abolish the current 25% tariff on 1.25 million tons of Japanese steel products annually starting in April, and to apply a low-rate tariff (TRQ) of 25% on quantities exceeding that amount. The 10% tariff imposed on Japanese aluminum products was not included in this agreement. Japan is the fifth largest steel importer to the US.

◆Handshake with Japan Following the EU... Biden Administration Accelerates Negotiations= The US reached a compromise similar to the agreement with the EU in October last year by abolishing tariffs up to a certain quantity, but there are differences in the details. The EU decided not to include steel (about 1 million tons) that was exempt from tariffs even after the high tariff was applied in the quota. As a result, including the quota of 3.3 million tons, a total of 4.3 million tons of exports can be made without the 25% tariff, which is considered to have effectively restored a significant portion of the 5 million tons before the high tariff was imposed.

On the other hand, Japan agreed to include steel exports that were exempt from tariffs in the quota, making the related conditions less favorable compared to the EU. Japan’s quota of 1.25 million tons is based on the average level of Japanese steel imports by the US in 2018 and 2019, a period when the 25% high tariff was already applied and Japanese steel exports to the US had decreased.

Instead, Japan will separately negotiate with the US on the method of measuring the carbon intensity of steel products. Since many Japanese steel products use coal, which emits a large amount of carbon dioxide, as fuel, applying the EU method would worsen trade conditions, according to interpretations. Japan also agreed to implement appropriate domestic measures such as anti-dumping, countervailing duties, and safeguards within six months to create a market-friendly environment. The US and Japan also took measures to curb Chinese steel. To prevent Chinese steel from entering the US via Japan, the definition of Japanese steel was set as "melted and poured" steel produced in Japan. Additionally, the US is conducting related negotiations with the UK.

Previously, the Trump administration imposed high tariffs of 25% and 10% on steel and aluminum products from Japan, the EU, and China under Section 232 of the Trade Expansion Act in March 2018, citing "national security threats." The EU responded with retaliatory tariffs on US products such as bourbon whiskey and Levi’s jeans, sparking a trade dispute.

◆Korea Yet to Take Steps... Concerns Over US Favoring Domestic Companies= South Korea has shown little progress in related negotiations even after the Biden administration took office.

In 2018, following the Trump administration’s proposal, South Korea, along with Brazil and Argentina, adopted a quota system limiting exports to 70% of the average volume of finished steel products from 2015 to 2017. According to the Korea Iron & Steel Association, the average annual export volume of Korean steel to the US was 3.83 million tons from 2015 to 2017, but decreased by 29.8% to 2.69 million tons as of last year. This slightly exceeds the US export limit of 2.68 million tons under Section 232, but the association explained that since the data is based on shipment dates, actual exports did not exceed the quota. Steel pipes, which heavily depend on the US market, also exported 980,000 tons last year, below the 1 million ton limit.

Amid rising US steel demand, there are concerns that Korea will face discrimination tied to the quota system compared to the EU and Japan, which have gained advantages through negotiation settlements. Minister Moon Seungwook of the Ministry of Trade, Industry and Energy and Ye Han-gu, head of trade negotiations, have visited the US consecutively to urge the start of negotiations with Korea, but reportedly faced reluctance.

Given the perception that global steel supply is oversupplied due to Chinese products and Korea’s adoption of the quota system, it is evaluated that Korea may be deprioritized in discussions compared to the EU and Japan, which face high tariffs. Furthermore, with the midterm elections in November approaching, the Biden administration may delay Korea-US negotiations due to concerns over backlash from the traditionally supportive US steel industry.

This content was produced with the assistance of AI translation services.