Worries have surfaced that South Korea’s steel industry, which relies heavily on blast furnaces, could face significant challenges amid speculation that the United States and the European Union (EU) are discreetly working on standards for an “Eco-friendly Steel Club” that may be advantageous to their interests.
According to industry sources on Oct. 15, ongoing discussions between the U.S. and the EU about the Global Agreement on Sustainable Steel and Aluminium (GASSA) are anticipated to include restrictive regulations on overproduction and carbon tariffs that could disadvantage South Korea. This has prompted Korean industries to evaluate potential countermeasures under trade law.
While South Korea is considering participating in the Eco-friendly Steel Club (Metal Club), separate concerns arise from the GASSA’s Border Carbon Adjustment (BCA) standards. It is predicted that these standards will base tariffs on the steel industries of the U.S. and EU, which have a higher proportion of low-emission electric furnaces. Currently, South Korean steel is not subject to the tariffs introduced by the Trump administration under Section 232.
In October 2021, the Biden administration agreed to exempt EU metal imports from the 25% tariff under Section 232. Instead, the U.S. and the EU decided to establish a joint tariff zone for steel and aluminum imported from non-market economies, like China. However, due to discrepancies in their approaches, the implementation was postponed from the end of that month to Jan. 1 of the following year.
The challenge lies in the secretive nature of the ongoing discussions, making it uncertain whether South Korean steel will meet the criteria for alliance membership. Even if South Korea were to be included, the carbon tariff standards could still be unfavorable.
In relation to this, POLITICO, a U.S. political daily, reported on Oct. 11 (local time) that a preliminary 13-page agreement written on the 3rd had settled on a protective tariff mechanism of 25% for steel and 10% for aluminum for imports from countries with non-market excessive supplies. The report highlighted the EU’s intent to align more closely with Washington against China.
While POLITICO claims to have access to a preliminary agreement, major international media outlets expect the GASSA agreement to be announced during the U.S.-EU summit in Washington on Oct. 20.
Professor Lee Sang-jun of Seoul National University of Science and Technology commented, “The U.S. is advocating for a non-differential approach to emissions, merging electric and blast furnace production.” He pointed out, “This approach will inevitably impact steel companies worldwide, excluding the U.S. and EU.” In the U.S., 68% of steel production is from low-emission electric furnaces, while blast furnaces account for 32%. Conversely, in South Korea, the ratio stands at around 68 to 32 in favor of blast furnaces. This suggests that if the U.S. prioritizes protecting its electric furnace steel industry, it might implement policies that discriminate against third countries that rely on the 72% global average blast furnace production method. Such actions could prompt pushback from countries like China.
Furthermore, while the U.S. and EU aim to enhance their steel industries’ competitiveness, third countries’ transatlantic exports are likely to deteriorate. According to a report titled “Opportunities of the U.S.-EU Steel Trade Agreement” commissioned by the Climate Leadership Council (CLC) to CRU Group, introducing the BCA could reduce total steel imports by 25-30% in the U.S. and 50-55% in Europe. This would result in an increase of 35-45% in added value for the U.S. steel industry and potentially more than double for European industries.
A steel industry representative noted, “Due to not only tariffs but also overproduction regulations, the South Korean steel industry, which relies more on exports than domestic consumption, will inevitably face constraints.” They emphasized the secretive nature of the discussions, adding, “We should wait and see. Regardless of the agreement’s content, there are concerns about potential issues under trade law.” The Korea Iron and Steel Association, among other related organizations, has repeatedly inquired about South Korea’s membership qualifications, only to be told that such matters are under bilateral discussions and cannot be disclosed.