Steel quotas: EU loses shine as reliable FTA partner
This op-ed was first published on Borderlex on 25/05/2026, accessible here.
On 1 July, the European Union will enact a new, permanent trade protection regime for its steel sector. As it renegotiates its international commitments, the risk of undermining FTA commitments and coercive attempts by Brussels to induce its trading partners to accept lower market access could run afoul of the EU’s free trade pacts. The bloc must ensure it plays according to the global rulebook it helped create.
The European Commission is getting serious about protecting and revitalising the competitiveness of its flailing steel sector.
On 19 May, the European Parliament approved a permanent tariff rate quota covering around 30 steel products, with member state approval expected in the coming weeks.
This measure further limits EU market access for covered steel products, compared to the existing steel safeguard regime it will replace. It will cap duty-free imports at 18.3 million metric tonnes a year, a 47% reduction compared to the existing safeguard regime, while doubling the out-of-quota tariff to 50%. It also comes on top of the Carbon Border Adjustment Mechanism, which taxes embedded emissions, including for steel products – adding to existing market access challenges.
Addressing steel overcapacity
The quota is contentious as it applies to all trading partners outside the European Economic Area, including those with whom the EU has signed a free trade agreement.
The commission says that excluding FTA partners would have rendered the measure ineffective, because they account for two-thirds of total imports. The EU also argues that some trade agreement partners contribute to overcapacity.
China is the only one of the top five steel exporting countries to the EU – the others being India, South Korea, Türkiye and the United Kingdom – without a preferential trade arrangement in place or in the making.
The commission also reproaches Egypt, Algeria, Vietnam, Indonesia and Malaysia – which either have an EU FTA or are negotiating one – for flooding the EU market with their exports, partly in response to increased import pressure from China.
From an overcapacity angle, applying the TRQ to FTA partners appears sensible. However, it comes at a cost: it constitutes a legal breach of the EU’s FTAs, risks diplomatic disputes and undermines the EU’s credibility as a trade partner, thereby alienating its partners.
Legal gymnastics – tariffs, rules of origin and bilateral safeguards
The TRQ applied to countries with FTAs would violate the zero-duty treatment for steel products in EU trade agreements.
The requirement to provide information about where the steel was melted and poured – introduced to avoid circumvention – also clashes with the existing rules of origin in EU FTAs, which focus on changes in tariff classification and value addition.
While the melt-and-pour principle is currently limited to a traceability requirement, challenges will arise if and when it becomes the formal basis for determining steel origin.
Legally, it is difficult to align the application of the TRQ to FTA partners with commitments in EU FTAs.
While the EU can modify its WTO tariff bindings under GATT Article XXVIII – with compensation for partners – doing so doesn’t justify departing from duty-elimination commitments under its FTAs.
This is different from the existing steel safeguard, which was implemented by activating the WTO safeguard provisions and therefore provides legal cover for the EU’s actions across the board.
However, under the WTO, safeguard measures have an 8-year time limit, and the EU’s existing steel safeguard measure is set to expire in June 2026 – thus triggering the introduction of the permanent TRQ.
To address the legal tension between FTAs and the new measure, the commission intends to apply the new TRQ to FTA trading partners by triggering bilateral safeguard provisions, presumably those in existing FTAs.
This is akin to fitting a square peg in a round hole.
While safeguard provisions in EU FTAs tend to be heavily customised, they typically require complying with various procedural steps, such as initiating an investigation, making a preliminary determination and producing final findings.
It also requires evidence of a sudden, unforeseen surge in imports that causes serious injury to the domestic industry vis-à-vis the country in question.
The EU may not be able to show this for all its FTA partners. Moreover, bilateral safeguard provisions have built-in temporal limitations – they typically apply for an initial 2-year period, with the possibility of an additional 2-year extension.
This means that, at best, the bilateral safeguard route would be a partial and temporary fix to the EU’s legal conundrum.
Preferential quotas on a ‘take-it-or-leave-it’ basis
The commission is reportedly also using preferential quota negotiations as a legal fix.
There are three levels of quotas that are available to EU trading partners. First, all WTO members receive a very limited base quota. Second, countries with an FTA are offered additional quota portions, provided they supply more than 5% of the EU’s steel in a given category.
Third, the remaining quotas will be distributed among FTA trading partners.
However – and here is the catch – the second and third quota levels are reportedly contingent upon a trading partner disregarding its steel commitments under its FTA by signing an overriding international agreement.
This leaves little room for FTA partners to negotiate.
Especially for key EU steel exporters with FTAs, this creates a serious dilemma. Securing additional quotas will be critical to minimise the impact of the TRQ on their industry.
However, giving the EU legal cover in exchange for getting a somewhat bigger slice of the pie will tie their hands from engaging in retaliatory action, including by triggering the FTA’s dispute settlement provisions.
Diplomatic disputes
Already, quota negotiations are resulting in diplomatic disputes. Ukraine, the United Kingdom and Switzerland have all expressed strong concern about the measure.
Compared to countries with existing FTAs, those in the process of negotiating EU FTAs, such as the Philippines and Malaysia, arguably have a bigger bargaining chip.
The TRQ changes the balance of concessions and can thus be used to extract additional concessions from the EU in other chapters.
Trading partners may also seek to include stringent safeguard provisions in the FTA.
For FTA negotiations that have concluded, but are pending ratification or implementation, the TRQ issue could cause delays.
For instance, the implementation of the UK-India FTA was delayed in view of a similar steel TRQ adopted by the UK that will also take effect on 1 July.
This situation stands in contrast to the EU-India FTA negotiations, concluded in January this year, which appear to have factored in the EU’s upcoming TRQ.
New Delhi reportedly secured a larger steel quota on the sidelines of the FTA negotiation, even if it covers only half of India’s current EU exports.
Slippery slope for the EU
Implementing existing trade agreements and successfully concluding new ones will require trading partners to continue to regard the EU as a trusted partner.
The EU’s decision to apply the steel TRQ to trade agreement partners undermines this very trust.
Moreover, the bloc’s approach of coercing FTA partners into relinquishing their retaliatory rights in exchange for higher quotas shows that it is willing to take a page from the Trumpian playbook – further tainting the EU’s image as a fair and reliable partner.
The TRQ is not the first steel-related measure that has proven contentious with FTA partners.
It comes on the heels of the heavily criticised Carbon Border Adjustment Mechanism and the commission’s proposed Industrial Accelerator Act.
As FTAs are increasingly affected by interventionist measures, it is critical to develop more effective mechanisms to anticipate, proactively manage and address their implications on FTA partners to avoid diluting the parties’ commitments.
While the EU is within its rights to protect its steel sector from global overcapacity, it must do so in line with the legal trade architecture which it helped to build.
Failure to do so risks not only alienating its trading partners but also further unravelling the rules-based order, which is already under serious threat.
