The Brazilian steel sector has agreed to the US government's offer to set quotas for steel shipments into that country, thus avoiding a 25% tariff resulting from the US Section 232 investigation.
Producers have agreed to limit their exports to 70% of the 2015-17 average for finished steel products and 100% of the three-year average for semi-finished steel products, although the final details about the measure have yet to be defined, according to the Brazilian steel association, Aço Brasil.
"We decided to accept the [United States'] offer," Aço Brasil executive president Marco Polo de Mello Lopes said on Wednesday May 2.
On Monday April 30, the US government announced that it reached agreements in principle with Argentina, Australia and Brazil with respect to steel and aluminium quotas, but it did not give further details.
The offer of a quota system had been anticipated last week. Under the agreement, Brazilian companies will be able to annually export to the US market 3.50 million tonnes of semi-finished steel goods and around 687,000 tonnes of finished steel.
The deal is retroactive to January 1, with the US government being responsible for applying and overseeing the quota volumes, according to the association. For finished steel products, quotas will be split into four groups: flat steel, long steel, tubes and special steel goods.
After the total annual quota is reached, additional volumes of each group cannot be sent to the US, according to the group.
Aço Brasil expects to fully conclude the deal with the US government within the next 10 days. And Brazilian steelmakers will try to define how quotas will be divided between them only after an agreement with the US government is finished, Lopes said.
"In a first moment, we would propose to split the quotas based on each company's performance during the referred period," he said.
But in the original proposal presented by the US, quotas did not comprise a breakdown by mill, so the association believes "a gentlemen's agreement" will be necessary to make the separation viable, according to Lopes.
"We have not started discussions with companies yet," he added.
‘Take it or leave it’
Negotiations between Brazil and the US about introducing a quotas system followed from US President Donald Trump's imposition of a 25% tariff on steel from several countries in early March, as a result of the Section 232 investigation into national security issues related to steel imports.
Brazil was among the countries temporarily exempted from the tariffs until Tuesday May 1, while those conversations were taking place.
But the talks stalled last week, and the US authorities gave Brazil the option of accepting the quota offer or being subject to a 25% tariff on all steel exports to the country, according to Aço Brasil.
"They said that the period for the exemption [of the 25% tariff] would not be extended, so it was a 'take it or leave it' situation," Lopes said.
The Brazilian foreign trade ministry, MDIC, said on Wednesday that the measure taken by the US was "unilateral," and that the group will not help implementing any restrictive measures to the country's exports.
"The Brazilian government regrets that the negotiations were interrupted, and it remains open to building reasonable solutions to both parties,” MDIC said. “[The ministry] is also convinced that restrictive measures are not necessary or justifiable by any means.”
Brazil will "take all actions to preserve its rights and interests," both in bilateral and multilateral instances, MDIC added.
The Brazilian steel institute believes there is a possibility of adjusting the quota volumes during the year, at least for semi-finished steel products.