The U.S. and the European Union clinched a tariff-busting trade accord over the weekend that they’ll try to leverage into a broader global arrangement that would penalize countries that don’t meet low-carbon targets for steel and aluminum exports.

President Joe Biden and European Commission President Ursula von der Leyen hailed the agreement on Sunday in Rome on the sidelines of a meeting of leaders from the Group of 20 countries.

“The United States and the European Union have reached a major breakthrough,” Biden said, adding that they’re “ushering in a new era of transatlantic cooperation.”

Von der Leyen said the deal would alleviate significant elements of the irritants to the U.S.-EU trade relationship and comes amid renewed “trust and communication” since Biden took office.

“It is yet another key initiative for our renewed forward-looking, transatlantic agenda with the United States,” she said.

The U.S. agreed to remove the duties it placed on EU steel and aluminum exports up to a certain threshold, with anything beyond that still subject to the additional tariffs. The EU will also suspend its retaliatory duties, effectively ending punitive measures on as much as $10 billion of each other’s goods.

The full suspension of the tariffs will last for two years, during which time the EU and U.S. will work toward a global accord that would permanently end the tariff regime. It would also address the broader issue of low-cost steel and aluminum flooding the market as well as the environmental cost associated with the industry.

“Europe is not a part of the problem as concerns global steel overcapacity,” Valdis Dombrovskis, the EU’s trade chief, told reporters on Sunday. “We will invite like-minded economies to participate in this arrangement and to work toward this shared goal of addressing global overcapacity and greening the steel and aluminum sectors.”

On Sunday, the US Department of Commerce said negotiations over the tariffs with Japan and the U.K. are still ongoing.

Global Standards

The new accord with the EU will seek to restrict access for countries that don’t meet global market standards and that fall short of requirements for low-carbon intensity of their products, Dombrovskis said. He added that any agreement would need to adhere to international obligations and multilateral rules.

The metals dispute started in 2018, when then-President Donald Trump imposed duties on steel and aluminum from Europe, Asia and elsewhere, citing risks to national security. The EU subsequently retaliated, targeting products including Harley-Davidson Inc. motorcycles, Levi Strauss & Co. jeans and bourbon whiskey.

The agreement reached over the weekend ends one of the largest transatlantic disputes and allows the traditional allies to focus their attention on China, which they accuse of flooding the market with cheap exports. Officially, the U.S. will remove its duty regime and introduce tariff-rate quotas while the EU will suspend its complaints at the World Trade Organization.

It also comes about four months after the EU and U.S. reached a truce in an aircraft dispute over illegal subsidies given to Airbus SE and Boeing Co. In that conflict, Brussels and Washington had imposed duties on about $11.5 billion of each other’s exports.

View to China

In the near term, the U.S. agreed to allow the EU to export 3.3 million metric tons of steel into the country without the additional tariffs, as well as a two-year exclusion for an additional 1.1 million metric tons, Dombrovskis said. About 18,000 metric tons of primary aluminum and 366,000 metric tons of semi-finished aluminum will be allowed in without the duties.

The volumes are broadly in line with historic flows, Dombrovskis said. The aluminum levels are based on 2018-2019 data and the steel ones on 2015-2017 figures.

The U.S. imported 2.5 million tons of steel from the EU last year and 3.9 million tons in 2019, down from 5 million tons each in 2018 and 2017.

“The agreement, ultimately, to negotiate a carbon-based arrangement on steel and aluminum trade addresses both Chinese over production and carbon intensity in the steel and aluminum sector,” National Security Adviser Jake Sullivan told reporters on Saturday.

The deal contains rules to prevent steel from China from being re-exported without the tariffs to the U.S. via the EU, U.S. officials said. The U.S. and EU also agreed to negotiate a carbon-based arrangement on steel and aluminum trade and create greater incentives for reducing carbon intensity in production of the metals, they said.