Transatlantic Trade | US and Europe: April 4-15, 2022
The United States (US) Congress moved to isolate further Russia and Belarus these past two week, as the US Government also increased bilateral pressure with the imposition of additional sanctions and restrictions. The United Kingdom (UK) Government also moved in concert these past two weeks with the US and European Union (EU) in ratcheting up pressure on Russia. The EU approved a fifth package of restrictions against Russia and Belarus, while debate continues over whether to next possibly target Russia’s oil and gas exports to the bloc, and EU Member States grapple with Russia’s demand that payment for current exports of Russian oil and gas be in rubles.
The US and EU also continue to prepare for next month’s US-EU Trade and Technology Council ministerial. Separately, American lawmakers are moving forward with conferencing over respective differences in legislation that could provide financing to the US semiconductor sector, among other US competition and innovation priorities. The EU is moving forward with a legislative proposal that aims seeks to expand the bloc’s geographical indications scheme.
The UK Government released a new strategy focused on domestic energy security, which includes a focus on nuclear energy. The British Prime Minister also visited Kyiv, continuing to demonstrate solidarity with Ukraine. Meanwhile, the US and UK remain focused on the Western Balkans and furthering the trilateral relationship with Australia.
In this issue, we cover:
Ukraine and Russia, and transatlantic responses;
Other notable US, UK, and EU developments; and
A brief UK-EU trade deal update.
Ukraine-Russia | Western Allies Continued Collaboration
The Group of 7 (G7) Foreign Ministers and the High Representative of the European Union issued a joint statement on Russia and Ukraine following a meeting at NATO headquarters in Brussels on 7 April. The White House posted a fact sheet related to the US, G7 and EU imposing “severe and immediate costs” on Russia. Meanwhile, to help address rising gasoline prices around the world, the International Energy Agency announced a historic collective release that same day with member countries, outside of the United States, releasing an additional 60 million barrels.
On 7 April, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Alrosa, a Russian state-owned enterprise (SOE) and the world’s largest diamond mining company, which is responsible for 90 percent of Russia’s diamond mining capacity. The US Department of State also re-designated Joint Stock Company United Shipbuilding Corporation (USC), as well as its subsidiaries and board members. USC is a Russian SOE that develops and constructs the majority of the Russian military’s warships. The day before, US President Joe Biden signed a new Executive Order that prohibits new US investments in and certain services to Russia.
Also on 7 April, the US Senate voted unanimously to cut off permanent normal trade relations (PNTR) with Russia and Belarus. Combined with a similar bipartisan vote in the US House of Representatives, US Trade Representative Katherine Tai said the next day in a statement,
[T]he action shows [US] determination to isolate Russia from the global economy and multilateral institutions.”
President Biden signed the PNTR removal bill into law on 8 April, along with another bill codifying his March Executive Order ban on Russian oil imports. With the enactment of the PNTR revocation bill, the Biden Administration may now place higher tariffs on Russian and Belarusian imports.
On 9 April, the US Department of Commerce, through the Bureau of Industry and Security (BIS), issued a final rule that expands its restrictive controls on the export and re-export of US-origin and certain foreign-produced commodities, software, and technologies to Russia and Belarus. US Secretary of Commerce Gina Raimondo said of the action,
Today’s action by BIS, in cooperation with our international allies and partners, shows that we will continue to apply pressure on Russia’s and Belarus’s strategic sectors to degrade their military capabilities.”
The day before, BIS issued a rule that formally added Iceland, Liechtenstein, Norway, and Switzerland to the growing global coalition of nations cooperating against Russia and Belarus, through the implementation of similarly stringent export controls.
On 13 April, Assistant Secretary of Commerce for Export Administration Thea Kendler said during a webinar hosted by the German Marshall Fund:
I think we are understanding that the Wassenaar Arrangement doesn’t have a function for removing a member – and we have never been in this situation before where we have had a regime member, I don’t think, invade another regime member.”
The United States, Ukraine, Russia and 26 of the European Union’s 27 member states are members of the Wassenaar Arrangement export control regime. Assistant Secretary Kendler added,
I don’t think we are at a point where we want to talk about replacing a regime, but I certainly think that we are in the beginning stages of thinking about what comes next and how we can adjust our export controls to match the current environment of the world.”
The US and allies have imposed export controls that include foreign direct product rules that apply to all of Russia and Belarus, which Kendler said was the first time that Commerce’s BIS has imposed such controls on entire countries.
Meanwhile, the US continues to support Ukraine. On 13 April, the US Government approved another $800 million in military aid, raising the total committed to Ukraine to $3.2 billion, since President Biden took office. This comes after President Biden on 6 April authorized a drawdown of $100 million in security assistance for Ukraine. The US is also indirectly supporting Ukraine via working with European allies that can provide military equipment to the country. For example, the US agreed to reposition its Patriot missile system to Slovakia after that government agreed to supply an S-300 air defense system to Ukraine.
On 14 April, BIS publicly identified 10 additional aircraft in likely violation of US export controls, including the first seven Belarusian owned/operated commercial aircraft identified since restrictions on Belarus were tightened via regulation effective on 8 April 2022. BIS also updated the tail numbers of 32 planes already on the list to account for the planes’ purported re-registration in Russia; it authorized two planes to leave Russia, noting they would be removed from the list. This action followed BIS’ orders on 7 April denying the export privileges of three Russian Airlines – Aeroflot, Azur Air, and UTair – citing ongoing export violations related to US export controls imposed against Russia.
The UK Government announced on 6 April a full asset freeze on Sberbank and Credit Bank of Moscow, along with an end to all new UK outward investment into Russia. The British Government also affirmed its intent to end all imports of Russian coal and oil by end of 2022 and announced further actions against eight oligarchs and key strategic industries, such as a ban on imports of iron and steel products. Effective this week, key oil refining equipment and catalysts were banned. The UK also has new restrictions on Russia intended to prevent it from acquiring UK quantum and advanced material technologies.
On 8 April, the British Government imposed sanctions that target the daughters of Russian President Vladimir Putin and Foreign Minister Sergei Lavrov. Katerina Vladimirovna Tikhonova and Maria Vladimirovna Vorontsova, the daughters of President Putin, and Yekaterina Sergeyevna Vinokurova, the daughter of Minister Lavrov, were subject to travel bans and asset freezes.
UK Prime Minister Boris Johnson travelled to Kyiv on 9 April, meeting with Ukraine President Volodymyr Zelensky and demonstrating the UK’s “steadfast solidarity” with Ukrainians. He announced new military assistance of 120 armoured vehicles and new anti-ship missile systems; and also further economic support, guaranteeing an additional $500m [£385m] in World Bank lending to Ukraine, taking the UK’s total loan guarantee to up to $1 billion.
UK Prime Minister Johnson spoke with US President Biden on 12 April. A 10 Downing Street summary noted the Prime Minister shared a readout of his trip to Kyiv and discussed respective assistance to Ukraine. It also noted the leaders affirmed efforts to “ratchet up the economic pressure on Putin and decisively end Western reliance on Russian oil and gas.”
British Prime Minister Johnson met with Polish President Andrzej Duda at Downing Street on 7 April. He announced the UK would be tripling its humanitarian support to Poland, providing £30 million to help those fleeing Ukraine. The two leaders released a joint statement, available here.
On 13 April, UK Foreign Secretary Liz Truss announced 178 new designations, coordinated with the EU, targeting those who allegedly “prop up Russian-backed illegal breakaway regions of Ukraine.” In total, the UK sanctioned 206 individuals, including the 178 so-called separatists, six oligarchs and close associates and employees, and an additional 22 individuals. In Britain, secondary legislation was also laid on 14 April that would ban the import of steel and iron products as well as the export of quantum technologies, advanced materials and luxury goods.
After an intense week of negotiations, the Council of the EU endorsed the fifth package of EU sanctions against Russia on 8 April, which includes the following actions:
Prohibition to purchase, import or transfer coal and other fossil fuels into the EU that originate in or are exported from Russia (from 8 August 2022 onwards);
Prohibition on Russian-registered vessels to access EU ports, except if carrying agricultural and food products, humanitarian aid, and energy such as gas and oil;
Ban on Russian and Belarusian plated transport entities from transporting goods by road within the EU, including in transit to a third country, with certain derogations (e.g. pharmaceutical products);
Imposition of additional export bans targeting jet fuel and other goods, such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery and transportation equipment;
Imposition of new import bans on certain products, such as wood, cement, fertilisers, seafood and liquor;
Prohibition for Russian companies to participate in any EU public procurement processes; and Russian public bodies are excluded of all EU financial support;
The extension of the prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities in Euro or any Member State currencies to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus;
Additional listings on key oligarchs, businesspeople, high-ranking Kremlin officials, proponents of disinformation and information manipulation, as well as family members of already sanctioned individuals; and
A full transaction ban on four key Russian banks, including an asset freeze in the EU, following their de-listing from the SWIFT system.
As a result of the recently imposed EU sanctions, reports indicated hundreds of Russian and Belarusian trucks were stopped at the EU’s border. Meanwhile, the option of new EU sanctions that target the oil and gas sectors remains an ongoing debate at the EU level. European Council President Charles Michel stressed before the European Parliament plenary last week, that such sanctions in these sectors will be needed, sooner or later, to maximize pressure on the Kremlin. French Minister of Economy and Finance Bruno Le Maire stressed in an interview that agreeing to such a measure will require time, in order to reach an EU-wide consensus. Such sanctions would – if agreed – impact the EU’s economy significantly, according to an analysis shared by European Central Bank President Christine Lagarde.
The European Commission remains cautious over the impact of President Vladimir Putin’s decision on 31 March to establish a process where foreign buyers of Russian gas in the so-called “unfriendly countries” category – which covers all EU Member States – will be required to make their payments in rubles. Under this scheme, buyers would pay in the currency agreed in the contract but then the amount will be converted into rubles before the payment is finalized. The European Commission warned Member States that they face a dilemma of either instructing companies in their territory that buy Russian gas to refuse to these terms and limit their gas supply, or risk going against the sanctions already imposed on Russia. An Extraordinary EU Summit will be convened on 30-31 May, where EU Leaders expect to focus on the blocs’ defence and energy dependency, as well as the options for joint gas purchases.
On 8 April, the European Commission’s (EC) ‘Freeze and Seize Task Force’ met with US and Ukrainian representatives to discuss international cooperation on the enforcement of sanctions. Notably, the European Commission published a Guidance earlier last week to assist Member States in assessing and preventing threats to EU security and public order from Russian and Belarusian investments. The Guidance underlines the need for close cooperation between authorities involved in investment screenings and the authorities responsible for the enforcement of sanctions.
European Commission President Ursula von der Leyen and High Representative Josep Borrell visited Kyiv on 8 April and met with Ukraine President Zelenskyy. The Statement issued by President von der Leyen reiterates continued European support to Ukraine, and it stressed that a new wave of sanctions is being prepared, following the firth package adopted this week. Von der Leyen noted:
Exports in goods to Russia have fallen almost 71%. Inflation is around 20% – and rising. Businesses confidence in Russia is at its lowest level since 1995. And the best and brightest minds are leaving the country, together with more than 700 private companies. On top of this, Member States have already frozen EUR 225 billion of private Russian assets in the EU since the beginning of the war. Russia will decent in economic, financial and technological decay.”
European Parliament President Roberta Metsola informed the plenary last week of her visit to Kyiv, reiterating the need to strengthen EU sanctions against Russia, increase humanitarian support to Ukraine, and reduce the EU’s dependency on Russian energy supplies. The European Parliament endorsed a resolution last week that calls for a full embargo of Russian imports of oil, coal, nuclear fuel and gas.
Meanwhile, telecom operators based in the EU and in Ukraine signed a joint statement on coordinated efforts to secure and stabilise affordable or free roaming and international calls between the EU and Ukraine. Also, the “Stand Up for Ukraine” global pledging event and campaign raised 9.1 billion euros, which includes €1 billion from the European Commission.
While European officials have visited Ukraine, US officials have not. On 14 April, the media asked President Biden if senior US officials would soon visit the country, to which he responded decisions were being made. When asked if he was ready to travel Ukraine, he responded affirmatively.
On 4 April, Deputy Secretary of the Treasury Wally Adeyemo traveled to Berlin, Germany, where he concluded his European trip focused on coordinating economic pressure on Russia. A readout of his meeting is available here; it reflected Deputy Secretary Adeyemo also focused on global economic growth, climate action, and enhancing global economic cooperation through efforts like the global minimum tax deal agreed by the Group of 20 (G20) last fall.
On 5 April, OFAC sanctioned the world’s largest darknet market, Hydra Market (Hydra), in a coordinated international effort to disrupt the proliferation of malicious cybercrime services, dangerous drugs, and other illegal offerings available through the Russia-based site. The action included cooperation with the German Federal Criminal Police, which shut down Hydra servers in Germany and seized $25 million worth of bitcoin. On 11 April, OFAC designated seven individuals and one entity across four countries in the Western Balkans. Treasury stated the action seeks to ensure accountability for actors in the Western Balkans region that engage “in destabilizing and corrupt behavior.”
US Secretary of the Treasury Janet Yellen testified before the House Financial Services Committee on 5 April. In her prepared testimony, the Secretary focused on International Financial Institutions (IFIs) and the role “of promoting inclusive and sustainable growth, global monetary and financial stability, and development.” In the context of the Ukraine-Russia conflict, Secretary Yellen acknowledged,
[S]pillovers from the crisis are heightening economic vulnerabilities in many countries that are already facing higher debt burdens and limited policy options as they recover from COVID-19.”
This includes food security concerns, especially since Russia and Ukraine account for nearly a third of the world’s wheat exports.
Also on 5 April, the Republican leaders of the House Ways & Means and Senate Finance Committees noted the EU’s failure to agree to implement an Organization for Economic Cooperation and Development (OECD) deal on a global minimum tax, saying the Biden Administration negotiated “a bad deal” – one that is also tied to an agreement to lift digital services taxes. Earlier that day, Poland blocked the approval of a 15 percent global minimum tax during a meeting of EU Finance Ministers.
On 8 April, Ambassador Tai and Deputy US Trade Representative Jayme White met with Spanish Minister of Industry, Commerce and Tourism María Reyes Maroto. A US Trade Representative Office summary noted opportunities for collaboration on shared priorities ahead of the World Trade Organization’s 12th Ministerial Conference (MC12) in June.
On 12 April, Ambassador Tai and Deputy US Trade Representative White welcomed Germany’s State Secretary for International and EU Affairs and G7/G20 Sherpa Jörg Kukies to Washington. Apart from cooperation on concerns, such as Russia and non-market economy practices around the world, a US summary reflected a focus on “mutual interest in policies that incentivize sustainability and protect the environment for future generations.”
On 12 April, US Deputy Secretary of Commerce Don Graves met with German State Secretary for Economic, Finance and European Affairs Jörg Kukies. A US Commerce Department summary reflected they discussed the US-EU Trade and Technology Council (TTC) and the Department’s desire to collaborate with Germany on TTC work streams focusing on semiconductors and artificial intelligence (AI). They also focused on clean technology and securing supply chains, among other topics.
On 8 April, BIS published a Federal Register notice that called for public comments on supply chain resilience in several key sectors to inform the work of the US-EU TTC’s secure supply chain working group. Interested parties have until 23 May to submit comments on how to advance supply chain resilience and security in semiconductors; solar photovoltaics; critical minerals and materials, including rare earth magnets, lithium-ion batteries, and material inputs to semiconductors; and pharmaceuticals.
With respect to semiconductor chips shortages, US Secretary Raimondo welcomed Senate and House action on 7 April to appoint Senate and House conferees to the Bipartisan Innovation Act Conference Committee. This is the next step in reconciling difference between the two chambers’ respective innovation bills – the Senate’s United States Innovation and Competition Act (USICA) and House’s America COMPETES Act.
On 14 April, the US Commerce Department announced the appointment of 27 experts to the National Artificial Intelligence Advisory Committee (NAIAC). NAIAC will provide recommendations on topics including the current state of American AI competitiveness, the state of science around AI, and AI workforce issues.
US Secretary of Labor Marty Walsh and Austrian Minister of Economic Affairs Dr. Margarete Schramböck signed a memorandum of understanding (MOU) on 13 April that will expand apprenticeship and other high-quality work-based learning programs among Austrian companies and Austrian-invested companies in the United States to promote job creation in both countries. US Secretary of Education Miguel Cardona and Commerce Secretary Raimondo also signed a MOU between the US Departments of Labor, Education and Commerce and Austria’s Federal Ministries for Digital and Economic Affairs, Labor, Education, Science and Research. Secretary Raimondo met separately with Dr. Schrambock on 12 April; a US summary of the meeting is available here.
On 5 April, the leaders of the Australia-UK-US (AUKUS) partnership – Australian Prime Minister Scott Morrison, Prime Minister Johnson, and President Biden – issued a joint statement that assessed progress under AUKUS. They also agreed to commence a new trilateral cooperation on hypersonics and counter-hypersonics, and electronic warfare capabilities, as well as to expand information sharing and to deepen cooperation on defence innovation. Notably, with respect to this new initiative, the three partners will “seek opportunities to engage allies and close partners” as progress is made “on these and other critical defence and security capabilities.” A fact sheet on implementation of AUKUS is available here.
British International Trade Secretary Anne-Marie Trevelyan gave the keynote speech at the Nor-Shipping Conference in Oslo on 4 April. With a focus on energy security and climate change, Secretary Trevelyan noted the “UK already holds a global market share of around 5% in green shipbuilding, as well as being a world leader in subsea technology.” She said the UK is investing over £200 million to launch the Shipping Office for Reducing Emissions to fund more innovative green research.
UK Prime Minister Johnson met with Ghanaian President Nana Akufo-Addo on 5 April. A 10 Downing Street readout noted the two leaders recognised the growing security threats in West Africa and committed to strengthen the bilateral defence and security partnership, including in intelligence sharing and naval capabilities.
On 7 April, the UK Government released a new strategy that sets forth how Great Britain will accelerate homegrown power for greater energy independence. Among other things, it would accelerate a focus on nuclear, with an ambition of up to 24GW by 2050 to come from this source of power and provide for 25 percent of the UK’s projected electricity demand. A new government body, Great British Nuclear, will be set up to bring forward new projects; the Government will launch the £120 million Future Nuclear Enabling Fund.
British Prime Minister Johnson met with German Chancellor Olaf Scholz at Downing Street on 8 April. A UK summary reflected the two leader discussed the “need to maximise the potential of renewable energy in the North Sea and collaborate on climate ambitions and green energy,” especially amid the ongoing Ukraine-Russia conflict. The Prime Minister also “reaffirmed the need to make significant changes to the Northern Ireland Protocol in order to safeguard peace and stability in Northern Ireland and protect the Belfast (Good Friday) Agreement in all its dimensions.”
The UK Government announced its first sanctions under the Bosnia and Herzegovina sanctions regime on 11 April. Sanctions were imposed against Milorad Dodik, a Bosnian-Serb member of Bosnia and Herzegovina’s state-level Presidency, and Zeljka Cvijanovic, President of the entity of Republika Srpska, for their alleged destabilising activity in Bosnia and Herzegovina.
On 12 April, Prime Minister Johnson acknowledged receipt of a fixed penalty notice from the Metropolitan Police relating to an event in Downing Street on 19 June 2020 during the COVID-19 pandemic restrictions. He affirmed immediate payment of the fine, while also again offering an apology for the transgression.
On 14 April, Prime Minister Johnson gave a speech on the Government’s plans to tackle illegal migration, while providing sanctuary to those in need. He stated,
It is controlled immigration, through safe and legal routes, which enables us to make generous offers of sanctuary while managing the inevitable pressures on our public services such that we can give all those who come here the support they need to rebuild their lives, to integrate and to thrive.”
The next Ministerial meeting of the EU-US Trade and Technology Council (TTC) is set to be held on 15-16 May in Saclay, just outside of Paris, France. European Commission Executive Vice President Margarethe Vestager said on 8 April of the next TTC that she is seeking to increase its focus on misinformation and supply chain resilience – or “friend-shoring” – in light of the Ukraine-Russia conflict.
Executive Vice-President Frans Timmermans and US Special Presidential Envoy for Climate John Kerry issued a joint statement following the 6th US High-Level Climate Action Group on 6 April. They reiterated the conflict in Ukraine “strengthened the imperative of staying on track and accelerating the clean energy transition.” The statement also noted EU actions to limit the Russian gas dependency before the end of the year, to diversify the bloc’s gas imports, and with US cooperation “to establish long term energy partnerships with a view to up-scaled hydrogen production and trade, accelerated transition to renewables, and clean energy infrastructure.” Furthermore, the joint statement noted cooperation to advance the implementation of the Global Methane Pledge, as well as affirmed a commitment to Just Energy Transition Partnerships.
On 8 April, the European Commission hosted the first meeting of the EU Platform for the common purchase of gas, LNG and hydrogen, with representatives from the 27 EU Member States. The platform was established to secure EU’s energy supply and to phase out dependency on Russian gas; it seeks to streamline cooperation among Member States on pooling demands, efficient use of EU gas infrastructure, and international outreach. Notably, German Energy Regulator reportedly decided to sustain Gazprom Germania operations.
On 13 April, the European Commission published a legislative proposal that aims to expand the EU’s geographical indications (GIs) scheme for craft and industrial products. GIs indicate that a product has a specific geographical origin and possesses a certain reputation or qualities due to that place of origin. While the EU has specific GIs protection scheme for products such as agricultural, foodstuff, wines and spirit drinks, there is no similar mechanism to protect craft and industrial products. The proposed Regulation, which will now go through the EU legislative process, would apply to products such as natural stones, jewellery, textiles, lace, cutlery, glass and porcelain. The process to obtain a GI for such products is expected to be two-staged: (1) producers would first submit an application at their national authority, before (2) the application can be sent to the EU Intellectual Property Office.
On the Foreign Subsidies proposal, the French Presidency invited Member States to submit input on a number of issues, which will be the basis for a new compromise proposal the Presidency is preparing with the goal of reaching a General Approach by May. The European Parliament’s International Trade Committee appears to have reached an agreement on compromise amendments among various political parties and is due to vote on the draft report later in April (25th), with a plenary vote likely in May. After the two co-legislators agree on their respective positions, inter-institutional negotiations can commence, with the goal of agreeing to the final provisions of the future trade defensive tool.
On 3 April, Hungarian Prime Minister Viktor Orbán was re-elected for the fourth consecutive term, with the political party Fidesz securing an absolute majority in Parliament. The first round of the French Presidential elections was held on 10 April, with Emmanuel Macron securing 27.6 percent of the votes, followed by far-right candidate Marine Le Pen obtaining 23.4 percent of the votes, with both qualifying for the second round, scheduled for 24 April.
UK-EU Trade Deal Update
The European Parliament endorsed the EU proposal that seeks to ensure a continuous flow of certain medicinal products in Northern Ireland. The Council proceeded with the formal approval on 12 April, marking the final approval process before the publication of the proposed rules in the Official Journal of the EU, which is imminent. The rules would enable the continuation of supply of medicines to Northern Ireland, and to Cyprus, Ireland and Malta, with a retroactive application from 1 January 2022. The European Commission welcomed the formal endorsement process.