Transatlantic Trade | US and Europe – July 11-29, 2022
Note: Our next report will circulate in September, after the summer break.
Amid the global food crisis, the Russian Federation (Russia) and Ukraine reached an agreement that was signed in Turkey to allow Ukraine’s grains to ship to global markets; Ukraine awaits sign from the United Nations (UN) that ship passage is guaranteed for the shipments. Just ahead of the agreement, the European Union (EU) approved another sanctions package against Russia. The United States (US) Government expanded agricultural (e.g., fertilizer, etc.) and medical authorizations in a Russia-related General license; released a related fact sheet.
Meanwhile, the US Congress, after months of delays, finally approved a bill at the end of July that provides funding to boost domestic production of semiconductor chips and invest in science and technology innovation. The United Kingdom (UK) inked its second state-level trade arrangement with a US state; the European Parliament voted on the Foreign Subsidies compromise proposal. In addition, the EU launched a new infringement proceeding against the UK in regards to Northern Ireland.
In this issue, we cover:
Ukraine and Russia, and transatlantic responses;
Other notable US, UK, and EU developments;
A brief UK-EU trade deal update; and
Some WTO updates.
Ukraine-Russia | Western Allies Continued Collaboration
On 14 July, the US Department of Treasury released a fact sheet that clarifies agricultural commodities (including fertilizer), agricultural equipment, or medicine relating to Russia are not the target of US sanctions. Treasury also took action to expand broadly the agricultural and medical authorizations in Russia-related General License (GL) 6B, including now covering transactions related to agricultural equipment.
The UK Foreign, Commonwealth & Development Office (FCDO) summoned Russian Ambassador Andrey Kelin to express the UK Government’s deep concern at reports of the death of British national Paul Urey in captivity in the non-government controlled areas of Ukraine on 15 July. Separately, on 19 July, the UK Government released guidance on imports from Russia and Belarus requiring additional duties and terms of exemption.
On 21 July, the Council of the EU endorsed the next iteration of EU sanctions against Russia. The new package of sanctions includes prohibitions for purchasing, importing or transferring, either directly or indirectly, gold (including jewelry); it also reinforces dual use and advanced technology export controls. The package lists additional individuals and entities, while it strengthens the reporting requirements for EU asset freezes – including by introducing a prior authorization scheme for deposits in the EU. Similarly, the new package extends the “exemption from the prohibition to engage in transactions with certain state-owned entities as regards transactions for agricultural products and the transport of oil to third countries.” The press release related to the adoption of the sanctions further clarified: “None of the measures adopted today or earlier in view of Russia’s actions destabilising the situation in Ukraine target in any way the trade in agricultural and food products, including wheat and fertilisers, between third countries and Russia.”
Meanwhile, the European Commission published guidance to Member States on 13 July that addresses the EU approach on the transit of goods from Russia. This guidance confirms that the transit of sanctioned goods by road with Russian operators remains prohibited under the EU adopted sanctions. As such, Member States need to institute effective controls to ensure this prohibition is upheld.
On 26 July, the UK expanded prohibitions on the export, making available and supply or delivery of energy-related goods (as well as prohibitions on the provision of related technical assistance, financial services, funds, and brokering services). This includes prohibitions on the import, acquisition and supply or delivery of:
oil and oil products (note these provisions come into force on 31 December 2022); and coal and coal products (note these provisions come into force on 10 August 2022) that originate in or are consigned from Russia (as well as prohibitions on the provision of related technical assistance, financial services, funds, and brokering services); and
gold originating in Russia (as well as prohibitions on the provision of related technical assistance, financial services, funds, and brokering services).
Furthermore, UK prohibitions on the provision of Professional and Business Services directly or indirectly to a person connected with Russia. Also on 26 July, the UK Government sanctioned Vitaly Khotsenko and Vladislav Kuznetsov, the proclaimed Prime Minister and First Deputy Chairman of the ‘Donetsk and Luhansk People’s Republics’, for undermining Ukrainian territorial integrity.
On 20 July, the Group of Creditors of Ukraine issued a statement noting as group of official bilateral creditors of Ukraine that they “intend to provide a coordinated suspension of debt service due by Ukraine from August 1st, 2022 until end-2023, with the possibility of an additional year, on our claims and consistent with the national laws of the creditor countries.” The statement further urged, “We also strongly encourage all other official bilateral creditors to swiftly reach agreement with Ukraine on a debt service suspension.”
After five months of the Russia-Ukraine conflict, the two sides struck a deal brokered by the UN last week that will allow Ukraine’s wheat, barley, corn and sunflower oil to ship to global markets over the next 120 days. Implementation of the deal has been cautious. On 29 July, Ukraine President Volodymyr Zelenskyy visited a Black Sea port, as crews prepared terminals to export the country’s grain to Africa, the Middle East and Asia – regions facing food shortages and, in some cases, famine. Reports indicate Ukraine is awaiting word from the UN on a guarantee of safe corridors for the ships navigating the waters.
On July 27, the US Department of Commerce reported the US economy contracted at a 0.9 percent annual pace for the second quarter this year, following the 1.6 percent drop in the first quarter. Consecutive quarters of falling Gross Domestic Product (GDP) constitute one informal, though not definitive, indicator of a recession.
Also on Wednesday, the Federal Reserve (the Fed) raised its benchmark rate another three-quarters of a point for a second straight time in its push to address the high inflation rate. Fed Chair Jerome Powell and many economists have said that while the economy is showing some weakening, they doubt it is in recession. They point to a still-robust labor market, with 11 million job openings and the low 3.6 percent unemployment rate, which they argue suggests a recession is not here yet. Meanwhile, the July Jobs report is due out next Friday.
This week, the US Senate approved the “CHIPS-plus” bill on 26 July, a measure that funds the Creating Helpful Incentives to Produce Semiconductors in America Act (CHIPS Act) and includes other technology-focused provisions and funding for increased spending on research and development. The bill is a slimmed-down version of the Senate’s US Innovation and Competition Act (USICA) and the House’s America COMPETES Act. The US House of Representatives followed suit on Thursday, advancing the “CHIPS-plus” bill to US President Joe Biden’s desk.
Prior to the bill’s passage, US Secretary of Commerce Gina Raimondo welcomed reports that Samsung could invest as much as $200 billion in US chipmaking over the next decade. During a virtual meeting with President Biden on 26 July, SK Group CEO and Chairman Tae-won Chey announced the company would be investing $22 billion in new investment in the United States in semiconductors, EV batteries and biotechnology.
On 29 July, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a joint action with the US Department of Justice, sanctioned two individuals and four entities “that support the Kremlin’s global malign influence operations and election interference activities.” Also on Friday, US Secretary of State Antony Blinken confirmed he spoke with Foreign Minister Lavrov about a proposal to swap imprisoned Americans Brittney Griner and Paul Whelan for Russian arms dealer Viktor Bout.
On 20 July, the White House announced at the Corporate Council for Africa’s US-Africa Business Summit in Morocco that President Biden would host African leaders at a US-Africa Leaders Summit in Washington, D.C., from 13-15 December. This week, the Office of the US Trade Representative (USTR) announced Ambassador Katherine Tai would host the annual AGOA Forum for sub-Saharan Africa trade ministers in Washington on 13 December.
Meanwhile, with Russian Foreign Minister Sergei Lavrov visiting multiple African countries (Egypt, Ethiopia, Uganda) this week, the US has increased sending officials to the African continent. Special Envoy for the Horn of Africa Mike Hammer travelled to Egypt, the United Arab Emirates, and Ethiopia, from 24 July–1 August. US Ambassador to the United Nations Linda Thomas-Greenfield will soon travel to Uganda and Ghana, from 4-6 August, “to discuss the U.S. and global response to the impact of Russia’s war against Ukraine on global food security, as well as other regional and bilateral priorities.” While in Ghana, Ambassador Thomas-Greenfield will also deliver a speech on the global food security crisis. As part of his next overseas trip, from 2-12 August, Secretary Blinken will visit South Africa, the Democratic Republic of the Congo and Rwanda, after stops in Cambodia and the Philippines.
On 14 July, the US and Kenya announced a new “Strategic Trade and Investment Partnership” to negotiate “high-standard commitments” in areas such as digital trade, agriculture, small and medium-sized businesses, standards, labor and the environment. The US and Kenya will start work within three months on a “detailed roadmap” for discussions on these topics.
The US Department of Commerce and Office of the US Trade Representative (USTR) prepared the past few weeks for the Indo-Pacific Economic Framework (IPEF) ministerial meeting, which happened virtually on 26 July. Ahead of the ministerial, a draft joint statement on the trade pillar of IPEF was leaked. It reportedly outlined broad areas of focus on labor, the environment, digital economy and agriculture but did not outline specific “high-standard” commitments. The 14 IPEF participants are not obligated to sign up for all four pillars of the framework.
The US and EU invited stakeholders to participate in an event on 19 July to discuss transatlantic cooperation on export controls. The event highlighted progress made by the Export Control Working Group of the EU-US Trade and Technology Council (TTC). Officials from both sides have credited the working group for facilitating swift cooperation on export controls in response to the Ukraine-Russia conflict.
Under Secretary of Commerce for Industry and Security Alan Estevez testified before Congress in July, where he confirmed the US Government is speaking with likeminded allies about negotiating a new export control regime aimed at addressing concerns associated with sensitive technologies (such as semiconductor chips) and the People’s Republic of China (China). The Bureau of Industry and Security (BIS) is also leading an interagency review of the prospect of a new approach.
Meanwhile, on 15 July, the US Treasury Department announced on 8 July, the United States notified Hungary of its termination of the Convention between the Government of the United States of America and the Government of the Hungarian People’s Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, which has been in force since 1979. Treasury noted that the termination would be effective on 8 January 2023. It added, “However, as specified in the Convention, with respect to taxes withheld at source, the Convention shall cease to have effect on January 1, 2024. In respect of other taxes, the Convention shall cease to have effect with respect to taxable periods beginning on or after January 1, 2024.”
Liz Truss, current Foreign Minister, and Rishi Sunak, former Finance Minister, are the final two in the race to succeed Boris Johnson as UK Prime Minister. Eight candidates made it through to the first round of voting on July 12, with the number gradually whittled down by Conservative lawmakers over five stages. The results of the final vote, which also falls to Conservative Party members, are set to be announced by 5 September, at the latest.
With the Biden Administration unwilling to pursue a free trade agreement with the UK, the British Government is increasingly shoring up its relationship with individual US states. On 20 July, the UK signed a trade arrangement with North Carolina, its second state-level deal after it inked a deal with Indiana in May. The memorandum of understanding (MOU) sets out five goals between the two parties, ranging from climate change (zero emissions) to investments in underdeveloped regions and government procurement. The UK is in talks with Oklahoma and South Carolina as the for similar trade arrangements.
On 21 July, UK and US participants held the sixth virtual meeting of the UK-US Financial Regulatory Working Group. A readout reflected the Working Group meeting focused on seven themes: (1) international and bilateral cooperation, (2) benchmark transition, (3) financial innovation, (4) sustainable finance, (5) non-bank financial intermediation, (6) operational resilience, and (7) cross-border regimes. The next Working Group meeting will occur later this year.
On 21 July, the UK and India signed a framework agreement to collaborate on healthcare workforce objectives. The two countries also signed two memorandum of understandings on: (1) the recognition of training and certification of Indian seafarers for service on United Kingdom and Red Ensign Group Flagged Vessels; and (2) mutual recognition of academic qualifications memorandum of understanding of academic qualifications.
The Czech Council Presidency started the interinstitutional negotiations on the Carbon Border Adjustment Mechanism (CBAM) with the European Parliament and the European Commission earlier in July. European Commissioner for Economy Paolo Gentiloni welcomed the broad consensus between the co-legislators after the first trilogue meeting. The negotiations will be continuing after the August summer break.
On 19 July, the EU and China officials met for the 9th EU-China High-Level Economic and Trade Dialogue. Executive Vice President and Trade Commissioner Valdis Dombrovskis noted, “The EU and China are key trading partners. The importance of our economies comes with a responsibility to shape joint responses to global economic and trade challenges, such as disruptions in supply chains, global food insecurity, debt relief for the most vulnerable countries and reform of the World Trade Organization.” The next High Level Economic and Trade Dialogue will be held in 2023.
On 14 July, the European Parliament voted on the Foreign Subsidies compromise proposal, after the Council’s adoption a day prior, putting the file a step closer to final adoption, after the trilogue negotiation agreement. The text is expected to next go through another procedural step before a formal and final endorsement, which is anticipated to happen in November.
Meanwhile, the European Commission’s DG Trade proposed on 19 July to temporarily suspend tariffs on inputs used for the production of nitrogen fertilisers until the end of 2024, a move aimed at alleviating costs for EU fertiliser producers and EU farmers. The EU has also decided to reinstate anti-dumping duties on some flat-rolled aluminum goods from China, effective 9 July.
UK-EU Trade Deal Update
On 22 July, the European Commission launched a new set of infringement proceedings against the UK, alleging:
Failure to comply with the applicable customs requirements, supervision requirements and risk controls on the movement of goods from Northern Ireland to Great Britain;
Failure to notify the transposition of EU legislation laying down general EU rules on excise duties, which will become applicable from 13 February 2023;
Failure to notify the transposition of EU rules on excise duties on alcohol and alcoholic beverages,which facilitate access for small and artisan producers to lower excise duty rates, among other provisions; and
Failure to implement EU rules on Value Added Tax (VAT) for e-commerce, namely the Import One-Stop Shop.
The UK has now two months to respond to the European Commission on the above allegations. If the UK fails to respond, the EU could take further action. More information on the infringement proceedings is available here.
In other developments, the House of Lords’ European Affairs Committee prepared a report calling on the UK Government to resume negotiations with Brussels, seeking to find a solution for smoother post-Brexit trade relations between Northern Ireland and Great Britain. Given the political differences between the EU and the UK, the report stresses that both “urgently need to reset the unproductive and self-destructive cycle of claim and counter-claim on the protocol”.
World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala expressed optimism on 28 July that the deal reached in June at the WTO ministerial on global fisheries subsidies could enter into force in a year or less, if WTO members choose to move quickly. She argued that implementing the deal quickly – instead of the usual two or three-year process – is crucial for ocean sustainability. The deal reached last month includes disciplines on subsidies contributing to illegal, unreported and unregulated (IUI) fishing as well as on subsidies for overfished stocks. The agreement will enter into force after two-thirds of WTO members have deposited their articles of acceptance in Geneva.
Meanwhile, American lawmakers and businesses are increasingly advocating against the WTO possibly expanding the TRIPS waiver for COVID-19 vaccine to include COVID-19 diagnostics and therapeutics. At a WTO General Council meeting on 26 July, the US representative reportedly insisted that paragraph 8 of the TRIPS decision, which is a provision saying members must decide within six months whether to expand the scope to diagnostics and therapeutics, did not constitute a “mandate.” The US argued the provision is a deadline to hold a discussion, and not a mandate to act. Despite these arguments, the Biden Administration has declined to say where it stands on expanding the COVID-19 vaccine TRIPS waiver.