Transatlantic Trade | US and Europe – June 1-10
The United Kingdom (UK) celebrated Her Majesty The Queen on the occasion of her Platinum Jubilee, marking 70 years of her reign. The United States (US) hosted the Summit of the Americas, unveiling another economic framework initiative, with this one focused on countries in the Western Hemisphere. In the European Union (EU), the European Parliament failed to advance a number of environmental legislative proposals, such as the proposal for a Carbon Border Adjustment Mechanism, returning them to committee level for additional work and likely further delaying these measures from enactment.
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 US Department of the Treasury’s Office of Foreign Assets Control (OFAC) took further steps on 2 June to target networks used by Russia’s elites, including President Vladimir Putin, to hide and move money anonymously around the globe. The US Government designated a Kremlin-aligned yacht brokerage, several prominent Russian government officials, and a close Putin associate and money-manager, Sergei Roldugin, presumed to be a custodian of President Putin’s offshore wealth.
Following the agreement by the EU27 Heads of State and Government on the sixth package of sanctions on 30 May, diplomats have deliberated on the legal texts underpinning the sanctions package against Russia and Belarus, ultimately agreed to and published into EU law on 3 June. The broader package consists of sanctions covering a number of measures:
Prohibitingthe purchase, import or transfer of crude oil and certain petroleum products from Russia into the EU, with a phasing out of Russian oil of six months for crude oil and eight months for other refined petroleum products. A temporary exception is included for imports of crude oil by pipeline, where there is no alternative option (namely Hungary), while Bulgariaand Croatia will be granted temporary derogations on the import of Russian seaborne crude oil and vacuum gas oil.
Sberbank, Credit Bank of Moscow, and Russian Agricultural Bank will be excluded from the international SWIFT payment system.
Suspendingbroadcasting activities in the EU of three more Russian state-owned outlets: Rossiya RTR/RTR Planeta, Rossiya 24/Russia 24 and TV Centre International.
Additional export restrictions on dual-use goods, chemical products and technology linked, among others, to the defence and security sector for both Russian and Belarusian entities.
Prohibiting the provision of accounting, public relations and consultancy services, as well as cloud services to Russia.
Expanding individual listings with asset freezing and travel bans, bringing the total listing of 1158 Russian individuals and 98 entities (more details available here) and 195 Belarusian individuals and 35 entities (more details available here).
Also on 3 June, with Ukraine’s assent, the United States and 44 other countries invoked the OSCE Moscow Mechanism a second time to investigate reports of alleged human rights abuses and violations of international humanitarian law by Russian forces in Ukraine. This action will establish a second expert mission to build upon the first Moscow Mechanism report, released 13 April.
On 6 June, UK Defence Secretary Ben Wallace announced Britain would send M270 launchers to Ukraine. Alongside the weapon system, the UK will also supply M31A1 munitions at scale. Ukrainian troops will be trained on how to use the launchers in the UK, so that they can maximise the effectiveness of the systems.
Meanwhile, US Secretary of State Antony Blinken and US Secretary of Agriculture Tom Vilsack hosted a virtual roundtable discussion on food security issues related to the situation in Ukraine. They noted that a Russian naval blockade in the Black Sea is preventing Ukraine’s crops from being shipped to their normal destinations. Secretary Blinken also outlined the Biden Administration’s global action plan, which has five critical lines of effort to address food shortages.
New consumer price index (CPI) inflation data released by the US Department of Labor on 10 June reflected consumer prices rising at a faster rate – prices increased one percent from April to May – largely attributable to surging oil prices and subsequent ripple effects on the US economy. The report reflected consumer prices surged 8.6 percent last month from 12 months earlier, which was faster than April’s year-over-year surge of 8.3 percent. Prior to the release of the report, US Secretary of the Treasury Janet Yellen testified before lawmakers on Wednesday that price growth was at “unacceptable levels” and called bringing inflation down the nation’s top priority. In testimony on Tuesday before lawmakers, she said it would be “virtually impossible” for the United States to shield itself from skyrocketing oil prices, one of the main drivers behind high inflation. She also said that high inflation had little to do with corporate greed, which some Democrats have used to deflect blame for inflation from the Biden Administration.
Earlier this week, President Biden invoked the Defense Production Act (DPA) for insulation; electric heat pumps; transformers and electrical power grid components; solar photovoltaic modules and module components; and electrolyzers, fuel cells, and platinum group metals. He cited US national security and the need to ensure a robust, resilient, and sustainable domestic industrial base to meet the requirements of the clean energy economy. The White House also released a fact sheet on the action.
This week, US Trade Representative Katherine Tai and Secretary of Homeland Security Alejandro N. Mayorkas, among other Biden Administration Cabinet officials (including US President and Vice President), travelled to Los Angeles, California, to participate in the Ninth Summit of the Americas. The US hosted the Summit from 8-10 June. In Los Angeles, Ambassador Tai met separately (Tuesday, Wednesday) with Chile’s Undersecretary for International Economic Relations José Miguel Ahumada; Costa Rica’s Minister of Foreign Trade Manuel Tovar; Ecuador’s Minister for Production, Foreign Trade, Investment and Fisheries Julio José Prado; and Panama’s Minister of Commerce and Industries Federico Alfaro Boyd. Ambassador Tai next travelled to Paris, France, for the 2022 Meeting of the OECD Council at the Ministerial Level.
On Wednesday, President Biden addressed the Summit participants. Ahead of his remarks, the White House released a fact sheet that noted the United States will build on free trade agreements (FTAs) with Latin American and Caribbean countries by establishing the “Americas Partnership for Economic Prosperity.” A senior official stated the partnership negotiations will focus on innovations on labor and environment “that a lot of our existing FTAs in this region, because they are some of our oldest, just have not benefited from…. And so, this will also create a venue for us to bring in those kinds of commitments as well.” In his speech, President Biden addressed economic development, climate change, democracy promotion, and migration, despite the absence of some notable counterparts from Latin America. US Vice President Kamala Harris emphasized private sector investments in seeking to address the region’s challenges, particularly when it comes to reducing migration (particularly from the northern triangle countries: El Salvador, Guatemala, and Honduras).
On 10 June, in its latest semiannual report on the macroeconomic and foreign exchange policies of major trading partners, the US Department of the Treasury concluded that no country reviewed “manipulated the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” However, in an accompanying statement, Treasury noted: “Switzerland meets all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) over the four quarters through December 2021, and therefore Treasury is conducting enhanced analysis of Switzerland’s macroeconomic and exchange rate policies in this Report.” Switzerland met all three criteria in the April 2021 and December 2020 reports, too.
On 8 June, President Biden announced his intent to nominate Doug McKalip, a longtime Agriculture Department official, as his choice to serve as chief agricultural negotiator at the Office of the US Trade Representative. If confirmed by the US Senate, McKalip will be part of the Administration’s team addressing global food security concerns.
On 6 June, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two officials in Bosnia and Herzegovina (BiH) for perceived destabilizing behavior. This included Marinko Čavara, President of the Federation of Bosnia and Herzegovina, and Alen Seranic, the Republika Srpska Minister of Health and Social Welfare.
On 3 June, Deputy Secretary of Commerce Don Graves concluded a four-day visit to the Netherlands and Belgium to advance bilateral economic and security relations between the United States and European partners. Graves met with representatives of leaders of the Dutch and Belgian governments and the European Commission, along with private industry representatives, to discuss issues of geopolitical and transatlantic trade that include semiconductor production, securing supply chains, data privacy, and cooperation on export controls in response to the situation in Ukraine. While in the Netherlands, Dutch Semiconductor Equipment Manufacturer ASML announced a $200 million expansion of their Wilton facility in Connecticut.
Secretary Yellen met with Irish Finance Minister and Eurogroup President Paschal Donohoe on 2 June. A readout reflected the leaders discussed the importance of continued progress on the OECD global tax reform agreement; Secretary Yellen also underscored the United States’ strong commitment to the Good Friday Agreement.
On 9 June, in a speech in Lancashire, UK Prime Minister Boris Johnson set out the government’s vision to continue to tackle the rising cost of living. In the coming weeks, he is expected to pledge further reforms to boost UK productivity and increase growth.
On 6 June, the UK and Estonia announced a bilateral commitment to creating stronger ties and further strengthening cooperation on defence and security.
Effective 1 June, UK steel and aluminium exporters could start exporting tariff free up to a specified volume to the United States for the first time since 2018. The UK also ended its rebalancing measures on a wide variety of US products, including whiskey, Levi’s jeans and Harley Davidson’s motorcycles.
Trade Ministers met on 3 June to discuss a number of outstanding trade policy matters, particularly ahead of the 12th World Trade Organization (WTO) Ministerial meeting (12 June). Trade Ministers held an exchange of views on the outcome of the EU-US Trade and Technology Council, expressing a commitment to continue the close cooperation. The Trade Minister Statement also highlights the importance of continuing to work “to definitively settle existing disputes (e.g. over the Airbus/Boeing subsidies and over Section 232 tariffs on European steel and aluminium) and to prevent new barriers to bilateral trade from arising.”
This week has been a critical week for a number of environmental legislative files that were due to be approved by the European Parliament plenary. In a dramatic turn of events, the European Parliament failed to pass key pieces of the EU’s climate legislation on 8 June, namely the EU’s Emission Trading System, the Carbon Border Adjustment Mechanism (CBAM) and the Social Climate Fund. The rejection occurred after last minute amendments proposed to the texts would have weakened the green ambitions within these legislative files, which the Socialists & Democrats and Green political parties rejected. As such, procedurally, these files will be sent back to the Environment, Health and Food Safety Committee to be renegotiated. This development could cause further delays in the finalization of these overarching pieces of legislation.
On 3 June, the European Commission published a report regarding the EU health and environmental standards applied to imported agricultural and agri-food products. The report addresses the options where Brussels would be empowered to use trade tools with respect to international sustainability standards, a sensitive topic for many EU member states. The report notes that trade negotiations could be an avenue to ensure the sustainability of agri-food products, without ruling out the possibility of unilateral action, for example via mirror clauses to ensure the environmental and ethical aspects of imported products are addressed. Agriculture Ministers are due to discuss this matter at their next meeting on 13 June.
UK-EU Trade Deal Update
On 6 June, UK Prime Minister Johnson was challenged with a vote of no confidence, after the COVID-19 Partygate scandal. He overcame the challenge, winning by a vote of 211 to 148. This win paves the way to the introduction of the legislation anticipated to circumvent the Northern Ireland (NI) Protocol and propose new trading rules between Northern Ireland and the rest of the UK. While the timing of the proposed law is still outstanding, it likely will be published early next week.
Meanwhile, Ireland’s Taoiseach Micheál Martin spoke before the European Parliament this week, stressing that unilateral action on the NI Protocol would be deeply damaging. He continued:
It would mark a historic low-point signalling a disregard for essential principles of laws which are the foundation of international relations. And it would, quite literally, be to the benefit of absolutely no one.”