Transatlantic Trade: US and Europe – Week of December 14, 2020
The United States (US) approved its second COVID-19 vaccine by Moderna this week, ramping up its initial vaccine distribution and inoculations in America. Meanwhile, the European Union (EU) decided to expedite its vaccine approval process and is now on track to authorize the Pfizer/BioNTech and Moderna vaccines before the end of the month.
Talks between the United Kingdom (UK) and EU continued this past week. While some progress was noted, a significant breakthrough remains elusive. If a deal is reached in the coming days, accelerated ratification by both the European Parliament and the UK Parliament will be necessary before the UK’s formal exit from the customs union and single market on 31 December.
This past week, the US Federal Government disclosed that several Departments and Agencies, along with some private entities, had been the subject of a sophisticated cyber-attack, likely orchestrated by a nation-state. Meanwhile, Big Tech remains in the crosshairs of regulators on both side of the Atlantic Ocean. US States filed new lawsuits against Google and Facebook, continuing antitrust pressure on big technology companies in America. The EU also unveiled proposals this week to overhaul its approach to digital services and markets, which US technology associations rejected as protectionist and discriminatory. The UK is similarly considering proposals of its own, which are expected to be released in 2021.
COVID-19 Updates | US, EU, UK
The United States continues to approve vaccines sponsored via the Government’s Operation Warp Speed program. Early on Friday, 18 December, Vice President Mike Pence and Second Lady Karen Pence publicly received a COVID-19 vaccine dose to promote the safety and efficacy of the vaccine and to help build confidence among the American people.
Also on Friday, the US Food & Drug Administration (FDA) approved emergency use authorization (EUA) for Moderna’s COVID-19 vaccine candidate for use in people 18 years of age and older. The United States now has two approved vaccines for its population. The Pfizer/BioNTech vaccine and inoculations continue in US states and territories, while Moderna’s vaccine distribution will commence this weekend.
US President Donald Trump signed a COVID-related E.O. on 8 December on ensuring broader access to US-sponsored COVID-19 vaccines. Section five of the order calls for the Assistant to the President for National Security Affairs to coordinate development of an interagency strategy for facilitating international access to “United States Government COVID-19 Vaccines” within 30 days.
As of Friday evening, the US Congress is still attempting to wrap negotiations on a COVID relief package. The package reportedly contains a new round of roughly $600 stimulus checks, unemployment benefits of $300 a week, approximately $325 billion for small businesses and money for transportation, vaccine distribution and schools. Disagreements reportedly remain over stimulus check eligibility, funding to state officials for health care-related concerns, increasing nutrition assistance, disaster relief funds and winding down the Federal Reserve’s emergency lending program established in the CARES Act.
COVID relief talks extended into the weekend. These talks are also delaying congressional action on an Omnibus appropriations spending measure that Members hope will move together with the relief package. In order to avert a Federal Government shutdown, Congress approved another stop-gap spending measure on Friday that President Trump signed quickly into law that will keep the Federal Government funded through the weekend, as COVID relief talks continue.
The European Medicines Agency (EMA) is expected to provide an earlier decision regarding the conditional market authorization of the COVID-19 vaccine by Pfizer/BioNTech on 21 December 2020 and on the Moderna vaccine on 6 January 2021. European Commission President Ursula von der Leyen confirmed that vaccination across the EU will start on 27, 28 and 29 December 2020.
The European Commission also announced on 17 December that had concluded exploratory talks with Novavax to purchase 100 million doses. The deal also includes an option of purchasing an additional 100 million doses.
On 16 December, UK International Trade Secretary Liz Truss welcomed the Ottawa Group’s Trade and Health Initiative at the World Trade Organization (WTO). In a statement, she noted, “The UK is committed to removing tariffs and avoiding the use of export restrictions on Covid-critical products and will use the G7 presidency next year to create a global approach to health security.” The EU is also a member of the Ottawa Group and supports the initiative.
Meanwhile, the United States and some other WTO members, such as South Africa and India, opposed the proposal. US Ambassador to the WTO Dennis Shea instead favored a submission from the US, Brazil, Japan, Australia and others that calls on members to accelerate the implementation of the WTO Trade Facilitation Agreement. The US also raised its WTO reform priorities at the General Council on Thursday – the importance of market-oriented conditions and curbing access to special and differential treatment.
UK-EU Talks | Negotiations Continue
Negotiations continue between the EU and UK over a possible trade deal. European Commission President von der Leyen signaled progress on the latest negotiations during a debate in the European Parliament on 16 December, particularly on state aid where common principles could guarantee domestic enforcement, and on standards, where a strong mechanism on non-regression was agreed. Difficulties, however, remain on the ways to future proof fair competition and the fisheries.
Commission President von der Leyen issued a statement following the latest call with UK Prime Minister Boris Johnson on 17 December, reiterating substantial progress achieved thus far and noting that big differences remain particularly on fisheries. EU Lead Negotiator Michel Barnier told the European Parliament on 18 December that there were only hours left in which to reach a deal. Prime Minister Johnson and UK Ministers have been sounding a negative note, putting the chances of a deal at less than 50%, and describing the EU’s position on fishing as “simply not reasonable”. The European Parliament’s Conference of Presidents called for a deal by Sunday 20 December. There is a risk the deal will not be ratified at the European Parliament-level, ahead of the transposition deadline of 31 December 2020.
The EU-UK Joint Committee met virtually on 17 December and endorsed all formal decisions and practical solutions in relation to the implementation of the Withdrawal Agreement, with the aim that these enter into effect on 1 January 2021. Among others, this ensures achieving the overarching objective of protecting the Good Friday (Belfast) Agreement by avoiding a hard border with the island of Ireland.
Furthermore, a temporary, time-limited deal was reached for patients who need regular treatment for chronic conditions. This would apply to UK citizens fulfilling these criteria visiting the European Economic Area and Switzerland and vice versa. It would be applicable from 1 January 2021 until 31 December 2021.
Both the Council and the European Parliament also adopted their position with regard to contingency legislation issued by the European Commission that ensures basic air, road freight and passenger connectivity, aviation safety and fishing authorizations. Subject to a fast-track procedure, the contingency legislation is to be adopted by the end of the year.
US Government Confronts Cyber-Attack
This past week, reports emerged from various US Departments and Agencies that they had been the subject of a months-long (dating back to at least March) espionage-like cyber-attack on computer systems that many suspect is orchestrated by a nation-state, with reports pointing to Russia. The perpetrators managed to breach computer networks using network management software made by the Texas-based IT company SolarWinds. Hackers apparently monitored data within the Departments of State, Defense, Homeland Security, Treasury, Commerce and Energy.
In a Friday interview, US Secretary of State Mike Pompeo said of the attack, “This was a very significant effort, and I think it’s the case that now we can say pretty clearly that it was the Russians that engaged in this activity.” While President Trump has not commented on the attack, Secretary Pompeo argued, “a wiser course of action to protect the American people” was “to calmly go about your business and defend freedom.”
The Department of Homeland Security’s Cybersecurity and Infrastructure Agency (CISA) issued a joint statement with other Federal Agencies on Wednesday, noting it “took immediate action and issued an Emergency Directive [on 13 December] instructing federal civilian agencies to immediately disconnect or power down affected SolarWinds Orion products from their network.” CISA remains in regular contact with the private sector and international partners, “providing technical assistance upon request, and making needed information and resources available to help those affected recover quickly from this incident.” CISA is also reportedly investigating evidence of additional access vectors, other than the SolarWinds Orion platform. The Federal Bureau of Investigation (FBI) is coordinating with CISA, victims of the cyber incident and other components of the US Government as it investigates the cyber-attack.
FireEye CEO Kevin Mandia reported on 8 December that the cybersecurity company had been the subject of a nation-state cyber-attack. In a blog, he noted FireEye’s “Red Team” tools, a collection of malware and exploits used to test customers’ vulnerabilities, were stolen. Mandia also stated, “Based on my 25 years in cyber security and responding to incidents, I’ve concluded we are witnessing an attack by a nation with top-tier offensive capabilities.” In response to the attack, he said the company is working with the US Government and has “developed more than 300 countermeasures for our customers, and the community at large, to use in order to minimize the potential impact of the theft of these tools.”
Meanwhile, Microsoft has thus far identified more than 40 of its customers subjected to the cyber-attack, including government agencies, think tanks, non-governmental organizations and information technology (IT) companies. While 80% of these entities were in the United States, others were in Canada, Mexico, Belgium, Spain, the UK, Israel and the United Arab Emirates. In a 17 December blog, Microsoft President Brad Smith observed, “this aspect of the attack created a supply chain vulnerability of nearly global importance, reaching many major national capitals outside Russia.” He also included the following map of the breadth of the cyber-attack that is based on telemetry from Microsoft’s Defender Anti-Virus software:
US Antitrust Actions | Big Tech: Google, Facebook
On Thursday, 17 December, over 30 US States, along with Washington DC, Puerto Rico and Guam, filed an antitrust suit against Google, alleging the company abuses its control over online search to edge out competitors. The states explain Google’s acquisitions and command of vast amounts of data, due to lack of choice, has fortified the company’s monopoly and created significant barriers for potential competitors and innovators.
This latest lawsuit follows a Texas-led complaint, which included other Republican-led states, filed on Wednesday that accuses Google of abusing its power in the advertising technology market. Notably, this lawsuit also claims Google colluded with Facebook Inc. to manipulate auctions for online advertising
The US Department of Justice (DOJ) filed a suit against Google in October that more narrowly focuses on how Google has used contracts with smartphone makers and browsers, such as Apple’s Safari and Mozilla’s Firefox, to maintain its dominance in online search. DOJ is also investigating Google over complaints about its powers in the advertising technology market. Amazon and Apple are also under investigation by US federal authorities for alleged anticompetitive conduct.
In a statement released on Thursday, Deputy Attorney General Jeffrey Rosen noted the States of Michigan, Wisconsin and California filed for permission to join DOJ’s October suit. He added, “We welcome the efforts by the States of Michigan, Wisconsin, and California to join the Justice Department’s complaint. Their proposed joinder, along with the separate complaint filed today by a coalition of state Attorneys General, underscores the broad and bipartisan consensus that Google’s practices in search and search advertising need antitrust redress. These antitrust actions aim to open the door to the next wave of innovation in digital markets.” Iowa Attorney General Tom Miller (Democrat) shared that US states have been watching previous antitrust cases against Google in Europe along with developments in Congress. He added, “People in government and Congress should be thinking about whether there should be some regulation beyond antitrust. Antitrust may not be the vehicle to remedy this situation.”
On 9 December, the US Federal Trade Commission (FTC) and 48 US States/jurisdictions sued Facebook, alleging that the social media company has abused its dominance in the digital marketplace and engaged in anticompetitive acquisitions. According to a FTC press release, the Commission “is seeking a permanent injunction in federal court that could, among other things: require divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anticompetitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions.”
EU Digital Platform Rules Proposals Released
On 15 December, the European Commission published its long awaited rules for digital platforms, through a comprehensive set of proposals, a Proposal for a Regulation on Digital Services Act and a Proposal for a Regulation on Digital Markets Act. If enacted, the proposals would heavily impact US tech companies, such as Google and Facebook.
The proposal for a Digital Services Act (DSA) builds on the evaluation of the e-Commerce Directive 2000/31/EC and aims to harmonize conditions that determine the responsibilities and liability regime for online intermediary services offering services in the EU Single Market, including hosting services, online platforms and “very large” online platforms. The proposal introduces EU-wide binding obligations applicable to all digital services that provide goods, services or content, including new procedures for faster removal of illegal content and for protecting users’ fundamental rights online. There are some exemptions, including online intermediary services remain liable for third-party information that they transmit and store. Companies within the scope of the Regulation would be required to establish a single contact point to communicate with Member State authorities and present a report at least once a year with information on any content moderation they engaged in the relevant period. Providers operating in the EU without a legal presence in any Member State should designate a legal representative that would be held liable in case of non-compliance with the Regulation. Further obligations are included for hosting services, online platforms and very large platforms. Failure to comply with the obligations listed in the Regulation could result a maximum fine not exceeding 6% of the annual income turnover of the service provider and shall not exceed 1% of the annual turnover when service providers submit incorrect, incomplete or misleading information.
The proposal for a Digital Markets Act (DMA), introduces an ex-ante regime addressing the structural effects of perceived unfair practices in the digital economy. The Regulation on DMA would be applicable only to major providers of the core platform services, identified as search engines, social networks, online intermediation services, video-sharing platforms, number-independent interpersonal communication services, operating systems, cloud computing services and advertising services, networks and services. Subject to the size of the business impact and position to the EU Single Market, as well as the number of business, core platform services could be designated “gatekeeper status”, subject to meeting certain thresholds under three criteria. The Regulation lists a number of obligations for gatekeepers and empowers the European Commission to conduct market investigations to designated gatekeepers. Non-compliance with the rules could lead to fines not exceed 10% of the gatekeeper annual turnover in the preceding financial year of the issued fine. The European Commission may decide to impose a periodic fine not exceeding 5% of the average daily turnover in the preceding financial year for failure to provide information under its request. There is however a limitation period of five years for the imposition of fines and for their enforcement.
Next steps, the two Regulations will go through the EU’s decision-making process, which could lead to some years of negotiations and a very different version of the current form of the proposals. As Regulations, these would be directly applicable to Member States, when adopted.
Other Notable UK Developments
The UK announced its intent to put forward proposals next year that would regulate how harmful and illegal content is monitored online. The proposals reportedly would target almost all forms of digital services, such as search engines, social media companies and online messaging applications. The future rules reportedly would impose fines of up to £18 million or 10% of the company’s global revenue, depending on which is higher. Provisions are also expected to be included that would have executives facing criminal sanctions for failing to uphold a duty of care for their users. The future proposals are also expected to mandate how to remove and limit the spread of illegal content and child exploitation material.
On 15 December, the UK and Mexico signed a Trade Continuity Agreement. The transitional agreement provides for continuity in trade between Mexico and the United Kingdom after the end of this year. Mexico and the UK will begin negotiations on a new Free Trade Agreement in 2021.
This week, 10 Downing Street announced Prime Minister Johnson would travel to India in January 2021 “to strengthen a key strategic relationship which supports jobs and investment across the UK.” This would be the Prime Minister’s first bilateral visit since taking office and is to be the first official visit post Brexit. The trip would will also kick off “a significant year for Global Britain on the world stage.” In a note to Indian Prime Minister Narendra Modi, Prime Minister Johnson invited India to attend the UK’s G7 Summit next year, as one of three guest nations alongside South Korea and Australia.
Other Notable EU Developments
Following the EU Budget and Recovery Fund deal achieved at the 10-11 December European Council meeting, both the Council and the European Parliament formally endorsed the budget. While this concludes the EU decision-making process, many adjacent legislation detailing the functioning and budget attributions under specific EU funding programmes are expected to be adopted in early 2021; they shall apply retroactively to 1 January 2021.
Other Notable US Developments
On Monday, 14 December, in remarks to the Federalist Society, US Trade Representative Robert Lighthizer said several “big, big hurdles” remain in the US-UK talks, indicating a bilateral deal would likely not be forthcoming or achievable ahead of the expiring US Trade Promotion Authority next year. He said negotiations “have made some headway, [but] not an enormous amount of headway.” With respect to US-EU Boeing-Airbus settlement talks, he added they were also “not making much headway” in negotiations to resolve the 15-year dispute over aircraft subsidies “because, in the final analysis, Europe likes to subsidize airplanes.”
On 11 December, House Ways & Means Chairman Richie Neal (D-Massachusetts) called on the United States to build revitalized relationships, including with Europe, to counter the People’s Republic of China (“China”). He noted, “China is on track to overtake the United States as the world’s largest economy as soon as 2024, according to the World Economic Forum.” Looking ahead to the next Administration, Chairman Neal said, “We must work across disciplines to formulate a strategic, far-reaching, forward-looking, robust package of programs and investments to defend against anti-competitive, anti-democratic influences of China’s policies.” The Chairman recommended, “Strengthening and recommitting to our alliances with the European Union, our neighbors on the American continent, in Asia, and in Africa will be key to our success.”
With respect to Europe, he stated, “Our partners across the Atlantic have shown a willingness to embark on a new, substantial trade relationship with the United States, and we should embrace this opportunity. A new U.S.-European trade arrangement will only enhance our ability to moderate China’s intensifying pursuit of growth and prosperity, which threatens to subject the rest of the world to its economic and political dominance.” According to Chairman Neal, this should include, “Concrete, bold action – like achieving a new trade deal with Europe – is necessary for our nation’s and people’s future economic success.”
On Wednesday, 16 December, the US Department of the Treasury submitted to Congress its overdue, semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. The Report labels the governments of Vietnam and Switzerland as currency manipulators. Ten economies were listed on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Italy, Singapore, Malaysia, Taiwan, Thailand, and India – the last three being added in this Report.
In a statement issued on 11 December, Senate Foreign Relations Committee Chairman James Risch (R-Idaho) highlighted the recently approved Fiscal Year 2021 National Defense Authorization Act (NDAA) includes a provision that “expands the scope of sanctionable activities to prevent the completion of the NS2 [Nordstream 2] pipeline. These sanctions are important tools in countering Russia’s malign influence and protecting the integrity of our allies’ security.” Congress sent the NDAA to President Trump’s desk for signature into law; however, the President continues to warn he intends to veto the bill. This may force Congress to return to Washington next week, to override the veto. A presidential veto override requires two-thirds majority in both chambers; congressional leaders have indicated they have the votes to override the President, if needed.
Sanctions Updates | EU, US
Tensions between the EU and Turkey escalate. On 14 December, Turkish President Recep Tayyip Erdoğan communicated that EU sanctions would likely not dissuade Turkish interests in the Eastern Mediterranean. The Turkish President reiterated Turkey’s legitimate interest in the northern Cyprus area and the countries’ standing on their geopolitical interest even after the sanctions were imposed, refusing to withdraw from the contested areas.
On 14 December, the United States imposed sanctions on Turkey, a NATO ally, for its procurement of the Russian-made S-400 missile defense system, pursuant to the Countering America’s Adversaries Through Sanctions Act (CAATSA). Readout of a call on 17 December between Secretary of State Mike Pompeo and Turkish Foreign Minister Mevlüt Çavuşoğlu reflected the sanctions are intended “to prevent Russia from receiving substantial revenue, access, and influence, and they are not intended to undermine the military capabilities or combat readiness of Turkey or any other U.S. Ally or partner.” Turkey’s S-400 missile system purchase therefore “endangers the security of U.S. personnel and military technology and allows Russian access to the Turkish armed forces and defense industry.”
House Foreign Affairs Committee Chairman Eliot Engel (D-New York) and Ranking Member Michael McCaul (R-Texas) issued a statement on 16 December, detailing how Turkey’s actions are undermining the decades-long bilateral relationship, the NATO Alliance and the region more broadly. The US lawmakers urged, “President Erdogan to put an end to Turkey’s provocative behavior so the United States and Turkey can once again enjoy a close and cooperative relationship built on mutual security interests, a strong commitment to NATO, and shared democratic values.”
Ranking Member McCaul also issued a statement on 14 December, welcoming the Trump Administration’s sanctions against Turkey for its S-400 missile system acquisition. Senate Foreign Relations Committee Chairman Risch similarly issued a statement of support, saying the sanctions are the result of “Turkish President Erdogan’s decisions to prioritize his relationship with the Kremlin over NATO.”
On 16 December, the EU agreed to extend for an additional period of six months economic sanctions against Russia for the ongoing situation in Ukraine, especially in Crimea. The sanctions are part of an EU-Russia trade war, where Russia has retaliated and imposed tariffs against various European products.
Montenegrin Foreign Minister Djordje Radulovic confirmed the country’s intent to maintain EU imposed sanctions against Russia. He further noted that Montenegro must respect EU rules, if it wants to join the Union. This could also be viewed as a first step for the Eastern bloc to use sanctions as a diplomatic weapon against Russia. Meanwhile, Serbia has refused to join in imposing the sanctions, despite also negotiating to join the EU.
On 16 December, the EU imposed additional sanctions under the Belorussian sanction program to continue the pressure on Belorussian government leaders. The additional designations of 36 individuals and entities – prominent businessmen and companies supporting Lukashenko’s regime – includes EU travel bans and asset freeze restrictions.
This week, the US Government imposed additional sanctions related to Iran and restrictions on a Chinese company. On 16 December, the Treasury Department designated four entities for facilitating the export of Iranian petrochemical products by Triliance Petrochemical Co. Ltd., an entity designated by Treasury in January 2020. On 14 December, Treasury designated two senior officials of Iran’s Ministry of Intelligence and Security, who were involved in the abduction of Robert A. “Bob” Levinson, a former Drug Enforcement Administration and Federal Bureau of Investigation agent, in Iran in 2007.
On 18 December, the US Commerce Department’s Bureau of Industry and Security (BIS) added China’s Semiconductor Manufacturing International Corporation (SMIC) to the Entity List. Commerce noted, “This action stems from China’s military-civil fusion (MCF) doctrine and evidence of activities between SMIC and entities of concern in the Chinese military industrial complex.”
That same day, BIS added 77 entities to its Entity List for actions deemed contrary to the national security or foreign policy interest of the United States. According to Commerce, “These include entities in China that enable human rights abuses, entities that supported the militarization and unlawful maritime claims in the South China Sea, entities that acquired U.S.-origin items in support of the People’s Liberation Army’s programs, and entities and persons that engaged in the theft of U.S. trade secrets.”
US Transition Update | USTR-Nominee
The Electoral College confirmed President-Elect Joe Biden as the winner of the US General Election on 14 December. However, President Trump has yet to concede and continues to challenge the election results.
On 10 December, President-Elect Biden selected Katherine Tai as his nominee to serve as US Trade Representative, a Cabinet-level position that requires Senate confirmation. Tai has served as Chief Trade Counsel (Democrats) to the House Ways & Means Committee since 2017.
Multiple Democratic lawmakers in both chambers of Congress voiced support for Tai’s pick, noting she has the expertise and background to tackle issues relating to China especially. Tai is a known critic of China and has said the country should be addressed forcefully and strategically. She said of the “China challenge” at an August event, “What I would say in terms of what a Biden administration will hopefully do is come in and really crystallize the questions that we are asking which is ‘what is the nature of the Chinese challenge and the threat?’ And then, have that lead us to conversation around what are the measures then that need to be taken to manage the risk and the threat.” Meanwhile, President-Elect Biden has stated he will not immediately roll back US tariffs on Chinese products without a full review of the interim trade deal signed with China in January 2020 and consultations with US allies. Tai will play a leading role in that review.
During the US-Mexico-Canada Agreement (USMCA) negotiations between outgoing Trade Representative Lighthizer and Congress, Tai demonstrated her negotiating skills, serving as the lead Democratic trade counsel and securing stronger labor provisions in the deal. She views the USMCA as “an important block or foundation to build off of,” acknowledging that “one size does not fit all” when negotiating trade agreements.
Tai is characterized generally as a problem-solving pragmatist on trade policy. Similar to Ambassador Lighthizer, she has strong connections on Capitol Hill, which should help facilitate a dialogue between the Executive and Legislative branches under the incoming Biden Administration. It remains to be seen whether Tai has real political influence on President-Elect Biden, and how trade policy-making will be divided between the several agencies and offices with competing interests. President-Elect Biden has prioritized investments in infrastructure, education, and manufacturing before seeking new trade deals. Notably, his proposed $400 billion “Buy America” initiative may require renegotiating some existing accords.