Transatlantic Trade | US and Europe – Week of February 14, 2022
The United States (US) Government continues to warn of an imminent Russian attack on Ukraine. While diplomacy remains the preferred option, US intelligence suggests Russia’s military is poised to roll into Ukraine from multiple fronts. Officials from the United Kingdom (UK), the US and European Union (EU) engaged Russian counterparts this week, seeking a diplomatic solution to the tense situation. Amid the Russia-Ukraine tension, the US-EU Energy Council met in Washington this week to discuss European energy security concerns. Separately, the new German Chancellor also travelled to Washington for a visit at the White House. This coming week, the US Vice President is set to travel to Germany to attend the Munich Security Conference.
In the EU, the European Commission unveiled its semiconductor strategy, seeking to address semiconductor chip shortages in the bloc. The US is facing increased supply chain challenges after a trucking sector protest in Canada spilled over to American ports of entry and may be gaining support and further momentum in the country and other parts of the world, spurred by citizens that are tired of government-imposed COVID-19 restrictions. The UK and South Korea inked a new agreement that would address supply chain challenges. Meanwhile, some encouraging signs appeared this week that the EU and UK could soon find agreement regarding the Northern Ireland Protocol implementation concerns.
In this issue, we cover:
Ukraine and Russia tension;
Other notable US, UK, and EU developments;
A brief UK-EU trade deal update; and
COVID-19 highlights among the transatlantic partners.
French President Emmanuel Macron travelled to Russia early this week to initiate a dialogue with Russian President Vladimir Putin about the evolving situation in Ukraine. The dialogue failed to result in a breakthrough, with the French President stressing,
“Right now the tension is increasing and the risk of destabilization is increasing” and that following the difficulties emanating from the COVID-19 pandemic, it is the right time “to agree on concrete measures.”
US President Joe Biden hosted German Chancellor Olaf Scholz at the White House on 7 February, discussing cooperation on a “strong package of sanctions” that could be imposed swiftly should Russia violate Ukraine’s sovereignty and territorial integrity. At a joint press conference, President Biden said of the Nord Stream 2 pipeline from Russia to Germany that if Russia further invades Ukraine, “there will be no longer a Nord Stream 2.” Despite potential impacts to German interests, he added,
“We will bring an end to it.”
Chancellor Scholz was more vague on whether the pipeline would be halted from use. Though he affirmed,
“We will be united, we will act together, and we will take all the necessary steps. And all the necessary steps will be done by all of us together.”
President Biden stressed his belief that Germany is reliable and has the trust of his Administration. Apart from Ukraine and Russia, a White House summary of the meeting reflected the leaders discussed bilateral matters and Germany’s G7 Presidency, among other things.
Leaders of the Baltic states (Estonia, Lithuania and Latvia) also discussed the situation in Ukraine with German Chancellor this week. They agreed to maintain the current European security structure and not offer any concessions to the Russian President.
The ninth EU-US Energy Council was convened this week in Washington, amid the tense Russia-Ukraine situation and during a time where the EU’s energy sources could be at risk. US Secretary of State Antony Blinken accused Russia of holding back natural gas supplies to Europe to “increase its energy leverage”
The Council’s Joint Statement reaffirmed the EU-US intention to work towards enhancing energy security and promote energy diversification. The two sides also noted cooperation on technical and regulatory upgrades for redirecting the flow of the Trans-Balkan Pipeline toward Ukraine.
On 10 February, UK Prime Minister Boris Johnson met Polish President Andrzej Duda in Warsaw. The leaders discussed the situation between Ukraine and Russia, with the British Prime Minister reaffirming the “UK’s resolute commitment to NATO and to Europe’s defense and security.”
In the event of any further Russian “hostility,” the leaders “underlined the need for European countries to reconsider the Nord Stream 2 gas pipeline in that event.”
On 8 February, Prime Minister Johnson and Dutch Prime Minister Mark Rutte spoke by phone about Ukraine’s tense border situation. He also met with NATO Secretary General Jens Stoltenberg on 10 February.
British Foreign Secretary Liz Truss met with Russian Foreign Minister Sergei Lavrov in Moscow on 10 February. UK Defense Secretary Ben Wallace travelled to Moscow on Friday for a meeting with his counterpart, Minister of Defense of the Russian Federation, General of the Army Sergey Shoygu. The British Defense Secretary has recently met counterparts from Sweden, Norway, Finland, The Netherlands, Germany, Hungary, Croatia, Slovenia, and Poland, as well as the NATO Secretary General to build a coordinated Western response to Russia’s perceived military aggression.
Similarly, US Secretary of Defense Lloyd Austin spoke with Russian Minister of Defense Sergey Shoygu on 12 February. The Pentagon is also preparing to move another 3,000 troops from the 82nd Airborne Division to Europe in the coming days and has temporarily repositioned 160 National Guard troops from Florida to other parts of Europe. The Guardsman had been training Ukraine’s military since being deployed there in late November.
On 10 February, new legislation was laid in Britain’s Parliament to toughen and expand the UK’s sanctions regime against Russia. Minister for Europe James Cleverly signed the legislation that day. Notably, the changes to the UK’s sanctions regime will not designate or impose sanctions on any individuals or businesses automatically, but they do provide additional powers need to be able to do so in the event of any further Russian incursion into Ukraine.
Over the past two weeks, the US Government has been disclosing classified information about Russia’s military movements (also confirmed by commercial satellite imagery). American officials have said the effort is intended to make it more difficult for President Putin to justify an invasion, undercut his standing on the global stage, and build further support for a tougher international response.
Russia and Belarus are holding a large joint military exercise through 20 February near Ukraine’s border and NATO members Poland and Lithuania. President Biden continued to urge Americans to depart Ukraine, noting the situation in the region could “go crazy quickly.” He joined a call on 11 February with other European leaders to discuss the increasingly tense situation surrounding Ukraine. By Friday afternoon, US National Security Advisor Jake Sullivan warned again that Russia could fabricate a pretext to attack Ukraine, adding Russian military forces could cross Ukraine’s border prior to the end of the Olympic Winter Games (20 February). President Biden spent the weekend at Camp David; he and Russian President Putin talked again by phone on Saturday.
On 12 February, Head of Cabinet of the European Commission President Björn Seibert spoke with US National Security Advisor Sullivan on coordinating a response to “impose massive consequences and severe economic costs on Russia should it choose military escalation.”
A White House readout issued after the discussion also affirmed a close partnership on Europe’s energy security.
Meanwhile, the State Department has a “Level 4: Do Not Travel” advisory in place for Americans, citing “increased threats of Russian military action and COVID-19;” and warning “those in Ukraine should depart immediately via commercial or private means.” The advisory also noted US Embassy Kyiv was ordered evacuated on 12 February. On 11 February, the UK Government similarly advised British nationals to depart Ukraine.
The group of bipartisan Senators negotiating a Russia sanctions bill reportedly hit an impasse this week. Senate Foreign Relations Committee Ranking Member James Risch (R-Idaho) acknowledged they could not resolve outstanding issues. He suggested that the Republicans and Democrats could offer their own bills that could be considered together on the Senate floor in a process known as a “side-by-side” vote. One key difference between the two sides is whether the US should impose secondary sanctions on all Russian banks, should Russia invade Ukraine. There are also differing opinions on whether the US should preemptively sanction Russia before any invasion and how the bill should address the Nord Stream 2 pipeline. On Sunday, Republican Senator Lindsey Graham (South Carolina) warned,
“They’re [the Biden Administration] telling us the invasion is imminent, but they’re not telling [President] Putin with clarity what happens if you invade. He should be punished now.”
Notable US Developments
After two weeks of protests in Ottawa by Canadian truck drivers – the “Freedom Convoy,” which initially protested a COVID vaccine mandate for crossing the US border and then expanded to protesting Canadian COVID policies more broadly – blocked significant supply chain bridges to the United States this past week, further complicating North American supply chains, particularly the automotive sector. The Mayor of Ottawa declared a state of emergency, and one Canadian lawmaker characterized the situation as a “nationwide insurrection.”
Notably, Canada’s “Freedom Convoy” has reportedly inspired similar protests in France and the Netherlands. In the United States, reports indicated some might be looking to join in protesting in solidarity against US COVID restrictions, starting possibly in California and reportedly moving across the country to Washington, D.C. On Thursday, American Trucking Associations (ATA) President and CEO Chris Spear responded to the trade ramifications of the North American situation, stating ATA “strongly opposes any protest activities that disrupt public safety and compromise the economic and national security of the United States.” The US Chamber of Commerce, National Association of Manufacturers and Business Roundtable similarly issued a statement, urging the Canadian Government “to act swiftly to address the disruption to the flow of trade and its impact on manufacturers and other businesses on both sides of the border.”
With roads blocked, automakers and some manufacturers have reportedly turned to the skies as an alternate transportation mode for needed supplies.
President Biden and Canadian Prime Minister Justin Trudeau held a video teleconference call on Friday over the blockades affecting North American trade. On Sunday, Canadian police cleared Ambassador Bridge in Ontario, a key trade route between the US and Canada, after arresting protesters blocking the bridge. White House Homeland Security Advisor Dr. Liz Sherwood-Randall issued a statement on the situation on Sunday, detailing the close border cooperation between the two countries.
On 7 February, the Office of the US Trade Representative announced a new 232 tariff agreement with Japan “to allow historically-based sustainable volumes of Japanese steel products to enter the U.S. market without the application of Section 232 tariffs.”
US Secretary of Commerce Gina Raimondo said of the agreement:
“Today’s announcement builds on the deal we struck with the EU and will further help us rebuild relationships with our allies around the world as we work to fight against China’s unfair trade practices and create a more competitive global economy for America’s families, businesses and workers.”
Notable UK Developments
On 8 February, the Prime Minister’s new Business Council convened. Prime Minister Johnson said he hopes the Council will build on the success of initiatives developed last year, such as the electric vehicle (EV) fleet accelerator. A 10 Downing Street summary reflected:
“The discussion covered a number of issues including skills and the importance of new training opportunities, particularly in STEM subjects, to help fill existing vacancies and create high skilled, high wage jobs. They also spoke about the need to continue to invest in low carbon technologies and scale up the renewables sector to deliver the green industrial revolution.”
Also on 8 February, Prime Minister Johnson hosted Lithuanian Prime Minister Ingrida Šimonytė at Downing Street. He reiterated the UK’s support for Lithuania over its trade dispute with the People’s Republic of China. Prime Minister Šimonytė welcomed the UK’s support at the World Trade Organization (WTO) on the matter. The leaders also discussed the tense situation around Ukraine, along with agreeing to further strengthen trades ties, including in offshore renewable energy and fintech.
From 8-11 February, the UK’s International Development Committee delegation visited Bosnia and Herzegovina (BiH). The delegation met with civil society groups, female entrepreneurs, and politicians to discuss supporting dialogues between communities, combatting hate speech and supporting reconciliation across the country.
On 7 February, International Trade Secretary Anne-Marie Trevelyan hosted the UK-Korea Trade Committee to lay the groundwork for an enhanced deal with South Korea. The Trade Secretary and South Korean Trade Minister Yeo Han-koo also signed a new strategic agreement to bolster supply chain resilience, amid the global semiconductor chip shortages.
Notable EU Developments
This week, the European Commission unveiled its long anticipated strategy to address semiconductor shortages in Europe and the plans to strengthen Europe’s technological leadership. The package of proposals, accessible here, includes:
Communication outlining the EU’s strategic considerations and policies proposed to bolster the EU’s chips production, capacity and funding,
Proposal for a Regulation establishing the framework of measures for strengthening Europe’s semiconductor ecosystem (known as the European Chips Act),
Proposal for a Regulation creating a Chips Joint Undertaking under Horizon Europe, the EU’s Research and Innovation Funding program, and
Commission Recommendations on a common EU toolbox to address semiconductor shortages and a mechanism to monitor the semiconductor ecosystem.
The package of proposals would advance the EU’s technological sovereignty agenda, with one of the central components seeking to address the semiconductor supply chain shortages in the bloc. Among other things, the EU would build partnerships with like-minded partners, such as the US and Japan. The European Chips Act has the goal to concentrate 20 percent (in contrast to the current 9 percent) of the global market share of chips production in Europe by 2030. To establish this goal, considerable investments are anticipated, with a goal of reaching €43 billion of additional public and private investments by 2030. A main objective of these investments would be to bridge the gap between the research and the manufacturing and to increase fab facilities in Europe.
European Commission President Ursula von der Leyen said of the European Chips Act,
“[I]t has two main goals: The first goal is, in the short term, to increase our resilience to future crises by anticipating and thus avoiding supply chain disruptions. And the second part is, of course, looking at the mid-term, and there to make Europe an industrial leader in this very strategic market.”
Executive Vice President Margrethe Vestager reiterated Europe’s semiconductor ambitions in a speech are to “prevent new shortages” so the EU will no longer be in a vulnerable position and to “develop innovative, cutting-edge chips, from fundamental research all the way to final market applications.”
On 10 February, the European Commission published a study by the London School of Economics that outlined the global approach of trade and sustainable development (TSD) policies covering the EU, Australia, Canada, Chile, Japan, New Zealand, Switzerland and the US. According to the press release by DG Trade, the study revealed,
“TSD implementation and enforcement vary significantly, for example when it comes to dispute settlement and the use of trade remedies in case of breaches of TSD provisions.”
The French Presidency is advancing political discussions with the European Parliament on a proposal to establish the EU’s International Procurement Instrument. The main points of disagreements relate to the option of exempting developing countries from the scope of the proposal, along with the environmental and social standards that would be linked to the future trade defense measure. If adopted, the measure would enable Brussels to retaliate against countries that reject EU companies from public tenders. The next set of negotiations on the proposal are set for mid-March.
This week, a decision issued by the French data protection regulator, CNIL, with respect to the use of Google Analytics and data transfer concerns to the US, deemed that such transfers are not compliant with the EU’s data protection rules. Consequently, CNIL asked an unnamed French website operator to comply by only sharing anonymous statistical data or “if necessary, to stop using this service under the current conditions” within one month. The enforcement decision may affect recent progress achieved in the ongoing EU-US data flows negotiations (to replace the US-EU Privacy Shield), that had increased impetus after the EU-US Trade and Technology Council was established.
UK-EU Trade Deal Update
Negotiations on the implementation of the Northern Ireland Protocol continued this week, with analysts expressing hope a deal could be achievable by 21 February, during one of the upcoming meetings of the UK Foreign Secretary Liz Truss and European Commission Vice-President Maroš Šefčovič. Following an 11 February meeting, a joint statement noted the need to “stay in close touch and that officials will continue intensive discussions in the coming days.”
On Wednesday, the EU announced the decision to refer the UK to the Court of Justice of the EU (CJEU) over a UK judgment allowing enforcement of an arbitral award granting illegal State aid. The case relates to “a judgment of its Supreme Court of 19 February 2020, which allows enforcement of an arbitral award ordering Romania to pay compensation to investors, despite a 2015 Commission decision having found that the compensation infringed EU State aid rule.” Under the Withdrawal Agreement, the EU may initiate proceedings before the CJEU within four years after the end of the transition period, if it considers the UK did not fulfil its obligations before the end of the transition period. While the proceedings are not connected to the ongoing Northern Ireland Protocol negotiations, many criticized the move, including former British Brexit Minister David Frost, as it highlights the CJEU’s role in the Protocol, which remains a contentious element of the ongoing Protocol implementation negotiations.
Meanwhile, UK Prime Minister Boris Johnson, named Jacob Rees-Mogg as Brexit Opportunities Minister, amid the political crisis resulting from the police investigation into 10 Downing Street lockdown parties, alleged to have taken place during strict UK COVID-19 restrictions. On 8 February, in his call with Dutch Prime Minister Rutte, the Prime Minister Johnson also “discussed challenges around the Northern Ireland Protocol and Prime Minister reiterated the importance of agreeing a solution that maintains peace and stability and protects the Belfast (Good Friday) Agreement in all its dimensions.”
Ahead of the EU-African Union Summit this coming week, reports indicate the African Union will be attempting to push the EU to support an intellectual property (IP) waiver for COVID-19 vaccines at the WTO, a long-standing issue the EU has vehemently advocated against. It remains to be seen how the EU may respond to this pressure. Meanwhile, earlier in the week, reports indicated the WTO decided to take a “strategic pause” given the continued divergent views that remain between WTO member countries’ positions on this topic.
On 11 February, the UK Government published further information about its procurement exercise to secure critical personal protective equipment (PPE) during the early months of the COVID-19 pandemic. The Government also noted it currently “has a strong UK manufacturing base, and a contingency stockpile should there be further spikes in demand.” Effective Friday, the British Government said that all testing requirements have been removed for eligible fully vaccinated arrivals and only a simplified passenger locator forms are needed for such visitors. Visitors who are not fully vaccinated will need to take a pre-departure test and a PCR test on or before day two after they arrive in the UK.
With Americans increasingly frustrated over continuing COVID-19 restrictions, more US state and local governments increasingly lifted local-level ordinances this past week. On 13 February, White House Chief Medical Advisor Dr. Anthony Fauci suggested the US might be transitioning toward COVID-19 being endemic, stating:
“As we get out of the full-blown pandemic phase of COVID-19, which we are certainly heading out of, these decisions will increasingly be made on a local level rather than centrally decided or mandated.” He added, “There will also be more people making their own decisions on how they want to deal with the virus.”
On Friday, Pfizer/BioNTech paused the emergency use authorization (EUA) process on its COVID-19 vaccine for children aged four and younger in the United States. The companies said in a press release that they want to wait until additional data becomes available on a third vaccine dose, likely in early April.