Transatlantic Trade | US and Europe – Week of February 22, 2021
In the United States (US), President Joe Biden’s US Trade Representative nominee formally began the confirmation process, testifying before the Senate Finance Committee on Thursday and moving one-step closer to Senate approval. The United Kingdom (UK) and Australia signed a new agreement this week, establishing a bilateral partnership – a “Space Bridge” – between their respective Space Agencies and space industry private sectors. The Biden Administration signaled on Thursday that the US is willing to work with allies on global discussions related to digital tax rules. Meanwhile, the European Union (EU) continues to justify its COVID-19 vaccine export control mechanism as a transparency initiative, not a barrier to exporting those vaccines manufactured in the bloc to other countries around the world.
In this issue, we also cover:
COVID-19 developments more broadly, with respect to the US, UK and EU;
Updates related to the EU COVID-19 vaccine export control mechanism;
Notable UK, EU and US developments;
A US-EU update and US-UK update;
UK-EU trade deal developments; and
Sanctions developments with respect to Russia, Belarus, Myanmar/Burma, Iran, Venezuela and Zimbabwe, along with a US Corruption Designation.
COVID-19 Updates | US, UK, EU
This week, the US Food & Drug Administration deemed Johnson & Johnson’s COVID-19 “safe and effective,” moving the candidate vaccine one-step closer to emergency use authorization (EUA) approval. The United States marked a grim milestone of 500,000 related COVID-19 fatalities on Monday; and on Thursday marked 50 million COVID-19 vaccine doses have been administered to Americans.
On 25 February, Pfizer/BioNTech announced they have begun an evaluation of the safety and effectiveness of a third dose of its vaccine (BNT162b2) to understand the effect of a booster on immunity against COVID-19 caused by the circulating and potential newly emerging COVID-19 variants. Participants from the Phase 1 study in the United States will be offered the opportunity to receive a booster of the current vaccine six to 12 months after receiving their initial two-dose regime.
On Monday, 22 February, UK Prime Minister Boris Johnson unveiled a roadmap that would take England out of lockdown before the end of June. On Thursday, Britain’s Health Ministry acknowledged less pressure on UK hospitals in a statement that noted,
Following advice from the Joint Biosecurity Centre and in the light of the most recent data, the four UK Chief Medical Officers and NHS England National Medical Director agree that the UK alert level should move from level 5 to level 4 in all four nations.”
EU Heads of State and Government met virtually on Thursday afternoon to discuss the progress of the pandemic in Europe, as restrictive measures continue to apply across many European countries and vaccine distribution remains slow. According to a statement issued, the need to “urgently accelerate the authorisation, production and distribution of vaccines, as well as vaccination” was highlighted. Heads of State and Government underlined that “Companies must ensure predictability of their vaccine production and respect contractual delivery deadlines. Transparency with regard to the overall efforts should be enhanced”. Meanwhile, EU leaders continue to discuss the possibility of introducing a common approach for vaccination certificates when travelling abroad.
The World Trade Organization (WTO) will host an Aid-for-Trade Stock Taking 2021 event next month to survey the trade impacts of the COVID-19 pandemic and make the case for the mobilization of Aid-for-Trade financing to support recovery and foster resilience. A one-page summary of the agenda for the three-day WTO event is available here. The US Mission in Geneva will sponsor an event titled, “Trade and Development Challenges Arising from COVID-19: Responses, Recovery, and Resilience,” on 24 March.
Update: EU COVID-19 Vaccine Export Control Mechanism
The European Commission’s Chief Trade Enforcement Officer, Denis Redonnet, spoke to Members of the European Parliament’s International Trade Committee on Wednesday about the EU’s export control mechanism for COVID-19 vaccines. He clarified that this is an export authorization system, which is envisioned to be applied as a transparency tool. Since the tool entered into force, the European Commission received about 112 requests for export authorizations for exports to 24 countries, including the UK, Japan, Canada and Mexico, all of which were approved. Overall, the authorization process can vary from two to five working days, which would not significantly delay the export of vaccines from the EU. The temporary scheme is likely to be extended until 31 March 2021. The European Commission is expected to publish a transparency report that details the various requests received and approved.
Notable UK Developments
On 23 February, the UK and Australia signed a new “Space Bridge” partnership, seeking to “unlock improved access to trade, investment and academic research opportunities, better advice to businesses and innovative bilateral collaborations.” The arrangement enhances cooperation between the UK Space Agency, UK Department for International Trade, Australian Trade & Investment Commission, and the Australian Space Agency, coordinating opportunities for the UK and Australian governments and companies to work on space-related activities.
On 25 February, the UK Government outlined a series of measures to support the UK’s space sector in building back better. This includes investment promotions and export support, such as establishing a new virtual Space Sector Export Academy to provide training to small- and medium-enterprise (SME) space businesses and increase international trade, investment skills and knowledge. Minister for Exports Graham Stuart noted, “The space sector generates more than a third of its income from exports. We want to help businesses grow their exporting, and measures like the Space Sector Export Academy will upskill Space SMEs to do just that.” UK Government Minister for Scotland Iain Stewart observed, “The space sector will be an important part of Scotland’s economic future, bringing highly skilled jobs and investment to Scotland.”
On 23 February, UK International Trade Secretary Liz Truss spoke at the NFU conference about opportunities for farmers through free and fair trade. She noted the UK has “an opportunity as independent trading nation to set our own tariffs” to deal with issues that she claims to have held UK farmers back. She spotlighted some issues as including previous high tariffs of 26% on beef going to the American market and a 150% tariff on Scotch Whisky to India; the US lamb ban and India’s “red tape” around apples and pears. Secretary Truss noted the UK is “seizing our freedom [from the EU] to deepen our trade worldwide from the Americas to the Asia-Pacific.” To help further promote UK agricultural exports, the UK Export Finance, she reminded, is unlocking funds to help farmers and producers invest in new facilities, processing plants or machinery. In negotiating increased market access with trading partners, Secretary Truss said, “[W]e are not going to lower our food standards in any trade deal we sign. I will never sign a deal that is bad for British farming.” Secretary Truss shared the Trade and Agriculture Commission would produce a report next week, “showing the steps to take to be an innovative champion of high standards and free and fair trade, and help map the future of British farming.”
On 19 February, Secretary Truss appointed Jonathan Knott as the new HM Trade Commissioner (HMTC) for Latin America and the Caribbean region. In this capacity, HMTC Knott will “grow trade and investment between the UK and Latin America and the Caribbean, as the UK moves forward with its new independent trade policy.”
Notable EU Developments
Regulation (EU) 2021/241 on the Recovery and Resilience Facility (RRF), the central feature of the NextGenerationEU Recovery Instrument, which aims to relaunch the EU’s economy in the fallout of the COVID-19 pandemic, entered into force on 19 February 2021. The €672.5 billion RRF Instrument is divided into €360 billion loans and €312.5 billion grants provided to EU Member States upon their request. Member States are required to submit by 30 April 2021 their National Recovery Plans to the European Commission based on a set of criteria outlined in the Regulation (e.g. 37 percent of the plan including related to climate & sustainable investment and 20 percent of national efforts directed to digital projects) and fulfilling certain country-specific recommendations.
Following the EU’s Trade Policy Review publication last week, Executive Vice-President (EVP) and Commissioner for Trade Valdis Dombrovskis spoke at the European Parliament’s International Trade Committee on Wednesday. EVP Dombrovskis stressed “openness and strategic autonomy are not mutually exclusive”, amid multiple questions related to the proposed open strategic autonomy concept introduced in the trade policy review. Concerning the possibility of imposing an import ban for products made with forced labor, EVP Dombrovskis confirmed the European Commission is currently considering various options, but it remains unclear if this will be introduced in expected corporate due diligence and accountability legislation. The EU is also pushing for climate neutrality in its current and future trade deals with G20 countries.
On 24 February, Turkish Trade Minister Ruhsar Pekcan highlighted Turkey’s intentions to be fully a part of the EU and stated, “The EU should adopt an approach worthy of the importance of bilateral relations, and the obstacles to the introduction of Turkish steel to the EU market in accordance with competition rules should be removed.” Minister Pekcan also spotlighted the importance of upgrading the Customs Union as a key step.
EU-Turkish tension may flare up again, as Turkey reportedly has restarted oil and gas exploration activities in the Aegean. This remains an issue of particular concern to EU Member States Greece and Cyprus, as Turkey is operating within disputed maritime territory.
Turkey also made headlines recently as EU diplomats were poised to include the country in the upcoming review of the EU’s blacklist for non-cooperative jurisdictions for tax purposes. It was decided to avoid such an inclusion at this time, since this could negatively affect diplomatic relations between the EU and Turkey. The EU instead gave Turkey a deadline of May 2021 to provide further information in order to avoid being blacklisted. On 22 February, the EU’s blacklist for tax purposes was modified as the Council of the EU removed Barbados and added Dominica. To date, jurisdictions of concern include American Samoa, Anguilla, Dominica, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands, Vanuatu, and Seychelles.
Notable US Developments
US Special Presidential Envoy for Climate John Kerry joined United Nations (UN) Secretary-General António Guterres on 19 February, formally marking the United States’ re-entry into the Paris Agreement during the opening session of the UN Association of the United States of America’s virtual 2021 Global Engagement Summit. In a statement, US Secretary of State Antony Blinken stressed,
We are reengaging the world on all fronts, including at the President’s April 22nd Leaders’ Climate Summit. And further out, we very much looking forward to working with the United Kingdom and other nations around the world to make COP26 a success.”
On Thursday, 25 February, the Senate Finance Committee held a confirmation hearing for Katherine Tai to serve as the next US Trade Representative. Senators discussed the importance of modernizing American trade policy to invest in critical supply chains and to compete with the People’s Republic of China (“China”). They discussed specific industries, such as agriculture and manufacturing, and other concerns such as tariffs, implementation, and the importance of opening new markets. Senators of both parties also urged the Biden Administration to prioritize trade policy, referencing remarks from administration officials that President Biden would not focus on trade agreements until addressing domestic priorities related to COVID-19.
In opening remarks, USTR-nominee Tai said her first task will be to help communities emerge from the COVID-19 pandemic’s economic effects. The Office of the US Trade Representative (USTR), she said, will play a key role in securing vital supply chains that have affected the US response to the pandemic. She called for trade policies that promote equitable growth and enhance American competitiveness and innovation. USTR-nominee Tai also spoke of re-engaging with international institutions on issues such as climate change and the COVID-19 pandemic. She affirmed she will work with US allies, including the European Union.
Senate Finance Committee Chairman Ron Wyden (D-Oregon) discussed steel and aluminum tariffs on American allies that have led to retaliatory actions at the hearing. USTR-nominee Tai said that tariffs are a “legitimate tool with the trade toolbox,” and that there must be an acknowledgment that there is a global marketplace problem with steel and aluminum due to overcapacity and over production. She conceded that the steel and aluminum industries face unfair trade practices from multiple countries, saying the US should work cooperatively with allies.
Senate Finance Committee Wyden argued foreign countries are using a “digital dagger” to target unfairly leading American companies. USTR-nominee Tai said she was aware of digital services tax developments, saying USTR would coordinate closely with the US Department of the Treasury as well as international bodies such as the Organization for Economic Cooperation and Development (OECD) on this matter.
Meanwhile, also on Thursday, Secretary of the Treasury Janet Yellen sent a letter to her Group of 20 (G20) counterparts that covered multiple topics, including the ongoing OECD discussions on digital taxation. She noted, “As we know, the changing global economy presents new challenges for corporate taxation. The United States is committed to the multilateral discussions on both pillars within the OECD/G20 Inclusive Framework, overcoming existing disagreements, and finding workable solutions in a fair and judicious manner.” A Treasury official confirmed, “[T]he United States is no longer advocating for ‘safe harbor’ implementation of Pillar 1.” This opens the prospect of concluding OECD talks on new global digital tax rules by this summer.
Meanwhile, Senate Majority Leader Chuck Schumer (D-New York) said during floor comments on Thursday that there exists bipartisan national support for the Democratic-led $1.9 trillion COVID-19 relief package. Republican lawmakers, however, continue to resist the latest stimulus package, raising concerns it is not targeted and contains extraneous provisions not related to the COVID-19 pandemic. The House of Representatives takes up the bill today. Few Republicans, if any, are likely to vote for it.
Congressional staffers from both parties argued behind closed doors before the Senate Parliamentarian on Wednesday, 24 February, over whether critical pieces of the $1.9 trillion House coronavirus relief plan conflict with the budget rules that govern debate in the Senate. The Senate Parliamentarian ruled late on Thursday that the $15 per hour federal minimum wage provision would be ruled out of order when challenged. The Parliamentarian’s ruling means that any Senator could raise a point order against the minimum wage increase and thereby force the provision to be removed from the bill. When the House of Representatives votes on its COVID-19 relief package, the minimum wage provision will be included. Democrats, nonetheless, will have to seek another route for advancing the federal wage increase.
Last week’s Munich Security Conference served as a platform for the EU and the US to express their transatlantic and global commitments and intentions. US President Joe Biden participated in the virtual Munich Security Conference on Friday, 19 February, stating, “America is back. The transatlantic alliance is back. And we are not looking backward; we are looking forward, together.” He argued the world is “at an inflection point” between autocracy and democracy, urging democracies to band together to address shared challenges. President Biden added, “We have to push back against the Chinese government’s economic abuses and coercion that undercut the foundations of the international economic system. Everyone — everyone — must play by the same rules.” Noting that US and European companies must publicly disclosure their corporate governance structure and abide by rules to deter corruption and monopolistic practices, he said, “Chinese companies should be held to the same standard.”
President Biden also spotlighted Russia as seeking to undermine democracies, saying, “Russian leaders want people to think that our system is more corrupt or as corrupt as theirs. But the world knows that isn’t true, including Russians.” He added, Russian President Vladimir Putin seeks to weaken Europe and the NATO Alliance, adding it is “so much easier for the Kremlin to bully and threaten individual states than it is to negotiate with a strong and closely united transatlantic community.”
Despite the welcomed change in tone, EU leaders reportedly remain concerned that “Trumpism remains alive”, especially given the divide and distrust between Democrats and Republicans in Washington and looking ahead to the uncertainty of the results of the next US presidential election in 2024. The EU implemented its “strategic autonomy” approach during the uncertainty during the Trump Administration, flexing independence on its relationships with China and Russia and on trade issues such as industrial policy and digital regulations and taxes. It remains unclear how the EU will align with the Biden Administration on issues with respect to China and Russia.
On 22 February, the Council of the EU reaffirmed the EU’s commitment to protect and promote human rights. The EU will “fully support” the work and mandate of the UN High Commissioner for Human Rights; it will make use of all available instruments, including the EU Global Human Rights Sanctions Regime, to denounce human rights abuses and violation.
Also during her Senate confirmation hearing, USTR-nominee Tai said in response to how much priority she would put on finishing trade negotiations with the United Kingdom, “If confirmed it will be important to me to review the progress and the conversations so far.” While the Trump Administration had significantly advanced the bilateral negotiations by the end of its term, a potential final deal faces internal US deadlines, if it is to be considered under existing Trade Promotion Authority (TPA), which expires on 1 July 2021. For example, for a final deal to be considered by the US Congress under this authority USTR must notify Congress of its intent to sign the agreement by 1 April; the Agency would also have to publish the text of the trade agreement by 1 May to qualify for expedited approval procedures.
UK officials have previously indicated a willingness to address Biden Administration priorities in areas such as labor and environment, including climate change. The UK is also seeking to meet with Tai, once confirmed by the Senate, to press their case for concluding the deal under the existing TPA authority. Tai could be confirmed with the next two weeks.
UK-EU Trade Deal | Updates
As anticipated, on 19 February, the European Commission formally requested a two-month technical extension of the provisional application of the EU-UK Trade and Cooperation Agreement, in order to provide enough time for the formal translation and legal review of the Agreement into the 24 EU languages, a review that includes judicial linguists to ensure consistency, and eventually European Parliament ratification. The UK Government granted the extension on 23 February, setting the provisional application date of the Agreement for 30 April 2021, instead of 28 February 2021.
On Wednesday, European Commission Vice President Maroš Šefčovič and UK Cabinet Office Minister Michael Gove failed to agree on delaying the Northern Ireland’s post-Brexit trade checks on goods entering Northern Ireland from Great Britain during the EU-UK Joint Committee meeting. In a joint statement issued after the meeting, that the leaders noted “there would be further joint engagement with business groups and other stakeholders in Northern Ireland” and that the UK “would provide a new operational plan with respect to supermarkets and their suppliers, alongside additional investment in digital solutions for traders in accordance with the Protocol”. Talks will continue in an effort to find solutions to address the supply chain challenges ahead of the next meeting, which is anticipated to happen before the end of March. Former UK Chief Negotiator David Frost, who was recently appointed to Prime Minister Johnson’s Cabinet, will be leading the talks going forward.
In the meantime, Northern Ireland’s Democratic Unionist Party (DUP) announced on 21 February the intention to legally contest the Northern Ireland Protocol for not being compatible with British law, since it creates trade barriers between Northern Ireland and Great Britain. DUP Leader Arlene Foster stated,
We have considered a number of legal routes, and will be joining other unionists from across the United Kingdom in judicial review proceedings to challenge the Protocol, unless arrangements are put in place”.
On 19 February, the European Commission published its draft adequacy decisions, the Draft Adequacy Decision under the General Data Protection Regulation and the Draft Adequacy Decision under the Law Enforcement Directive, ensuring continuation of data flows from the EU to the UK. The Draft Adequacy Decisions needs to be endorsed by Member States through the Comitology procedure, and is subject to the opinion by the European Data Protection Board that is to be formally published by the European Commission. The Adequacy Decisions are set to be renewed in four years.
Sanctions Updates | Russia, Belarus, Myanmar, Iran
On 22 February, the Council agreed to impose further sanctions on Russian officials in the judiciary system and related to the imprisonment of Alexei Navalny. These designations will be the first sanctions adopted under the EU Global Human Rights sanction regime. Furthermore, these new sanctions regime could be imposed in coordination with the US, which also condemns the Navalny’s imprisonment.
On Thursday, 25 February, in commemoration of the seventh anniversary of the illegal annexation of the region of Crimea by the Russian Federation, the EU High Representative, issued a declaration reiterating the EU’s position, “[I]t does not recognise and continues to condemn this violation of international law.”
On Tuesday, 23 February, at the UN General Assembly debate on the situation in Ukraine, UK Ambassador Jonathan Allen reiterated “the United Kingdom’s unwavering support to Ukraine’s sovereignty, independence and territorial integrity, including within its internationally recognised borders and territorial waters.” He added, “Russia continues to commit serious human rights violations beyond its borders, in Crimea.” Ambassador Allen also spotlighted concerns with Russia’s militarization efforts in Crimea, the Sea of Azov and the Black Sea. He further noted, “Russia continues to incite and support military activity by armed formations, including through the deployment of Russian troops and military equipment on Ukrainian territory.”
US Secretary of State Antony Blinken also issued a statement on Thursday, “marking the seventh anniversary of Russia’s invasion and seizure of Crimea — a brazen affront to the modern international order,” and affirming Crimea is Ukraine. He further welcomed Ukraine’s new initiative, the Crimean Platform, adding the United States will continue to work with Ukraine, allies and partners “to end Russia’s occupation of the Crimean Peninsula and aggression in eastern Ukraine.”
The Biden Administration reportedly released an overdue report to Congress on Friday, 19 February; listing two entities already sanctioned for supporting construction of the Nord Stream 2 pipeline. Despite bipartisan support in Congress to stop the pipeline’s construction, the report held off on naming German entities, which many view as efforts by the Administration to engage the European Union (EU) on other areas of concerns, such as China and Iran.
House Foreign Affairs Committee Lead Republican McCaul criticized the report, saying,
Simply put, today’s sanctions designations are wholly inadequate. Congressional intent is clear and cannot be ignored: the mandatory authorities passed with bipartisan support in the last two NDAAs [National Defense Authorization Acts] are meant to stop the completion of the malign Russian Nord Stream 2 pipeline. Period. Sanctioning only the Russian pipe-laying vessel Fortuna and its owner, KVT-RUS – which were both already sanctioned by the previous Administration under separate authorities – does not meet that intent.”
He reiterated lawmakers’ calls for a State Department briefing “to discuss when the Biden Administration plans to take further action against additional Russian entities currently engaged in sanctionable activity as is required by law.” Bipartisan House lawmakers sent a letter on 17 February, requesting a briefing from the State Department on the Administration’s efforts to implement new US sanctions related to the Nord Stream 2 pipeline.
Senate Foreign Relations Committee Ranking Member James Risch (R-Idaho) also criticized the Biden Administration for not expanding sanctions beyond the Trump Administration’s January designations. He noted in particular, “We know pipeline construction is currently underway in the Baltic Sea. Maritime tracking information makes it clear that ships not covered in today’s report are currently active in supporting Nord Stream 2 construction.” Ranking Member Risch also warned, “Unless this action is corrected, we risk the abandonment of our Central and Eastern European allies, the undermining of NATO, and a reversal of U.S. efforts to push back on Russian influence.”
On Thursday, 25 February, the US Department of State expressed concern that a Russian court sentenced Valentina Baranovskaya and her son, Roman Baranovsky, to terms of two and six years in a Russian penal colony, respectively, allegedly for being practicing Jehovah’s Witnesses. The State Department noted this is “the latest development in an ongoing crackdown on members of religious minority groups in Russia.”
On Thursday, 25 February, the Council of the EU decided to prolong sanctions targeting Belarusian President Lukashenko, high officials responsible for violent repression acts, and prominent business people and companies benefitting or supporting from the Lukashenko regime. To date, 88 individuals and 7 entities have been targeted by EU sanctions.
On Monday, 22 February, the United States sanctioned two individuals connected to the Burmese military apparatus and allegedly responsible for the coup – Lieutenant General Moe Myint Tun and General Maung Kyaw. The United States also continues to urge the regime to release political prisoners, including State Counselor Aung San Suu Kyi and President Win Myint. This move comes after the United States sanctioned ten current or former military officials as well as three Burmese entities on 11 February.
On 25 February, UK Foreign Minister Dominic Raab announced new sanctions against six military members of the State Administration Council for their responsibility for serious human rights violations. The United Kingdom has previously designated 19 individuals related to the situation in Myanmar. The UK Department for International Trade is also working on ensuring that UK businesses are not trading with Myanmar’s military-owned companies. In a message to the people of Myanmar, Minister Raab said, “the UK is working closely with our international partners to support your right to democracy and freedom of expression.”
Also on Monday, the Council of the EU adopted conclusions on the situation in Myanmar/Burma, noting the EU’s readiness and work towards imposing sanctions targeting those directly responsible of the crisis in support of the Burmese population and condemning the military coup. The EU urged the immediate release of U Win Myint and Daw Aung San Suu Kyi.
On 23 February, Foreign Ministers of France, Germany and the United Kingdom (collectively known as the “E3”) issued a joint statement in response to Iran’s suspension of the Additional Protocol and the transparency measures under the Joint Comprehensive Plan of Action (JCPoA). The E3 Ministers stated, “Iran’s actions are a further violation of its commitments under the JCPoA and significantly reduces safeguards oversight by the IAEA [International Atomic Energy Agency].” They further urged “Iran to stop and reverse all measures that reduce transparency and to ensure full and timely cooperation with the IAEA.”
On 25 February, the EU High Representative issued a declaration with respect to Iran, reiterating the EU’s commitment to the JCPoA and highlighting concerns related to Iran’s decision to suspend provisions that allow for the IAEA to verify that nuclear material and activities in Iran remain for exclusively for peaceful purposes. The declaration also welcomed the prospective return of the US to the agreement and full implementation of the JCPoA by Iran.
On 22 February, the Council of the EU imposed sanctions upon nineteen officials and members of the government of Venezuela and the National Assembly in view of the deteriorating situation of human rights, rule of law and democracy in Venezuela and in light of the elections held on 6 December 2020.
On 19 February, the Council of the EU announced the renewal of the Zimbabwean arms embargo, the maintenance of the asset freeze measures imposed on the state-owned company Zimbabwe Defence Industries, and the continuation of the suspension of the restrictive measures against three individuals.
US Corruption Designation
On 25 February, the US State Department designated former Prosecutor General Dobroslav Trnka of the Slovak Republic, alleging involvement in significant corruption under Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act of 2020. State also designated his son, Jakub Trnka. Consequently, both individuals are ineligible for entry into the United States.