Transatlantic Trade | US and Europe – Week of January 24, 2022
The United States (US) and North Atlantic Treaty Organization (NATO) submitted their responses to Russia’s security demands this past week, which the Russian Foreign Minister indicated gave hope of a dialogue on secondary questions, not the fundamental issues. With the White House suggesting Russia could re-invade Ukraine in February, media reports reflect Ukraine’s President has sought to have the US decrease its rhetoric. Amid the heightened tension, the US and some other countries moved to downsize their personnel operational footprints at their respective embassies in Kyiv.
Despite the tense situation between Russia and Ukraine, the transatlantic partners also focused on some trade matters this past week. The US Congress is moving forward with a competition bill that, among other things, would provide funding for the American semiconductor industry, which remains a serious supply chain challenge. The United Kingdom (UK) concluded its first round of trade agreement talks with India and launched new trade talks with Greenland. The European Parliament had discussions on the European Union’s (EU) anti-coercion mechanism and Carbon Border Adjustment Mechanism, along with discussions on a sanctions regime to address disinformation and cyberattacks. The US and EU also continue to make progress on a deal to replace the court-overturned US-EU Privacy Shield. Meanwhile, talks continue between the UK and EU over Northern Ireland Protocol implementation concerns.
In this issue, we cover:
Ukraine and Russia;
Other notable US, UK, and EU developments;
A brief UK-EU trade deal update; and
COVID-19 highlights among the transatlantic partners.
US officials continue to warn Russia against invading Ukraine and to assert that western allies remain aligned on potential sanctions. Russia has shifted military resources into Belarus, another possible sign the Kremlin’s plans to invade Ukraine are imminent. On 23 January, the US Department of State warned families of Americans’ stationed at the Embassy in Kyiv to evacuate Ukraine; a similar warning to American citizens was noted, with officials stressing those wishing to depart should do so while commercial flight options are available. On 24 January, President Biden participated in a video call with European leaders to discuss Russia’s military buildup on Ukraine’s borders.
Also this week, the North Atlantic Treaty Organization forces commenced a naval military exercise – Neptune Strike ‘22 – in the Mediterranean, an exercise that US Government officials has said in the plans since last year. The Pentagon reported on 24 January that Secretary of Defense Lloyd Austin had placed 8,500 US service members to heightened preparedness to deploy to Europe, given Russia’s continuing provocations along its border with Ukraine. If deployed, the activated service members would be part of the NATO Response Force, which is a 40,000 multinational, multi-domain construct.
House Foreign Affairs Committee Chair Gregory Meeks (D-New York) led a bipartisan congressional delegation this past week to Belgium and Ukraine “to discuss the security situation in Eastern Europe and the buildup of Russian troops along Ukraine’s border and in Belarus.” On 21 January, Chairman Meeks introduced companion legislation to the Senate’s Defending Ukraine Sovereignty Act of 2022, which was introduced by Senate Foreign Relations Committee Chairman Robert Menendez (D-New Jersey).
The evolving situation in Ukraine also dominated the EU’s diplomatic scene this week, as the EU attempts to de-escalate the tension by seeking diplomatic solutions that could resolve the crisis. Despite Washington’s action to limit personnel at its embassy in Ukraine, EU countries reportedly have decided not to evacuate their embassies for the time being. European Commission President Ursula von der Leyen announced in a statement earlier this week that the EU will be offering financial support to Ukraine; she reaffirmed the EU’s support to Ukraine as a sovereign country.
EU27 Foreign Ministers assessed the situation earlier this week, with High Representative for Foreign Affairs and Security Policy Josep Borrell noting,
The most important take away is that we reconfirmed our strong unity and united approach on the challenges to European security.”
The conclusions adopted further reaffirmed:
[O]ngoing strong cooperation and coordination with the United States, NATO, Ukraine and other partner countries. It reiterates the importance of further strengthening the resilience and response capabilities of the EU and its close partners, including in countering cyber and hybrid attacks, foreign information manipulation and interference, including disinformation.”
Coordination between the EU, US and other Western allies, over a package of potential sanctions against Russia if it invades Ukraine, is intensifying. Reports indicate there could include export restrictions targeting crucial technologies, in addition to financial sanctions. French Foreign Minister Jean-Yves Le Drian said in an interview on Friday that sanctions against Russia could also target the Nord Stream 2 gas pipeline, amid increasing fears about Europe’s gas supply shortages.
On 27 January, UK Prime Minister Boris Johnson addressed the House of Commons, providing an update on the situation in Ukraine. He noted Ukraine “faces the danger of a renewed invasion and this time the force arrayed on her frontier comprises over 100,000 troops – far bigger than anything Russia has deployed against her before.” Prime Minister Johnson affirmed the “UK will not hesitate to toughen our national sanctions against Russia in response to whatever President Putin may do.” He noted that, similar to the US, Britain had temporarily withdrawn some staff from its embassy in Kyiv. The Prime Minister also confirmed the UK has “acted to strengthen Ukraine’s ability to defend her soil by supplying anti-armour missiles and deploying a small training team of British personnel, in addition to the work of Operation Orbital, which as the House will know, has trained 21,000 Ukrainian troops since 2015.”
President Biden spoke with Ukraine President Volodymyr Zelenskyy on 27 January. Also on Thursday, Under Secretary for Political Affairs Victoria Nuland said,
If Russia invades Ukraine, one way or another, Nord Stream 2 will not move forward.”
She reminded the pipeline from Russia to Germany “has not been tested, it has not been certified, it has not met the regulatory pieces that would allow it to be turned on both on the German side and the EU side.” The White House shared this week that US President Joe Biden would welcome German Chancellor Olaf Scholz at the White House on 7 February.
Russian Foreign Minister Sergei Lavrov said in an interview early Friday morning that any new sanctions related to Ukraine, including Nord Stream 2, would be “tantamount to breaking off relations” with the West. Earlier in the week, on 23 January, the US Department of Homeland Security circulated a bulletin to American critical infrastructure operators, warning Russia could launch a cyberattack against targets on American soil in response to its potential invasion of Ukraine.
Meanwhile, political advisers from Russia, Ukraine, France and Germany met in Paris this week to talk in the so-called Normandy Format. According to a readout of the meeting, the advisors supported “unconditional observance of the cease fire and full adherence to the measures to strengthen the cease fire of 22 July 2020 regardless of differences on other issues of the implementation of the Minsk agreements.” A follow up meeting is scheduled in two weeks in Berlin.
Axios reported on 28 January that the Chairman of Ukraine’s parliament had sent a letter to eight US senators outlining four specific requests for security assistance and sanctions that Kyiv believes will help deter a Russian invasion. A group of bipartisan Senators is currently negotiating compromise language on a sanctions package, with reports a deal is nearing and the bill could soon be on the Senate floor. Reports suggest the Senate sanctions package may target the Russian financial sector and provide for sanctions on top Russian officials, including President Vladimir Putin. Republican Senators involved in the negotiations are reportedly pushing for some sanctions to be imposed before any invasion.
Also on 28 January, President Biden and President von der Leyen issued a joint statement on US-EU Cooperation on Energy Security. While the statement touches on climate change priorities, it also acknowledges,
The United States and the EU are working jointly towards continued, sufficient, and timely supply of natural gas to the EU from diverse sources across the globe to avoid supply shocks, including those that could result from a further Russian invasion of Ukraine.”
The leaders also called on all major energy producer countries to ensure world energy markets are stable and well-supplied, noting they intend to further discuss this at the meeting of the US-EU Energy Council on 7 February.
Notable US Developments
Both chambers of the Congress return to session in Washington on 1 February. Democratic Congressional Leaders indicated last week that an Omnibus spending bill to fund the US Federal Government for the remainder of the fiscal year is likely to come together before current funding runs out on 18 February.
The House released its counterproposal to the Senate-approved US Innovation and Competition Act (USICA) late on Tuesday – the America COMPETES Act. Among other things, the House bill includes $52 billion in semiconductor funding to combat the chip shortages, along with funding provisions for science and technology research aimed at enhancing American competitiveness. The measure also includes provisions that would reauthorize the Generalized System of Preferences program and the Miscellaneous Tariff Bill; and language that would grant the Treasury Secretary more authority to freeze or monitor financial accounts, such as cryptocurrency, used for cross-border illegal activity. The lower chamber has yet to debate its bill, which includes a number of Democratic-led priorities.
US Secretary of Commerce Gina Raimondo warned on Tuesday,
The semiconductor supply chain is very fragile. And it’s going to remain that way until we can increase chip production in the United States.”
She acknowledged the $52 billion in USICA and the America COMPETES Act is “barely a drop in the bucket,” adding:
Every company is going to have to invest an enormous amount of their own capital, and we’re going to require them to do that if we’re going to hit the goal.”
The day before, the Commerce Department released the results from the Risks in the Semiconductor Supply Chain Request for Information issued in Sept. 2021. Among other things, the summary showed that median inventory held by chips consumers (including automakers or medical device manufacturers, as examples) has fallen from 40 days in 2019 to less than 5 days in 2021. The main bottleneck that respondents identified is the need for additional fab capacity. Meanwhile, the US economy grew 1.7 percent in the fourth quarter of 2021.
Notable UK Developments
On 28 January, the UK and India concluded the first round of two-week talks for an India-UK Free Trade Agreement (FTA). A summary reflected, “technical experts from both sides came together for discussions in 32 separate sessions covering 26 policy areas including: Trade in Goods, Trade in Services including Financial Services & Telecommunications, Investment, Intellectual Property, Customs and Trade Facilitation, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Competition, Gender, Government Procurement, SMEs, Sustainability, Transparency, Trade and Development, Geographical Indicators and Digital.” The second round of talks is set for 7-18 March.
On 27 January, the UK Government formally launched FTA talks in Copenhagen with Greenland, seeking to reduce or remove tariffs on seafood, as well as strengthen other aspects of the relationship. The talks also provide a platform to deepen cooperation on ensuring regional stability in the Arctic and collaboration on UK priorities, including science, technology, climate change and development.
Notable EU Developments
The European Parliament’s International Trade (INTA) Committee met this week to renew Bernd Lange’s (S&D group, Germany) mandate as the Chair of the Committee. A broad range of trade policy issues were also debated this week. The largest political groups broadly supported the anti-coercion tool, while smaller groups raised some reservations. With regard to the Carbon Border Adjustment Mechanism (CBAM), it appears political groups are currently disagreeing on the architecture of the future mechanism which can create tensions as negotiations progress within the INTA Committee. The INTA Committee has exclusive competences on related trade provisions of the CBAM proposal, while the Environment, Health and Food Safety Committee will be leading on the remaining components of the legislative file.
French Minister of Trade Franck Riester presented the French Council Presidency priorities to the INTA Committee. Strengthening economic relations between Europe and Africa and the need to finalize the negotiations on the International Procurement Instrument with the European Parliament were stressed by the Trade Minister. Progressing with the Foreign Subsidies Instrument is also a key priority, as the French Presidency started more in-depth deliberations on the matter this week.
Political discussions on the future due diligence regime incorporated in the sustainable corporate governance is heating up in Brussels, as the publication of the future law is reaching the final drafting stages ahead of publication in February. One of the more controversial elements dominating the political debate over the past few weeks relates to whether forced labor goods will be banned. The European Commission appears to be considering the option of establishing a product withdrawal mechanism in the due diligence requirement that companies must adhere to in the future law, instead of a ban of such imports.
On 27 January, after weeks of collecting evidence, the EU referred the People’s Republic of China (“China”) to the World Trade Organization (WTO) over its perceived discriminatory trade practices against Lithuania. Executive Vice-President and Trade Commissioner Valdis Dombrovskis underlined,
Launching a WTO case is not a step we take lightly. However, after repeated failed attempts to resolve the issue bilaterally, we see no other way forward than to request WTO dispute settlement consultations with China. The EU is determined to act as one and act fast against measures in breach of WTO rules, which threaten the integrity of our Single Market. We are in parallel pursuing our diplomatic efforts to deescalate the situation.”
During the initial consultation process, China will be asked to provide more information in order to reach a solution through a consultation process. This is the second WTO case the EU launched in the past weeks, following the announcement on 20 January, where the EU challenged Russia before the WTO with regard to export restrictions on wood products.
On Friday, the US Department of State announced Under Secretary for Economic Growth, Energy, and the Environment Jose Fernandez will travel to Vilnius, Lithuania, from 30 January- 1 February, and to Brussels, Belgium, from 2-4 February. While in Vilnius, Under Secretary Fernandez is expected to discuss the trade dispute between Lithuania and China. In Brussels, he is expected to discuss countering economic coercion and other matters.
Earlier this week, the European Parliament’s Special Committee on Foreign Interference adopted its recommendations, calling for the EU to build a sanctions regime against disinformation. The investigation, conducted by the Special Committee, concluded that there is a severe “threat posed by foreign autocratic regimes”. Next to strengthened EU resilience and an ability to fight back against cyberattacks and foreign disinformation, the recommendations proposed to “provide financing alternatives to Chinese foreign direct investment used as geopolitical tool” and to “clarify “highly inappropriate” relations between certain European political parties and Russia”. The European Parliament’s plenary is due to debate and endorse the recommendations during the March plenary session.
Meanwhile, the US and EU formally communicated at the end of last week at the WTO level that “the United States and the European Union are notifying the Dispute Settlement Body (DSB) that they are terminating the dispute before the panel pursuant to the DSU in light of the agreed procedures for the Article 25 proceeding.”This aligns with the October 2021 EU and US agreement to suspend steel and aluminum trade dispute.
EU Justice Commissioner Didier Reynders indicated this week that the EU-US may be able to secure a deal on data flows before this summer. He said,
We are very open to [going] as fast as possible. We have seen very concrete improvement on the U.S. side with new innovative solutions.”
The EU’s top court annulled the EU-US Privacy Shield in July 2020.
UK-EU Trade Deal Update
In a joint statement published earlier this week, Commission Vice-President Maroš Šefčovič and UK Foreign Secretary Liz Truss commented on “their shared desire for a positive EU-U.K. relationship underpinned by our shared belief in freedom and democracy and cooperation on common global challenges”. The two counterparts are due to confer next week to take stock of the progress on talks related to implementation of the Northern Ireland Protocol.
On 26 January, UK Prime Minister Boris Johnson announced the UK delegation members appointed to the UK-EU Parliamentary Partnership Assembly (PPA). The UK-EU PPA was established in the UK-EU trade and co-operation agreement and aims to become a forum where Members of Parliament from the House of Commons and the European Parliament can exchange views on the UK-EU partnership. The European Parliament named its Members in October 2021. With both Parliamentary representatives appointed, the UK-EU PPA is likely to arrange a first meeting in the coming weeks.
On 24 January, the US Food & Drug Administration (FDA) restricted the use of monoclonal antibody treatments from Regeneron and Eli Lilly, saying the drugs are unlikely to work against the Omicron variant. The FDA stated:
[T]hese treatments are not authorized for use in any U.S. states, territories, and jurisdictions at this time. In the future, if patients in certain geographic regions are likely to be infected or exposed to a variant that is susceptible to these treatments, then use of these treatments may be authorized in these regions.”
Separately, GSK and Vir Biotech are reportedly boosting production of their drug sotrovimab to help meet soaring demand in the United States. The FDA has also expanded its approval for the use of Gilead Sciences’ antiviral COVID-19 drug remdesivir to treat non-hospitalized patients aged 12 years and above. This week, BioNTech/Pfizer launched a clinical trial in the US on a new vaccine targeting the Omicron COVID-19 variant.
The US is closely monitoring the new subvariant to Omicron – BA.2 – that is driving new outbreaks in parts of Europe, such as Denmark, the UK, and Norway, and other parts of the world (49 countries have reported cases). There are concerns that the specific mutations identified with the BA.2 subtype could make it more contagious or better able to evade vaccines, which allowed Omicron to spread pervasively around the world. Thus far, almost half of US states have reported some BA.2 cases. Notably, the World Health Organization has yet to classify BA.2 as a “variant of concern.”
From 10 February, UK citizens will be able to access Pfizer’s Paxlovid. The British Government has procured 4.98 million courses of antivirals – 2.75 million courses of Paxlovid and 2.23 million courses of molnupiravir – to help combat COVID-19 infections. From 27 January, England returned to Plan A for regulations on face coverings and COVID Passes. With the lifting of restrictions, UK Prime Minister Johnson declared the country safe and open for visitors, with no testing for fully vaccinated visitors.