Transatlantic Trade | US and Europe – Week of July 28, 2021
Travel is easing in the European Union (EU), with the implementation of a COVID-19 Digital Certificate. The United States (US), along with European partners, announced a joint financing package this week to help facilitate COVID-19 vaccine manufacturing capacity in South Africa. The White House also released the US COVID-19 Global Response and Recovery Framework.
Meanwhile, the United Kingdom (UK) advanced new trade talks with the Gulf Cooperation Council and Singapore. The Organisation for Economic Co-operation and Development (OECD) reached an agreement this week on a global corporate tax regime that does not focus just on American technology companies. The UK and EU also had a breakthrough with respect to the Northern Ireland Protocol.
In this issue, we cover:
COVID-19 highlights among the transatlantic partners;
Notable UK, US, and EU developments; and
UK-EU trade deal
COVID-19 Highlights | EU, US, UK
EU-wide COVID-19 Digital Certificates have become operational from 1 July 2021, allowing for a harmonized verification system of vaccination, test or recovery from COVID-19. The Council of the EU decided that same day to ease travel restrictions to the EU for 10 additional countries, including Canada. The US was already on the list, as of the last revision at the end of May. Meanwhile, a joint COVAX alliance statement issued this week, called on “all regional, national and local government authorities to recognise as fully vaccinated all people who have received COVID-19 vaccines that have been deemed safe and effective by the World Health Organization”, as travel restrictions ease globally.
Regarding the TRIPS waiver discussions at the World Trade Organization (WTO), EU Ambassador to the WTO João Aguiar Machado confirmed the EU “continues to be engaged in the text-based process”. The Council of the EU, now under the leadership of the Slovenian Presidency until the end of 2021, is still discussing the EU’s proposal and needs to agree on a joint position for the EU’s counter-proposal to be presented during the next General Council on 27 July. The TRIPS waiver discussion at the WTO appears to be at a stalemate, as countries divide over the EU’s counter-proposal.
In the two weeks leading up to 5 June, the US Centers for Disease Control and Prevention (CDC) estimated the Delta coronavirus variant – first identified in India and more transmissible than the original strain (Alpha) – was responsible for nearly 10 percent of US infection cases. Experts believe Delta accounts for roughly one in every five infections nationwide. Despite increased vaccinations, the Delta variant is expected to cause a resurgence of COVID-19 cases in the United States in the coming weeks/months – possibly coinciding with when children are expected to return to school.
On Wednesday, 30 June, the US International Development Finance Corporation (DFC) announced a joint financing package of €600 million – along with DEG (Germany), Proparco (France), and the International Finance Corporation (IFC) – for Aspen Pharmacare Holdings Ltd., headquartered in South Africa, to expand local vaccine manufacturing capacity. The vaccines will be distributed primarily to the African Union, South African Government, and COVAX.
On Thursday, 1 July, the White House released the US COVID-19 Global Response and Recovery Framework. According to a White House statement, the Framework would support “U.S. commitments to the G7+ Plan to Defeat the COVID-19 Pandemic in 2022 and Prevent the Next Pandemic by supporting vaccination of the world’s most vulnerable populations, supporting last mile vaccination and getting shots in arms, providing personal protective equipment (PPE) and medical supplies where needed, strengthening supply, improving disease surveillance and early warning, supporting recovery, building resilience, and advancing global health security.”
Last week, Senators Bob Menendez (D-New Jersey) and Jim Risch (R-Idaho), Chairman and Ranking Member of the Senate Foreign Relations Committee, introduced comprehensive global health legislation – the International Pandemic Preparedness and COVID-19 Response Act (S. 2297) – to improve global health and pandemic preparedness and enhance COVID-19 response efforts. Ranking Member Risch said of the bill,
We need to enact stronger prevention and preparedness measures now if we want to get ahead of the next crisis, so Chairman Menendez and I have introduced bipartisan legislation to do just that. Our legislation will require a strategy to identify and close the gaps in global health security that make us vulnerable to outbreaks, create a framework to improve the coordination of U.S. global health diplomacy and assistance efforts, establish effective and transparent international early warning systems, and provide a framework for the establishment of an accountable, international incentive fund to advance global health security and pandemic prevention and preparedness.”
Key provisions of the bill – which is expected to be marked-up by the Senate Foreign Relations Committee – can be viewed here.
This week, the UK’s Joint Committee on Vaccination and Immunisation (JCVI) issued interim advice to offer COVID-19 booster vaccines from September 2021 to prolong protection that vaccines provide in those most vulnerable ahead of the winter months. The final JCVI advice will be published before September and may change as the JCVI takes into account the latest epidemiological situation, additional scientific data from trials, real-time surveillance of the effectiveness of the vaccines over time and emerging variants.
The UK Government is also offering vaccinations to registered national delegations, observers (including civil society) and media delegates who cannot access vaccines through other means ahead of COP26. The offer for registering for a vaccine closes on 23 July and will be managed via the COP26 registration portal, which launched on 28 June 2021.
Notable UK Developments
German Chancellor Angela Merkel will make her final visit to the UK on 2 July, before she steps down from her post later this year. Germany is the UK’s second-largest trading partner. Ahead of the visit, UK Foreign Secretary Dominic Raab and German Foreign Minister Heiko Maas signed a Joint Declaration on foreign and security policy cooperation on Wednesday, 30 June.
Also on Wednesday, Britain and the Gulf Cooperation Council (GCC) completed a Joint Trade and Investment Review to explore new opportunities to boost their trading relationship. The two sides agreed to explore further government-to-government cooperation to facilitate greater market access in the following sectors: professional and business services; agriculture, food and drink; education; healthcare and life sciences; financial services; and environmental green technologies and renewable energy. The report’s Executive Summary is accessible here.
On 29 June, the UK and Singapore announced the launch of negotiations on a UK-Singapore Digital Economy Agreement (DEA). This follows the UK-Singapore Free Trade Agreement (FTA), which came into force in February.
Notable US Developments
After 1 July, Trade Promotion Authority (TPA) expired. US lawmakers have not devised a clear path forward to reauthorize the program. Meanwhile, those trade negotiations initiated during the Trump Administration under the now lapsed TPA authority, such as with the UK and Kenya, will be difficult to advance until a new TPA is approved by the US Congress.
Despite the objection of nine countries (Barbados, Estonia, Hungary, Ireland, Kenya, Nigeria, Peru, St Vincent & the Grenadines and Sri Lanka), the OECD reached a deal on 1 July on the creation of a global corporate tax regime. The deal outlines the broad political principles under which the global tax measures will be implemented, while technical details remain and require clarification, such as how the deal correlates with existing tax measures and some national measures like the US Global Intangible Low Tax Income (GILTI) rules. The months-long negotiations moved away from just a focus on American technology companies and concluded with agreement to adopt minimum taxes of at least 15 percent on companies’ foreign profits. A goal of the negotiations was to prevent multinational companies from seeking international jurisdictions where they can pay the least amount of tax, with US negotiators seeking to prevent American technology companies from being singled out for a global tax scheme. The G20 Finance Ministers are set to approve the global tax scheme on 9 July, similar to the G7’s approval earlier this month.
President Biden welcomed the OECD agreement on Thursday, stating:
“With a global minimum tax in place, multinational corporations will no longer be able to pit countries against one another in a bid to push tax rates down and protect their profits at the expense of public revenue. They will no longer be able to avoid paying their fair share by hiding profits generated in the United States, or any other country, in lower-tax jurisdictions.”
House Ways & Means Committee Ranking Member Kevin Brady (R-Texas) pushed back on the global minimum tax, warning:
“In negotiations with the OECD, the Biden Administration has already given up significant U.S. ground by opening the door to not grandfathering GILTI and agreeing to a global minimum tax structure that favors foreign-headquartered companies and workers over American ones. This is a dangerous economic surrender that sends U.S. jobs overseas, undermines our economy, and strips away our U.S. tax base. Further, any agreement at the OECD must result in immediate repeal of all existing digital taxes and prevent any new digital taxes by the EU or others.”
Ahead of the OECD talks, Washington reportedly sent a “non-paper” to EU diplomats, urging the EU delay its Digital Levy proposal. The European Commission is set to unveil its proposal in mid-July, which is viewed as one of the mechanisms for repaying money raised to fund the EU’s €750 billion recovery fund. Commission officials have argued the “soft” levy will not lead to double taxation or discriminate against American tech firms. Washington reportedly argued in its paper,
We appreciate the repeated public statements indicating the EU intends to ensure its digital levy complements a multilateral consensus solution. Such complementarity is only possible if the OECD/G20 Inclusive Framework consensus is reached before the EU proposes its levy.”
At a Washington event on supply chains and transatlantic cooperation on Monday, 28 June, Peter Harrell, Senior Director for International Economics and Competitiveness at the National Security Council, suggested the United States and European Union (EU) should seek a “harmonized approach” to securing supply chains, especially for semiconductors. He said at the Center for Strategic and International Studies event,
There are a whole range of products that we’re not going to onshore fully to the U.S., or even in large part, but where we do want to work with our allies and partners to have a more resilient, less-prone-to-geopolitical-influence approach.”
At the same event, European Commission Director-General for Internal Market, Industry, Entrepreneurship and Small and Medium-Sized Enterprises Kerstin Jorna said the EU is looking to “co-shore” with the United States, explaining both sides would produce “different parts of the value chain,” while affirming the two sides aligned on prioritizing semiconductor chips, batteries and pharmaceuticals. Jorna reiterated other European officials in saying that “Buy American” policies are not a “good idea” for securing supply chains.
Deputy Assistant Commerce Secretary for Manufacturing Monica Gorman shared last week with Commerce’s Advisory Committee on Supply Chain Competitiveness that the Department intends to soon request stakeholder input to inform their reports on the one-year supply chain reviews on information and communications technology (ICT), defense, public health, energy, transportation and agricultural commodities and food products.
Finnish Minister for Development Cooperation and Foreign Trade Ville Skinnari was in Washington this week to discuss trusted legacy 5G gear from companies such as Nokia (Finnish), amid increased American support for 5G network-building disruption known as open RAN, which entails opening up the 5G radio access network protocols. Several US software and tech companies are reportedly eager to jump into the 5G open RAN ecosystem, with advocates of this concept saying it could foster increased 5G network competition. Nokia has joined a coalition that favors open RAN technology. Notably, the Senate-passed bill that focuses on the People’s Republic of China (S. 1260) includes $1.5 billion to foster domestic open RAN activity. On Thursday, Minister Skinnari met with Ambassador Tai to talk about greater partnerships with the United States on tech R&D, among other things. A USTR readout of the meeting is available here.
Notable EU Development
Executive Vice-President Frans Timmermans confirmed earlier this week during an intervention alongside the US Special Presidential Envoy for Climate John Kerry, that the EU’s Carbon Border Adjustment Mechanism – due to be published on 14 July – will be based on the EU’s carbon price, but it is unlikely to require third countries needing to establish a price-based system to avoid it.
UK-EU Trade Deal Updates
After months of negotiations on the grace periods for custom checks connected to the Northern Ireland Protocol, the UK and EU reached a temporary deal. On 30 June, the EU and UK agreed to a three-month extension of the grace period that will enable chilled British meats to be traded from Britain to Northern Ireland until 1 October. The EU is also expected to seek confirmation that the UK will remain aligned with the EU’s sanitary and phytosanitary rules and standards during these three months; the UK is anticipated to endorse the proposition. Even though this marks progress, there remain outstanding issues with respect to implementation of the Northern Ireland Protocol needing to be addressed.
On 28 June, the European Commission adopted a data protection adequacy decision with the UK, allowing data flows between the two parties in compliance with the EU’s General Data Protection Regulation. The EU’s decision, expected to secure a 1.6 billion GBP-worth of digital trade for the UK, will be reviewed in four years.
Meanwhile, the UK’s Channel Islands decided earlier this week to extend by three months the post-Brexit interim agreement permitting French boats to continue operating in the area.