Transatlantic Trade: US and Europe – Week of November 16, 2020
States continue to certify their election results in the United States (US), amid ongoing legal challenges from US President Donald Trump. With temperatures cooling and holidays approaching, governments on both sides of the Atlantic Ocean continue to evaluate the situation and impose or refine restrictions as COVID-19 cases continue to rise.
United Kingdom (UK) Prime Minister Boris Johnson announced on Monday, 16 November that he would self-isolate, after a Member of Parliament that he interacted with tested positive for the coronavirus. COVID-19 similarly affected the ongoing trade talks between the European Union (EU) and UK this past week, yet talks are set to resume this coming week, amid a narrow timeline to achieve a deal that can be implemented before year-end. COVID vaccine candidates remain a bright note, with at least two of the US-led Operation Warp Speed candidates on track for US regulatory approval in December.
Meanwhile, digital services taxes (DST) were on the radar again, after US companies reportedly received invoices from France. The Trump Administration has yet to respond to this development, but a response is likely forthcoming.
COVID-19 Updates | EU, UK and US
The political agreement on the long-term EU budget and recovery package reached on 10 November included a provision that ties EU funding to Rule of Law requirements – a contentious aspect for countries like Hungary and Poland. The first set of Rule of Law reports published by the EU in September 2020 criticized both countries for deficiencies in this area. On 16 November, Hungary and Poland exercised their veto rights to block the adoption of the long-term EU budget and the recovery fund, prompting economic uncertainty in Europe. European Affairs Ministers tried to find consensus during a videoconference on 17 November. Budget Commissioner Johannes Hahn provided guarantees that the rule of law mechanism will be implemented with a level of objectivity. However, both Hungarian and Polish Ministers remain opposed to the deal with the Rule of Law provision intact. Slovenia’s Prime Minister joined the two countries in opposition.
EU27 Leaders met virtually on 19 November to try to resolve the budget stalemate and to discuss a series of critical outstanding issues, such as the COVID-19 vaccines and the Brexit negotiations. There is a growing optimism among Heads of State and the European Commission that the first two vaccines (Pfizer/BioNTech and Moderna) could receive regulatory approval next month. Coordination would be required nonetheless to “develop a common EU approach for the use of rapid antigen tests” and to ensure logistical obstacles are avoided in coordinating the distribution of COVID-19 vaccines.
Heads of State also agreed COVID restrictions should gradually be lifted across the EU, to avoid a third wave of infections, particularly with the holiday season approaching. Regarding Poland and Hungary’s EU budget veto in light of the rule of law provision, EU Leaders did not resolve the disagreement but instead agreed to pursue further talks with the two countries at a technical level. German Chancellor Angela Merkel stated this is a “very serious problem” and that this is “the beginning” of what can become a long-standing problem. However, time is running short, as the EU budget and recovery instrument are set to enter into effect on 1 January 2021, but requires unanimity to be endorsed. Further discussions on these subjects, as well as climate ambitions, the EU’s actions to fight terrorism and the ongoing tensions with Turkey in the Eastern Mediterranean are on the agenda for the next EU Summit, scheduled for 10-11 December.
The European Parliament and the Council reached an agreement on the €47.5 billion (US$56.2 billion) Recovery Assistance for Cohesion and the Territories of Europe package (REACT-EU), which ensures cohesion policy funds to be distributed to Member States through the two Coronavirus Response Investment Initiative (CRI and CRII+). The deal needs to be formally endorsed by co-legislators and is set to become effective on 1 January 2021, subject to the formal approval of the long-term EU budget.
In the UK, Prime Minister Boris Johnson will appear before Parliament on 23 November to announce COVID-19 restriction measures following the end of the England-wide lockdown on 2 December. It is likely that he will announce a return to the regional approach of tiered restrictions, with a significant relaxation of the restrictions on household gatherings for a limited number of days over the Christmas holiday. The UK Government is working with the devolved administrations in Scotland, Wales and Northern Ireland to achieve a single UK-wide arrangement for the Christmas period. The Prime Minister is also set to announce the replacement in the coming weeks of the current 14 day isolation requirement for anyone who has come into contact with a COVID-19 sufferer (to which he is currently subject himself), with a new regime based on daily testing for seven days. The new regime is intended to reduce radically the number of people required to isolate.
On 17 November, the European Commission approved a contract with CureVac, following earlier exploratory talks to purchase 225 million doses of its potential COVID-19 vaccine on behalf of all EU Member States with an option to request up to 180 million further doses once the vaccine is proven to be safe and effective. This makes the fifth contract the European Commission has successfully approved for COVID-19 vaccines, which also includes deals with AstraZeneca, Sanofi-GSK, Janssen Pharmaceutica NV and BioNTech/Pfizer.
In the United States, Pfizer/BioNTech asked the Food & Drug Administration (FDA) to approve its vaccine for emergency use authorization (EUA). An FDA advisory committee is tentatively set to meet 8-10 December to discuss the vaccine EUA application. Americans could begin to receive the vaccine in mid-December, if EUA is granted. Pfizer concluded its Phase 3 clinical trials reporting its vaccine is 95 percent effective with no major safety concerns.
BioNTech/Pfizer are also set to submit coronavirus vax data to the European Medicines Agency (EMA) within days. On 19 November, the EMA published its coronavirus vaccine guidance, which recommends having at least one large-scale Phase 3 clinical trial and stringent success criteria that provides convincing efficacy, as key considerations for a COVID-19 vaccine approval.
Moderna is set to release its final Phase 3 clinical trial results and safety data in the coming days. Initial analysis of data from its late-stage trial showed the vaccine was 94.5 percent effective. AstraZeneca, which is working with the University of Oxford, released its interim vaccine data on 23 November. The data showed the vaccine to be 70% effective overall, and over 90% effective in a dosage variant. The AstraZeneca vaccine accounts for around a third (3.2bn) of all vaccine pre-orders, and is particularly important for the developing world as it is easier to produce and distribute, and significantly cheaper, than some alternative vaccines. Johnson & Johnson is on track to seek EUA approval in February.
This past week, the United States surpassed 250,000 COVID-related deaths, with over 12 million confirmed cases. More than 1 million COVID-19 cases were reported in the United States over the past week. Ahead of the Thanksgiving holiday this (26 November), the US Centers for Disease Control and Prevention (CDC) reiterated its recommendation that Americans stay at home. The CDC further clarified its definition of “household” to mean people who have been living in the same home for at least 14 days before celebrations.
The G-20 Leaders (virtual) Summit this past weekend concluded with commitments to collaborate on addressing the economic impact of COVID-19. With respect to vaccines, the G-20 statement reflected,
We will spare no effort to ensure their affordable and equitable access for all people, consistent with members’ commitments to incentivize innovation.”
While most of the leaders committed to COVAX, an international effort to distribute COVID-19 vaccines, the United States has declined to participate in the initiative. Notably, the G-20 statement did not address United Nations Secretary-General Antonio Guterres’ appeals for $28 billion for mass manufacturing, procurement and delivery of new COVID-19 vaccines around the world.
After another week of intense negotiations, the EU and UK Chief Negotiators announced on 19 November that they agreed to suspend talks after one member of the EU negotiating team tested positive for COVID-19. The EU and UK teams will resume negotiations in Brussels within the coming days in the hope that a last minute deal is possible.
The announcement came as EU27 leaders met virtually to discuss, among others, the progress of the Brexit negotiations. The European Commission informed EU Ambassadors on the status of the talks on 20 November. Although a deal would undoubtedly be the best option from the EU’s perspective, some countries worry that the limited time remaining in the transition period (which is until 31 December 2020) could lead to a bad deal for the EU, which some assess would be worse than a no deal scenario. In light of the tight deadline, the European Commission waited another week before launching the no-deal contingency measures, since a breakthrough could possibly happen next week. France, Belgium and the Netherlands, who will be among the countries mostly impacted by a no-deal Brexit, have been pushing the European Commission to step-up its preparatory work.
In London this past week, the House of Lord attempted further to weaken the UK Government’s position. Following the previous week’s amendment that removed the controversial clauses of the Internal Market Bill, the House of Lords adopted new amendments on 18 November. The new provisions would ensure a strengthened common framework process agreed between England, Scotland, Wales and Northern Ireland and would limit the Government’s ability to amend the bill after it becomes law. It is likely that the Government will seek to reverse the effect of these amendments when the bill returns to the House of Commons. In the UK legislative system, it is the will of the House of Commons – where the Government enjoys a substantial majority – which ultimately prevails.
Notable UK Developments
On 17 November, the Governments of the US and UK concluded a civil air transport agreement. The agreement includes the essential elements of Open Skies – such as unrestricted capacity and frequency, open routes, open code-sharing opportunities, a liberal charter regime, and market-determined pricing – and expands “seventh-freedom” traffic rights for all-cargo carriers and full market access to the UK’s overseas territories and crown dependencies. The agreement goes into effect as soon as the US-EU Air Transport Agreement no longer applies to the United Kingdom. (Separately, on 22 November, the United States confirmed it is no longer a party to the Treaty on Open Skies, after the Trump Administration notified involved parties six-months ago it would withdraw.)
On 18 November, Prime Minister Johnson outlined his “Ten Point Plan,” or blueprint for a green industrial revolution that would create 250,000 jobs in the United Kingdom. The Plan will mobilize £12 billion of government investment to catalyze private sector investments toward achieving the new highly-skilled green jobs. UK industrial centers of North East, Yorkshire and the Humber, West Midlands, Scotland and Wales will be at the heart of the Plan to build back greener.
In a speech to the House of Commons this past week, Prime Minister Johnson set forth a £16.5 billion additional increase (on top of increases promised in the Government’s election manifesto) to the Ministry of Defence’s budget – the largest since the end of the Cold War – that he said would also create additional jobs. In line with the “build back better” theme, the investments would, according to 10 Downing, “undertake a generational modernisation programme in order to defend the UK, our allies and the world’s most vulnerable people.” The Prime Minister argued,
This is our chance to end the era of retreat, transform our Armed Forces, bolster our global influence, unite and level up our country, pioneer new technology and defend our people and way of life.”
The increase will take the UK defense budget to approximately 2.2% of GDP.
The UK Department for International Trade secured a rollover trade agreement with Canada on 21 November, locking in certainty for UK businesses trading goods and services with Canada worth £20 billion after the UK exits the EU at the end of December. The agreement further paves the way for bilateral negotiations to begin in 2021 on a new UK-Canada trade deal that could potentially include new areas, such as digital trade, the environment and women’s economic empowerment.
US Secretary of State Mike Pompeo was in France on 16 November, meeting with President Emmanuel Macron and Foreign Minister Jean-Yves Le Drian. US State Department readout of the meetings mentioned focus on the importance of the transatlantic alliance, touching on mutual security concerns but not on trade-related issues.
Meanwhile, reports emerged this week that several US companies started receiving invoices related to France’s DST law. This move appeared “earlier than France indicated.” Last month, French Finance Minister Bruno Le Maire said his government would proceed with the collection of a digital services tax after it became apparent the Organisation for Economic Cooperation and Development (OECD) would fail to meet its end-of-year deadline to reach an agreement on global DST rules. The OECD is now aiming to conclude its negotiations by mid-2021, which would be under the new incoming Biden Administration. France’s three percent tax applies to companies with digital revenue of at least 750 million euros worldwide and 25 million euros in France.
The United States agreed last year to suspend 25 percent tariffs on roughly $1.3 billion worth of French goods in return for France’s delay in collecting digital services taxes, which were to go into effect on 1 January 2020. In its 16 July Federal Register notice, the Office of the US Trade Representative (USTR) noted,
In the event the U.S. Trade Representative determines that the suspension of the additional duties should be for less than a period of 180 days, USTR will issue a subsequent notice amending the effective date.”
In light of the reported invoices from France, the Trump Administration may move to impose the suspended Section 301 tariffs sooner than the initially anticipated 6 January 2021 effective date. Meanwhile, the European Union is also moving forward with its DST proposal.
On Friday, 20 November, European Commission President Ursula von der Leyen spoke of the transatlantic relationship at a Council for Foreign Relations virtual event. She noted,
We need a new transatlantic agenda, one that is based on where we want to go, and not where we were four years ago — an agenda that can be a linchpin of the next global alliance to shape the world of tomorrow.”
She further outlined four areas of cooperation: (1) pandemic response, (2) climate change, (3) technology, and (4) reforming global institutions, such as the World Trade Organization (WTO).
Notably, Commission President von der Leyen gave no ground on the DST issue, saying, “These days [technology companies] make big profits. That is ok, as long as they contribute to the common good,” von der Leyen said. “The EU is the global leader in thinking about taxation and regulation of such activities and we welcome an opportunity to share our expertise and coordinate our efforts across the Atlantic.”
American tech companies continue to oppose the DST proposals; will likely wield its influence with the new incoming Biden Administration.
On 18 November, the European Council approved the proposed tariff relief announced on 21 August, a move intended to improve trade relations between the EU and the United States. The US and the EU will eliminate/reduce the tariffs affected by the relief package, on the basis of most favoured nation. The German Economy Minister, Peter Altmaier stated,
Trade in goods and services between the EU and the US is worth over €1.3 trillion annually, which is the most important economic partnership in the world. It is time to move forward, deepen our transatlantic cooperation and solve our outstanding disputes.”
The tariff reduction will likely have a positive effect on EU-US trade relations, increasing trade volume around €200 million per year. Next steps, the tariff package will be submitted to the European Parliament for endorsement, which is scheduled for this coming week in their plenary session.
On Wednesday, 18 November, Senate Foreign Relations Committee Republicans unveiled a report that recommends transatlantic cooperation on addressing challenges associated with the People’s Republic of China (“China” or “PRC”). The report – The United States and Europe: A Concrete Agenda for Transatlantic Cooperation on China – makes recommendations, such as:
safeguarding free and open societies;
upholding the integrity of international organizations;
combatting unfair trade practices and anti-competitive economic statecraft;
developing new technologies and shape how they are used;
addressing the economic and security implications of PRC investment through the “One Belt, One Road” initiative; and
deepening transatlantic partnership in Africa and the Indo-Pacific.
Republican Senators noted cooperation should include having the transatlantic partners “advocate for the revocation of China’s developing country status,” which has been an issue at the WTO. Other recommendations include having the US, UK and EU harmonize export controls and to work together on new and emerging technologies. While acknowledging irritants in the transatlantic relationship, the report reflected,
It is imperative that we overcome and work through these differences and find a shared vision to defend the system we built together. Europe and the United States, as well as our democratic allies, have much to lose in this changing world, but there is also much to gain through cooperation.”
Notable EU Developments
Following the EU’s efforts to enforce trade agreements and focus on the goals set in the Trade and Sustainable Development Action Plan of 2018, on 16 November, the European Commission launched a trade complaint feature under the Access2Markets portal for EU Member States, individuals, companies, trade and civil organizations to report trade issues. The complaint forms target market access barriers and sustainable development commitments violations. European Commissioner for Trade Valdis Dombrovskis stated,
It is a real step forward because stakeholders now will play a direct role in ensuring that EU trade policy delivers both on trade opportunities and on raising labour and environmental standards.”
The consultation on the EU’s Trade Policy Review concluded on 15 November. With more than 250 responses submitted, the European Commission has been asked to clarify the concept of “open strategic autonomy,” which many stakeholders had difficulty grasping. The Strategy for the EU’s Trade Policy Review is expected to be published in the first quarter of 2021.
During the Committee on Trade and Environment meeting at the WTO on 17 November, some countries, including the US, raised concerns with respect to the EU’s plans to introduce a carbon border adjustment levy. The WTO communication outlines an intention to work together “on possible actions and deliverables of environmental sustainability in the various areas of the WTO”. The EU plans to publish this initiative in the second quarter of 2021 seeking an ambitious WTO compatible mechanism aimed at targeting heavy emission imports.
Other Notable Developments | New UK Foreign Investment Regime; Hong Kong; Nagorno-Karabakh
On 11 November, the UK Government announced a new National Security and Investment (NSI) regime. Under the new regime, certain direct foreign investments in the UK will require mandatory notification to, and prior approval by, the Department for Business, Energy & Industrial Strategy (BEIS) before completion. For further analysis of this development, see our publication here.
On 18 November, the US, UK, Canada, Australia and New Zealand issued a joint statement on the situation in the Hong Kong Special Administrative Region of the PRC (“Hong Kong” or “Hong Kong SAR”). The Foreign Ministers of these countries reiterated “serious concern regarding China’s imposition of new rules to disqualify elected legislators in Hong Kong” and added, “[t]his decision further undermines Hong Kong’s high degree of autonomy and rights and freedoms.” They further noted,
“China’s action is a clear breach of its international obligations under the legally binding, [United Nations]-registered Sino-British Joint Declaration. It breaches both China’s commitment that Hong Kong will enjoy a ‘high degree of autonomy’, and the right to freedom of speech.”
They urged China to live up to its international obligations and called on “Chinese central authorities to re-consider their actions against Hong Kong’s elected legislature and immediately reinstate the Legislative Council members.”
China, on the other hand reminds the international community that Hong Kong SAR is an inalienable part of China, and that foreign governments should not meddle in the international affairs of other States in breach of established international laws and the principles of the Charter of the United Nations, and that “high degree of autonomy” is being maintained under “One Country, Two Systems” within the framework of the Constitution of the country.
The US Department of State issued a statement on 17 November that welcomed the cessation of hostilities between Armenia and Azerbaijan over Nagorno-Karabakh, disputed territory the international community recognizes as Azerbaijan. Notably, the statement did not mention Russia’s role in the brokered ceasefire and related terms, such as Russian military forces on the ground. The State Department instead urged “the sides to re-engage as soon as possible with the Organization for Security and Cooperation in Europe (OSCE) Minsk Group Co-Chairs to pursue a lasting and sustainable political solution to the Nagorno-Karabakh conflict based on the Helsinki Final Act principles of the non-use or threat of force, territorial integrity, and the self-determination and equal rights of peoples.” The US Government also announced $5 million in humanitarian assistance to support the operations of the International Committee of the Red Cross and other international organization and non-governmental organization that are assisting those affected by the recent fighting.
A State Department transcript of a press briefing during the Secretary Pompeo’s overseas trip this past week touched on Russia. According to a State Department official, Secretary Pompeo and French Foreign Minister Le Drian “talked about Nagorno-Karabakh extensively.” The official added,
As two [OSCE Minsk Group] co-chairs, they shared the same view that we are – we remain committed to our role as co-chairs in the Minsk Group process, that that’s where it is, recognizing the actions that Russia took which has led to a ceasefire that’s actually held now for about a week, but also acknowledging that there were still a lot of questions that needed clarity from the Russians as to the parameters of that agreement, and that included the role of the Turks [Turkey].”
On 17 November, Senate Foreign Relations Committee Ranking Member Robert Menendez (D-New Jersey) gave a floor speech on the US Senate floor on the situation in the South Caucasus region, speaking in solidarity with Armenians. He raised concerns with regional stability following the Moscow-brokered agreement that he noted grants Russia another foothold in the region. He criticized the Trump Administration for allowing the situation to result in the city of Shushi (in the Nagorno-Karabakh territory) being back in Azeri control. Senator Menendez called on the Trump Administration to immediately suspend the provision of defense articles to Turkey and Azerbaijan and halt U.S. security assistance to Azerbaijan.
Sanctions Updates | EU, US
Throughout 2020, the European Commission has issued a Guidance on humanitarian aid amid sanctions and the global pandemic. The Guidance contained principles for providing humanitarian aid to Syria, Iran and Venezuela; on 16 November, the European Commission announced an update to the Guidance that includes a new chapter on Nicaragua. The updated Guidance is the result of multiple question posed by NGOs, Member States authorities, banks and other actors involved in humanitarian activities.
More EU sanctions on Belarus could be forthcoming following the death of pro-democracy protester Raman Bandarenka, who reportedly was beaten by Belarusian security forces. German Foreign Minister Heiko Maas raised the prospect of adopting a third round of EU sanctions to Belarus during the EU Member State’s Foreign Ministers meeting. Maas stated,
And we can certainly raise pressure by focusing more strongly on the powerful circles around Lukashenko.”
US sanctions this past week focused on Iran and North Korea. Regarding Iran, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) took action against the Islamic Revolution Mostazafan Foundation (“Bonyad Mostazafan”, or “the Foundation”), a conglomerate of some 160 holdings in various sectors of Iran’s economy that is viewed as “a key patronage network” for the Supreme Leader of Iran, and 10 associated individuals. The Foundation’s holdings include finance, energy, construction and mining. OFAC also designated Iran’s Minister of Intelligence and Security, Mahmoud Alavi, pursuant to human rights authorities. OFAC also imposed sanctions on two entities, one a Russian company and the other a North Korean company operating in Russia, allegedly involved in the exportation of forced labor from North Korea.
On 18 November, the US State Department designated Islamic Revolutionary Guard Corps (IRGC) Brigadier General Heidar Abbaszadeh and IRGC Colonel Reza Papi for their alleged involvement, by operation of command responsibility, in gross violations of human rights. State cited in particular “flagrant denial of the right to life in connection with the violent suppression of protests by security forces in November 2019 in Khuzestan province.” Secretary Pompeo also issued a separate statement that same day on the importance of sanctions – or the “maximum pressure campaign – on Iran.