Transatlantic Trade | US and Europe – Week of November 29, 2021
The past two weeks saw the emergence of a new coronavirus variant – designated “Omicron” – that was first noted by officials in South Africa, who quickly reported it globally. While countries around the world – including the United States of America (US or USA) – restricted travel to and from nations in southern Africa, the actions are largely intended to try and control the spread of Omicron, amid continued Delta variant surges. Despite the travel restrictions, the Omicron variant, however, has been detected already in a half-dozen European countries, including the United Kingdom (UK), Australia, Israel, the USA and other countries. Scientists speculate Omicron could become the dominant variant in the coming months.
Meanwhile, the USA and European Union (EU) found common ground this past week, as the two sides met to discuss trade, the Indo-Pacific, and other matters. US Secretary of State Antony Blinken travelled to Latvia and Sweden this week, attending the North Atlantic Treaty Organization’s (NATO) Foreign Ministerial and meeting with European officials. A major theme to emerge from his meetings in Europe was increased US concern with Russia’s military build-up along Ukraine’s border. Secretary Blinken also met with his Russian counterpart – as did UK Foreign Secretary Liz Truss separately – on the margins of other events in Sweden. Transatlantic partners also focused this week on Belarus, imposing a coordinated fifth tranche of sanctions against the Lukashenko regime. Looking ahead, the US Government will host its first-ever Summit for Democracy on 9-10 December.
Notable US Developments
On 3 December, the US Department of Labor released its November Jobs Report, reflecting the American economy added 210,000 jobs in November. Economists had anticipated there would be 550,000 jobs added. The November report also revised October’s report to reflect 546,000 jobs added, from the 531,000 previously reported. While there were less jobs added, the unemployment rate dropped to 4.2 percent in November, from 4.6 percent in October.
Both chambers of the US Congress were in session this week, after a week-long recess for the Thanksgiving holiday. Late on 2 December, the US Senate approved an 11-week Continuing Resolution (CR) in a 69-28 vote, sending the measure to the President’s desk and averting a possible Federal Government shutdown at midnight on Friday. The CR keeps Federal Government funding at levels set almost a year ago, under the previous Administration. For the remainder of the legislative calendar year, American lawmakers have a number of issues to address, such as the Fiscal Year 2022 National Defense Authorization Act (NDAA) and Democrats are still pushing to approve their social spending bill, the Build Back Better Act.
This week, Representative Earl Blumenauer (D-Oregon), Chairman of the House Ways & Means Trade Subcommittee, said he is open to including reauthorization of the Generalized System of Preferences (GSP) program and the Miscellaneous Tariff Bill (MTB) in the bipartisan US Innovation and Competition Act (USICA), if lawmakers include stronger labor and gender-related standards for countries seeking duty-free treatment. Prior to recessing, Senate Majority Leader Chuck Schumer (D-New York) and House Speaker Nancy Pelosi (D-California) agreed to a conference on the Senate-passed USICA, after Leader Schumer sought to attach the measure to the NDAA ahead of the Thanksgiving recess. Among other things, the Senate’s USICA provisions include a renewal of GSP, which lapsed at the end of 2020, and major funding for the American semiconductor industry, which is struggling amid supply chain disruptions. Meanwhile, Congressional leaders have yet to indicate a timeline for the conferencing on the bill, leading to concern in the Senate that this could be delayed until 2022, as lawmakers deal with other year-end priorities, such as the NDAA and the debt ceiling. US Secretary of the Treasury Janet Yellen warned congressional leaders before Thanksgiving that the nation could default on its loans by 15 December, if Congress does not act to raise or waive the cap on how much the country can borrow.
On 23 November, US Secretary of Commerce Gina Raimondo welcomed Samsung’s announcement that it plans to invest $17 billion in a new semiconductor facility in Taylor, Texas. She stated,
Increasing domestic production of semiconductor chips is critical for our national and economic security, and we look forward to continued partnership with Samsung and other semiconductor manufacturing companies looking to build out their capabilities in the U.S.”
NEC Director Brian Deese and National Security Advisor Jake Sullivan also welcomed the semiconductor investment news from Samsung, a South Korean company.
US Secretary of State Blinken travelled to Latvia and Sweden this week. He met with Latvian President Egils Levits, Prime Minister Krisjanis Karins, and Foreign Minister Edgars Rinkēvičs in Riga, affirming the strong bilateral partnership. While in Riga, Secretary Blinken attended the NATO Foreign Ministerial, met with NATO Secretary General Jens Stoltenberg, and met on the margins of the Ministerial with his counterpart from Turkey and separately with his counterparts from France, the UK, and Germany – in a forum collectively known as the Transatlantic Quad. Russia’s perceived aggression toward Ukraine was a focus of the Transatlantic Quad Ministerial. The Quad Ministers also discussed their concerns with Iran’s nuclear program and efforts to achieve a mutual return to compliance with the 2015 Joint Comprehensive Plan of Action (JCPOA) as talks continued in Vienna.
On 4 December, a senior US official reported on the latest round of JCPOA talks, saying the United States is preparing for a scenario where restoring the deal would not be possible after assessing Iran had backtracked at the latest round of talks. This comment is the Biden Administration’s most pessimistic public assessment of the talks, aligning with remarks from European Union officials.
On 1 December, Secretary Blinken travelled to Stockholm, Sweden, to attend the Organization for Security and Cooperation in Europe (OSCE) Ministerial Council. The Ministers discussed concerns about the Europe-Eurasia region’s security environment and the need to strengthen it through upholding OSCE principles. Secretary Blinken also met with Swedish officials to discuss the importance of the US-Swedish relationship. While in Stockholm, Secretary Blinken met separately with Ukraine Foreign Minister Dmytro Kuleba and Russian Foreign Minister Sergey Lavrov. Media reports have since emerged that suggest exchanges between Secretary Blinken and Russian Minister Lavrov were tense, particularly at an OSCE dinner event. A State Department readout of the bilateral meeting reflected:
Secretary Blinken addressed Russia’s aggression towards Ukraine, including its military movements near Ukraine’s borders. The Secretary reiterated the United States’ call for Russia to pull back its forces and return to a peacetime posture and to adhere to the Minsk agreements and a ceasefire in the Donbas. He underscored that the best path forward is diplomacy in conjunction with the full implementation of the Minsk agreements, a process the United States is willing and ready to support. Should Moscow choose the path of military escalation, the Secretary made clear that the United States and our allies are prepared to impose significant costs.”
Back in Washington, US Deputy Secretary of State Wendy Sherman and European External Action Service Secretary General Stefano Sannino led the first US-EU high-level consultations on the Indo-Pacific on 3 December. A readout of the meeting reflected a shared goal to coordinate on Indo-Pacific engagement, identifying the following priority areas and immediate themes for cooperation: combating the climate crisis (including prevention and rapid response to natural disasters); public health and pandemic response and preparedness; freedom of navigation and maritime security; human rights; core labor standards (including child labor) as defined by the International Labour Organization; good governance; infrastructure; critical and emerging technology; cybersecurity; and countering disinformation. The summary also noted, “They expressed their intention to exchange best practices and identify areas of complementarity among existing U.S., EU, regional and multilateral infrastructure initiatives including the Build Back Better World initiative and the EU Global Gateway.”
The US Department of State and the European External Action Service published a joint statement as part of the Washington discussions that outlined an agreement to maintain a close EU-US cooperation with respect to mutual concerns regarding the People’s Republic of China. It further reflected that the two parties “reaffirmed the importance of upholding international law and principles, and strengthening the effectiveness of multilateral institutions by coordinating to advance shared priorities related to human rights, global standards, clear institutional procedures, and wherever possible on elections in international organizations.” A technical dialogue is expected to continue in the coming months, with the next US-EU high-level consultations meeting expected mid-2022.
Secretary Blinken and EU High Representative for Foreign Affairs and Security Policy/Vice President of the European Commission Josep Borrell also released a joint statement on 3 December. Notably, they announced the launch of a US-EU dialogue on security and defense, with the first meeting to occur in early 2022.
Meanwhile, Secretary Blinken reported the United States had evidence that Russia had made plans for a “large scale” attack on Ukraine. Reports indicated on Friday a military buildup of at least 70,000 Russian troops on the Ukraine border currently, with the possibility of up to 175,000 Russian troops ahead of a potential military offensive against Ukraine that could occur by early 2022. In an exchange with the media on Friday, US President Joe Biden warned, “What I am doing is putting together what I believe to be the most comprehensive and meaningful set of initiatives to make it very, very difficult for Mr. Putin to go ahead and do what people are worried he may do. But that’s in play right now.” With Russia denying any invasion intentions, the Kremlin shared on Saturday that Russian President Vladimir Putin and President Biden are set to talk this coming Tuesday (7 December); the White House confirmed the upcoming call later that day.
On 2 December, with respect to Belarus, the United States designated 20 individuals and 12 entities and identified three aircraft as blocked property in response to “the Lukashenka regime’s blatant disregard for international norms and the wellbeing of its own citizens.” The US action was coordinated with the UK and the EU.
Notable EU Developments
A highly anticipated European Commission legislative proposal that would establish a due diligence regime aimed at addressing environmental and forced labor concerns in supply chains, as well as impose corporate directors’ duties to introduce sustainability criteria into their decision making process, has been delayed again. While the timing of the release of text of the legislation is not clear yet, it is likely not expected earlier than March 2022.
On 23 November, the European Commission published a report presenting the key trade and security findings regarding export controls and foreign direct investments (FDI) in the EU. This is the first report published since the new EU FDI Screening Regulation came into force, highlighting the European Commission screened 265 transactions notified by Member States by the end of June 2021, 80 percent of which did not justify further investigation. The report further noted that the top five countries of origin of FDIs was from companies located in the United States, the United Kingdom, China, Canada and the United Arab Emirates. In relation to export controls, the report reflected that dual-use exports represent about 2.3 percent of total EU exports.
On 30 November, the European Parliament’s International Trade Committee endorsed their negotiating mandate for the legislative proposal on the EU’s International Procurement Instrument (IPI). This will open the way – following the European Parliament Plenary adoption, which is foreseen in January 2022 – for the inter-institutional negotiations with the Council of the EU, in order to jointly determine the final provisions of the law. Members of the International Trade Committee agreed to “two types of IPI measures that the Commission can choose from to remedy unequal access to public procurement markets: adjusting the score of the bids put forward by companies subject to an IPI (without affecting the price to be paid by the successful bidder), or excluding the company from bidding.”
This week, the International Trade Committee also debated the draft report on the Carbon Border Adjustment Mechanism proposal. There remains clear divisions between Members of Parliament on the approach for phasing out free ETS (emissions trading scheme) allocations.
The Council adopted on 2 December its 5th package of sanctions against Belarus in response to continued human rights abuses, including restrictions against 17 individuals and 11 entities. The sanctions target high-ranking political officials as well as transport companies, tour operators and hotels, which are understood to have “helped incite and organise illegal border crossings through Belarus to the EU, and in this way participated in the instrumentalisation of migration for political purposes.”
Meanwhile, the Leaders of the German Social Democrat (SPD), Green and the Liberal (FDP) political parties reached a deal on 24 November that would enable the formation of a new Federal German Government, almost two months after the German Federal elections. The Federal German Parliament is set to elect formally outgoing Finance Minister Olaf Scholz as the new German Chancellor on 8 December, succeeding Chancellor Angela Merkel.
Notable UK Developments
This week, the Group of Seven (G7) issued a joint statement, setting out principles and next steps to modernise the G7’s approach to infrastructure finance and to narrow the infrastructure investment gap in developing countries. The statement and annex are available here.
On 22 November, British Prime Minister Boris Johnson addressed the Confederation of British Industry’s (CBI) annual conference. As he acknowledged the impact of the COVID-19 impact on the British economy, the Prime Minister spotlighted the UK has an opportunity to: fix supply-side problems, transform whole sectors of its economy, and tackle chronic problems underlying the UK economy, as it emerges from the pandemic. Prime Minister Johnson spoke of the “green industrial revolution”, the Government’s roadmap for specific industries, and of how UK consumers are driving changes in the country, such as favoring electric vehicles.
On 25 November, the UK Department for International Trade released its first-ever statement setting forth the British Government’s actions in 2020-2021 to address modern slavery and outlining goals for 2022. The statement outlines work carried out across three primary areas: (1) increasing understanding of the practices of modern slavery and how and when it can occur; (2) analysing the UK procurement portfolio and identifying where the risks are highest; and (3) building the capability required to progress work to reduce modern slavery risks across supply chains.
On 2 December, the UK Government – coordinating with the US and EU – imposed additional sanctions on eight Belarusian individuals responsible for repression and human rights violations. The British Government also imposed an asset freeze on OJSC Belaruskali, one of the world’s largest producers of potash fertiliser, noting this would target a major source of revenue and foreign currency for the Lukashenko regime.
Also on 2 December, UK Foreign Secretary Liz Truss met the Russian Foreign Minister Lavrov in Stockholm and discussed Ukraine, Belarus, Iran and Afghanistan. A British summary of the meeting further reflected,
The Foreign Secretary expressed concern about rising tensions across Europe, and re-stated the UK’s support for Ukraine’s sovereignty and territorial integrity, urging the Russian government to de-escalate the situation.”
Similar to the United States, Secretary Truss urged her colleagues at the NATO Foreign Ministerial to come together and stand against continued destabilising actions by Russia and Belarus, which has willfully facilitated migration to the EU’s eastern front. Ahead of her trip to Riga for the ministerial, Secretary Truss warned of Russia’s actions along Ukraine’s border, saying:
We have seen this playbook from the Kremlin before when Russia falsely claimed its illegal annexation of Crimea was a response to NATO aggression. NATO is an alliance forged on the principle of defence, not provocation. Any suggestion that NATO is provoking the Russians is clearly false.”
On 3 December, the UK’s Department for International Trade announced the US Department of Agriculture had amended the “small ruminant rule,” which currently prevents imports of lamb from the UK into the USA. Effective 3 January 2022, UK exports of British lamb to the US market can resume, after more than two decades of restrictions. Meanwhile, effective 1 December, the UK-Norway trading arrangements entered into force.
Meanwhile, Franco-British diplomatic relations were tested once more these past two weeks, especially following the sinking of a boat carrying migrants on 24 November, which accounted for the biggest loss of life in the Channel. French authorities, who have been facing unprecedented challenges in preventing crossings amid more organized smugglers, urged the UK to “share responsibility” and to help develop a new cooperation framework to address increased Channel migration. On 25 November, Prime Minister Johnson sent a letter to French President Emmanuel Macron about the Channel situation. Among other things, he proposed additional cooperative steps, such as: (1) joint, or reciprocal maritime patrols in each other’s territorial waters; (2) deploying advanced technology, such as ground sensors and radar; (3) reciprocal airborne surveillance by manned or unmanned aircraft, perhaps flown under joint insignia; and (4) deepening cooperation under the Joint Intelligence Cell to share intelligence that delivers arrests and prosecutions on both sides of the Channel.
UK-EU Trade Deal Update
Technical discussions on the Northern Ireland Protocol have progressed over the last two weeks. European Commission Vice President Maroš Šefčovič met with his British counterpart, Cabinet Minister David Frost, on 3 December to take stock of the progress in relation to resolving outstanding issues related to implementation of the Northern Ireland Protocol. Notably, progress has reportedly been achieved on the rules for the supply of medicines in Northern Ireland. Nevertheless, EU-UK talks are expected to continue well into 2022 to resolve other matters, especially as the spread of Omicron has imposed restrictions on in-person meetings.
World Trade Organization Developments
Omicron’s spread also resulted in the World Trade Organization (WTO) announcing on 26 November that it would postpone its 12th ministerial conference (“MC12”), which had been due to start this week. MC12 participants were to consider a proposed deal to curb harmful fisheries subsidies, which still has major issues that must be addressed at the political level. US Trade Representative Katherine Tai said of the postponement on Twitter:
The wise, if disappointing, decision to postpone #MC12 is a reminder that we still have much work to do to end the pandemic. The United States will continue working with @WTO members to achieve a multifaceted outcome on trade and health, including an international IP framework, that supports the global pandemic response and puts the WTO in a stronger position to meet the needs of regular people.”
The WTO has proposed early March for rescheduling MC12.
On 2 December, with Costa Rica leading the effort, WTO members concluded negotiations on a plurilateral agreement related to domestic regulation of services, despite postponing the MC12. The WTO notes the participants of the agreement – which includes the US, the UK, and the EU – represent more than 90 percent of world services trade; the agreement is intended to increase transparency, efficiency and predictability of international regulations for services providers, particularly in financial, communications and transport industries. Each WTO member’s schedule under the General Agreement on Trade in Services can be accessed here.
On 30 November, new measures in the UK came into effect to help combat the spread of Omicron. The targeted, temporary measures include: (1) compulsory face coverings in shops and on public transport; (2) all international arrivals to take a Day 2 PCR test and self-isolate until they receive a negative test; and (3) all contacts of suspected Omicron cases must self-isolate, regardless of their age or vaccination status.
On Thursday, December 2, US President Joe Biden unveiled a Federal Winter COVID-19 Plan at the National Institute of Health, as more cases of a new coronavirus variant were diagnosed across the country. The President noted the “action plan” includes five elements, including accelerating efforts to vaccinate the rest of the world, along with revising some travel restrictions. That same day, the US Centers for Disease Control and Prevention (CDC) issued an amended order, “Requirement for Proof of Negative COVID-19 Test or Recovery from COVID-19 for All Air Passengers Arriving in the United States.” The amended order and accompanying documents are available here. Importantly, the requirement applies to all air passengers two years or older and is for any flight departing to the United States from a foreign country at or after 12:01am EST (5:01am GMT) on 6 December 2021. It does not include requirements for testing after US entry or any quarantine in the United States.
Meanwhile, the Biden Administration’s vaccine mandates continue to facing legal challenges that have resulted in injunctions being imposed. This includes a stay on: (1) the Centers for Medicare & Medicaid Services (CMS) from enforcing its vaccine mandate for health care workers until the court can resolve legal challenges; (2) the Biden Administration from enforcing a regulation that new government contracts must include clauses requiring that contractors’ employees be vaccinated; and (3) the Occupational Safety and Health Administration’s (OSHA) Emergency Temporary Standard (ETS), which requires companies with at least 100 employees to mandate COVID-19 vaccinations or submit to weekly testing and mask requirements.
On 30 November, the US Food & Drug Administration’s (FDA) Antimicrobial Drugs Advisory Committee (AMDAC) voted 13-10 to approve the use of molnupiravir, an antiviral pill produced by Ridgeback and Merck, in treating COVID-19. Molnupiravir can reduce the relative risk someone will progress to severe disease or death by about 30 percent.
Amid the spread of Omicron, Novavax has yet to file emergency authorization with the FDA for its COVID-19 vaccine, despite having filed regulatory submissions in other highly vaccinated countries, such as Australia, New Zealand, the European Union and the United Kingdom. The company indicated in August that it would prioritize regulatory submissions in countries with urgent needs. Nearing the end of 2021, the company says it is ready to produce 150 million doses per month. Meanwhile, reports emerged recently that clinical trial data of the CoVac-1 vaccine – developed and made by academics at the University of Tubingen in Germany – creates T-cells against COVID-19 that in turn produces a better immune response than the vaccines already in use. Unlike antibodies, which decline over time, T-cells have the ability to stay in the bloodstream for several years.
On 22 November, the European Medicines Agency (EMA) announced the start of the evaluation of data regarding the booster COVID-19 vaccine produced by Janssen. Additionally, on 25 November the EMA recommended the use of the Pfizer/BioNTech COVID-19 vaccines for children aged 5-11.