Transatlantic Trade: US and Europe – Week of October 12, 2020
A second wave of COVID-19 cases is being seen around the world and governments on both sides of the Atlantic are re-examining restrictions to curb the spread of the virus again. Two of four COVID vaccine candidates in late stage trials in the United States (US) have paused after individuals had complications that are being studied. The other two trials are on track to share data soon with the US Food & Drug Administration (FDA). This week, there were developments with respect to the longstanding large civil aircraft disputes between the US and European Union (EU), along with other trade-related developments, some of which increased tensions between the two sides. Meanwhile, there is still no breakthrough in the talks between the EU and the United Kingdom (UK).
COVID-19 Updates | EU, US and UK
The EU27 and UK collectively surpassed the United States in confirmed daily cases this week. Consequently, some European countries have imposed localized restrictions in and around hotspots. On Wednesday, 14 October, France declared a state of emergency, announcing a nightly curfew that will last until 1 December for Paris and eight other cities in the country. Spain similarly declared a state of emergency last Friday, asserting national control and restrictions over Madrid and surrounding towns, where local officials had resisted tightening restrictions again. On Monday, 13 October, the UK Government announced a new three-tiered system of restrictions. The strictest measures have been imposed in Liverpool, where the virus is spreading rapidly. Other European countries are closing schools and preparing medical resources as the virus resurges across the continent.
Similarly, senior EU officials continue to self-isolate after coming in contact with persons who tested positive for COVID-19, including High-Representative for Foreign Affairs and Security Policy Josep Borrell and Commissioner for Neighborhood and Enlargement Olivér Várelyi. European Commission President Ursula von der Leyen similarly could not attend one of the most critical European Council meetings on 15 October, only days after finishing last week’s self-isolation, as a precaution. Commissioner for Innovation, Research, Culture, Education and Youth Mariya Gabriel, is the first Commissioner who tested positive for COVID-19.
In the United States, 22 states are trending upward with infection cases, while COVID-related fatalities are trending downward. States and local jurisdictions are in control of whether they tighten restrictions in America, while following Federal parameters, which have not changed recently. Earlier this week, US President Donald Trump returned to campaigning for re-election, after the White House Physician confirmed he tested negative for COVID-19 and was no longer contagious. On Thursday, Democratic vice presidential contender Kamala Harris’ confirmed she would forgo campaign events through the weekend, after her communications director and a flight crew member tested positive for the virus. She continues to test negative for the novel coronavirus.
Due to the precedented circumstances surrounding this election year, a prolonged period of uncertainty may follow this year’s US presidential election. For potential election outcome scenarios, please read this expert analysis by a team of our public policy, election law and litigation practitioners.
COVID-19 Vaccine Updates
As the virus resurges, some COVID-19 vaccine trials have been suspended temporarily in the United States. Currently there are four companies with vaccine candidates in late-stage, Phase 3 clinical trials in the United States. After an unexplained illness in a study participant, Johnson & Johnson paused its JNJ-78436735 Phase 3 clinical trial on Monday. AstraZeneca’s US Phase 3 trial (of AZD1222) also continues to be on hold (since September), but the UK trial continues. Separately, on Tuesday, Eli Lilly paused its trial of a monoclonal antibody, ACTIV-3, an experimental treatment that was being tested on COVID-infected individuals.
On Tuesday, Pfizer reported it had secured approval to expand Phase 3 testing of its coronavirus vaccine candidate (BNT162b2), which was developed in conjunction with Germany’s BioNtech, to include children as young as 12. Moderna’s mRNA-1273 Phase 3 trials also continue, with data expected to be submitted to the FDA on/around 25 November. Pfizer/BioNtech also expect to submit data from its Phase 3 trials to the FDA by the end of this month, despite some pressurefrom researchers and bioethicists to delay releasing its data until later in November. On Friday, 16 October, Pfizer CEO Albert Bourla penned a letter addressing the American public on the timeline for BNT162b2 to ensure public trust and clear up confusion on the approval process. He confirmed the data from the trials will be reviewed by independent scientists for effectiveness, adding,
Pfizer will apply for Emergency Authorization Use in the U.S. soon after the safety milestone is achieved in the third week of November.”
None of the US-led vaccine candidates are in production yet, awaiting results of ongoing Phase 3 trials and emergency use authorization (EUA) from the FDA.
Meanwhile, Russia granted its second regulatory approval this week to a vaccine developed by Vector State Virology and Biotechnology Center, EpiVacCorona, and will soon begin production and distribution of the vaccine, while a Phase 3 trial has yet to commence. This comes after Russia’s similarly quick approval of its first vaccine in August called Sputnik V. A third Russian vaccine is apparently on track to gain regulatory approval in December.
On Tuesday, the World Bank’s Executive Board approved $12 billion in new funding for developing countries to finance the purchase and distribution of COVID-19 vaccines, tests and treatments. The financing plan is reportedly part of the $160 billion that the World Bank pledged to provide to developing countries through June 2021.
On Tuesday, the World Trade Organization (WTO) formally announced the EU would be able to impose tariffs on up to $4 billion worth of US goods in response to its case regarding subsidies provided to Boeing. Last year, the EU published a list of US goods that could face tariffs, but the list was for a higher dollar amount than what was granted. US Trade Representative Robert Lighthizer quickly issued a statement warning the WTO decision has no legal grounds, claiming the United States is now in compliance. He said,
While we disagree with certain aspects of its valuation, the more important point is that the arbitrator did not authorize any retaliation for subsidies other than the Washington State tax break.”
Ambassador Lighthizer added,
Because Washington State repealed that tax break earlier this year, the EU has no valid basis to retaliate against any U.S. products. Any imposition of tariffs based on a measure that has been eliminated is plainly contrary to WTO principles and will force a U.S. response.”
Ambassador Lighthizer further suggested the two sides should seek a settlement to the longstanding large civil aircraft disputes.
On Thursday, Inside U.S. Trade reported a European Commission spokesperson shared the bloc had provided “feedback” to a recent US proposal to remove US tariffs on European goods (wine, whiskey, etc.) related to the disputes. Accordingto Reuters, the US recommended Airbus repay billions of dollars in aid to European Governments in return for lifting US tariffs. This offer was apparently tabled ahead of the WTO’s Tuesday decision. EU Trade Commissioner Valdis Dombrovskis said on Tuesday that he would re-engage with the United States towards possibly finding a negotiated solution. Acknowledging COVID-19’s negative economic impact, Commissioner Dombrovskis noted,
I have been engaging with my American counterpart, Ambassador Lighthizer, and it is my hope that the U.S. will now drop the tariffs imposed on EU exports last year. This would generate positive momentum both economically and politically, and help us to find common ground in other key areas. The EU will continue to vigorously pursue this outcome. If it does not happen, we will be forced to exercise our rights and impose similar tariffs. While we are fully prepared for this possibility, we will do so reluctantly.”
Meanwhile, the EU must await the WTO Dispute Settlement Body adoption of decision before imposing tariffs; that body is set to next meet on 26 October.
After the WTO decision was announced, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) suggested on Tuesday that the Trump Administration should negotiate a settlement to the aircraft subsidies disputes. On Thursday, US President Donald Trump weighed-in on the possible EU tariffs, telling reporters,
If they strike back, then we’ll strike much harder than they’ll strike.”
Further exacerbating tensions with the EU, the United States raised tariffs on aluminum again last Friday against 18 countries. The US Department of Commerce preliminarily determined exporters from the following European countries have dumped common alloy aluminum sheet in the United States at the following rates: 3.22 percent for Croatia; 51.18 percent to 352.71 percent for Germany; 2.72 percent for Greece; 0.00 percent to 29.13 percent for Italy; 12.51 percent to 83.94 percent for Romania; 11.24 percent to 25.84 percent for Serbia; 4.80 percent for Slovenia; and 3.75 percent to 23.32 percent for Spain. The US Customs and Border Protection (CBP) will collect cash deposits from importers of common alloy aluminum sheet from these countries based on the preliminary rates. If Commerce’s final determinations are affirmative, the US International Trade Commission (ITC) would make its final injury determination on or about 5 April 2021.
Reversing his position, Bernd Lange (Germany), Chairman of the European Parliament’s Trade Committee, urged the Parliament to reject the US lobster mini-deal next week. Lange had previously been a proponent of the mini-deal that was struck in August. Citing the aluminum tariffs as an escalating move, Lange further noted that Canada’s threat to retaliate had been successful. Referencing retaliatory tariffs and the US Trade Representative, he stated,
Perhaps this is the only answer the United States and the Lighthizer administration understand.”
This week, the Group of 20 (G20) Finance Ministers agreed to the Organization for Economic Cooperation and Development’s (OECD) request to push back the negotiations timeline for a global agreement addressing digital services taxes to mid-2021. In a communiqué issued after their virtual meeting on Wednesday, they noted,
We acknowledge that the COVID-19 pandemic has impacted the work of addressing the tax challenges arising from the digitalization of the economy. We welcome the Reports on the Blueprints for Pillar 1 and Pillar 2 approved for public release by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS).”
Pillar One addresses the reallocation of taxing rights and could supersede unilateral digital services taxes. Pillar Two would establish a minimum global corporate tax to disincentive tax avoidance. The OECD’s blueprint for the two Pillars is available here, as released on Monday. A consultation period on the two blueprints is open until 14 December 2020, and a public consultation meeting will take place in January 2021.
Despite the granted extension, French Finance Minister Bruno Le Maire said on Wednesday France would begin collecting tax on big digital technology companies, which are mostly American, in December. France suspended its digital services tax (DST) in January after the United States agreed to delay tariffs on $1.3 billion worth of French goods, with both sides agreeing to give the OECD until the end of the year to reach a deal on the matter. Minister Le Maire said that a deal would not be likely in January, February or March, adding,
Do we accept that the big winners of the economic crisis, the digital giants, continue to be taxed less than other companies? My response: no. Three times no.”
He also suggested the EU move forward with its DST efforts. EU officials have repeatedly stated that if agreement is not reached by the Inclusive Framework, the EU will move on its own to propose within the first half of 2021 rules similar to the Pillar One and Pillar Two proposals for all EU member states. The Office of the US Trade Representative is also conducting 10 other Section 301 investigations into digital services taxes enacted or proposals being considered in nine countries and the European Union.
In light of the 15 October deadline set out by UK Prime Minister Boris Johnson, informal negotiations intensified this week. Ahead of the European Council meeting, Prime Minister Johnson, European Commission von der Leyen and European Council President Charles Michel spoke by phone on 14 October. Readout from 10 Downing Street reflected,
The Prime Minister noted the desirability of a deal, but expressed his disappointment that more progress had not been made over the past two weeks.”
Lack of progress on some essential elements of the negotiations – particularly level playing field, fisheries and governance – remains a concern for the EU27. The European Council released a conclusion of its understanding of the status of the EU-UK exit negotiations after its Summit on 15 October. At the top, the Council notes,
[C]oncern that progress on the key issues of interest to the Union is still not sufficient for an agreement to be reached.”
The Council directs EU Chief Negotiator Michel Barnier to continue (the original draft said “intensify”, but this was changed by EU leaders) negotiations in the coming weeks, while also calling on the UK “to make the necessary moves to make an agreement possible.” The Council also called on Member states and EU institutions to prepare for a possible no-deal scenario.
UK Chief Negotiator David Frost stated his disappointment on the outcome of the European Council meeting, expressing surprise over “the suggestion that to get an agreement all future moves must come from UK. It’s an unusual approach to conducting a negotiation.” Following the outcome of the Summit, Prime Minister Boris Johnson said that it was clear from the European Council’s conclusions that a Canada-style free trade agreement (FTA) was not on offer, and the UK should prepare for what he called “Australia-style” (which means basic WTO terms) trading arrangements with the EU from 1 January 2021. A No.10 spokesman later said that the UK-EU trade talks were “over”. It is however very unlikely that this is the end of the story: EU Chief Negotiator Barnier is still planning to travel to London on Monday, 19 October, to advance the negotiations over the next couple of weeks, though the No.10 spokesman said there was no point in him coming unless there was a change to the EU position. A Brexit deal must be achieved by early November, at the latest, to give enough time for the European Parliament to ratify the deal before the end of the year, when the transition period concludes. The key outstanding issues remain: dispute resolution provisions, UK commitments on state aid, and fisheries (on which France has taken a notably hard line).
On 14 October, the Council adopted legislation pertaining to the Channel Tunnel railway connection between continental Europe and its continued operations once the Brexit transition period ends. The measure includes a regulation amending the EU railway safety and interoperability rules and empowers France to negotiate, sign and conclude an amendment to the Canterbury Treaty, which was signed by France and the UK in 1986 and established an intergovernmental commission overseeing operations of the Channel Tunnel.
UK Transport Secretary Grant Shapps shared at a virtual tourism conference on 14 October that the Government is negotiating with the EU to ensure commercial flights remain uninterrupted after the Brexit transition period concludes and irrespective of the outcome of the ongoing exit talks with the bloc. He stated,
We expect the EU to bring forward contingency measures, as they’ve done before, to ensure flights will continue if negotiations are unsuccessful. Of course, we would look to reciprocate that.”
Australia Trade Talks
On Monday, 12 October, the UK Department for International Trade reported on the “productive” and comprehensive second round of negotiations with Australia, which took place from 21 September to 2 October. Readout reflected,
Both sides shared draft chapter text or papers outlining their preferred approach, and the groundwork was laid for an initial exchange of tariff offers.”
The UK Government further observed,
Both countries are committed to removing trade barriers and creating new opportunities for business, and believe a deep and dynamic agreement can send a clear signal to the world that both the UK and Australia are prepared to fight protectionism and advance free and fair trade.”
On Tuesday, 13 October, the European Commission published its report summarizing progress made during the latest virtual negotiation round for an EU-Australia trade agreement that happened from 14 to 25 September. This round of talks reportedly covered all chapters. With respect to Rules of Origin and product-specific rules, both sides “discussed in detail the respective proposals on sectors such as agricultural and processed agricultural products, chemicals, paper and textiles, and provisionally agreed on the product specific rules for a number of products.” The EU also remains focused on Geographical Indications (GI), noting,
Discussions focussed on the opposition grounds to the protection of a number of EU GI names. On the GI text, the EU reinstated its high ambition on the level of protection and its enforcement.”
Negotiated during the George W. Bush, the United States already has a free trade agreement with Australia, which came into effect on 1 January 2005.
Other UK Trade Development
On 15 October, the United Kingdom and Côte d’Ivoire signed an Economic Partnership Agreement (EPA) to maintain existing trade arrangements after the UK exists the EU. The agreement also lays the groundwork for expanding the trade relationship.
Other US Developments
In remarks to the media on 14 October, US Secretary of State Mike Pompeo spoke of the Department’s efforts to resolve conflicts in Europe. With respect to the Nagorno-Karabakh conflict, he observed,
As the co-chair of the OSCE Minsk Group, the United States remains committed to helping Azerbaijan and Armenia achieve a peaceful and sustainable settlement to their conflict. We call on both countries to implement their agreed-upon commitments to a ceasefire, and stop targeting civilian areas.”
During the Q&A with the media, Secretary Pompeo confirmed President Trump has been briefed on the escalating conflict, adding the State Department is “using [its] diplomatic toolkit to try and achieve an outcome that gets a standdown, a ceasefire, and an outcome that is a solution based on international law.”
Stressing continued US support to the Belarusian people, Secretary Pompeo reiterated the US demand that the Belarusian regime immediately release American citizen Vitali Shkliarov. In his opening remarks, he also urged Russia “to cooperate fully with the international community’s investigation into the chemical nerve agent attack against Alex Navalny.”
Spotlighting Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach’s recent, eight country European trip, Secretary Pompeo observed of secured 5G pledges,
25 EU and NATO countries are members of our Clean Network, pledging to use only trusted vendors, and there’s more to follow.” He also warned, “It’s important, too, to note that the boards of directors of EU telcos may be personally liable for breaches of privacy, data, and intellectual property perpetrated by a ‘high-risk’ 5G supplier.”
On 13 October, the State Department issued a statement responding to Turkey’s announcement it would resume “survey activity in areas over which Greece asserts jurisdiction in the Eastern Mediterranean.” Citing Turkey’s unilateral action as raising tensions in the region, State further urged “Turkey to end this calculated provocation and immediately begin exploratory talks with Greece.”
Meanwhile, US officials continue to travel to Europe and engage counterparts on topics of mutual interest. Deputy Secretary of Defense David Norquist visited the United Kingdom from 11-13 October for the third iteration of the US-UK Defense Dialogue with UK Permanent Secretary for Defence Sir Stephen Lovegrove. According to a Defense Department readout, the two leaders emphasized “the continued importance of the two nations’ respective contributions to NATO and transatlantic cooperation.” Other topics of discussion included China, Russia and future force development.
Assistant Secretary of State for Conflict and Stabilization Operations Dr. Denise Natali was in Paris, France, this week, to “advance U.S. priorities and enhance collaboration on stabilization, atrocity early warning and response, and the Global Fragility Strategy.” The Global Fragility Strategy is mandated by the US Congress, and, while overdue, is expected to be released by the end of this month. The Strategy is to outline a whole-of-government approach that streamlines how the State Department, US Agency for International Development and Department of Defense coordinate and engage in fragile countries/regions toward stabilizing existing conflicts or possibly preventing future conflicts and avoiding years-long reconstruction efforts.
On 14 October, the State Department announced Assistant Secretary of State for Political-Military Affairs R. Clarke Cooper would travel to Greece, Bulgaria, Cyprus, and Poland from 14-24 October to discuss expanding security cooperation and defense trade. Further details on his trip are available here. On 20 October, Assistant Secretary of State for Near Eastern Affairs David Schenker will travel to London (after stops in Lebanon and Morocco) to meet with UK counterparts to discuss recent developments in the Middle East and North Africa.
The list of persons targeted will be under constant review. In line with the EU’s gradual approach, the EU stands ready to take further restrictive measures, including against entities and high-ranking officials, including A. Lukashenko.”
On Thursday, 15 October, the EU implemented sanctions against six individuals and one organization over the use of a chemical agent, Novichok, in the poisoning of Russian opposition leader Alexei Navalny. The EU also sanctioned one person, Yevgeniy Prigozhin, for violations of the United Nations arms embargo in Libya. The UK followed suit, similarly imposing travel bans and asset freeze on the seven individuals and organization.
That same day, a group of bipartisan US House Foreign Affairs Committee lawmakers welcomed the EU and UK decisions to implement sanctions on Russian operative Yevgeniy Prigozhin. In a joint statement, they noted,
Today’s announcement sends a clear message that the US and our European allies will stand together in ensuring the Putin regime and its cronies, including Prigozhin, are held accountable.”
The United States sanctioned Prigozhin in September 2019 for attempts to influence the 2018 US midterm elections and has subsequently sanctioned entities and individuals related to Prigozhin for “malign political and economic influence around the globe.”
 Apart from the EU, the other Section 301 investigations involve DST proposals or laws in Austria, Brazil, the Czech Republic, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.