Transatlantic Trade | US and Europe – Week of October 4, 2021
Talks between the United Kingdom (UK) and European Union (EU) continued this week toward trying to resolve post-Brexit trade impasses, amid warnings from both sides. Officials from the United States (US) attended Group of 20 (G20) meetings and the Organization for Economic Co-operation and Development (OECD) ministerial this week, with Biden Administration officials welcoming the G20’s endorsement of the OECD global tax framework on Friday. The US also focused the first part of the week on the US Trade Representative unveiling the Biden Administration’s trade policy toward the People’s Republic of China (“China.”)
In this issue, we also cover:
COVID-19 highlights among the transatlantic partners;
Notable US, EU, and UK developments; and
A brief UK-EU trade deal update.
On 4 October, the European Medicines Agency (EMA) endorsed the recommendation of offering a COVID-19 booster dose of the BioNTech/Pfizer and the Moderna vaccines, six months after the second dose to healthy adults. For people with severely weakened immune systems, the booster dose can be given 28 days after their second dose. Ultimately, this remains a recommendation, leaving Member States with discretion to deploy their vaccination approach.
The US Centers for Disease Control and Prevention (CDC) on Monday warned against travel to Armenia, Austria, Barbados, Croatia and Latvia because of COVID-19 concerns, raising its travel recommendation to “Level 4: Very High.” The CDC also lowered its travel recommendations to “Level 3” for Morocco, Argentina, France, Iceland, Lesotho, Nepal, Portugal and South Africa.
With several holidays approaching and data reflecting America may be on the downside of the Delta COVID-19 surge, US health officials are warning against easing restrictions and urging more Americans to get vaccinated. Late last Friday, the US Food and Drug Administration (FDA) said its vaccine advisers would meet on 26 October to discuss data from Pfizer/BioNTech’s COVID-19 vaccine trial among children aged five to 11.
Also last Friday, Merck and Ridgeback Biotherapeutics reported their investigational antiviral drug, molnupiravir, can reduce the risk of hospitalization or death from COVID-19 by half. While the antiviral drug has yet to be approved by the FDA, US officials continue to urge Americans to get vaccinated and not await the antiviral option. FDA Commissioner Dr. Scott Gottlieb said of the drug over the weekend: “It’s not an alternative to vaccination. We still have to try to get more people vaccinated.”
Effective 4 October, the UK instituted a new simplified travel system with a single red list for international visitors from over 50 countries and territories. The UK Government also launched a campaign this week encouraging eligible British subjects to get a free flu vaccine and COVID-19 booster vaccine ahead of winter.
Notable US Developments
On Monday, US Trade Representative Katherine Tai spoke at an event in Washington, unveiling the long-awaited US trade policy toward China. Ambassador Tai said that with respect to the Phase One Deal: “China made commitments that benefit certain American industries, including agriculture, that we must enforce.” The Biden Administration, she shared, will start a targeted tariff exclusion process, while ensuring existing enforcement structure optimally serve American economic interests and keeping open the potential for additional exclusion processes, as warranted. Since China’s state-centered and non-market trade practices were not addressed in the Phase One deal, Ambassador Tai said she will raise “these broader policy concerns with Beijing.” She also said the Administration will “continue to work with allies to shape the rules for fair trade in the 21st century, and facilitate a race to the top for market economies and democracies.” The Office of the US Trade Representative released a fact sheet on the Administration’s new approach to China; the White House also released a transcript of a background briefing on the new policy.
This week, US Trade Representative Katherine Tai chaired the trade session on “Making Trade Work for All” at the 60th OECD Ministerial Council Meeting (MCM) in Paris, France. A readout from the Office of the US Trade Representative (USTR) reflected the participants discussed linking trade and labor commitments in free trade agreements, incentivizing Responsible Business Conduct, addressing labor risks in global supply chains, and addressing challenges posed by non-market economies. While in Paris, Ambassador Tai met with counterparts from France, Canada, Costa Rica, Norway, South Korea, and Indonesia (readouts hyperlinked). Ambassador Tai will attend the G20 Trade and Investment Ministers Meeting in Sorrento, Italy, from 11-12 October. She will also hold bilateral meetings with international counterparts on the margins of the meeting.
On Friday, US Secretary of the Treasury Janet Yellen issued a statement on the G20’s endorsement of the OECD Inclusive Framework, which would establish a system to “uniformly tax the income of multinational companies, including a global minimum tax.” She added:
This deal paves the way for Congress to enact [the OECD’s] proposals, and I’m hopeful they’ll do so swiftly though the reconciliation process.”
House Ways & Means Committee Ranking Member Kevin Brady (R-Texas) and Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) immediately countered with a statement, noting:
Rather than securing an agreement that would provide certainty and immediately eliminate digital services taxes, the Administration has instead used this global forum to advance its short-sighted domestic tax agenda. . . . Today’s announcement confirms the Biden Administration has overshot the mark in its race to raise the U.S. global minimum tax to the highest in the world, putting America at a serious disadvantage and making it better to be a foreign company or worker than an American one. As other countries delay implementation and secure side agreements and carveouts to protect their own companies, U.S. businesses will be hit by tax increases ultimately borne by American workers, savers and consumers.”
The US House of Representatives failed last week to take up the $1.2 trillion bipartisan infrastructure package already approved by the Senate. Speaker of the House Nancy Pelosi (D-California) called off a planned vote on the measure late last Thursday, announcing on Saturday that her new target for passing the bill is by 31 October. Centrist Democrats expressed disappointment that the infrastructure bill continues to be linked to Democrats efforts to advance its larger $3.5 trillion spending package that is focused on “human infrastructure,” or social and climate change priorities. Progressive Democrats, however, continue to say they will not support the infrastructure bill in the House, unless it moves in tandem with the spending package. Senator Joe Manchin (D-West Virginia) continues to hold firm that he will not accept a spending package that exceeds $1.5 trillion, amid reports that US President Joe Biden and Democratic congressional leaders are pushing for an upper limit of $1.9 to 2.3 trillion. Arizona Senator Kyrsten Sinema (Democrat) also remains firm on the need to lower the spending package’s topline, but she has not shared publicly her top limit.
On Monday, President Biden spoke of the need for Congress to address the nation’s debt ceiling by mid-month to prevent the country from defaulting on its financial obligations. He blamed Senate Republicans for blocking Democratic efforts to address the issue, after they filibustered a measure to address the debt ceiling last week and did not signal support for Democrats moving to address the debt ceiling via reconciliation – a process that would take time and is running up against a default date of 18 October. On Thursday, Senate Republicans agreed to a short-term extension of the debt ceiling deadline, approving a measure that moves the debt ceiling deadline to 3 December, which is also when the stop-gap funding bill for the Federal Government lapses. The House has yet to act on the bill, but is expected to approve it.
Meanwhile, Speaker of the House Nancy Pelosi delivered a keynote address on 7 October to the Opening Session of the G20 Parliamentary Speakers’ Summit, or “P20,” in Rome, Italy. She focused on the COVID-19 pandemic and the need to “save the planet from the existential threat of the climate crisis,” not on trade matters.
Notable EU Developments
In the aftermath of the EU-US Trade and Technology Council last week, reports indicate talks between EU Trade Commissioner Valdis Dombrovskis and Ambassador Tai could possibly lead to a suspension of the tariffs on steel and aluminum, with the understanding there is a system in place for monitoring imports from both countries. However, any concrete solution will need to be negotiated before 1 December, the deadline after which the existing EU retaliatory tariffs are set to double. If negotiated, this action could significantly affect the transatlantic relationship and the progress achieved thus far.
The European Parliament endorsed a report this week on the future of the EU-US relations. Rapporteur Tonino Picula (Socialist & Democrats, Croatia) noted,
The EU needs to mature and seek to redefine its relationship with the U.S. on a more equal footing. This means standing up for our own interests whenever needed, but also taking greater responsibility”.
Picula continued, “A strategically autonomous Union will serve its citizens best and also be a better partner for the United States”.
With respect to the Nord Stream 2 pipeline from Russia to Germany, an opinion issued on 6 October by Advocate General of the Court of Justice of the EU Michal Bobek reflected the General Court of the EU had wrongfully dismissed a claim by the Nord Stream 2 pipeline that EU gas rules were discriminatory. While the opinion carries important precedent, it is not binding to the Court of Justice.
Notable UK Development
On 8 October, UK International Trade Secretary Anne-Marie Trevelyan initiated a 14-week consultation calling for the public to share views on a possible trade deal with the Gulf Cooperation Council (GCC). Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates are members of the GCC. Negotiations are expected to start in 2022.
UK-EU Trade Deal Updates
UK Prime Minister Boris Johnson noted during an interview this week that the British Government is prepared to trigger the Article 16 of the Northern Ireland Protocol, if technical solutions cannot be found with the European Commission to resolve the post-Brexit trade impasse. Article 16 of the Northern Ireland Protocol is a safeguard clause, which allows parties to take unilateral measures if the application of the protocol “leads to serious economic, societal or environmental difficulties that are liable to persist”. European Commission Vice President Maroš Šefčovič warned that such threats make it more difficult to find a workable solution. Šefčovič suggested the EU would bring forward new far-reaching proposals, amid intensified talks this week, with the anticipation of resolving the technical difficulties by next week.
Meanwhile, the Council adopted a decision this week authorizing the commencement of EU-UK negotiations with respect to Gibraltar, easing concerns of a possible hard border between British territory Gibraltar and EU Member State Spain. Despite progress on the Gibraltar front, according to statements made earlier this week by French Minister for European Affairs Clément Beaune, it appears EU Member States are preparing measures to exert pressure to the UK to comply with its obligations under the Withdrawal Agreement. Two possible scenarios mentioned include targeting UK exports to France or leveraging the European energy exports to the UK. However, it remains unclear, especially ahead of next week’s potential progress on the Northern Ireland Protocol negotiations, whether these plans will materialize.