Transatlantic Trade: US and Europe – Welcome to the Inaugural Report of 2021
All eyes were on Washington, D.C. last week, as news emerged Wednesday that the United States (US) Capitol was breached. Order was restored quickly and Congress moved ahead with certifying the 3 November election results. In the wake of the incident, US President Donald Trump is under pressure to resign, with just over a week remaining in his term.
COVID-19 cases continue to increase on both sides of the Atlantic Ocean, with varying levels of restrictions imposed to prevent healthcare systems from being overwhelmed. Distributing approved vaccines and inoculating citizens is proving to be a challenge in the United States and in Europe.
Meanwhile, Iran’s increased uranium enrichment caught the attention of the three European countries that are a party to the Joint Comprehensive Plan of Action (JCPOA) with Iran. It remains to be seen if Iran’s latest action will deter the incoming Biden Administration from rejoining the JCPOA.
US Capitol Incident
On Wednesday, 6 January, as the 117th Congress met in a joint session for the Electoral College certification of President-Elect Joe Biden’s November victory, individuals affiliated with a pro-Trump rally breached the US Capitol Building, temporarily halting the routine process until the premises could be re-secured. One individual was shot and killed inside the building, and three others reportedly died after medical emergencies outside of the Capitol. A Capitol Police officer died late on 7 January, due to injuries sustained during the breach. Lawmakers returned to the Capitol later that evening and resumed debate, ultimately certifying the 3 November election results in the early hours of Thursday, 8 January.
Lawmakers from both parties immediately condemned the violence at the Capitol. Business leaders and major trade associations also issued statements condemning the attempt to disrupt the normally peaceful democratic transition process. On Thursday, Speaker of the House Nancy Pelosi (D-California) and Senate Democratic Leader Chuck Schumer (D-New York) joined calls for Cabinet officials and Vice President Pence to invoke the 25th Amendment, which provides a mechanism for removing a sitting President from office. Speaker Pelosi warned that if not done, the House would move to impeach President Trump, labeling his actions on Wednesday as “seditious.” The clock, however, may run out on both mechanism, as the President has just nine days remaining in office. Meanwhile, a number of senior officials and two Cabinet officials resigned in the wake of the incident.
President-Elect Biden’s inauguration is set for 20 January. On Friday, 8 January, President Trump confirmed he would not attend the transition ceremony. Vice President Mike Pence is expected to attend.
COVID-19 Updates | UK, EU, US
The United Kingdom (UK) imposed its third lockdown on 6 January 2021; started administering its first AstraZeneca/Oxford vaccine inoculations on 4 January. AstraZeneca pledged to boost its production of the vaccine developed with Oxford University to two million doses a week from mid-January.
Despite AstraZeneca/Oxford’s COVID-19 vaccine approval in the UK, the European Medicines Agency (EMA) stated it requires additional scientific studies and information on the quality, safety and efficacy of the vaccine, before it will entertain a petition for conditional marketing authorization. The EMA announced its recommendation to approve the COVID-19 vaccine by Moderna for a conditional marketing authorization on 6 January; it was granted approval that same day by the European Commission. This marks the second COVID-19 vaccine approved at the EU level, following the one by Pfizer/BioNTech.
Amid progress on vaccine authorizations, the European Commission is facing increased criticism over vaccine deals and doses, especially after many European Union (EU) countries experienced a slow rollout of approved COVID-19 vaccines and low vaccination rates. Meanwhile, the European Commission is currently negotiating to obtain additional doses of the Pfizer/BioNTech vaccine.
In the United States, injections of approved COVID vaccines have failed to meet targets, despite some states and locales having vaccines on hand, some individuals are refusing to be vaccinated and there remains confusion as to when and where to get vaccinated. President-Elect Biden indicated last week that he intends to release more doses of the Pfizer/BioNTech and Moderna coronavirus vaccines when he takes office, holding back less of the second required dose and pinning hopes on increased production of the vaccines will permit the follow-on dose. Biden’s approach is in line with Britain’s approach; more will be known once he is sworn into office. Some medical experts outside of the White House have expressed concerns that there are no guarantees of a smooth manufacturing process, noting much of the slowdown has occurred between distribution and injection.
UK-EU Trade Deal | Updates
European Commission President Ursula von der Leyen, European Council President Charles Michel and UK Prime Minister Boris Johnson signed the 1,449-paged EU-UK Trade and Cooperation Agreement on 30 December 2020. The deal entered into force on 1 January 2021 and is expected to apply provisionally until 28 February 2021, given the European Parliament still needs to formally ratify it. The European Parliament also wishes to slightly extend the provisional application period in order to take up and ratify the deal in their scheduled 8 March week-long plenary session. It is not yet clear whether the Council and the European Commission would agree to provide such an extension of the Agreement’s provisional application. Meanwhile, the International Trade Committee is set to review the deal on 11 January 2021.
The EU-UK Trade and Cooperation Agreement also includes an interim data flow agreement that provides legal safeguards for the free flow of data from the EU to the UK for up to six months, allowing additional time for the EU to consider a data adequacy decision for the UK. Further information on the interim data flow agreement is available in our blog piece here. Furthermore, the end of the transition period includes numerous administrative details that companies need to comply with under new requirements for EU trademarks and designs, as noted in on our blog here.
On 25 December 2020, the European Commission put forward a proposal to create a Brexit Adjustment Reserve with a budget of €5 million that would support businesses and employment in affected sectors in Member states. The reserve may also be used to assist with public administration of borders, customs and sanitary and phytosanitary controls. The co-legislators are negotiating text of the proposal.
Meanwhile, on 31 December 2020, Spain and the UK reached a political deal in principle with respect to Gibraltar, a British territory. Under the deal, a hard border between Spain and Gibraltar is averted, with Gibraltar remaining within the EU’s borderless Schengen zone under the sponsorship of Spain. Tension, however, is reportedly increasing between Spain and the UK over border control oversight; a Treaty outlining the framework of the deal is forthcoming.
Other Notable UK Trade Developments
On 31 December, the UK Government circulated a letter to World Trade Organization (WTO) members that sets out some of the implications at the WTO in light of the conclusion of transition period for the United Kingdom, ranging from goods and services to disputes and remedies. The British Government also recognized there are some WTO agreements – such as the Government Procurement Agreement and others – in which the United Kingdom participated as a Member State of the European Union but is not party to in its own right that it will need to accede to or confirm continued acceptance and implementation thereof.
Other Notable EU Developments
Portugal assumed the Council Presidency from Germany on 1 January 2021. One of the main trade priorities for the next year is improving the EU’s relationship with the United States under the Biden Administration. This includes working with the Biden Administration and a new alliance of partners with shared interests and values toward strengthening multilateralism, which the Trump Administration eschewed. The Portuguese Presidency also envisions strengthening EU global leadership by diversifying global partnerships with Africa, India and the entire transatlantic region.
As noted in last week’s report, despite the EU and China reaching an agreement in principle on investments at the end of 2020 – known as the Comprehensive Agreement in Investment (CAI) – the ratification process of the agreement may prove difficult, especially if the European Parliament rejects the CAI. Notably, Members of the European Parliament have been vocal on the rushed deal at the end of Germany’s Council Presidency, a sentiment echoed by officials from Italy, Poland, Belgium and Spain. The European Parliament is also concerned with repercussions the CAI could have on EU-US cooperation with respect to China, given the imminent transition of power in the US. The European Parliament further expressed concern with respect to “weak” provisions in the CAI related to human rights, noting forced labour provisions are lacking.
Iran’s Increased Uranium Enrichment | JCPOA Challenged
On 4 January 2021, Iran reportedly commenced uranium enrichment up to 20 percent at the underground facility of the Fordow Fuel Enrichment Plant, enriching at the 20 percent level. In light of this development, the Governments of France, Germany and the United Kingdom (“E3”) – parties, along with Russia and China, to the JCPOA with Iran – issued a Joint Ministerial Statement on 6 January 2021, expressing serious concern with respect to Iran’s uranium enrichment program. The E3 leaders’ called for Iran to cease this level of enrichment, reminding Iran of its JCPOA commitments.
Iran’s latest action complicates European efforts to salvage the deal, amid hopes the US may rejoin the deal. While President Trump withdrew the United States from the JCPOA early in his tenure, President-Elect Biden campaigned he would return the United States to the JCPOA, if Tehran returns to compliance with the JCPOA. He reiterated this intent in a New York Times interview in December, saying US engagement would be “the best way to achieve some stability in the region.” President-Elect Biden added he would negotiate “to tighten and lengthen Iran’s nuclear constraints, as well as address the missile program.”
On 9 January, the US Department of State released a statement from Secretary Mike Pompeo that highlighted Iran’s parliament passed a law in December requiring expulsion of International Atomic Energy Agency (IAEA) nuclear inspectors unless all sanctions are lifted, adding a senior parliamentarian leader reiterated the threat that day. Secretary Pompeo warned, “Iran has a legal treaty obligation to allow IAEA inspector access pursuant to Iran’s [Nonproliferation of Nuclear Weapons] NPT-required safeguards agreement. Violating those obligations would thus go beyond Iran’s past actions inconsistent with its JCPOA nuclear commitments.” The Secretary also acknowledged the 20 percent enrichment as a concern, saying, “The world’s top sponsor of terrorism should not be allowed to enrich uranium at any level.”
While France started collecting digital service taxes (DSTs) from American technology companies in early December, the Office of the US Trade Representative (USTR) declined to move forward with retaliatory duties on $1.3 billion of French goods that were set to take effect on 6 January. A Federal Register notice said the duties have been “suspended indefinitely”.
On Wednesday, 6 January, USTR released its Section 301 investigation findings on DST measures adopted by India, Italy, and Turkey, concluding each proposal discriminates against US companies, is inconsistent with prevailing principles of international taxation, and burdens or restricts US commerce. USTR declined to take action at this time, yet it noted it continues to evaluate all available options. US lawmakers will likely continue to be vocal on DSTs, advocating for the global consensus as led by the Organisation for Economic Co-operation and Development (OECD). The incoming Biden Administration will also have to address the Section 232 steel and aluminum duties imposed on European allies and the long-standing large civil aircraft dispute and related retaliatory duties between the United States and EU.
The UK is rapidly shifting gears to secure new trade deals, including with the United States, after reaching trade terms with the EU at the end of the year. USTR has thus far failed to secure a deal in principle with the U.K. in the waning days of the Trump Administration. UK Ambassador to the United States Karen Pierce said on 30 December that Britain is willing to add labor and climate-related issues to the bilateral trade talks with Biden Administration in order to secure a deal in 2021. Since negotiations were initiated under Trade Promotion Authority (TPA) and that authority expires in July, if a deal is to be approved by Congress under the existing authority, negotiators have a tight timetable (by April) for resolving remaining issues. Members of Congress are generally supportive of achieving a trade deal with the UK.
Other Notable US Developments
Prior to adjourning, the 116th Congress, lawmakers successfully voted on 1 January to override President Trump’s veto of the Fiscal Year 2021 National Defense Authorization Act (NDAA; H.R. 6395). Title XII, Subtitle E of the NDAA includes provisions specific to Europe and the North Atlantic Treaty Organization (NATO), such as expanding US sanctions related to construction of the Nord Stream 2 or TurkStream pipeline projects (Sec. 1242).
On Tuesday, 5 January, the State of Georgia elected two Democrats as their US Senators in runoff elections. Senators-Elect Jon Ossoff and Raphael Warnock’s victories over Republican Senators Kelly Loeffler and David Perdue effectively gives Democrats control of the upper chamber of Congress, with Vice President-Elect Kamala Harris breaking any 50-50 votes. Senator Schumer is expected to take over as Senate Majority Leader.
At a Georgia campaign event on Monday before the elections, President-Elect Biden said he supports immediate congressional action on $2,000 direct payments to eligible Americans, suggesting “that money will go out the door immediately,” if Democrats secured control of the Senate. Democratic lawmakers will also likely move to increase aid for states, which was omitted in the $900 billion COVID-19 relief package signed into law on 27 December. Meanwhile, reports emerged on Thursday that President-Elect Biden is also going to push the Democratic-led Congress to approve a $3 trillion tax and infrastructure package.
On Sunday, 3 January, the newly-seated House of Representatives elected Nancy Pelosi (D-California) for her fourth and likely final term as Speaker of the House by a margin of 216 to 209. With one race in New York uncalled and a Democrat challenging a Republican’s six-vote win in Iowa, Speaker Pelosi will preside over a nine to 11-seat majority, the smallest Democrat-led margin since 1877. House Democrats are also poised to lose at least three Members early on to the Biden Administration: Cedric Richmond (Louisiana; Senior White House Advisor to President-Elect Biden), Marcia Fudge (Ohio; Housing and Urban Development Secretary-Nominee) and Deb Haaland (New Mexico; Interior Secretary-Nominee). These seats will likely remain in Democratic control, but could be vacant for several months. Meanwhile, given the slim Democratic majority, Republicans will fill more seats on House Committees.
In the aftermath of the months-long cyber-attack on the US Government, Secretary of State Mike Pompeo approved the creation of the Bureau of Cyberspace Security and Emerging Technologies (CSET) on 7 January. The Federal Bureau of Investigation (FBI), the Cybersecurity & Infrastructure Security Agency (CISA), the Office of the Director of National Intelligence (ODNI) and the National Security Agency (NSA) issued a joint statement on 5 January that formally named Russia as the likely origin of the cyber-attack.
On 5 January, US Acting Secretary of Homeland Security Chad Wolf signed a joint declaration on border security cooperation and management with Cypriot Foreign Affairs Minister Nikos Christodoulides. The Declaration of Intent would strengthen efforts to bolster information sharing and border security, such as managing irregular migration and addressing threats from terrorism and transnational organized crime.
On 7 January, President-Elect Biden announced his intent to nominate Boston Mayor Marty Walsh to serve as US Secretary of Labor; Rhode Island Governor Gina Raimondo as his nominee to serve as Secretary of Commerce; and Isabel Guzman to head the Small Business Administration. Some Republican Senators have already indicated they would support advancing President-Elect Biden’s Cabinet nominees, saying he should be able to pick his Cabinet, as long as the selected individuals are within the mainstream of either party.
Sanctions Updates | US
The US Government announced the following restrictions this past week:
On 5 January, Treasury’s Office of Foreign Assets Control (OFAC) designated a China-based supplier of graphite electrodes, a key element in steel production, as well as twelve Iranian producers of steel and other metals products, and three foreign-based sales agents of a major Iranian metals and mining holding company.
On 8 January OFAC designated Iraqi Popular Mobilization Committee Chairman and former National Security Advisor Falih al-Fayyadh for his alleged connection to serious human rights abuse.
On 1 January, the US Department of State added Banco Financiero International S.A. to the Cuba Restricted List, alleging ties to the Cuban military.