Transatlantic Trade: US and European Trade Talk Update – June 19, 2020
America and European countries remain focused on securing a COVID-19 vaccine to prevent resurgences of the virus, with the European Commission unveiling a strategy this week to accelerate its coordinated efforts. At a North Atlantic Treaty Organization (NATO) Defense Ministerial this week, partners focused on COVID-19 and other topics, including the US’ announcement to lower troop levels in Germany. The EU announced the launch of a review of the bloc’s trade and investment policy this week, while US Trade Representative Robert Lighthizer testified before congressional trade committees on President Donald Trump’s 2020 Trade Policy Agenda, including US priorities for the ongoing trade negotiations with the EU and United Kingdom UK. Meanwhile, the EU and UK sought to inject a more positive outlook in their ongoing UK exit negotiations.
Coronavirus Vaccines Updates
On 17 June, the European Commission presented its strategy to accelerate the development, manufacturing and deployment of vaccines against COVID-19. European Commission president Ursula von der Leyen asserted, “This is a moment for science and solidarity…. This vaccine will be a breakthrough in the fight against the coronavirus, and a testament to what partners can achieve when we put our minds, research and resources together.” EU Commissioner for Health and Food Safety Stella Kyriakides added, “This is the EU at its best: pooling resources, joining efforts, bringing tangible results to the everyday lives of people.” The Commission’s new strategy aims to support attempts to accelerate the development and availability of safe and effective vaccines within the next 12 to 18 months. This will require undertaking clinical trials while investing in production capacity to be able to produce enough doses of a successful vaccine.
The Commission’s strategy outlines a number of objectives, including: the quality and safety of vaccines, swift access, and ensuring there is equitable access to an affordable vaccine as soon as possible. The strategy rests on two pillars one of which is securing the production of vaccines in the EU and sufficient supplies for member states through Advance Purchase Agreements with vaccine producers via the Emergency Support Instrument. As part of this, the Commission is planning to enter into agreements with individual vaccine producers on behalf of member states. The Commission will finance part of the upfront costs in return for the right to buy a specified number of vaccine doses in a certain timeframe. This funding will come from the EUR 2.7 billion support instrument and additional support will be made available through loans from the European Investment Bank. Certain financing criteria will be taken into account when taking a decision about what vaccines to support, including: the soundness of the approach, speed of delivery and early engagement with regulatory authorities.
In collaboration with member states and the European Medicines Agency, the Commission will ensure the regulatory process is flexible but also robust. Those with a promising vaccine candidate are invited to contact the Commission. The EU is also contributing to the global vaccine effort and has joined forces with countries and international organisations through the Access to Covid-19 tools (ACT) Accelerator framework.
Efforts to produce a vaccine are also being taken on by individual EU member states including Germany who is set to take a 23% stake (€300 million) in CureVac. The German Federal Ministry for Economic Affairs and Energy made the announcement in a joint press release on Monday, 15 June. According to German Economy Minister Peter Altmaier the government has “decided to invest in this promising company because it expects that this will accelerate the development programs.” CureVac is developing a vaccine based on messenger RNA technology, which is unproven but promising, and announced in May that “positive pre-clinical results” suggested that its candidate is able to create strong antibody responses. This week, German regulators also authorized CureVac to start human trials, which will likely start this month. In April, the European Investment Bank approved a €75 million equity investment in CureVac.
France, Germany, Italy and the Netherlands formed an inclusive vaccine alliance. On 13 June, the alliance struck a deal with AstraZeneca – which already has priority deals with the UK (30 million doses) and US (300 million doses), after both countries funded the Oxford University vaccine candidate the company is set to manufacture – to secure 400 million doses by the end of the year. GAVI, the vaccine alliance, also secured a US$750 million deal with AstraZeneca to supply 400 million doses by the end of 2020.
On Tuesday, 16 June, officials from the US Department of Defense and Health and Human Services (HHS) provided an update on Operation Warp Speed. They acknowledged that typically when creating a vaccine, steps such as development, clinical trials and manufacturing typically would occur one after the other. However, under Operation Warp Speed these steps are occurring simultaneously toward having a viable vaccine by January. Thus far, 14 vaccine candidates have emerged and Operation Warp Speed is working to narrow this down to seven candidates, and the most promising of those will get further testing and clinical trials. The vaccine will be distributed in America via a tiered system, with priority given to the elderly, those with pre-existing conditions and people performing essential services, such as healthcare workers.
NATO Update | US Troop Reduction in Germany
NATO Defense Ministers met virtually on 17-18 June. A topic at the top of the agenda was President Trump’s announcement last week that he would reduce American service members (approximately 9,500) stationed in Germany until that country meets its two percent GDP military expenditure obligations as a NATO member. NATO Secretary General Jens Stoltenberg confirmed he has spoken with President Trump and German Defense Minister Annegret Kramp-Karrenbauer about the reduced US presence in Germany, adding it has not been determined how and when the withdrawal will be accomplished.
The Alliance Defense Ministers also discussed a new operational plan for a possible second wave of COVID-19; building a stockpile of medical equipment to provide immediate assistance to allies and partner countries; establishing a fund to acquire critical medical supplies; NATO’s response to new Russian nuclear-capable missiles; and NATO missions and operations in Afghanistan and Iraq. In remarks to the Ministers, US Secretary of Defense Mark Esper encouraged Alliance members to expose disinformation and propaganda, guard against predatory foreign direct investment, and increase resilience by reducing dependence on Chinese or Russian suppliers for medical equipment, telecommunications, and other necessities.
The White House confirmed this week that President Trump would welcome President Andrzej Duda of the Republic of Poland to the White House on Wednesday, 24 June. This will mark the first visit of a foreign dignitary to the White House since the pandemic restricted visitors. A White House announcement of the impending visit noted the leaders “will discuss further advancing our cooperation on defense, as well as trade, energy, and telecommunications security.” Poland, a NATO member, has been advocating for the US to increase permanently its military presence in its country, offering to host a US military installation. In 2019, both countries agreed to a modest American troop increase in Poland that called for 1,000 additional troops to rotate through the country. Currently, the US has up to 4,500 non-permanent troops in Poland, focused on deterring Russian aggression along NATO’s eastern flank. Some believe President Duda’s visit may result in an announcement of a larger American presence in Poland, especially given the impending drawdown in Germany.
EU Launches Trade Policy Review
On 16 June, the Commission published a consultation note, announcing the launch of its review of the EU’s trade and investment policy. This includes a public consultation, which seeks input from parliament, member states, stakeholders and civil society. The objective is to build consensus around a fresh medium-term direction for the EU. According to EU Trade Commissioner Phil Hogan, “The current pandemic is reshaping the world as we know it, and our trade policy must adapt to be more effective in pursuing European interests…. We must keep trade free and fair, underpinned by appropriate rules both within the EU27 and globally. With this review, we will listen to everyone who has a stake.” The results of the consultation process will be published by the end of the year. The consultation will include topics such as World Trade Organization (WTO) reform, maximizing the contribution of trade policy, addressing global challenges such as climate change and strengthening relationships with key trade and investment partners.
The European Commission is suggesting “open strategic autonomy” should be the new trade strategy of the EU, with Hogan calling the approach a “bespoke EU trade policy for a post-corona global trade world.” According to Hogan, the pandemic has accelerated certain trends, including protectionism, nationalism and the rejection of global institutions.
Recap of USTR Lighthizer’s Congressional Testimony & Digital Tax Update
On Wednesday, 17 June, Ambassador Lighthizer appeared before the congressional trade committees on the President’s 2020 Trade Agenda. The discussions with the House Ways and Means Committee and the Senate Finance Committee touched on a wide range of topics, including WTO reforms, implementation of the US-Mexico-Canada Agreement (USMCA) and US-China trade relations. Ambassador Lighthizer affirmed strong US support for the Good Friday Agreement, as the EU and UK work through their negotiations. Regarding US duties on wine, which are part of the WTO-approved retaliation related to the Airbus case, he said these tariffs would remain in place until the dispute is resolved.
Ambassador Lighthizer suggested it is unlikely the US will reach a trade deal with the UK before the end of this year. With respect to the topic of agriculture in ongoing US trade negotiations with the EU and UK, Ambassador Lighthizer said safety standards would be among the negotiations, adding European countries have enacted protectionist agriculture policies under the pretext of safety concerns and not based on sound science. He said US negotiators would seek to eliminate protectionist use of geographical indicators in its negotiations with the UK. He also said the Office of the US Trade Representative (USTR) is contemplating a Section 301 action on the use of non-scientific trade barriers by some trading partners.
During the hearings, Ambassador Lighthizer also confirmed the Trump Administration had withdrawn from talks on digital services taxes, as USTR proceeds with its Section 301 trade investigations analyzing whether such taxes contemplated or enacted around the world are unfairly targeting American companies. Earlier this week, US Secretary of the Treasury Steven Mnuchin wrote a letter to France, the UK, Italy and Spain informing them Washington was pulling out of the digital tax talks. Organisation for Economic Cooperation and Development (OECD) negotiations were reportedly deadlocked over whether a multilateral deal on a new international tax structure would single out US technology companies or apply more broadly to cross-border businesses, which apparently led US negotiators to walk away. OECD Secretary-General Ángel Gurría warned via a statement on Thursday,
Absent a multilateral solution, more countries will take unilateral measures and those that have them already may no longer continue to hold them back. This, in turn, would trigger tax disputes and, inevitably, heightened trade tensions. A trade war, especially at this point in time, where the world economy is going through a historical downturn, would hurt the economy, jobs and confidence even further. A multilateral solution based on the work of the 137 members of the Inclusive Framework at the OECD is clearly the best way forward.”
EU-UK Trade Talks
On 15 June, efforts were made to revive negotiations on the future trade relations between the EU and the UK via a high-level video conference. In a statement, UK Prime Minister Boris Johnson reiterated that the UK does not intend to request a formal extension to the transition period beyond 31 December 2020. European Council President Charles Michel, European Commission President Ursula von der Leyen and European Parliament President David Sassoli, along with the UK Prime Minister, acknowledged the need for increased momentum in future talks. Negotiations, they said, must intensify in July in order “to create the most conducive conditions for concluding and ratifying a deal before the end of 2020”. While the overall exchange appears to have been positive, there is no indication that any of the ongoing issues, in particular how to deliver on the commitment of a regulatory “level playing field”, have been resolved.
On Wednesday, 17 June, G-7¹ Foreign Ministers issued a joint statement expressing “grave concern regarding China’s decision to impose a national security law on Hong Kong.” The leaders called on China to reconsider its decision, noting it is not in conformity with the Hong Kong Basic Law and its international commitments under the principles of the legally binding, United Nations-registered Sino-British Joint Declaration.
On Tuesday, 16 June, the US and the UK concluded the Agreement on Technology Safeguards Associated with US Participation in Space Launches from the United Kingdom, or the US-UK Technology Safeguards Agreement (TSA). The TSA protects sensitive US technology and sets the standard for how others should use such sensitive technology in the conduct of satellite and rocket launches from foreign locations.
On Monday, 15 June, Secretary Mike. Pompeo participated in a video conference call with EU High Representative Josep Borrell and EU member state foreign ministers during the Foreign Affairs Council. According to a US Department of State readout, “Secretary Pompeo, High Representative Borrell, and the ministers discussed the importance of the Transatlantic partnership in rebuilding our economies post-COVID, as well as upholding our shared commitment to democratic values that serve as a bulwark against Russian and [People’s Republic of China] attempts to undermine democratic societies.” Ukraine’s territorial sovereignty was also discussed, along with Russia’s “aggressive actions in the Donbas region.”
 The Governments of the United States of America, Canada, France, Germany, Italy, Japan, and the United Kingdom, along with the High Representative of the European Union.