Transatlantic Trade: US and European Trade Talk Update – May 22, 2020
The 73rd World Health Assembly (Assembly) convened virtually on 18-19 May; the US remains critical of the World Health Organization’s (WHO) response to the spread of COVID-19 and its relationship with the People’s Republic of China (PRC). The Assembly is the key decision-making body of the WHO that is attended by representatives of the United Nation’s (UN) 194 member states. This year’s two-day Assembly was dedicated almost entirely to strengthening international coordination against the COVID-19 disease. This report summarizes some of the discussions at the Assembly, provides an update on the vaccine race, and reviews transatlantic trade developments more generally.
World Health Assembly
US-China tensions were evident at the Assembly, with the EU attempting to mediate. Late on Monday evening, US President Donald Trump posted on Twitter a copy of a letter dated 18 May that he sent to WHO Director-General Dr. Tedros Adhanom Ghebreyesus. He reiterated at the top that US funding to the WHO was temporarily suspended pending an investigation of the WHO’s handling of the COVID-19 pandemic. The four-page letter further detailed perceived failings by the WHO, with President Trump accusing the WHO of having an “alarming lack of independence from the People’s Republic of China.” The President spoke favorably of Taiwan, alleging the country reported human-to-human cases of COVID-19 to the WHO on 31 December 2019 and adding that the WHO failed to share this information with the rest of the world. The letter also praised Dr. Tedros’ predecessor Dr. Gro Harlem Brundtland of Norway as having effectively demonstrated independence from the PRC during the 2003 outbreak of the Severe Acute Respiratory Syndrome (SARS), including instituting the WHO’s first emergency travel advisory in 55 years that recommended against travel to and from the outbreak’s epicenter in China. According to President Trump, the WHO resisted declaring any travel restrictions for COVID-19, highlighting the WHO’s 3 February statement that “travel restrictions ‘were doing more harm than good.’” President Trump concluded by noting the US Government has started discussions with the WHO regarding necessary reforms, warning if “major substantive improvements” are not made within the next 30 days, the temporary halt on US funding to the WHO would become permanent. He also said the US would reconsider its membership in an “organization that, in its present state, is so clearly not serving American interests.” The WHO acknowledged receipt of President Trump’s letter.
Chinese President Xi Jinping pledged at the Assembly that China would offer US$2 billion over two years to help with the COVID-19 response and economic fallout. Ahead of and during the Assembly, the United States called for the WHO to reinstate Taiwan’s observer status, long a priority for certain US policymakers. The US Department of Health and Human Services (HHS) issued a statement on 19 May, again expressing disappointment over Taiwan’s exclusion. “The United States is deeply concerned that the WHO—in a break with eight years of precedent—did not invite Taiwan to observe the 70th WHA in May 2017, the 71st WHA in May 2018, the 72nd WHA in May 2019, and now, the 73rd WHA in May 2020.” Taiwan is only one of several ongoing irritants in the broader US-China relationship, which continues to deteriorate.
Despite the US Government’s scathing assessment of the WHO, member states – including the EU, UK, US and China – agreed to establish an independent inquiry into the global response to the pandemic. The resolution was approved without objection by the WHO’s 194-member annual assembly. While President Xi expressed support for the inquiry, he also stated it should wait until the pandemic is over. It is not clear when, how or by whom that evaluation will be conducted. Meanwhile, the US clock for “substantive” WHO reforms runs out by mid-June.
A key conference paper filed ahead of the Assembly, supported by 122 countries, including the EU, the UK and China – but not the United States – called for a systemic review of the world’s response to the pandemic. The draft urged the global health community to initiate at the earliest moment a process of impartial evaluation to review lessons learned from the health response to the pandemic. In addition, it urged identification of the zoonotic source of the virus and the route of introduction into the human population, arguing overall the review must be global.
In a statement at the conference, the EU highlighted the need to strengthen efficient multilateralism and international cooperation under the umbrella of the United Nations (UN). In addition, the EU praised the efforts of the WHO and frontline workers. The EU also discussed the role of immunization toward bringing the pandemic to an end, asked the WHO to play a key role in ensuring equitable access to COVID-19 vaccines for everyone, and called on all member states to continue their financial support (tacit criticism of the US withholding of funds). The need to show solidarity towards more affected regions was also stressed, in line with the UN Agenda 2030 and the principle that no one should be left behind.
The EU drew attention to the fact that a strong health system, society, government and gender responsive approach are all key to a successful outcome. The EU invited all members to contribute to the “The Coronavirus Global Response” initiative with the WHO and global partners to accelerate the development and production of vaccines, also drawing attention to the “Team Europe” package of EUR 15.6 billion, which combined EU and EU member state resources to assist third countries. The threat of antimicrobial resistance was also raised and the importance of a unified approach to addressing this concern. It was also stressed that there needs to be an independent and comprehensive evaluation of the public health crisis and for the WHO Secretariat to produce a report on the causes and prevention of zoonotic outbreaks.
The “arms-like” race to find an effective COVID-19 vaccine continues in earnest. On Thursday, 21 May, HHS Secretary Alex Azar announced the United States had secured 300 million doses of Britain’s AstraZeneca potential COVID-19 vaccine (AZD1222), which was developed by the University of Oxford and licensed to the pharmaceutical company. The US Government has provided up to $1.2 billion to accelerate AstraZeneca’s vaccine development via Operation Warp Speed, the US “Manhattan Project” initiative announced last week to develop effective COVID-19 vaccines and therapies. Secretary Azar also noted, “The Trump Administration is making multiple major investments in developing and manufacturing promising vaccines long before they’re approved so that a successful vaccine will reach the American people without a day wasted.” A Phase 1/Phase 2 clinical study has been underway in the UK since the end of April. Secretary Azar also noted the first doses of the AztraZenca vaccine could be delivered as early as October 2020.
AZD1222 is the fourth vaccine candidate to receive US funding for late-state development and manufacturing. The United States has similarly struck deals to support vaccine development with Johnson & Johnson (American), Moderna (American) and Sanofi (French). Sanofi CEO Paul Hudson angered the French Government when he said the United States had the biggest right to pre-order its potential vaccine because the country was “invested in taking the risk.” Moderna released positive data for its phase one clinical trials on Monday, 18 May, saying it had produced protective antibodies in a small group of healthy volunteers. Meanwhile, US-based Inovio Pharmaceuticals reported on Wednesday, 20 May, its experimental vaccine produced protective antibodies and immune system responses in pre-clinical trials involving mice and guinea pigs.
AstraZeneca expects to know the effectiveness of its vaccine this summer. Phase 3 clinical trials of the vaccine are set to begin in the UK at the end of May. In an announcement on Sunday, 17 May, the UK Government announced it could have 30 million of the secured 100 million doses of AZD1222 available for British subjects as early as September, if the human test trials are successful. UK Business Secretary Alok Sharma further unveiled £84 million (US$102.7 million) in new government funding for the project on Sunday. On 21 May, AstraZeneca noted the company is working to establish parallel supply agreements with other nations and multilateral organizations “to ensure broad and equitable access around the world.” AstraZeneca CEO Pascal Soriot also acknowledged and thanked the US and UK Governments “for their substantial support to accelerate the development and production of the vaccine”.
In April, the UK Government unveiled its Vaccines Manufacturing Innovation Centre, based in Harwell in Oxfordshire. Also on Sunday, UK Business Secretary Sharma announced the Government would invest an additional £93 million (US$113.7 million) in the Centre towards opening it in summer 2021 – 12 months ahead of schedule. The Centre would have the capacity to produce enough vaccine doses to serve the UK population in as little as six months, once operational.
Meanwhile, the EU is similarly moving to boost research and development funding. In a plenary meeting of the European Parliament during the week of 11-15 May, European Commission President Ursula Von der Leyen said more funding will be made available for research in the EU’s coronavirus recovery instrument, linked to the EU’s seven-year budget, the Multiannual Financial Framework. The expectation is that this will amount to a few billion euros more for Horizon Europe, the EU’s research programme, which starts in 2021 and is set to run until 2027. Her statements indicate the EUR 94.1 billion figure – the original amount Horizon Europe was set to receive when drawn up in 2018 – will be preserved and likely expanded.
Among the new provisions in the redrafted budget is a bigger role for the Commission to oversee crisis preparedness in healthcare systems. If agreed to, this act would reverse the diminishment of EU health powers and the decision of former European Commission President Jean-Claude Juncker to consolidate health spending in other programmes. Regional subsidies will also be topped up for countries based on the severity of the crisis faced. The Commission also launched a EUR 122 million coronavirus research funding call. This is intended to complement the Horizon 2020 initiative that backs research into diagnostics, treatments and vaccines. This research funding call forms part of the EU’s EUR 1.4 billon coronavirus global response initiative. Like the United States, Commission President Von der Leyen has stated Europe needs to be in a position where it can produce critical medicine itself.
Towards achieving self-sufficiency, on 19 May, HHS announced a four-year, US$354 million agreement with the HHS’ Biomedical Advanced Research and Development Authority (BARDA) and a team of private industry partners led by Phlow Corporation of Virginia to expand pharmaceutical manufacturing in the United States for use in producing medicines needed during the COVID-19 response and future public health emergencies. The Phlow-led team will manufacture the supplies for medicines for patients hospitalized with COVID-19, moving away from a current dependency on sourcing active pharmaceutical ingredients outside of the United States. The contract could be extended for up to a total of $812 million over a total of 10 years to maintain the system and needed supplies.
US-UK Trade Talks
On Monday, 18 May, British Trade Secretary Elizabeth Truss issued a statement saying the first round of virtual US-UK negotiations, which concluded last week, were positive. She noted, “Both sides are hopeful that negotiations for a comprehensive trade agreement can proceed at an accelerated pace.” A next virtual round of talks is scheduled for the weeks of 15 and 22 June, with negotiating teams continuing their work and meeting virtually on a rolling basis, including this week.
EU-UK Trade Talks
Overall, the pandemic has given UK businesses a wake-up call as to the fragile nature of supply chains and the need to contingency plan for disruption that will be brought about as a result of the UK’s departure from the EU. According to the Chief Executive of a UK based metal-pressing company, despite years of planning for the UK’s exit, critical shortages remain and there will be more of a focus on de-risking supply chains going forward.
As promised, this week, the UK unveiled its post-Brexit tariff regime, compliant with its World Trade Organization (WTO) obligations, which will slash import tariffs on certain products and remove the calculation method used by the EU to determine food levies. Around £30 billion (US$36.6 billion) worth of imports will face lower tariffs, with the overall rate of duties set to fall around six percent. Tariffs would remain on products derived from key industries including the automotive (10 percent) and agricultural sectors. The UK will also simplify the tariff structure by rounding down tariffs to the nearest two, five or 10 percent, depending on their existing level; tariffs on environmental products, such as LED lamps, will be cut. The new tariff schedule is set to go into effect January 2021, when the UK exits the EU. The UK Department of International Trade noted, “The [“UK Global Tariff”] ensures that 60% of trade will come into the UK tariff free on WTO terms or through existing preferential access from January 2021, and successful FTA [Free Trade Agreement] negotiations will increase this.”
The UK further published draft documents setting out its approach to negotiations on a future relationship with the EU. The documents cover a number of areas, including a draft free-trade-agreement template and a draft agreement on fisheries. While UK Cabinet Minister Michael Gove acknowledged progress has been made, as noted last week, there remain areas where there are “significant differences of principle” and finding a beneficial agreement amid the EU’s “ideological approach” remains a challenge. The EU continues to insist that the UK continue to be tied to its labor, environmental and other standards after its transition.
Meanwhile, the UK Government posted a copy of a letter written by UK Negotiator David Frost to his EU counterpart, Michel Barnier, accusing the EU of offering a ‘relatively low quality trade agreement coming with unprecedented EU oversight of our laws and institutions’. EU Negotiator Barnier welcomed the publication of the UK’s negotiating documents and responded to the letter of the UK Negotiator. His response addressed the points raised in Frost’s letter, such as the question of the level-playing field. Barnier stressed that exchanging letters cannot “substitute for serious engagement and detailed negotiations” and hoped the tone of the UK negotiators’ letter would not “impact the mutual trust and constrictive attitude” towards the negotiations. It is very likely that the publication of the rather accusatory letter, which may have been done as much for UK domestic purposes as with the EU audience in mind, will create more friction in the negotiations, which are at an impasse.
Both parties are set to discuss EU citizens’ rights in one of the working groups under the Joint Committee in charge of implementing the UK Withdrawal Agreement. The aim is to discuss implementation measures on both sides. This was recently raised by UK Minister Gove, who demanded action in resolving areas of concern with respect to UK citizens living in the EU. Notably, this complaint was registered after the EU brought disciplinary proceedings against the UK for violation of the EU’s freedom of movement requirements. The EU Negotiator Barnier responded saying that the EU is “attentive to the issue” and that guidelines have been published to help member countries live up to their commitments.
On 20 May the UK published their plan detailing how the Northern Ireland (NI) border will function once the transition period ends. The NI Protocol would need to be implemented in a pragmatic and proportionate way to protect the interest of the people and the economy of NI, while recognizing NI’s position in the UK and its internal market. In particular, there should be an appropriate level of protection for the EU Single Market, considering that EU tariffs will apply in NI, except for movements within the single customs territory in the UK. It is worth noting that, NI will benefit from all future UK FTA deals and that no tariffs will be imposed on internal UK trade. However, the customs infrastructure in NI will not change considering the UK authorities will continue applying EU customs rules to goods entering NI. There would be, however, some new import declaration requirements when goods are entering NI from the rest of the UK. Regulatory alignment of NI with the EU rules is expected on industrial goods. The UK’s approach to the NI Protocol also stipulates that elected institutions in NI will decide if the arrangements of the Protocol would end or would be extended with a consent vote, taking place every four years (the first one being in 2024).
 The United States is the biggest WHO donor, providing about $450 million a year.