Transatlantic Trade: US and European Trade Talk Update – October 3, 2020
Several high-level officials from the United States (US) were in Europe this past week, including Secretary of State Mike Pompeo. Collectively, they focused on the Brexit talks, strengthening economic relations, 5G infrastructure, energy and transatlantic security, as well as Hizballah. The United Kingdom (UK) and the European Union (EU) continued their discussions on Britain’s future trade relationship with the bloc, while the EU released its inaugural “Rule of Law” reports on its Member States. Meanwhile, Switzerland entertained a referendum that could have conflicted with its EU interests.
This week, the EU also expanded sanctions on entities and individuals related to the construction and operation of an illegal bridge that further connects Ukraine’s Crimean peninsula to Russia. On Friday, EU sanctions were also imposed on 40 Belarusian individuals allegedly linked to repression and election falsification in that country. The US Government followed suit, announcing sanctions on some Belarusian individuals Friday afternoon. Bipartisan US lawmakers in the House of Representatives also introduced a measure this week that contains sanctions provisions for further addressing the situation in Belarus.
In the early hours of Friday morning, after returning to Washington from some campaign events in New Jersey, US President Donald Trump confirmed via Twitter that he and First Lady Melania Trump had tested positive for COVID-19. Both are quarantining; President Trump was taken to Walter Reed National Military Medical Center later on Friday. Meanwhile, US Vice President Mike Pence and Second Lady Karen Pence have tested negative for the virus. En route to Croatia on Friday, Secretary Pompeo expressed hopes that President Trump and First Lady Melania Trump “have a speedy recovery.” The Secretary returned to Washington later that for a brief stop, before next travelling to Japan, Mongolia and the Republic of Korea, from 4-8 October.
The latest formal round of negotiations started on 29 September and concluded on 2 October. The UK Government sent revised negotiating documents on 29 September related to the current talks on a possible post-Brexit free trade deal and the UK’s future political relationship with EU Member States. These documents focused on fisheries, law enforcement and judicial cooperation, energy, mobility and social security coordination, as well as ensuring a level playing field.
EU Chief Negotiator Michel Barnier issued a statement following the conclusion of talks on Friday, where he acknowledged this week’s deliberations advanced but also said further work is required to solve remaining divergences. The outstanding issues for the EU include long-term guarantees of open and fair competition, particularly regarding state-aid; an efficient governance framework based on robust enforcement and dispute settlement mechanisms and remedies; and a stable, sustainable and long-term agreement on fisheries. The governance framework is particularly important for the EU, as the UK’s Internal Market Bill purportedly breaches its obligations under the Withdrawal Agreement and the Protocol on Ireland/Northern Ireland. UK Chief Negotiator David Frost also provided a statement following this week’s negotiations, where he reiterated the good environment during the negotiations were and stressed, “In many areas of our talks, although differences remain, the outlines of an agreement are visible.” At a Friday morning press conference, after a two-day EU27 national leaders’ meeting in Brussels, German Chancellor Angela Merkel said, “As long as negotiations on Brexit are ongoing, I’m optimistic.”
Ahead of the Saturday afternoon talks with European Commission President Ursula von der Leyen to evaluate the latest formal round of the Brexit negotiations and next steps, UK Prime Minister Boris Johnson struck a positive tone, while stating the UK desires a deal similar to the EU-Canada trade agreement or, alternatively, the EU’s deal with Australia. In a joint statement after the Saturday call, the Commission President von der Leyen and Prime Minister Johnson acknowledged progress had been made in recent talks, and, “They agreed on the importance of finding an agreement, if at all possible, as a strong basis for a strategic EU-UK relationship in future.” The leaders also “instructed their Chief Negotiators to work intensively in order to try to bridge those gaps”, which include fisheries, the level playing field, and governance, among other issues. Commission President von der Leyen and Prime Minister Johnson also agreed to speak on a regular basis.
Meanwhile, Brexit talks will continue in the coming weeks at the technical-level, either to hammer out the free trade agreement or to continue discussing outstanding issues. The upcoming European Council meeting on 15 October was the initial deadline set by UK Prime Minister Johnson for reaching a trade agreement with the EU, but the Saturday call indicated that deadline was now to assess whether a deal can be done, with a short time to conclude it if a deal appears possible.
The third meeting of the EU-UK Joint Committee took place on 28 September and ended with some progress. However according to a statement by European Commission Vice-President (VP) Maroš Šefčovič, there is an “urgent need to move into higher gear” going forward. Speeding the pace of these discussions would be necessary before the end of the transition period. UK Cabinet Office Minister, Michael Gove echoed this statement and the need to accelerate ‘in making sure the Northern Ireland protocol and the Withdrawal Agreement are implemented’. Nevertheless, no clarity was given by VP Šefčovič on the EU’s action, should the UK fail to remove some controversial clauses in the Internal Market Bill. However, he did say, “The Withdrawal Agreement is to be implemented, not to be renegotiated, let alone unilaterally changed, disregarded or dis-applied”. VP Šefčovič aims to schedule the next Joint Committee meeting by mid-October.
The House of Commons approved the UK’s Internal Market Bill on 29 September by a vote of 340 to 256. The controversial bill, if approved by the House of Lords would introduce powers to the UK Government that could jeopardize the Withdrawal Agreement, which was jointly agreed to by the EU and UK in November 2019. The Bill is now advancing in the House of Lords, which could, in theory, block the measure and thereby send it back to the House of Commons for further negotiations.
The EU requested the UK remove the contentious provisions from the Bill before the end of September or face legal action. In response to the UK’s approval to the Bill, European Commission President Ursula von der Leyen announced the launch an infringement proceeding by sending a letter of formal notice to the UK for breaching its obligation. According to the EU, the Bill, “if adopted, would flagrantly violate the Protocol on Ireland / Northern Ireland, as it would allow the UK authorities to disregard the legal effect of the Protocol’s substantive provisions under the Withdrawal Agreement.” The fact that no action was taken by the UK puts them in breach of their “obligation to act in good faith, as set out in Article 5 of the Withdrawal Agreement. Furthermore, it has launched a process, which – if the Bill is adopted – would impede the implementation of the Withdrawal Agreement.” The UK Government is required to submit its response to the formal notice letter by the end of October.
Meanwhile, on 30 September, the UK and Norway signed its Fisheries Framework Agreement, which sets out the management of both countries’ fisheries in an effective and sustainable manner and in conjunction with international law principles.
US Special Envoy for Northern Ireland Mick Mulvaney was in Ireland earlier this week, where he said, “We certainly understand the interplay between the EU-UK trade deal, and the Internal Market Bill, and The Good Friday Agreement, which is mostly why I’m here.” He also echoed the US position that any reinstatement of a hard border between Northern Ireland and Ireland would negatively affect the prospects of any possible trade agreement between the United States and the United Kingdom (UK). Envoy Mulvaney met with Taoiseach Micheál Martin, Irish Foreign Affairs Minister Simon Coveney and Sinn Fein President Mary Lou McDonald on Monday in Dublin. He concluded his trip with a stop in London for meetings with British officials and to participate in an event hosted by Policy Exchange, a UK think tank.
On 25 September, the US, UK and Northern Ireland Governments released a declaration at the conclusion of the inaugural meeting of the Special Relationship Economic Working Group. The declaration provides for a framework for cooperation in artificial intelligence (AI) research and development (R&D). The parties noted their intent to “establish a bilateral government-to-government dialogue on the areas identified in this vision and explore an AI R&D ecosystem that promotes the mutual wellbeing, prosperity, and security of present and future generations.”
Inaugural EU Rule of Law Report Released
On 30 September, the European Commission published its first annual report on the rule of law (country-level reports are available here). The Rule of Law Report includes an analysis of Member State action, or where applicable, disproportionate action, vis-à-vis the EU’s values of democracy and fundamental rights, as well as the independence of domestic courts. The country specific reports provide an overview of Member States’ mechanisms based on four main pillars: (1) the judiciary system, (2) media pluralism and freedom, (3) anti-corruption, and (4) broader democratic balances kept at a Member State level. The aim of the annual Rule of Law report is to serve as a preventative tool that facilitates and ensures a rule of law culture and even application across the bloc.
The Rule of Law Report also demonstrates increased pressure from the European Commission regarding the applicability of fundamental EU principles to Member States. Overall, the report outlines significant challenges with regard to the democratic standards in some countries, particularly Hungary and Poland, where judicial independence is questioned. The country specific reports outline important deficits in prosecuting high-level corruption in Hungary and various deficiencies in Poland. Furthermore, Bulgaria, Croatia, Slovenia and Spain are critiqued for nurturing a culture of threats against journalists.
The timing of the report, a day before the European Summit of 1-2 October, could exacerbate tensions and possibly delay the outcome of the deliberations on the EU’s 7-year budget and the recovery package, as many countries are insisting the allocation of funds be linked with the respect of the EU’s rule of law principles. While the EU27 Heads of State agreed in principle on both the budget and recovery package, technical negotiations to finalize the legal elements of the allocation of funds is still ongoing and now risk being delayed. Germany’s EU Ambassador Michael Clauss stressed that delays to these negotiations are “almost unavoidable”, due to the ongoing battle related to the rule of law issue.
On 27 September, Switzerland held an immigration restriction referendum, called by the largest party in the Swiss Parliament, the right-wing Swiss People’s Party. The current government and other Swiss political parties opposed the initiative, since it could risk Switzerland’s relationship with the EU and possibly jeopardize EU citizens’ ability to live and work in Switzerland and vice-versa for Swiss nationals in EU Member States. The referendum was ultimately rejected by a vote of 61.7 percent. European Council President Charles Michel was satisfied from the outcome of the referendum, calling it a “great day” for the EU-Swiss relations.
US Secretary Pompeo’s European Trip Recapped
Secretary Pompeo travelled to Europe this past week, with stops in Greece, Italy, the Holy See, and Croatia from 27 September to 2 October. In remarks to the media after a meeting with Greek Prime Minister Kyriakos Mitsotakis, Secretary Pompeo spoke of the deepening economic and security relationship. The Secretary said of energy routes and supplies in the region: “Free markets should make decision about energy supplies instead of Russia’s Gazprom.” With respect to the energy dispute in the Eastern Mediterranean, he urged that development “promote cooperation and provide a foundation for the durable energy security and economic prosperity of the entire region.” Secretary Pompeo urged a dialogue between Greece and Turkey, encouraging both countries to resume discussion of these issues as soon as possible. Regarding 5G infrastructure, he noted, “Prime Minister Mitsotakis and his team are developing and promoting Greece’s digital frontier, including on 5G, and we’re happy that they have joined the Clean Network as well.”
Secretary Pompeo also acknowledged increased violence in the long-standing Nagorno-Karabakh conflict, saying Azerbaijan and Armenia “must stop the violence and work with the Minsk Group co-chairs to return to substantive negotiations as quickly as possible.” On 27 September, the US Government expressed “alarm” over “reports of large scale military action along the Line of Contact in the Nagorno-Karabakh conflict zone that has resulted in significant casualties, including civilians.” The United States is a Co-Chair of the Minsk Group, along with France and Russia.
In his opening remarks to the media, Prime Minister Mitsotakis spotlighted Souda Bay in Crete, saying it is becoming a strategic part of the region, where Greek and American interests converge. He noted the upgraded Mutual Defense Cooperation Agreement between the two countries has expanded defense industry activities, including modernization of F-16 aircraft, joint programs and projects, and US investments in Greek shipyards. The Prime Minister also spoke of energy security, spotlighting Alexandroupoli, where a US gas transport hub to the continental Eastern and Central Europe is being developed. The two countries released a joint statement on 28 September regarding the High-Level Review of the US-Greece Strategic Dialogue, which they held ahead of the third Strategic Dialogue, which Washington will host in 2021.
At a joint press conference in Italy on Wednesday, 30 September, Secretary Pompeo told reporters that his meetings with Italian Prime Minister Giuseppe Conte and Foreign Minister Luigi Di Maio focused on the Chinese Communist Party and its efforts to “leverage its economic presence in Italy to serve its own strategic purposes.” He added, “The United States also urges the Italian Government to consider carefully the risks to its national security and the privacy of its citizens presented by technology companies with ties to the Chinese Community Party.” The United States continues to warn allied nations, especially North Atlantic Treaty Organizaton (NATO) members, against using Huawei technology in its sensitive 5G infrastructure, citing concerns related to intelligence sharing. Foreign Minister Di Maio told reporters Italy is looking for the European Union to adopt a common position on 5G development.
Secretary Pompeo also visited the Vatican City and participated in a symposium, “Advancing and Defending International Religious Freedom through Diplomacy,” hosted by the US Embassy to the Holy See on 30 September. He met with Vatican Secretary of State Cardinal Pietro Parolin and Secretary for Relations with States Archbishop Paul Gallagher pm 1 October to discuss cooperation on advancing peace, freedom, and human dignity around the world.
While in Rome on 1 October, Secretary Pompeo participated in the Mining, Agriculture, and Construction (MAC) Protocol signing ceremony at UNIDROIT Headquarters. Ahead of signing the MAC Protocol, he observed: “This will generate literally tens of billions of dollars in annual economic gains for member states of your organization. Twenty-three billion of that will go to developing countries; it will give them easier access to equipment, machinery. That’s important to them. Seven billion dollars will go to manufacturers, American companies – global companies like John Deere, Caterpillar, and Vermeer. Easier access to finance critical global economic assets like this machinery will, as you said, give real opportunity to troubled people all across the world, as the world climbs out of this economically challenging time.” A number of European countries are also members of UNIDROIT.
In Dubrovnik, Croatia, on 2 October, Secretary Pompeo met with Prime Minister Andrej Plenković and Foreign Minister Gordan Grlić Radman to discuss the importance of NATO and Croatia’s role in European and transatlantic security, regional energy security, and the growing US-Croatia economic and investment relationship. In joint remarks to the media, Prime Minister Plenković spoke of Croatia’s desire to participate in the US Visa Waiver Program.
Ahead of the Secretary’s trip, the State Department shared a readout of Secretary Pompeo’s 27 September call with NATO Secretary General Jens Stoltenberg. The leaders reportedly discussed “Transatlantic cooperation, the situation in the Eastern Mediterranean, and the importance of NATO Alliance unity.”
Prior to the Secretary’s trip, US International Development Finance Corporation (DFC) Chief Executive Officer (CEO) Adam Boehler led a US delegation to Greece, Kosovo, and Serbia last week (20-25 September, a trip that also included stops in Israel and Morocco). Accompanying DFC CEO Boehler was Special Advisor to the President on Serbia-Kosovo Ambassador Richard Grenell; Deputy Administrator for the US Agency for International Development (USAID) Bonnie Glick; President and Chairman of the Export-Import Bank of the United States (EXIM) Kimberly Reed; and other senior government officials.
In Greece, the US delegation toured the shipyard at Elefsina, where the DFC recently announced a Letter of Interest to provide financing to support an energy hub that could contribute to regional energy independence. Deputy USAID Administrator Glick underscored USAID’s current private sector engagement and digital strategies with the American Chamber of Commerce, while in Greece. EXIM Chairman Reed said at a meeting with Prime Minister Mitsotaki, “I thank Prime Minister Mitsotakis and the Greek government officials for our substantive discussions on the role of EXIM in supporting U.S. exports to Greece, including liquefied natural gas, renewable energy, and emerging financial technologies. Our EXIM team looks forward to continuing the dialogue.” An EXIM readout of the Greek trip also reflected the US delegation also visited the Port of Piraeus; it observed, “In 2016, the People’s Republic of China state-owned shipping conglomerate COSCO purchased a majority stake in the Port of Piraeus, which is strategically located between Europe and Asia.”
The US delegation visited Kosovo and Serbia next to build on the 4 September Washington agreements that established economic normalization between the two countries. The DFC signed a joint statement with the Government of Kosovo to increase private sector investment in Kosovo to strengthen air, rail and road infrastructure; ensure energy stability; and bolster technology and tourism, among other industries. In Kosovo, USAID Deputy Administrator Glick “expressed USAID’s continued support for the people of Kosovo and discussed opportunities to build upon Kosovo’s democratic and economic achievements in light of the economic normalization agreement between Serbia and Kosovo.”
The DFC and Government of Serbia also signed a joint statement to support projects that will support economic growth in that country. The DFC also announced it would open a regional office in Belgrade; John Jovanovic would be the DFC’s new managing director for the Western Balkans and the Aegean. While in Serbia, USAID Deputy Administrator Glick also participated in a roundtable with Serbian business leaders to discuss opportunities for US Government investment in Serbia’s information and communications technology, energy, and distribution and logistics sectors.
EXIM Chairman Reed travelled on to Luxembourg, where she participated in the American Chiefs of Mission September Summit 2020 (22-24 September) and other side meetings. Chairman Reed engaged in discussions with US Ambassadors to 16 European nations, interagency colleagues from the US Departments of State and Commerce and the National Aeronautics and Space Administration, and leaders from the Luxembourg Government and European Union institutions.
Assistant Secretary of State for the Bureau of Energy Resources Francis Fannon travelled to Southern Europe from 28 September to 2 October, stopping in Greece, Bulgaria, and North Macedonia. Topics of discussion centered on equitable regulatory environments in hydrocarbon production and sustainable energy minerals development.
5G technology and information security also remain a priority for the United States. US Under Secretary of State for Economic Growth, Energy and the Environment Keith Krach and European Commissioner for Internal Market Thierry Breton met on 30 September in Brussels, issuing a joint statement on 1 October on the importance of the EU and US partnership for securing telecommunications infrastructure. Both sides discussed their respective steps to ensure 5G technology is secured. Under Secretary Krach and Commissioner Breton urged “all stakeholders to carefully assess the long-term impact of allowing ‘high-risk suppliers’ access – directly or indirectly – to their 5G networks when building their telecommunications infrastructure and services.”
Coordinator for Counterterrorism Ambassador Nathan Sales travelled to Ljubljana, Slovenia, on Monday, 28 September, and Rome, Italy, on Tuesday, 29 September. He met with senior officials in both countries, discussing the need for European Governments to take action against Hizballah and designate or ban the group in its entirety and thereby promote shared action against the terrorist organization.
On Friday, 2 October, the US Department of State announced Ambassador Philip Reeker, head of the Bureau of European and Eurasian Affairs, will travel to Istanbul and Ankara, Turkey, from 3-5 October. According to State, “Ambassador Reeker will meet with Turkish counterparts to advance U.S. relations with our NATO Ally and discuss the situation in the Eastern Mediterranean and the Caucasus.”
On 28 September, the United States and Belgium concluded an agreement to implement US Customs and Border Protection (CBP) preclearance operations at Brussels Airport (BRU). Next steps, the Belgian Parliament must ratify the signed agreement and the US and Belgian Governments, along with the Brussels Airport Company, need to complete all necessary internal procedures before preclearance operations can commence. Once operational, CBP will station personnel at Brussels Airport to complete customs, immigration, and agriculture inspections of travelers before they board direct flights to the United States. Precleared travelers bypass CBP and Transportation Security Administration (TSA) security inspections upon arrival in the United States.
In a long awaited decision, the World Trade Organization (WTO) has reportedly authorized the European Union to impose tariffs on about $4 billion of US goods in retaliation against subsidies to Boeing. The WTO has yet to release its decision publicly but is expected to do so in the coming weeks.
EU, UK and US Sanctions | Russia/Crimea and Belarus
On 1 October, the European Council announced additional asset freezes on four companies and two individuals responsible for the construction of the Kerch Strait railway bridge in Russian-occupied Crimea, Ukraine. The sanctioned entities include: (1) Crimea Railway, the owner and operator of the railway tracks on the bridge; (2) the First Crimean Insurance Company, which insured the construction; (3) Lenpromtransproyekt, which designed the railway approaches to the bridge over the Kerch Strait and acted as architectural supervisor during construction, and (4) the Berkakit-Tommot-Yakutsk Railway Line’s Construction Directorate, which provided engineering services during the construction. Apart from asset freezes, visa bans were also imposed against Alekandr Ganov and Leonid Ryzhenkin. Ganov is the director of the JSC TC Grand Service Express, which operates the railway service between Russia and Crimea. Ryzhenkin is the deputy director for infrastructure projects at Stroigazmontazh, the firm that supervised the construction of the bridge. Railway traffic on the bridge commenced in December 2019.
On 29 September, UK Foreign Secretary Dominic Raab announced sanctions against Belarusian President Alexander Lukashenko, his son and senior members of the government – in total, eight individuals were sanctioned. Canada moved in concert with the UK on the same designations. This action came a week after Foreign Secretary Raab said to the British Parliament on 24 September, “I have directed the FCDO’s [Foreign, Commonwealth & Development Office] sanction team to prepare Magnitsky sanctions for those responsible for the serious human rights violations, and we are coordinating with the United States and Canada to prepare appropriate listings as a matter of urgency.”
Following agreement at the European Council-level, on 2 October, the EU imposed sanctions on Belarus linked to repression and election falsification related to the recent elections in that country. The sanctions include a travel ban and asset freezes for 40 individuals identified as “responsible for repression and intimidation against peaceful demonstrators, opposition members and journalists in the wake of the 2020 presidential election in Belarus, as well as for misconduct of the electoral process”.
On 2 October, the United States followed suit and imposed sanctions on eight individuals for their “roles in the fraudulent August 9, 2020 Belarus presidential election or the subsequent violent crackdown on peaceful protesters.” Secretary of the Treasury Steven Mnuchin said of the action, “The Belarusian people’s democratic aspirations to choose their own leaders and peacefully exercise their rights have been met with violence and oppression from Belarusian officials. The United States and our international partners stand united in imposing costs on those who have undermined Belarusian democracy for years.” Treasury noted this action was taken in coordination with the United Kingdom, Canada, and the European Union.
On 1 October, a bipartisan group of House lawmakers introduced the Belarus Democracy, Human Rights, and Sovereignty Act of 2020 (H.R. 8438). Among other things, the bill would expand the list of Belarusian authorities who may be subject to US sanctions beyond the country’s senior leadership and security services to include those directly responsible for the crackdown on independent media; it would further strengthen the current human rights sanctions regime on Belarus to include Russian individuals complicit in the political repression in Belarus and the crackdown on independent media. Text of the bill is not yet available publicly. House Foreign Affairs Committee Ranking Member Michael McCaul (R-Texas) observed, “This Act sends an unmistakable message to the Belarusian dictator and his supporters in the Kremlin that the United States will neither accept Lukashenka’s illegitimate rule nor allow Belarus’ sovereignty to be handed over to Russia against the will of the Belarusian people.”
Frank Samolis, Matthew Kirk and Wolfgang Maschek contributed insights to this report.