Transatlantic Trade: US and European Trade Talk Update – October 9, 2020
COVID-19 has affected leadership in the United States (US) and Europe these past few weeks, with multiple top US officials in self-quarantine this week after potential exposures to infected persons. US officials have thus far failed to advance another COVID-19 relief package, while the European Union (EU) Finance Ministers reached a political agreement on the Recovery and Resilience Facility Regulation and the United Kingdom (UK) announced plans related to its “Build Back Greener” initiative. EU and UK officials also continued talks this past week toward a possible trade deal and ahead of next week’s European Council Summit. Meanwhile, the situation surrounding the long-standing Nagorno-Karabakh conflict continues to escalate militarily, with the US, France and Russia, along with the North Atlantic Alliance’s Secretary General, calling for a ceasefire.
COVID-19 Diagnoses | US and EU Leadership
After US President Donald Trump’s confirmed COVID-19 diagnosis was announced in the early hours last Friday, the President went to Walter Reed Military Medical Center for further treatment, where he remained until Monday evening. The President has been quarantining at the White House this past week. Late on Thursday, 8 October, the White House shared a Memorandum from the President’s Physician that noted President Trump “had completed his course of therapy for COVID-19” and could possibly return to public engagements as soon as this Saturday, 10 October.
Meanwhile, Vice President Mike Pence continues to test negative for COVID-19 and faced the Democratic vice presidential contender, Senator Kamala Harris (California), Wednesday evening at a campaign debate in Utah. The next day, Vice President Pence campaigned in Nevada and Arizona, before returning to Washington later that night.
Coast Guard Vice Commandant Admiral Charles Ray was confirmed to have COVID-19 on Monday, 5 October. Consequently, several top Pentagon officials, including the Chairman of the Joint Chiefs of Staff, Army General Mark Milley, along with the Service Secretaries, entered a self-quarantine period earlier this week. These Defense Department officials have tested negative for the virus and are working remotely. The Centers for Disease Control and Prevention (CDC) has recommended a 14-day quarantine for those who may have been exposed to COVID-19 in the United States, but the CDC also defers to state and local jurisdiction’s COVID-19 restrictions.
Some believe that President Trump and other US officials may have been exposed at the White House event on 26 September, where the President announced his Supreme Court Associate Justice nominee in the Rose Garden. Three Republican Senators also tested positive last week for COVID-19 – Senators Mike Lee (Utah), Thom Tillis (North Carolina) and Ron Johnson (Wisconsin) – which resulted in the Senate voting on Monday to recess until 19 October to avert further spread in the upper chamber of the US Congress. The House of Representatives was already in recess and is not expected to return to Washington until after the 3 November General Elections.
In Europe, over the last few weeks, various senior EU officials have been isolating after coming into close contact with a person who confirmed as COVID-19 positive. Based on the Belgian Regulations, EU officials are required to stay in self-isolation for one week after such an incident, even with a negative test result due to the possible exposure. Thus far, European Council President Charles Michel; Executive Vice-President (EVP) on an Economy that Works for People Valdis Dombrovskis; EVP on European Green Deal Frans Timmermans; Health Commissioner Stella Kyriakides; and Commissioner for Innovation, Research, Culture, Education and Youth Mariya Gabriel observed a one week isolation, and all tested negative for COVID-19. On 5 October, European Commission President Ursula von der Leyen went into self-isolation, following her two-day trip in Portugal. The Commission President also tested negative for COVID-19 but is required to self-isolate until 13 October; as such, has cancelled her planned trip to Greece. The latest case of a senior EU official self-isolating after being in contact with a person who tested positive for COVID-19 is European Parliament’s President David Sassoli, which was announced on 8 October.
COVID-19 Economic Relief/Recovery Updates | EU, US and UK
At the latest Economic and Financial Affairs Council held on 6 October, the EU27 Finance Ministers reached a political agreement on the Recovery and Resilience Facility Regulation, the main instrument that would facilitate the payment of the loans and grants to Member States in the context of COVID-19 recovery. The negotiations at the Council-level have been contentious, with efforts by some Member States to link funding of projects based on the countries’ performance to uphold the rule of law, along with projects associated with one of the principle policy priorities of the Commission, climate change. The European Parliament is still in the process of finalizing its position. Once the position is adopted, the inter-institutional negotiations between the two institutions and the European Commission can begin to reach a consensus and adopt the EU Regulation.
In the United States, efforts to advance another COVID-19 economic relief package appear to have stalled in Washington. Prior to recessing last week, the House of Representatives advanced a Democratic-led COVID-19 package (H.R. 925) of $2.2 trillion that garnered no Republican support. House lawmakers, however, remain on 24-hour notice to possibly return to Washington to vote on a compromise COVID-19 relief package, if one is reached between Secretary of the Treasury Steven Mnuchin and Speaker of the House Nancy Pelosi (D-California).
Talks continued through the weekend on a COVID-19 relief package, or “CARES Act”. On 30 September, Secretary Mnuchin tabled a $1.6 trillion measure, which Speaker Pelosi characterized as “the heel of a loaf of bread.” By Friday, 2 October, Speaker Pelosi said that she and Secretary Mnuchin were largely in agreement on health care funding levels, while saying policy language still needed to be drafted. Some outstanding issues remained state and local aid and tax provisions, along with money for schools, testing and tracing, and unemployment insurance. Democrats have been pushing for concessions such as expanding refundable earned income and child tax credits.
Also last Friday, despite indicating optimism over the ongoing talks with Secretary Mnuchin, Speaker Pelosi suggested she would be open to a standalone bill (H.R. 8504) that addresses lapsed payroll support funding to airlines and could therefore avert pending furloughs in that sector. The bill would renew support to the Payroll Support Program through March 2021. The White House has previously endorsed passing a standalone measure on this issue. White House Press Secretary Kayleigh McEnany told reporters on 1 October that the Administration was willing to consider “clean legislation to protect those airline workers.”
President Trump tweeted on Tuesday, 6 October, that he was instructing Republican negotiators to stop negotiating with Speaker Pelosi until after the elections. In a series of tweets, he noted, “Nancy Pelosi is asking for $2.4 Trillion Dollars to bailout poorly run, high crime, Democrat States, money that is in no way related to COVID-19. We made a very generous offer of $1.6 Trillion Dollars and, as usual, she is not negotiating in good faith.” Later that evening via Twitter, he instead appeared to be open to standalone measures that would (1) fund the Payroll Support Program and Paycheck Protection Program, and (2) extend funding for supplemental unemployment checks.
On Thursday, 8 October, Speaker Pelosi, however, quashed talks of standalone bills, despite being open to such a move last week. Talks with Secretary Mnuchin reportedly continued Wednesday evening and Thursday about a separate bill that would provide assistance for the US airline industry. At her weekly Thursday press conference, Speaker Pelosi said, “The comment that I made to the administration last night is that we’re happy to review what that stand-alone bill would look like as part of a bigger bill if there is a bigger bill.” She indicated she is holding out for “a longer-term, a bigger bill” that would include mandates for testing, contact tracing and a strategy for vetting and distributing the COVID-19 vaccine.
Health and Human Services Secretary Alex Azar indicated last Friday that the Trump Administration would be renewing the public health emergency declaration on 23 October for the novel coronavirus. The declaration unlocks authorities that has allowed the Administration to boost telehealth, enable increased Medicaid funding and allow cash-strapped local health departments to reassign federally funded personnel to respond to the virus. The public health emergency declaration must be renewed every 90 days. This latest renewal would last until after the presidential inauguration in January.
On 6 October, the UK Government outlined plans implementing the Build Back Better initiative that aims to create jobs, boost exports and also establish the UK as a world leader in clean energy. To increase offshore wind capacity, £160 million would be made available to upgrade ports and infrastructure across communities in Northern England, Scotland and Wales. According to the Government, this investment would create an estimated 2,000 construction jobs and would also support 60,000 jobs directly and indirectly by 2030 in ports, factories and the supply chains.
Since UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen’s joint statement over the weekend, EU Chief Negotiator Michel Barnier travelled to Berlin on Monday to meet with German Foreign Minister Heiko Maas. The latter stressed the pandemic has made the negotiations with the UK even more difficult. Regardless of this hurdle, Maas added a no-deal Brexit would be “irresponsible”, saying the EU remains open to establishing a “close and ambitious partnership” with the UK. He warned, however, that progress is needed at this stage of the talks on state aid, the Irish border and dispute resolution.
With the 15 October European Council date approaching, the negotiations between the EU and the UK are intensifying.
Michel Barnier next travelled to London to meet with UK Chief Negotiator David Frost, while informal talks continued this past week. European Council President Charles Michel and Prime Minister Johnson spoke by phone on 7 October to discuss the progress of the intensified negotiations ahead of the 15 October Summit.
Meanwhile, the UK Government announced its intention to push through a Finance Bill (not yet published) for approval by the end of the year could prove problematic for achieving a deal with the EU. The Bill is expected to include clauses which would allow the UK Government to make unilateral decisions about which goods were “at risk” of being traded on from Northern Ireland into the EU, and should therefore be subject to tariffs. The EU argues that this would be a further breach the Withdrawal Agreement and may therefore risk a no-deal exit scenario. European Council President Michel stressed the UK must put “all cards on the table” with respect to Brexit at this stage. He added, “We have given a very strong signal to the British government: If the Finance Bill is introduced with that provision in it, many in the EU will see that as an indication that the British government simply doesn’t want a deal. It would be a second piece of legislation designed to deliberately break the Withdrawal Agreement text”.
Separately, the Scottish Parliament voted on 7 October to withhold consent on the UK’s Internal Market Bill. Both the Scottish and Welsh governments have stated the bill overrides their powers of administration.
EU General Trade-Related Updates
The newly appointed Commissioner-designates for Trade, EVP Valdis Dombrovskis, and Financial Services, Mairead McGuinness, were approved at the Trade and Economic and Monetary Affairs Committees of the European Parliament on Friday, 2 October, following Parliamentary Hearings. The European Parliament plenary session on 7 October was the final approval for both on 7 October; both Commissioners have commenced their terms.
Separately, on 6 October, the European Commission launched a public consultation on the impact assessment to address distortions caused by foreign subsidies specifically on cases of acquisitions and public procurement. According to the impact assessment, the European Commission identifies three possible policy options for tackling such distortions: (1) a non-regulatory approach, where the Commission will develop guidance on the basis of existing EU rules; (2) propose legislation by adapting the EU acquis on competition, trade and public procurement and by developing legal instruments that would complement the EU acquis; and (3) addressing foreign subsidies by strengthening tools and rules at the international level. The Directorate Generals of Competition and Trade jointly developed this initiative, which is built on the principles outlined in the recently published White Paper on Foreign Subsidies. The public consultation period runs until 28 October; public input will assist the Commission in drafting a proposal for a Regulation that will likely be published in the second quarter of 2021.
On 7 October, Polish authorities levied a 29 billion złoty (€6.5 billion; US$7.6 billion) fine against Gazprom, ruling the Russian company’s arrangement to build the Nord Stream 2 gas pipeline project was undertaken without Poland’s UOKiK competition authority’s approval. In 2018, UOKiK opened an antitrust case against Gazprom and its five European companies partnering on the project (Engie, Uniper, Wintershall, OMV and Royal Dutch Shell), after they restructured the deal for the European companies to be co-financiers and Gazprom wholly owning Nord Stream 2 AG, which came about after UOKiK denied their initial joint venture proposal in 2016. UOKiK President Tomasz Chróstny said of the decision, “The same entities which had previously applied for the approval based on the competition protection regulations in effect in Poland and failed to receive it, became parties to the financing agreements.” He added, “I have not identified any attenuating circumstances. The activities of the six companies negatively impacted competition on the natural gas market in Poland.” While the decision can be appealed, all parties were ordered to terminate their Nord Stream 2 contracts within 30 days.
US General Trade-Related Updates
On 6 October, US Trade Representative Robert Lighthizer issued a lengthy statement after the Department of Commerce released August trade data, affirming the Administration’s trade policy is working despite the COVID-19 pandemic. He stated, “The trade data released today reflect the effects of the coronavirus on the U.S. and our trading partners. Basically, many of our partners were more negatively affected by the pandemic than we were. Indeed, the U.S. economy has outperformed every other G7 country. In spite of the pandemic, our goods deficit is down 2.4% year-to-date. The goods deficit would have decreased by at least 6% but for a large spike in gold imports reflecting risk-hedging strategies during the pandemic, not underlying economics. Our services surplus is down 19%, but that is largely due to reduced tourism, travel, and transport. As other countries recover and reopen, we expect both imports and exports to improve substantially. Additionally, it is worth noting that our year-to-date goods deficit with China is down 16.5%, and is likewise down with Japan (34.7%), the EU 27 (7.7%), and Korea (7%). In the USMCA [U.S.-Mexico-Canada Agreement] countries, the U.S. deficit with Canada is down 36% this year and Mexico’s surplus is slightly up due to their economic downturn’s effect on their demand for our exports.”
At an Atlantic Council event on Wednesday, 7 October, Deputy Secretary of the Treasury Justin Muzinich outlined four areas where transatlantic cooperation is vital: (1) investment security, (2) cryptocurrency, (3) sanctions, and (4) strong and broadly distributed growth. In a brief Q&A, he addressed questions related to unilateral sanctions and whether sanctions have been overly used and the effect on the US dollar, along with the ongoing digital services unilateral digital services tax proposals/law and the OECD discussions on this matter.
On Thursday, 8 October, US Attorney General William Barr unveiled a publication titled, “Cryptocurrency: An Enforcement Framework,” which was produced by the Attorney General’s Cyber-Digital Task Force. According to the Justice Department, “The Framework provides a comprehensive overview of the emerging threats and enforcement challenges associated with the increasing prevalence and use of cryptocurrency; details the important relationships that the Department of Justice has built with regulatory and enforcement partners both within the United States government and around the world; and outlines the Department’s response strategies.”
Nagorno-Karabakh | OSCE Minsk Group Co-Chairs Urge Ceasefire
The United States, along with France and Russia, issued a joint statement on 5 October, calling for an “unconditional ceasefire” between Armenia and Azerbaijan in the disputed Nagorno-Karabakh conflict. Under the authority as Co-Chairs of the OSCE Minsk Group, the three countries said they would “firmly continue to advance their engagement with the sides, and urge them to commit now to resuming the settlement process on the basis of existing core principles and relevant international documents well-known by both parties.” The statement also condemned the recent escalation of “attacks allegedly targeting civilian centers – both along the Line of Contact and on the territories of Azerbaijan and Armenia outside the Nagorno-Karabakh conflict zone – and the disproportionate nature of such attacks constitute an unacceptable threat to the stability of the region.”
Also on 5 October, US Deputy Secretary of State Stephen Biegun spoke separately with Azerbaijani Foreign Minister Jehun Bayramov and Armenian Foreign Minister Zohrab Mnatsakanyan about the escalating military action. According to a State Department readout of the calls, “Deputy Secretary Biegun urged the sides to agree to a ceasefire immediately and resume negotiations under the auspices of the Minsk Group Co-Chairs to find a durable resolution to the conflict.” He further noted “there is no military solution to the Nagorno-Karabakh conflict.”
North Atlantic Treaty Organization (NATO) Secretary General Jens Stoltenberg travelled to Ankara on 5 October, where he met with senior Turkish officials, including Foreign Minister Mevlüt Çavuşoğlu. After talks with the Foreign Minister, the Secretary General reportedly said, “All sides should immediately cease fighting and find a way forward towards a peaceful resolution.” He added, “And I expect Turkey to use its considerable influence to calm tensions.”
The next day, Foreign Minister Çavuşoğlu travelled to Azerbaijan on 6 October, an allied partner. According to the Turkish Foreign Ministry, “Minister Çavuşoğlu emphasized that Nagorno-Karabakh belonged to Azerbaijan, that the world should stand by those who are right, in this case Azerbaijan.”
Eastern Mediterranean Tensions | NATO Weighs In
Readout from Turkey’s Foreign Ministry of Minister Çavuşoğlu’s meeting with NATO Secretary General Stoltenberg reflected that apart from discussing “Armenia’s aggression”, the leaders also discussed the Eastern Mediterranean tensions. The Ministry further noted, “Minister Çavuşoğlu emphasized that we were supporting the deconfliction mechanism in the Eastern Mediterranean.”
Secretary General Stoltenberg next travelled to Greece on 6 November. According to Greece’s Ministry of Foreign Affairs, discussions were to focus “on the situation in the Eastern Mediterranean, the reflection process on the future of the Alliance, and other issues of mutual interest.”
WTO Director General Race Update
On Thursday, 8 October, the World Trade Organization (WTO) announced the two final candidates for the Director-General position. Yoo Myung-hee from South Korea and Ngozi Okonjo-Iweala from Nigeria garnered the most votes in the latest round of votes, which means the next head of the WTO will be the first-ever female leader of the multilateral trade forum. The WTO is on track to announce its chief on 7 November, just days after the US General Election (3 November). The next WTO leader will continue to face American pressure to reform the institution, which Republicans and Democrats alike in Washington believe must happen.
 The EU acquis refers to the body of accumulated legislation, legal acts and court decisions that constitute EU law.