Transatlantic Trade: US and European Trade Talk Update – September 4, 2020
Over the past two weeks, the European Union (EU) saw the resignation of its EU Trade Commissioner, increased tension in the Eastern Mediterranean, and several EU countries received a high-level Chinese delegation. The United States (US) and EU also achieved a tariff reducing deal on American lobsters and other products. Meanwhile, transatlantic attention remains focused on the situation in Belarus, increased tensions between Cyprus (along with Greece) and Turkey, and a new Novichok poisoning case. Also, Kosovo and Serbia announced an economic breakthrough at the White House in Washington, D.C., on Friday, 4 September.
Meanwhile, the United Kingdom (UK) is preparing for the next round of talks with the EU, slated for next week. The European Commission is also working on keeping internal borders open, amid the COVID-19 pandemic, while the United States focuses on its COVID-19 vaccine efforts. This past week also saw further clarification from the US Government on next steps for its withdrawal from the World Health Organization (WHO).
Resignation of EU Trade Commissioner Phil Hogan
In a statement issued on August 26, EU Trade Commissioner Phil Hogan resigned from his position, following the controversy that surrounded a number of actions taken by Hogan on a trip to Ireland, including the decision to attend an 80-person golf event, which many believed to be in breach of Irish COVID-19 guidelines. In accepting the resignation, Commission President Ursula von der Leyen requested that the Irish Government put forward both a female and male candidate.
Potential candidates for the role include: (1) Member of European Parliament (MEP) Mairead McGuinness, (2) MEP Frances Fitzgerald and (3) Irish Foreign Affairs Minister Simon Coveney. Meanwhile, European Commission Vice-President Valdis Dombrovskis has stepped in as interim Commissioner for Trade. The incoming replacement Commissioner will face a number of challenges, as von der Leyen had placed much faith in Hogan’s hardline approach. These include the ongoing Brexit talks, addressing continued US trade tensions and restoring the multilateral trading system. It is not clear whether the next Irish candidate will maintain the position of Trade Commissioner or if they will be assigned a different post in an overall reshuffle.
On Wednesday, 2 September, at an event held in Dublin hosted by Irish think tank Institute of International and European Affairs (IIEA), and ahead of next week’s eighth round of Brexit talks, EU Chief Brexit Negotiator Michel Barnier warned that if the UK remains unwilling to compromise, they risked a no-deal scenario. According to Barnier, the EU has moved on a number of issues and the UK has both the “choice” and the “responsibility” to do the same. The UK side responded by accusing Barnier of misrepresenting the UK position. Amid mutual recriminations, sources on both sides claimed that the chances of a deal were receding – future EU access to UK fishing waters and future UK state aids policy remain key sticking points. Talks resume on 7 September.
Meanwhile, in guidance published on Tuesday, 1 September, the UK determined that certain goods stamped with the EU’s “CE” certification mark will continue to be stocked on store shelves until 2022, if standards for goods remain the same in the UK. At the beginning of January 2021, the UK’s “UKCA” certification mark, however, will begin rolling out for the goods stocked in UK stores.
Just days before Hogan’s resignation, the EU and United States secured a tariff reduction agreement on 21 August that, among other things, would have the EU eliminating tariffs on imports of live and frozen lobster products (retroactive to 1 August). According to the Office of the US Trade Representative, “The United States will reduce by 50% its tariff rates on certain products exported by the EU worth an average annual trade value of $160 million, including certain prepared meals, certain crystal glassware, surface preparations, propellant powders, cigarette lighters and lighter parts” (also retroactive to 1 August). Both sides will be amending their Most Favored Nation (MFN) tariff rates and imports of these products from around the world will similarly see reduced tariffs.
Amid increased US restrictions against companies involved in the Russian-backed Nord Stream 2 oil pipeline project and the EU considering retaliations to America’s perceived extra-territorial reach, American oil companies are increasingly expressing concerns. Especially after Klaus Ernst, Chair of the German Parliament’s Energy and Economic Affairs Committee, recently suggested, “If diplomacy fails, we’ll need penalty tariffs on fracking gas or even an import ban as a painful countersanction, since the U.S. gas industry seems to be a major driver of the sanctions policy.” Currently, American liquefied natural gas (LNG) suppliers view Europe as a major export market, particularly since the United States is a major exporter of oil and natural gas again.
Furthermore, feeling geopolitical pressure from Russia and the United States, Europe is already exploring hydrogen fuel technology as an alternative to its dependency on oil and natural gas. In July, the EU released a hydrogen strategy that supplants natural gas and would move the EU toward being climate-neutral.
Moreover, some European countries exploring the possibility of exiting the US financial system, in order to avoid dollar denominated transactions and therefore potential US sanctions in general. There is increased interest in the Instrument in Support of Trade Exchanges (INSTEX), a special payment system, established in January 2019 by France, Germany and the UK, that circumvents the US financial system by using non-dollar and non-SWIFT transactions with Iran; thereby allowing “lawful trade” and consequently avoiding Iran-specific US sanctions. Belgium, Denmark, Finland, the Netherlands, Norway and Sweden have since joined the platform.
Russia | Navalny Case
After the medical evacuation to Germany of leading opposition campaigner Aleksei Navalny, who took ill on an internal flight in Russia, German Chancellor Angela Merkel announced on 3 September that tests showed Navalny had been poisoned by the nerve agent Novichok, a Soviet-era chemical nerve agent that has allegedly previously been used in attacks on opponents of Russian President Vladimir Putin. The revelation has sparked an intense debate in European capitals about how to respond to Navalny’s poisoning, with Chancellor Merkel coming under pressure including within her own party to cancel the Nordstream 2 gas pipeline, which is intended to bring Russian gas into Germany. Companies involved in Nordstream 2 are already subject to the threat of US sanctions, and the US Administration and senior politicians have been putting pressure on Germany to abandon the project.
Acknowledging preliminary medical reports from Germany, the US State Department said on 25 August that if the poisoning is confirmed, the “United States supports the EU’s call for a comprehensive investigation and stands ready to assist in that effort.” This week, other world leaders condemned Navalny’s poisoning, including Chancellor Merkel and UK Prime Minister Boris Johnson, however, US President Donald Trump has not similarly issued a statement. US National Security Council Spokesman John Ullyot turned to Twitter this week to comment on Navalny’s case, saying in a series of tweets, “The United States is deeply troubled by the results released today. Alexei Navalny’s poisoning is completely reprehensible. Russia has used the chemical nerve agent Novichok in the past. We will work with allies and the international community to hold those in Russia accountable, wherever the evidence leads, and restrict funds for their malign activities. The Russian people have a right to express their views peacefully without fear of retribution of any kind, and certainly not with chemical agents.” After an international investigation determined Novichok had been used by the Kremlin in a 2018 attack on Sergei and Yulia Skripal (father and daughter) in the UK, the Trump Administration acted. The United States expelled 60 Russian diplomats and closed a Russian consulate; the State Department imposed sanctions on certain technology under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991.
China’s Foreign Minister Tours Europe
At the end of August, the People’s Republic of China’s Foreign Minister Wang Yi visited Europe on a trip that included stops in Italy, the Netherlands, Norway, France and Germany. The visit sought to reinforce China-EU economic relations after increased tensions due to the pandemic, and the visit also touched on recent developments in the Hong Kong Special Administrative Region (“Hong Kong”) of the People’s Republic of China (“China” or “PRC”), the situation in Xinjiang and 5G infrastructure security concerns.
The visit was timely on the latter matter, considering European Government’s efforts to steer countries towards European competitors – such as Ericsson and Nokia, instead of China’s Huawei and ZTE – for the development of 5G infrastructure in Europe. German Foreign Minister Heiko Mass challenged China’s 5G approach, stating, “we don’t want to fall into a digital dependency, neither from places in the West nor the East” and adding, “when it comes to 5G, at least a minimum of the infrastructure [in Europe] is our own infrastructure”. Similarly, French President Emmanuel Macron said Huawei would not be banned in France, adding his country favors a European 5G system. President Macron, along with Italian Prime Minister Guiseppe Conte, Italian Foreign Minister Luigi di Mario and Dutch Foreign Minister Stef Blok, also raised concerns with perceived human rights violations in Xinjiang and civil liberties issues in Hong Kong.
With respect to trade and investments, French President Macron expressed a willingness to increase bilateral cooperation with China on addressing COVID-19, trade in general, including agricultural products. Foreign Minister Wang secured two bilateral deals with Italy, one on natural gas and another on Italian food products. Of the countries visited by Minister Wang, Italy is a participant of China’s Belt and Road Initiative. In Norway, Minister Wang agreed to increased exports of Norwegian seafood products and discussed the easing of visa rules for Norwegians transiting through China. China is seeking to advance the trade negotiations with Norway toward a possible free trade agreement.
During Minister Wang’s trip to the Netherlands, trade discussions focused on market access, levelling the playing field and ensuring better intellectual property rights protections. Human rights discussions were also a focus during this stop. A group of Dutch lawmakers invoked a rarely used rule inviting Minister Wang as a visiting foreign official to a meeting with the legislature’s foreign affairs committee to discuss human rights issues, which the Minister declined. This move by the normally non-confrontational parliament in The Hague demonstrates growing frustration with Chinese diplomacy.
While in Europe, Minister Wang warned Speaker of the Czech Senate Milos Vystrcil that he would “pay a high price for his short-sighted behavior and political speculation” after he made an official visit to the Republic of China, more commonly referred to as Taiwan in the West. At the final European stop, German Foreign Minister Heiko Maas denounced China in a joint press conference for making “threats” against the Czech Republic, saying, “threats don’t fit in here”. The German Foreign Minister also criticized the PRC’s new security law with respect to Hong Kong and alleged human rights violations against the Uighur community.
US Continues to Warn on China
US Secretary of State Mike Pompeo is set to participate in a virtual conversation with Atlantic Council President and CEO Frederick Kempe at 10:00 a.m. EDT on Tuesday, 15 September. He will discuss his recent trip to Europe, and “how European nations are awakening to the China challenge.” Ahead of this event, Secretary Pompeo released a statement on 2 September that focused on advancing reciprocity in the US-China bilateral relationship, detailing in particular “significant barriers on American diplomats working in the PRC that are far beyond diplomatic norms.”
That same day, the Secretary addressed the media, affirming he will participate in virtual meetings with Association of Southeast Asian Nations (ASEAN) and Indo-Pacific counterparts next week. He noted, “discussions … will be wide-ranging, including on COVID, North Korea, South China Sea, Hong Kong, and Burma’s Rakhine State.” Secretary Pompeo further observed, “From the Taiwan Strait, to the Himalayas, and beyond, the Chinese Communist Party is engaged in a clear and intensifying pattern of bullying its neighbors.”
Belarus, The Eastern Mediterranean Dispute | EU Actions and US Perspective
After the 19 August decision to impose sanctions against officials involved in violence and falsification of the election results in Belarus, an informal EU Foreign Ministers meeting took place on 30 August to discuss and select those individuals to be included on the list of sanctions. As a reminder, the EU does not recognize the results of the elections on 9 August. The evidence gathering by Member States is still ongoing on some Belarusian individuals, and the list may reach 20 or more individuals, possibly including President Alexander Lukashenko. The pending sanctions would target individuals and economic assets. High Representative of the Union for Foreign Affairs and Security Policy Josep Borrell stressed the EU supports the proposal from the Organization for Security and Cooperation in Europe (OSCE) to facilitate a dialogue between the government and the opposition party in Belarus.
In his remarks to the media on 2 September, Secretary Pompeo stated: “We’re also tracking the situation in Belarus closely. Deputy Secretary Biegun traveled there last week at my direction. Belarusians deserve the right to choose their own leaders through a truly free and fair election under independent observation.” He called for an end of violence against the protestors, as well as the release of those detained, including American citizen Vitali Shkliarov. Finally, Secretary Pompeo warned, “We’re closely coordinating, too, with our transatlantic partners, and are together reviewing significant, targeted sanctions on anyone involved in human rights abuses and repression.” The United States (and the UK) has a Magnitsky Human Rights sanctions regime for addressing global human rights violations, including corruption, that can impose visa and/or economic sanctions against individuals or entities alleged to be involved in such abuses.
On Friday, 28 August, at an informal meeting of EU foreign ministers, High Representative of the European Union Borrell said the bloc is considering imposing sanctions against Turkey over its gas drilling in the Eastern Mediterranean, while simultaneously encouraging Ankara to engage in a dialogue on the matter. Turkey has been pushing to explore natural gas deposits in waters claimed by Greece and Cyprus and tensions continue to mount, which has raised concerns about potential escalation. According to Borrell, “we must walk a fine line between preserving a true space for dialogue and at the same time showing collective strength in the defense of our common interests.” Ministers discussed additional sanctions, beyond just individual sanctions; and in the absence of progress, a list of further restrictive measures could be on the agenda of the European Council, scheduled for 24 September.
Amid the heightened tensions in the Eastern Mediterranean, on 1 September, the United States announced it would partially lift restrictions on American non-lethal defense articles and defense services being exported to Cyprus. At the press briefing the next day, Secretary Pompeo said the decision was announced after an internal review that just happened to coincide with increased tensions between Cyprus and Turkey. Addressing the conflict, the Secretary expressed a preference for all parties to engage in diplomatic discussions to resolve the ongoing security, energy and resource and maritime matters. He shared President Donald Trump has spoken separately with Turkish President Recep Tayyip Erdoğan and Greek Prime Minister Kyriakos Mitsotakis about the regional conflict. He added, “It is not useful to increase military tension in the region.” Meanwhile, the State Department also reaffirmed the US position on the long-standing dispute between Turkey and Cyprus regarding the island of Cyprus, saying the United States supports “a comprehensive settlement to reunify the island as a bizonal, bicommunal federation, which would benefit all Cypriots as well as the wider region.”
Kosovo, Serbia | US Hosts Signing Ceremony
On Friday, 4 September, President Trump welcomed Serbian President Aleksandar Vučić and Kosovo Prime Minister Avdullah Hoti to the White House. He witnessed the signing of an economic agreement between the two countries in the Oval Office, a step in normalizing at least economic relations between Kosovo and Serbia, while political differences have yet to be resolved. In a statement released just after the signing, President Trump spotlighted, “By focusing on job creation and economic growth, the two countries were able to reach a real breakthrough on economic cooperation across a broad range of issues.” He also noted the two countries were advancing their respective bilateral relationships with Israel.
Ahead of the White House event, House Foreign Affairs Committee Chairman Eliot Engel (D-New York) issued a statement on 2 September welcoming the resumption of a dialogue earlier that week in Washington. He stressed, “A final resolution to the conflict must embrace several key principles: It must lead to mutual recognition by Kosovo and Serbia. It must pave the way for Kosovo and Serbia to enter all North Atlantic structures, including the European Union and NATO. And, it must grant Kosovo full membership in the United Nations and other important international organizations so that it can move forward as every other country would.” While most Western nations have recognized Kosovo as an independent country, Serbia, Russia and China have not.
COVID-19 Updates | EU, US and UK
The European Commission continues to make efforts to agree on a common approach to keeping EU internal borders open. On Tuesday, Hungary shut its borders to foreigners, following a spike in infections. The Commission and the German Presidency of the Council are pushing for a common approach to the use of health data and the setting up of an internal scheme that would make it easier for those wishing to travel. Restrictions must be non-discriminatory, however Hungary’s measure has exemptions for travelers from certain countries including Poland, the Czech Republic and Slovakia. Overall, the Commission is pushing for a replacement of blanket restrictions to free movement with more targeted measures.
There has been a push to streamline criteria for the assessment, with an EU-wide colour coding system being considered and prepared as a recommendation for the Council in the coming days. This effort has been backed by the German Presidency of the Council, who prepared a non-paper, which suggests agreeing on joint criteria, which data to use when assessing criteria and the overall harmonization of measures. On Wednesday, EU ambassadors met and agreed to work on dealing with the state of travel within the EU. It was suggested that there should be a common criteria for the assessment of epidemiological risks, a common color-coding system labelling regions as safe or unsafe, and a common approach toward those coming in from high-risk areas. Meanwhile, the EU’s recommendation to its member states for travel restrictions and the gradual opening of external borders remains the same as it was on 8 August.
In other news, the European Medicines Agency (EMA) reviewed an application for a dexamethasone treatment against COVID-19. Taw Pharma submitted an application for the medicine and the EMA has said it will evaluate the treatment under an accelerated timetable. This comes after the medicine was shown to have positive effects on COVID-19 patients and to potentially reduce mortality rates over a period of 28 days for patients on ventilators. In addition, it has been reported that the family of drugs which dexamethasone belongs to reduces the risk of death by 20 percent in critically ill COVID-19 patients.
In addition, on Monday the EU announced its plans to offer a EUR 400 million guarantee to the COVAX facility to purchase vaccines for less wealthy countries. Over a third of EU countries have expressed interest in joining the facility. COVAX is a facility co-led by Gavi, the Coalition for Epidemic Preparedness Innovations (CEPI) and the WHO. Its aim is to accelerate the development and manufacture of COVID-19 vaccines, and to guarantee fair and equitable access for every country in the world.
In response to a media inquiry about why the United States has not joined the WHO-led COVAX effort, Secretary Pompeo explained America is engaged on finding a COVID-19 vaccine in a manner that is “effective,” “not political,” and “is science-based.” He added, “And what we have seen demonstrated from the World Health Organization is that it is not that.”
In an opinion piece published by USA Today on 2 September, US Health and Human Services (HHS) Alex Azar and Moncef Slaoui – chief scientific advisor to Operation Warp Speed (OWS) – explained OWS’ strategy will allow America to realize an effective vaccine. They added this would be achieved following all the same procedures for safety and efficacy applied by the same apolitical Food and Drug Administration (FDA) experts. Azar and Slaoui explained how COVID-19 vaccine candidates were selected and further shared, “three OWS-supported candidates are in Phase 3 trials in the United States, and more are expected to enter United States Phase 3 trials by the end of September.” On Thursday, 3 September, OWS announced five US Department of Defense locations have been identified to participate in the Phase III trial evaluating AstraZeneca’s AZD1222 vaccine candidate.
On 28 August, the UK Government said it is preparing to revise its laws to allow the country’s medicines regulatory agency to grant temporary authorization of a COVID-19 vaccine, provided safety and quality standards are satisfied. The proposed regulations are currently undergoing a three-week public consultation period; could be introduced as early as October. Like the United States, the UK has secured agreements with pharmaceuticals and provided significant funding for COVID-19 candidate vaccines. The UK expects to receive the first shipments this fall of an experimental vaccine developed by Oxford University and AstraZeneca. Advanced trials testing the vaccine’s effectiveness are underway.
WHO | US Withdrawal Update
This week, the State Department also provided an update on America’s withdrawal from the WHO, which becomes effective on 6 July 2021. In a statement, State reiterated, “WHO has declined to adopt urgently needed reforms, starting with demonstrating its independence from the Chinese Communist Party.” Among next steps, the United States is “reprogramming the remaining balance of its planned Fiscal Year 2020 assessed WHO contributions to partially pay other UN assessments.” Through July 2021, the United States “will scale down its engagement with the WHO, to include recalling HHS detailees from WHO headquarters, regional offices, and country offices, and reassigning these experts.” State added, “U.S. participation in WHO technical meetings and events will be determined on a case-by-case basis.”
In a related briefing at the State Department on 2 September, US officials explained the United States is assessed at 22 percent of the WHO’s regular budget. For Fiscal Year 2020, the US assessment was just over $120 million, of which 58 million had already been contributed at the time of the President’s April decision to suspend additional funding. Slightly over $62 million, the remaining portion of the 2020 assessment, will be reprogrammed to UN assessments. Another US official observed, “Since 2001, the U.S. Government has contributed more than $142 billion to help prevent, detect, and treat HIV/AIDS, malaria, tuberculosis, Ebola, and other dangerous diseases and conditions. We give an average of $10 billion per year for global health, and this year, it will be double that as we surge to fight COVID-19 worldwide.”