Transatlantic Trade Update text overlaid on top of images of US, UK and EU flagsThe COVID-19 pandemic has significantly affected the global economy, as social distancing and shelter in place orders in various countries have affected employees, factories and global supply chains. After several weeks of restrictions, governments around the world are outlining plans to return to a “new normal,” post-COVID. US President Donald Trump released federal guidelines last week establishing a gated process for state and local government officials to reopen their respective state economies. Similarly, some European governments have unveiled plans to end lockdowns in their countries in a post-COVID world. Meanwhile, news out of Singapore, which started reopening its economy after meticulous contact tracing and successfully lowering its infected case numbers, indicates reopening could possibly be premature. This report touches on reopening developments broadly and provides updates with respect to trade talks between the US and the UK, the US and the EU, and the UK and the EU.

US Reopening Guidelines

The US federal government has proposed a three-phased approach for reopening, setting out best practices for individuals and employers under each phase. They take a more cautious approach to those deemed “vulnerable individuals,” urging they continue to shelter in place through Phases One and Two and exercise continued caution and physical distancing even in Phase Three, but outline gradual reopening of mainstays of normal life in America, including schools, stadiums and bars and restaurants, over all three stages. Employers are advised to continue encouraging telework and to limit in-person congregation through Phase Two, but are advised to begin planning for return to work in phases, while hospitals would be able to begin scheduling outpatient elective surgeries under the guidance in Phase One, opening up key income for cash-strapped hospitals. Local government officials are advised to progress from one phase to the next only as health and safety benchmarks are met to prevent a resurgence of COVID-19 infections.

The federal guidelines provide minimum parameters that states should follow, but each state can tailor their restrictions as desired. The onus of reopening state economies falls to non-federal officials, such as governors, mayors and county officials; consequently, a patchwork of state-led plans are emerging in the US. However, US companies with operations in other countries emerging out from under COVID-19 restrictions have been sharing best practices from their experience of reopening facilities in these other regions. For example, some automotive factories in the US will likely be reconfigured to provide at least six feet between employees on the factory lines and require temperature checks for employees to enter the facility (the latter raises medical health data privacy concerns in the US), as well as mandate the use of face masks. US local officials are also reportedly considering contact-tracing technology to track infected persons and to stop the potential resurgence of COVID-19, technology that similarly raises privacy concerns.

On Wednesday, 22 April, President Trump issued the first of what may be multiple Presidential Proclamations aimed at stemming US immigration in response to the COVID-19 pandemic and putting American communities and workers first, as the country moves toward reopening. The Proclamation centers on a 60-day entry ban for certain foreign nationals applying to permanently enter the US on “immigrant visas” (known as green cards), but does not directly affect “nonimmigrant visas” used to temporarily visit, study, or work in the US, such as the popular H-1B, TN, F-1, or B-1/B-2 visas. However, nonimmigrant categories are under review and additional restrictions/exemptions could be forthcoming. The Proclamation is effective at 11:59 p.m. Eastern Daylight Time on 23 April. For further details on how the order affects businesses, see our analysis available here.

European Reopening Plans

As rates of COVID-19 cases fall, national information resources in Europe show governments are beginning to reopen gradually. Germany has eased some restrictions, allowing certain shops to begin trading again, and schools can gradually reopen. Countries such as Austria, Denmark, Norway and the Czech Republic are also slowly reopening. On the other hand, the UK has announced a lockdown extension, along with plans to ease the economic impact of business closures. Similarly, France extended its lockdown, while unveiling its reopening plans.

A large share of Schengen Member States1 have extended their internal border checks for an additional 20 days. In addition, Belgium, Poland, Germany and Switzerland, will maintain temporary internal border controls through at least early May. Despite these border controls, European Commission President Ursula von der Leyen has said plans for summer holidays in Europe may still be feasible, if people continue to practice social distancing.

The European Commission continues to oversee a coordinated response to the pandemic, with a focus on (1) public health, (2) borders and mobility, (3) economic measures, and (4) support for research related to the virus. Like the US federal government, Commission President von der Leyen and European Council President Charles Michel jointly unveiled a Joint European Roadmap to lifting national coronavirus containment measures. While the Commission has no legal authority to impose an EU-wide strategy when phasing out of lockdown, the Joint Roadmap provides a set of criteria and sanitary guidance measures that can be used by EU member states in national reopening strategies.

The EU27 Heads of States welcomed the proposed Joint European Roadmap to lifting the national coronavirus containment measures via a 23 April videoconference. In addition, the EU27 leaders endorsed a financial emergency fund of €540 billion (US$591 billion) that was agreed at the Eurogroup level on 9 April. The package of measures, which includes unemployment benefits, business loans, and financial assistance to the Eurozone governments through the European Stability Mechanism, will become effective on 1 June 2020.

The EU27 leaders also engaged in another contentious round of talks toward establishing a “Recovery Fund”, which would provide an additional financial instrument to help the European economy rebound from the negative economic impacts suffered from the COVID-19 crisis. Commission President von der Leyen also proposed a revamped version of the EU 7-year budget plan, (Multiannual Financial Framework, MFF), as a “Marshall Plan” to further bolster the EU’s economy from the COVID-related economic recession. The EU27 leaders could not agree on the right balance between the grants and loans of the Recovery Fund. However, they tasked the Commission to analyze the exact needs of the economy, which would determine the magnitude of the Recovery Fund and to swiftly devise a proposal on how to establish it. This analysis, should also clarify the link of the Fund with the MFF, which the leaders agreed would need to be adjusted to address the current situation.

US-UK Trade Talks

President Trump and UK Prime Minister Boris Johnson spoke on Tuesday, 21 April. According to a White House readout of the call, the leaders affirmed G7 and G20 cooperation for reopening global economies and ensuring medical care and supplies reach those in need. The US is currently chairing the G7. President Trump and Prime Minister Johnson also “committed to continue working together to strengthen [the] bilateral relationship, including by signing a free trade agreement as soon as possible,” according to a readout from the Prime Minister’s office.

1 The Schengen area consists of 26 European countries (of which 22 are EU states): Belgium, Czech Republic, Denmark, Germany, Estonia, Greece, Spain, France, Italy, Latvia, Lithuania, Luxembourg, Hungary, Malta, Netherlands, Austria, Poland, Portugal, Slovenia, Slovakia, Finland and Sweden, along with Iceland, Liechtenstein, Norway and Switzerland.

US-EU Trade Talks

In the midst of the pandemic, the US and EU remain in the middle of their World Trade Organization (WTO)-centered disputes over large civil aircraft subsidies. Last month, Washington State enacted a law that officials there argue will terminate the tax law found by the WTO to be an illegal subsidy benefitting Boeing, the target of the EU-led case. In October 2019, the Trump Administration imposed duties on US$7.5 billion of European goods in the case US officials originally brought against EU subsidies well over a decade ago. In February, the US increased the tariff on Airbus aircraft from 10% to 15%, seeking to increase pressure on the EU. These actions, coupled with the US Section 232 national security tariffs on aluminum and steel, have not surprisingly increased strain in the US-EU trade dialogue, largely overshadowing any talks toward a trade agreement, and the relationship in general.

Prior to the COVID-19 outbreak, the WTO was on track to confirm the amount of retaliation that the EU could seek in the Boeing Washington State subsidies case by June 2020, handing the EU significant leverage to respond against Boeing. However, the EU must grapple with whether moving forward with retaliation may further strain the bloc’s recovery from COVID-19 lockdowns, as well as efforts to resolve the underlying dispute. EU Trade Commissioner Phil Hogan also struck a positive note, expressing “hope” that both sides reach an amicable agreement to resolve the dispute. He further argued the EU and US “should be working together in order to reduce tariffs, eliminate tariffs where possible” and to “reignite the global economy post the pandemic.”

UK-EU Trade Talks

A joint UK-EU statement clarified that talks held on 15 April allowed major areas of convergence and divergence to be identified. The latest round of talks began on Monday, 20 April, with the aim of covering a number of key areas  including (1) trade in goods, (2) trade in services and investments, (3) fisheries, (4) transport, and (5) the importance of ensuring a level playing field exists for open and fair competition. The session will close on Friday, 24 April, with further information to follow on the outcome of the talks.

Some argue the COVID-19 crisis offers the UK government a useful scapegoat for a turnaround on its extension policy, with the pandemic estimated to result in a 15% hit to the UK’s economy. UK Prime Minister Boris Johnson’s official spokesman made clear the UK is not seeking to extend Britain’s EU exit transition period, stating that the country needs “legislative and economic flexibility” to manage its response to the pandemic, and would therefore not seek more time to secure a trade deal with the EU. The target for both the exit and a trade deal is by the end of this year.

It remains unclear whether the UK’s decision not to join the EU’s procurement scheme on COVID-19 was a political move designed to further cement its position as an independent state outside of the bloc or, as the UK government now claims, a communications failure.