Transatlantic Trade Update text overlaid on top of images of US, UK and EU flagsThe European Commission moved forward with guidance this week on its COVID-19 recovery and resilience efforts.  The United Kingdom (UK) continues to prepare for its transition out of the European Union (EU) at the end of the year, while talks continue between the two sides.  Trade negotiations between the United States (US) and UK also saw some progress these past few weeks.  In remarks before the United Nations (UN) General Assembly this week, the US President directed criticisms toward the People’s Republic of China (“China”) and suggested the UN focus on specific topics.  Meanwhile, the United States re-imposed sanctions against Iran.

Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach travelled to Europe, with stops in Luxembourg, Estonia, Germany, Austria, Belgium, Portugal, Spain, and Albania from 21 September – 4 October.  Topics of discussion were to include the Clean Network, 5G security, and common economic and national security objectives, including protecting data privacy and intellectual property from malign actors and promoting human rights. US Secretary of State Mike Pompeo will travel to Greece, Italy, the Holy See, and Croatia, from 27 September to 2 October.

Update on the EU’s Recovery and Resilience Facility

On 17 September, the European Commission issued guidance to Member States on its Recovery and Resilience Fund advising EU countries on how to spend the €672.5 billion facility, which makes up the bulk of the €750 billion recovery fund that was agreed upon in July.  Each country is advised to spend no less than 37 percent on green investments and a maximum of 20 percent on digital expenditures.

The Commission further advised Member States to focus on national level projects that are in the advanced stages of preparation.  Countries must turn in their recovery plans by the end of April 2021, but can start turning them in as early as 15 October 2020.  The Commission aims to start disbursing the first 10 percent of the Facility by mid-2021. This will require the European Parliament and Council to finalize negotiations on the bloc’s next budget and its recovery funds by 1 January 2021.  In addition to this, the Council and national parliaments where national constitutions require, must ratify what is known as the Own Resources Decision, in order for the Commission to be able to borrow the money on capital markets.

The Commission has strongly encouraged Member States to focus their investments on a number of key areas including:  future proof clean technologies, energy efficiency of both public and private buildings, sustainable and smart transport, the rollout of rapid broadband services, digitalizing public services, increasing European industrial data and the adaptation of educational systems to support digital skills and training for all ages.  The implementation of the Facility will be coordinated by a designated task force in collaboration with the Directorate-General for Economic and Financial Affairs.  A steering board chaired by European Commission President Ursula von der Leyen will also ensure the Facility is implemented in an effective and coherent manner.

According to von der Leyen, the Recovery and Resilience Facility is at the very heart of NextGenerationEU.  It is our key tool to turn the immediate challenges presented by the coronavirus pandemic into a long-term opportunity.  Member States need clear guidance to ensure the Facility’s €672 billion is invested both for Europe’s immediate economic recovery, but also for long-term sustainable and inclusive growth.  Today, we are presenting this guidance and stand ready to support Member States in developing their national strategies.”  In her state of the union address, von der Leyen pledged to secure 30 percent of the value of the fund by selling green bonds to third countries.

On 18 September, Poland and Hungary threatened to block the EU’s €1.8 trillion budget and coronavirus recovery package, citing concerns that conditions imposed on Member States might deny access to funds for countries that violate the rule of law.  Both EU member states have been accused by the Commission of violating the rule of law and fundamental principles of democracy.  Despite the fact that all EU 27 heads of state approved the budget and recovery package in July at a Council summit, national parliaments need to ratify the budget and the Own Resources Decision, which gives the EU a legal guarantee from member countries with regards to budget revenues.  The Own Resources Decision is required to create new budget streams as well as to launch the €750 billion recovery package.

UK-EU Relations

There continues to be a great deal of concern amongst UK industry bodies and businesses about how trade will operate once the Brexit transition period ends.  In a leaked letter to trade bodies UK Cabinet Office Minister Michael Gove warned that the Government’s worst-case scenario foresees two-day delays for 7,000 trucks carrying goods from the UK to the EU due to border controls, regardless of the outcome of future relations between the EU and the UK.  The Government predicted that between 40 and 70 percent of trucks making the journey will face delays due to a lack of preparedness once the transition period ends on 31 December 2020.  In addition, the lack of capacity at French ports could cause trade flows to drop between 60 and 80 percent when compared with normal flows.  Gove strongly urged traders to prepare for new formalities in advance of 1 January 2021.

On Wednesday, 23 September, the UK Cabinet Office expressed confidence that the EU will not block food exports from the UK.  Third country listing is essential as it confirms that the UK has met any necessary health and biosecurity standards required to export live animal and animal products into the EU market.

In other news, UK citizens living in EU Member States may face closure of their bank accounts over a lack of post-Brexit rules.  Without any continuation of pan-European banking rules, it would become illegal for UK banks to continue serving their UK customers in the EU without applying for new licenses to do so.  This includes Barclays, Lloyds and Coutts.  Lloyds, one of the UK’s largest banks, confirmed it currently services 13,000 citizens living in the EU, who will see their current accounts terminated at the end of the year, if no path forward is negotiated with the EU.

The question as to how post-Brexit state aid will operate continues to have an effect on negotiations and is of great concern to UK industry.  On Tuesday, UK Business Secretary Alok Sharma held a call with a cross-section of British industry sectors to determine what the UK’s state aid regime should look like once the transition period comes to an end.  The UK continues to insist upon sovereignty over its own regime; has refused to confirm what its rules will look like.  The UK Government has said that it will follow World Trade Organization (WTO) anti-subsidy rules, which are a much weaker regime than the EU rules and do not cover services, as well as abide by state aid rules agreed upon in free trade agreements to which it is a party.  The meeting was one of a number of meetings held with industry groups concerning post-Brexit policy.

Gibraltar is also taking steps to minimize the need for border controls after the Brexit transition period.  Products of animal origin that enter Gibraltar from outside the EU, would be subject to controls, according to technical notes provided by the Gibraltar government on Monday, 21 September, which confirmed the region’s plan to align with the EU rather than UK customs.  In the case where controls are imposed, Gibraltar has started negotiations with ferry companies interested in providing services, which would allow it to import goods from the UK without transiting the customs territory of the EU, if relations with Spain or the EU go south.  Gibraltar also warned that if controls on animal products are imposed, operators should prepare for the fact that goods may be held up at customs.  The guidance also confirmed there would be no procedural change for any goods entering Gibraltar from the EU customs union.  The guidance came ahead of a meeting held on Wednesday, 23 September, between the Gibraltar, Spain and the UK on their post-Brexit relationship.

On Tuesday, 22 September, the UK’s Internal Market Bill, passed its first hurdle in the House of Commons.  The Bill will be voted on again next week after which it will be subject to scrutiny by the House of Lords, the UK Parliament’s upper chamber.  Former UK Prime Minister Theresa May has stated that she will not be supporting the Bill.

Last Friday (18 September), human rights lawyer Amal Clooney quit in her role as the UK’s Special Envoy for Media Freedom, citing concerns with Prime Minister Boris Johnson’s decision to possibly breach provisions of the Brexit Withdrawal Agreement.  According to Clooney, It is lamentable for the UK to be speaking of its intention to violate an international treaty signed by the prime minister less than a year ago.”

Meanwhile, the EU and the UK have agreed that they will hold their next meeting of the Joint Committee on the Withdrawal Agreement on Monday, 28 September.  According to Irish Foreign Minister Simon Coveney, “UK legislation has damaged trust & undermined relations but EU focus remains on concluding a deal.”  German EU Affairs Minister Michael Roth also told reporters at the General Affairs Council meeting on Tuesday, 22 September, that “we are really, really disappointed about the results of the negotiations so far.  This so-called Internal Market Bill extremely worries us because it violates the guiding principles of the Withdrawal Agreement.  And that’s totally unacceptable for us.”  On Wednesday, 23 September, Chief EU Negotiator Michel Barnier was in London for informal Brexit talks with UK Negotiator David Frost.  The next formal negotiating round in the future relationship talks also starts on 28 September.

US-UK Relations

Reports this week indicated the US and UK trade negotiations have reached “advanced stages,” after the fourth two-week round of negotiations.  British Trade Secretary Liz Truss said on Tuesday there is a consolidation of text in a majority of chapters.  She also shared that talks this week focused on Telecommunications, Intellectual Property, Market Access, and Rules of Origin.  The fifth round of negotiations will happen in mid to late October, just ahead of the US General Election (3 November).

UNGA | POTUS’ Remarks Recapped

On Tuesday, 22 September, the US President Donald Trump addressed the 75th Session of the United Nations General Assembly (UNGA) in a pre-recorded message, similar to other world leaders amid COVID-19 restrictions.  His remarks centered on China, noting, “We have waged a fierce battle against the invisible enemy — the China virus — which has claimed countless lives in 188 countries.”  Acknowledging progress on producing a vaccine against the novel coronavirus, the President also stated, “As we pursue this bright future, we must hold accountable the nation which unleashed this plague onto the world: China.” 

Apart from the virus, President Trump said last year America reduced its carbon emissions by more than any country in the Paris Climate Accord.  By contrast, he claimed China “dumps millions and millions of tons of plastic and trash into the oceans, overfishes other countries’ waters, destroys vast swaths of coral reef, and emits more toxic mercury into the atmosphere than any country anywhere in the world.”  President Trump called on the United Nations to focus on “real problems of the world,” which he cited includes “terrorism, the oppression of women, forced labor, drug trafficking, human and sex trafficking, religious persecution, and the ethnic cleansing of religious minorities.”

Iran-US | Sanctions Snapback

On 21 September, President Trump signed an Executive Order (E.O.) imposing sanctions on Iranian officials to restrict Iran’s nuclear, ballistic missile, and conventional weapons pursuits and to counter its malign influence in the Middle East.  The E.O. blocks property and interests in property in the United States of those who contribute to the supply, sale, or transfer of conventional arms to or from Iran, as well as those who provide technical training, financial support and services, and other assistance related to these arms.  President Trump noted the E.O. is critical to enforcing the UN arms embargo on Iran (Resolution 2231).  The Trump Administration imposed new sanctions and export control measures on 27 entities and individuals connected to Iran’s proliferation networks, including the Atomic Energy Organization of Iran and the Iranian missile organization Shahid Hemmat Industrial Group.  The Administration further noted the Joint Comprehensive Plan of Action (JCPOA) failed to restrain Iran’s nuclear ambitions.

Separately, the US Department of State sanctioned several Iranian officials and entities on 24 September for gross violations of human rights, including with respect to the case of Navid Afkari, a young athlete who was imprisoned and executed in Iran on 12 September 2020.  The sanctions were imposed under Section 106 of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA).

Assistant Secretary of State for International Security and Nonproliferation Christopher Ford travelled to Vienna, Austria, to attend the International Atomic Energy Agency (IAEA) General Conference, from 21-24 September.  The US delegation highlighted ongoing threats posed by the Iranian and North Korean nuclear programs at the General Conference.  The delegation further encouraged Member States to bring into force the highest standard of IAEA safeguards agreements, with a Comprehensive Safeguards Agreement and the Additional Protocol serving as the new global standard, including for the responsible supply of nuclear power generation technology.

The Eastern Mediterranean Dispute and Belarus | Developments

In a statement issued by the Greek Foreign Ministry on Tuesday, Greece and Turkey agreed to begin talks to resolve their dispute in the Eastern Mediterranean.

EU Foreign Ministers failed to agree on sanctions against disputed Belarusian President Alexander Lukashenko on Monday.  According to the EU’s Chief Diplomat Josep Borrell, “Ministers discussed the sanctions issue, and although there is a clear will to adopt those sanctions, it has not been possible to do that today because the required unanimity was not reached.”  Borrell also stated that it is a “personal commitment” to adopt sanctions at the next Foreign Affairs Council meeting “because I understand clearly that the credibility of the European Union, and the forging of a common foreign affairs policy, depends on sanctioning Lukashenko.”  In an interview on Tuesday, French European Minister Clement Beaune stated, “I was clear on that… with my Cypriot colleagues saying, ‘OK, you should unlock the Belarus sanctions, because I think you are not doing a favor to yourself by creating this link.’”  According to Beaune, the EU should use its hard power to deal with difficult neighbors, and the EU should unite to create tools instead of delegating power to other institutions, including the North Atlantic Treaty Organization (NATO) and the US when dealing with ongoing issues in countries like Belarus.  Further deliberations on the matter will continue between the EU27 heads of state at the European Summit, now postponed to 1-2 October.

Also on Monday, Sviatlana Tikhanovskaya, the opposition candidate in the August presidential election in Belarus, met with the EU Foreign Ministers.  Tikhanovskaya called for sanctions against Lukashenko and other officials in his government.  Tikhanovskaya further advised the EU to stop the flow of money to Belarus and to redirect it to the fight against COVID-19.  However, accepting EU money could allow the Lukashenko regime to claim the EU is interfering in domestic affairs.  Tikhanovskaya also made clear that she does not intend to run for president when free and fair elections are restored in Belarus, saying she sees her role as helping to manage a possible transition for the country.

House Foreign Affairs Committee Chairman Eliot Engel (D-New York) and Ranking Member Michael McCaul (R-Texas) issued a joint statement on 23 September condemning Lukashenko’s inauguration.  The US lawmakers noted, “A truly legitimate leader does not need to hold a secret swearing in ceremony.  In the face of historic and peaceful protests against his dictatorial rule in Belarus, this ‘inauguration’ only reinforces just how unbelievable Alexander Lukashenko’s claims are that he won 80% of the vote in the fraudulent August 9 election.  We call on the Lukashenko regime to engage with the National Coordination Council and to listen to the voices of the Belarusian people demanding free and fair elections under independent observation.”  Similar to the EU, the United States has yet to impose any sanctions related to the situation in Belarus.

Frank SamolisMatthew Kirk and Wolfgang Maschek contributed insights to this report.