Transatlantic Trade Update text overlaid on top of images of US, UK and EU flagsThere are a number of factors complicating transatlantic efforts to stem the novel coronavirus, such as lockdown fatigue and related impacts to economies.  Nonetheless, European governments continue to respond to the latest COVID-19 wave engulfing the region; the European Union (EU) is pushing Member States to remain coordinated.  While infections are similarly increasing in the United States (US), America remains more focused this week on the upcoming General Election (3 November).  The United Kingdom (UK) initially sought to quell COVID infections with localized restrictions, but the Government announced a stay-at-home order on 31 October for England – Wales already has such measures in place.

This week, the US objected to the leading candidate to serve as the next Director-General of the World Trade Organization (WTO), despite consensus by other member states – including the EU.  Tensions between France and Arab countries, especially after increased terrorist attacks in France, has spilled over to the existing EU focus on Turkey for its activities in the Eastern Mediterranean, with calls to possibly sanction Turkey.  Meanwhile, the third ceasefire between Armenia and Azerbaijan quickly collapsed, amid increased fighting this past week over the disputed Nagorno-Karabakh territory.

COVID-19 Updates | EU, US, UK

Further restrictions continue across the European continent, as the second wave of COVID-19 develops at an unprecedented speed.  Spain declared a six-month state of emergency; France announced a national-wide lockdown starting from 30 October; and Germany announced a one-month soft lockdown with among others the closure of restaurants, bars and certain categories of public contact businesses.

Amid the increasing rates of COVID-19 infections in Europe, the European Centre for Disease Prevention and Control (ECDC) issued a warning on its latest COVID-19 risk assessment by stating,

The continuing increases in COVID-19 infections across the EU/EEA pose a major threat to public health, with most countries having a highly concerning epidemiological situation.”

The latest risk assessment demonstrated that the pressure on healthcare services and mortality becomes increasingly evident and warned of the need for imminent action to avoid the risk of overwhelming healthcare systems.

European Commission President Ursula von der Leyen stressed during the World Health Summit on 25 October,

National immunization technical advisory groups will, in close cooperation with ECDC and the EMA [European Medicines Agency], play a key role in the coordination of large-scale EU-wide studies that are monitoring the safety and the effectiveness of COVID-19 vaccines. Preparation for these activities must start now. They must start now to be in place when COVID-19 vaccines reach the European market.”

President von der Leyen reiterated these comments on 28 October in a more detailed statement, along with recently appointed COVID-19 Special Adviser Peter Piot, and underlined that EU countries failed to prepare adequately for the second coronavirus wave.  While von der Leyen said that now would be the time to be stringent, to stay coordinated, to act fast”, Piot warned, we need to act when the number of cases are increasing, not when people are dying.”  Also, Piot spoke cautiously about the herd immunity, stressing that the cost of it would not be easy to tolerate in modern societies, as the toll in deaths will be enormous. Millions of people will die and I think in the 21st century, that’s not something we can ethically accept”.

The Commission President’s statement came after a strongly worded open letter published on 27 October by European Council President Charles Michel, where he praised the efforts of EU authorities, researchers, the industry and the EU for the quick response to the second COVID-19 wave.  Michel, however, advised on the need for a determined EU action, which will be based on two pillars, testing and contact tracing, coupled with vaccines.

In an attempt to address an EU-wide coordinated response ahead of the European Leaders’ virtual meeting on 29 October, the European Commission published a package of COVID-19 measures on health, transport and travel within the EU.  This included a Communication calling for a comprehensive cooperation on the European response to the pandemic in relation to data sharing, critical care capacity in hospitals, improved and faster testing, leveraging contact tracing apps more efficiently and putting in place a consistency on the transportation and border rules.  The Commission calls on Member States to create national vaccination plans, whiling noting its readiness to assist Member States with the development of national interconnected contact-tracing apps.

With regard to the differing European approaches on restrictions related to free movement, the Communication emphasizes the creation of a common EU digital passenger locator form by December 2020 and the review of criteria used for a common approach on free movement be applied by Member States.  On the latter issue, the Commission proposed a COVID-19 Guidance on persons exempted from the temporary restriction on non-essential travel to the EU, following the implementation of Council Recommendation (EU) 2020/912.  Finally, the Communication proposed the extension of the “Green Lane” approach, which would ensure undisrupted and effective rail freight, air cargo and waterborne freight transport between Member States.  A separate Communication more concretely outlines the Commission’s proposed step to upgrade the system amid the resurgence of COVID-19.

In the US, hospitalizations for COVID patients continue to increase.  The White House Coronavirus Task Force warned this week that aggressive COVID-19 spread in the Midwest, Upper Midwest, and West requires more intense measures, such as wearing masks when out in public.  While agreeing the COVID-19 pandemic is very serious, White House Chief of Staff Mark Meadows told CNN on Sunday, 25 October:

When we look at the number of cases increasing, what we have to do is make sure that we fight it with therapeutics and vaccines, take proper mitigation factors in terms of social distancing and masks when we can.”

He added,

We’re not going to control the pandemic.  We are gonna control the fact that we get vaccines, therapeutics and other mitigation areas.”

National Security Advisor Robert O’Brien – who recovered from COVID-19 earlier this summer – also weighed-in on Sunday, saying:

It’s ripping through this country.  But it’s also ripping through Europe in a way that it never has before.”

White House Chief of Staff Meadows also shared that he had secured a commitment from Senate Majority Leader Mitch McConnell (R-Kentucky) to bring a coronavirus relief package to the floor, if the Administration reaches an agreement with Speaker of the House Nancy Pelosi (D-California).  The US Senate recessed on Monday, 26 October, joining the House of Representatives in recess until after the General Election.  With no deal forthcoming before the elections and COVID cases increasing across the country, the Dow Jones Industrial Average dropped more than 800 points Monday morning (26 October), deepening last week’s losses.

On Thursday, 29 October, the US Department of Commerce reported the American economy had strong numbers, with a third quarter 33.1 percent annualized growth rate.  It remains to be seen whether this news will help President Trump with those Americans who have yet to cast their vote.  President Trump has polled better than Democratic presidential candidate Joe Biden with respect to the US economy.  Meanwhile, the strong third quarter news comes amid news of a new round of layoffs at Boeing, an additional 7,000 as the company continues to suffer compounding quarterly losses due to COVID-19.  Exxon is also set to lay off 1,900 workers in the United States, as demands for oil continue to be low, especially amid new state and local restrictions seeking to stem the increase of COVID cases.

On Saturday, 24 October, Vice President Mike Pence’s office noted that some senior staffers had tested positive for COVID-19.  Since he continues to test negative, the Vice President spent the weekend and week campaigning with a mask (except when speaking to an audience).  At the Department of Defense, US Space Force Vice Chief of Space Operations General David Thompson tested positive; he is self-quarantining and working from home.

With respect to vaccine efforts in the United States, Johnson & Johnson (J&J) is set to resume its late-stage coronavirus vaccine trial for JNJ-78436735, after it was paused earlier this month over safety concerns.  In a statement on 23 October, J&J noted,

After a thorough evaluation of a serious medical event experienced by one study participant, no clear cause has been identified. There are many possible factors that could have caused the event. Based on the information gathered to date and the input of independent experts, the Company has found no evidence that the vaccine candidate caused the event.”

AstraZeneca also announced on 23 October that it, too, was cleared to resume its Phase 3 Clinical Trials in America for its COVID vaccine candidate, AZD1222, after pausing in the United States in early September.  Moderna confirmed this week that it is on track to report initial Phase 3 trial results of its COVID-19 vaccine by the end of November.  A timeline that Pfizer/BioNTech is also observing.

In the United Kingdom, a study released this week observed antibodies against the coronavirus have declined during the summer, indicating protection after infection may not be long lasting.  This validates similar surveys in Germany, which reflected a majority of people did not have COVID-19 antibodies, even in hotspots for the disease.  Like the United States and EU, infection rates are increasing in Britain.  On 31 October, the UK Government announced a month-long lockdown for England, as hotspots flared across the country.

WTO DG Update

Former Nigerian Finance Minister Ngozi Okonjo-Iweala emerged as the consensus candidate this week to serve as the next Director-General (DG), garnering support from several WTO members (including the European Union), but not the United States.  In a statement, US Trade Representative Robert Lighthizer noted the United States’ preference for the other DG candidate, saying,

[South Korean Trade] Minister Yoo [Myung-hee] is a bona fide trade expert who has distinguished herself during a 25-year career as a successful trade negotiator and trade policy maker.  She has all the skills necessary to be an effective leader of the organization.”

He added,

The WTO is badly in need of major reform.  It must be led by someone with real, hands-on experience in the field.”

Senate Finance Committee Chair Chuck Grassley (R-Iowa) weighed in on the US decision, saying:

The South Korean candidate has great experience in trade negotiations, compared to the Nigerian candidate.”

He added,

It’s very important we have the top-notch people to bring about the reform that is going to be necessary if the WTO is going to be a viable organization.”

While a 2002 agreement allows for a vote “as a last resort,” it also requires members to agree on procedures for holding a vote – which is viewed as unlikely in today’s environment.  The WTO General Council is expected to make the final, consensus decision at a meeting on 9 November.

UK-EU Relations

Talks between the EU and the UK have intensified in the renewed phase of the Brexit negotiations.  Despite a target to conclude this latest round of talks by Sunday, 25 October, they continued this past week, without any public statement thus far.  Media coverage indicates there has been some progress on governance issues, the level playing field and state aid.

In other news, the European Securities and Markets Authority (ESMA) has clarified in a statement published on 26 October, that the London stock markets will be able to trade EU shares in the sterling after the end of the transition period.  Despite previous indications, ESMA in close cooperation with the European Commission announced this flexibility in order to minimize market disruption and potential effects to market participants.  This is a key development for many businesses, as the European Commission has not decided yet which UK financial services can be recognized as having equivalent rules to the EU, as it awaits for some clarifications by the UK supervisory authorities.  It is nevertheless almost ready to publish the financial equivalent ruling.  It is worth noting that while the financial services sector would not be impacted by the EU-UK trade negotiations, any regulatory convergence would be impacted by the outcome of it.

US-EU Relations

On 26 October, the WTO’s dispute settlement body authorized the EU to take countermeasures against the US in the so-called Boeing case.  The EU has been authorized to increase import duties of up to $4 billion on US goods.  As the EU and its Member States prepare the countermeasures and retaliation rights, the EU also announced its intentions to negotiate a settlement with the United States.

Executive Vice-President for an Economy that Works for People and Commissioner for Trade Valdis Dombrovskis, said,

Today’s formal approval by the Dispute Settlement Body of the WTO confirms the EU’s right to impose countermeasures for illegal subsidies to the American aircraft maker, Boeing. The European Commission is preparing the countermeasures, in close consultation with our Member States. As I have made clear all along, our preferred outcome is a negotiated settlement with the U.S. To that end, we continue to engage intensively with our American counterparts, and I am in regular contact with U.S. Trade Representative Robert E. Lighthizer. In the absence of a negotiated outcome, the EU will be ready to take action in line with the WTO ruling.”

Also on 26 October, the United States and EU held the third meeting of the Joint Committee established under the US-EU Agreement on Prudential Measures Regarding Insurance and Reinsurance (“Agreement”).  According to the Office of the US Trade Representative,

Both sides discussed progress made toward timely implementation of the Agreement, including on the removal of collateral and local presence requirements for reinsurers, on the provisions on group supervision and on exchange of information.”

The Agreement – a “covered agreement” as defined by the Dodd-Frank Act for the United States and an agreement under Articles 114 and 218 of the Treaty on the Functioning of the European Union for the European Union – addresses three areas of prudential insurance oversight: (1) reinsurance, (2) group supervision, and (3) the exchange of insurance information between supervisors.

Other UK Developments

UK International Trade Secretary Liz Truss weighed-in on the ongoing large civil aircraft disputes involving Boeing and Airbus.  She said,

We are extremely frustrated by the fact that this situation which has been running for 15 years hasn’t been resolved.”

Secretary Truss shared the UK is in talks with both the US and EU to find a solution.  Looking ahead, she added the UK would not follow a protectionist or “autarkic Britain First approach,” as it departs the EU customs union.  Secretary Truss stated,

Britain is learning from the twin errors of values-free globalisation and protectionism  We are instead rooting our approach for global free trade in our values of sovereignty, democracy, the rule of law and a fierce commitment to high standards.”

On 27 October, UK Prime Minister Boris Johnson spoke with Australian Prime Minister Scott Morrison about the ongoing UK-Australian free trade agreement negotiations.  A readout of the call reflected,

They agreed on the importance of like-minded states working together to tackle global issues, including building open societies, strengthening democratic values and boosting free and fair trade.”

Agreeing to develop and scale up green technologies, Prime Minister Johnson “emphasised the importance of setting ambitious targets to cut emissions and reach Net Zero.”  Glasgow, Scotland, will host the Climate Ambition Summit on 12 December and COP26 next year.

Other EU Developments

After months of inter-institutional negotiations, the European Parliament and the Council reached on 28 October a political agreement on the proposed Trade Enforcement Regulation.  The agreed law aims to introduce a renewed set of enforcement tools and powers that would allow the EU to better protect its interests and rights vis-à-vis the international trade rules.  According to the political agreement, the EU will now be able to retaliate on grounds of intellectual property rights, a contentious aspect of the negotiations that would now present a broader scope of action for the EU, especially towards large US tech companies.  The deal will now need to be formally approved by both co-legislators before it can become official EU law.

On 26 October 2020, the European Commission launched a public consultation on sustainable corporate governance for companies in the EU.  The stakeholder input will feed into a Commission’s legislative initiative on mandatory human rights and environmental due diligence obligations for the supply chain of companies in the EU, expected to be published on the second quarter of 2021.  The future rules could have a very diverse set of effects on companies’ due diligence practices, from incentivizing company directors to promote long-term plans to tackle sustainability and human rights violations, to mandatory due diligence rules that could affect a company’s civil liabilities.  On 27 October, the International Trade Committee adopted an Opinion on plans to introduce a sustainable corporate governance, specifically supporting the recommendation for mandatory due diligence laws on discouraging deforestation and human rights violations.  The Committee adopted an amendment that would force companies to respect core labor standards and environmental commitments throughout the entire supply chain, rather than only from their immediate “tier one” suppliers.  It is currently unclear whether the Commission would support such a provision in the future legislative measure considering this could be challenging to implement in industries where there are many layers of production in the supply chain.

On 26 October, the European Parliament’s International Trade Committee held a debate on the future carbon border adjustment mechanism.  The largest political groups agreed on the need to introduce such a mechanism for sustainable growth but disagreed on the scope of the scheme, the impact on businesses, and whether this measure would function alongside the EU’s Emission Trading Scheme.

On 28 October, the EU Parliament and Consul agreed on a revised enforcement documentation to protect the EU’s interest in trade.  This regulation would also work in favor of the EU’s rights under the WTO dispute settlement system, since the Appellate Body continues to be blocked by the United States. The President of the Trade Council, Peter Altmaire, highlighted the importance of this regulation stating,

It is important that the EU be able to protect interests and rights in the area of trade during the crisis at the World Trade Organization. The amendment of the enforcement regulation improves that ability in particular in cases where the WTO is unable to deliver binding dispute settlement decisions on appeals.”

Following Spanish Members of the European Parliament’s (MEPs) legislative initiative, the EU has set up a special committee to analyze the impact of artificial intelligence (AI) on the Member States’ economies, seeking to balance innovation and public safety, personal rights and liberties guarantees.  On 20 October, three reports were adopted on the EU’s policy towards the regulation of AI, robotics and technologies, focused on pillars of promotion of new developments, ethical standards and technology security.  In this sense, the EU aligns its AI planning and the EU Green Deal together with COVID-19 recovery efforts, providing a framework and an environment for EU researchers, developers and business to innovate.

France–Arab Tensions

Tension between France and Arab countries is intensifying due to recent terrorist attacks in France carried out by extremists.  In the aftermath of a knife attack by a Tunisian national at a church in Nice on Thursday that killed three, French President Emmanuel Macron said,

Very clearly France is under attack.”

France raised its national terror alert guidance to its highest emergency level, which includes deploying up to 4,000 military personnel to boost security at schools, churches and other places of worship.  France’s Council of the Muslim Faith strongly denounced Thursday’s attack and called for Muslims in France to cancel Mawlid celebrations that day.  Saudi Arabia, the United Arab Emirate (UAE) and Egypt also condemned the knife attack in Nice.

US President Donald Trump said via Twitter,

Our hearts are with the people of France. America stands with our oldest Ally in this fight. These Radical Islamic terrorist attacks must stop immediately. No country, France or otherwise can long put up with it!”

President Macron has similarly received support from EU Member States and leaders, such as German Chancellor Angela Merkel, Dutch Prime Minister Mark Rutte and Italian Prime Minister Guiseppe Conte who also tweeted solidarity and support.

This latest attack in France comes after a high school teacher was beheaded in another apparent terrorist attack in Paris on 16 October.  The teacher was killed after showing controversial cartoons of Islam’s Prophet Mohammed during a lesson on freedom of expression.  Citing freedom of speech, President Macron France said would not give up the caricatures, which were published in satirical magazine Charlie Hebdo.  The cartoons are considered blasphemous in Islam.

On Tuesday, 27 October, Turkish President Recep Tayyip Erdoğan questioned French President Emmanuel Macron’s mental health and called for a boycott on French products.  That same day, the EU Commission warned Turkey that its EU membership aspirations are further away in light of President Erdogan’s remarks.  Despite both being NATO members and the strong commercial ties (France is Turkey’s 10th largest importer), France is urging the EU and its Member States to adopt measures at the next summit in response to Turkey’s boycott calls.  France, however, is not similarly boycotting Turkish imports, but it has recalled its ambassador to Turkey.

French products have been removed from market shelves in some Muslim countries, such as in Bangladesh, Kuwait and Qatar. Some countries in North Africa have also condemned President Macron and threatened to boycott French products.  The Moroccan Ministry of Foreign Affairs published a statement noting it “strongly condemns continuing the publication of cartoons insulting Islam and Prophet Sidna Mohammed.”  Egypt, Jordan, Pakistan and Iran are among the Muslim countries condemning France for caricature publications.

Disputes Updates | Eastern Mediterranean, Nagorno-Karabakh, Belarus

EU member states had already been urging the EU Commission to take action against Turkey.  With an eye toward the ongoing Eastern Mediterranean dispute, Cypriot and Greek MEPs requested the suspension of the EU-Turkey customs union.  While some are calling for a total suspension of the free trade agreement between Turkey and the EU, Brussels is reportedly examining anti-dumping investigations. On 29 October, the EU Commission posted President Charles Michels’ remarks, which concluded with,

We offered a clear way to work towards a positive agenda with Turkey. So far, Turkey has not chosen this path. We condemn the recent unilateral action in the Eastern Mediterranean, provocations and rhetoric, which are completely unacceptable. We will have the opportunity to revert to this topic in December.”

EU Commission President von der Leyen hinted of possible EU sanctions, stating,

We want a positive and constructive relationship with Turkey, and this would be also be very much in Ankara’s interest… But it will only work if the provocations and pressures stop. We therefore expect that Turkey from now on abstains from unilateral actions. In caser of such renewed actions by Ankara the EU will use all its instruments and options available.”

On 27 October, British Prime Minister Johnson and Cypriot President Nicos Anastasiades spoke about the regional dispute with Turkey and the crisis in Libya.  According to 10 Downing Street,

The Prime Minister expressed his support for Cyprus’s position and offered the UK’s help to deescalate the situation and reduce tensions.”

The United States also has concerns with Turkey, with its acquisition and recent testing of a Russian S-400 missile system, which violates US law, and its position with respect to the Nagorno-Karabakh conflict.   Assistant Secretary of State for Political-Military Affairs R. Clarke Cooper warned Turkey is at risk for US sanctions, as the country continued testing its Russian military hardware.  He added,

We certainly are working to make sure that Turkey remains in the West. This is something that’s important not only to the United States, but to the overall alliance.”

With respect to Nagorno-Karabakh, while there was a US-brokered ceasefire announced on Sunday, 25 October, and it went into effect on Monday, 26 October, it did not last the day before both sides accused the other of violating the ceasefire.  Fighting escalated between Armenia and Azerbaijan this week over the disputed territory that ethnic Armenians control but is internationally recognized as Azerbaijan.  By Friday, 30 October, Azeri President Ilham Aliyev announced the Azerbaijani army had liberated an additional nine villages in the Nagorno-Karabakh region from Armenian control, saying Azerbaijan has thus far liberated more than 130 villages and four cities in the disputed region.  Armenian separatist forces have reported the Azeri military is advancing on the strategically important town of Shusha, whose capture could mark a turning point after more than 30 days of fighting.  Shusha is just south of the region’s capital, Stepanakert.  President Aliyev signed a document on Thursday to establish temporary special administrations in the liberated regions in Nagorno-Karabakh.  Since 1991, ethnic Armenians have controlled about 20 percent of Azerbaijan’s territory, including Nagorno-Karabakh.

President Aliyev has rejected any solution that would leave Armenians in control of Azeri territory.  Armenian Prime Minister Nikol Pashinyan has suggested the principle of “remedial secession” should be applied to Nagorno-Karabakh.  Meanwhile, there was another round of talks to find a peaceful resolution to the conflict in Geneva on Friday.  The meeting resulted in the fighting parties agreeing to refrain from deliberately targeting civilians in the conflict, but fell short of a fourth ceasefire agreement.

On 26 October, the United States and several UN members (including European countries) issued a joint statement on the human rights situation in Belarus.  The parties urged “Belarus authorities not to use purported national security concerns as a pretext to deny individuals their human rights and fundamental freedoms, including the freedoms of expression and association and the right to peaceful assembly.”  They also expressed alarm over reports of “more than 500 cases of torture and other severe abuses, including sexual violence in the post-election period” and added,

To prevent any further escalation of violence we believe that that continued scrutiny of the international community is necessary.”

On 28 October, the US Secretary of State Mike Pompeo issued a statement welcoming the release of “wrongfully detained U.S. citizen Vitali Shkliarov” from Belarus.  Acknowledging his return to American soil, Secretary Pompeo added,

As the President and I have made clear, we will not tolerate foreign governments wrongfully detaining U.S. citizens.”

Global Steel Forum

On 26 October, European Trade Commissioner Dombrovskis co-chaired the Global Forum on Steel Excess Capacity – along with South Korea – and observed the COVID-19 pandemic has made the Forum’s work “more important than ever.”  Ambassador Lighthizer represented the United States at the virtual forum.

The Forum officially expired last October when the People’s Republic of China (China) did not approve its mandate; yet, most countries (29 remaining members) agreed to continue its work on an informal basis.  The meeting concluded with a 67-page Ministerial Report, which includes policy recommendations aimed at curbing steel overcapacity issues exacerbated by COVID-19.  In an accompanying statement, the Ministers called on the Group of 20 (G20) to keep the problem of excess capacity as an agenda item.  The Report also reflected China’s withdrawal from the Forum, noting,

The excess capacity affecting the steel sector is a genuine global issue, which requires a multilateral engagement by all G-20 countries.”

Other US Developments

House Foreign Affairs Committee Chairman Eliot Engel (D-New York) issued a statement on 27 October calling on the Trump Administration to safeguard the US and allies’ judicial systems from possible Russian infiltration.  He spotlighted Russian opposition figure Alexei Navalny, stating,

Particularly troubling is Russia’s targeting of Sergey Leontiev, executive director of Mr. Navalny’s Anti-Corruption Foundation. Russia has continued to abuse the INTERPOL Red Notice system and has manipulated judicial proceedings in Lichtenstein and elsewhere in order to target Mr. Leontiev and other associates of Mr. Navalny or his opposition movement. We must not allow Russian kleptocracy and corruption to serve the Kremlin’s interests by undermining the rule of law in our European allies and partners and I worry that the President’s failure to stand up to Russia and Putin may leave our own judicial system vulnerable to the same corrupt purposes.”

On 28 October, the US Department of State released the text of a Memorandum for Economic Cooperation between Iceland and the United States to pursue closer economic and strategic ties.  The United States-Iceland Economic Partnership Dialogue met the day before and signed the document.  The Memorandum touches on collaboration to modernize and protect critical infrastructure (including 5G technology); increase trade and investments; promote travel and tourism; advance scientific and higher education partnerships; promote women’s economic empowerment; and address Arctic Circle issues.

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