Transatlantic Trade Update text overlaid on top of images of US, UK and EU flagsTransatlantic partners are closely tracking the Russian Federation’s (“Russia”) military build-up at Ukraine’s border, continuing to issue warnings against a possible incursion.  Officials from the United States (US, or USA) briefed the media on the situation on Thursday, just ahead of the US Christmas holiday break.  The US Government also released its annual report on Russia’s WTO obligations; the United Kingdom (UK) and several European countries condemned the deployment of Russia-based Wagner Group’s mercenaries to Mali, viewing the move as destablising to the African country.

The European Union (EU) focused this week on guidelines related to state aid that seek to align with principles and net neutrality goals laid out in the European Green Deal.  The European Commission also unveiled its taxation legislative package that incorporates the Organisation for Economic Co-operation and Development (OECD)’s Pillar Two’s minimum corporate tax rate, among other things.  Meanwhile, Omicron COVID-19 cases are increasing on both sides of the Atlantic Ocean, with transatlantic partners moving forward with approving antivirals that seek to minimize hospitalizations and severe side effects from the coronavirus variant.

In this issue, we also cover:

  • Notable US, UK, and EU developments;
  • A brief UK-EU trade deal update; and
  • COVID-19 highlights among the transatlantic partners.

Notable US Developments

Despite the upcoming holidays, the US Government remained focused this week on “Russia’s alarming movement of forces and deployments along the border with Ukraine,” along with its increased disinformation campaign, which US officials noted is part of Russia’s “standard playbook.”  On 23 December, the White House briefed the media on the situation.  US officials explained they have been coordinating with European allies “on steps that we will take in the aftermath of a Russian incursion, including massive sanctions support for Ukraine’s ability to defend its territory and force posture adjustments in frontline NATO-Allied states.”

While the media pressed, US officials did not divulge on the call any clear details on what “steps” allies were considering, saying they did not prefer to negotiate in the public domain and are instead using diplomatic channels with Russia.  US officials did note that the United States has previously stated any response to an invasion would not just be limited to economic actions.  It would also include increased defensive support for Ukraine military forces and a North Atlantic Treaty Organization (NATO) force posture change in frontline states.  In response to a media inquiry of whether increased energy prices and Europe’s dependency on Russian oil/natural gas is making talks with European allies difficult, a US official stated:

[T]he energy market is something that has consequences for our people, for European people, for people around the world, and it’ll be factored into our analysis and in our response as it is in a number of areas of our foreign policy.”

On 21 December, Senate Foreign Relations Committee Ranking Member Jim Risch (R-Idaho) highlighted some of his foreign policy achievements and priorities from the first session of the 117th Congress and priorities for 2022.  While he noted the People’s Republic of China (“China”) remains a top priority, he also cited the Ukraine-Russia situation, stating he is glad Congress will be voting on the Nord Stream 2 sanctions bill in early January – after the second session of the 117th Congress convenes.  With respect to getting more defensive support to Ukraine, on 15 December, Senator Risch introduced the Guaranteeing Ukraine’s Autonomy by Reinforcing its Defense Act (the “GUARD Act”).

Regarding Russia’s “draft security treaty” for the US and NATO, on 18 December, Ranking Member Risch said Russia’s proposals are “an insult to diplomacy,” adding it is instead a “list of concessions the United States and NATO must make to appease [Russian President Vladimir] Putin.”  He called on the Biden Administration and NATO to reject swiftly the proposal, warning:

“We should also be prepared for Putin to use our rejection of these coercive demands as an excuse for using military force in order to take what is not his.”

National Security Advisor Jake Sullivan spoke this week with his counterpart in Ukraine, Head of Presidential Administration Andriy Yermak, on 23 December.  He spoke with Yuriy Ushakov, Foreign Policy Advisor to the President of Russia, on 20 December.  While the US Government welcomed Wednesday’s affirmation from Russia and Ukraine on the continued ceasefire in Ukraine’s Donbass region on Thursday, the State Department further called on Russia “to pull back the forces it has amassed along Ukraine’s borders and end its aggressive and threatening rhetoric.”

On 22 December, US Secretary of State Antony Blinken and EU High Representative for Foreign Affairs and Security Policy Josep Borrell discussed Russia’s military build-up at Ukraine’s border and tension between Lithuania and China as it pertains to Chinese Taipei (Taiwan).  A State Department summary of the call reflected,

They emphasized the need for coordinated action to support Ukraine’s sovereignty and territorial integrity and reaffirmed that any further Russian military aggression against Ukraine would have massive consequences for the Russian Federation.”

The summary also noted concerns about the impact of escalating political and economic tensions on US and European companies regarding the Lithuania matter.

On 23 December, US President Joe Biden signed into law the Uyghur Forced Labor Prevention Act (H.R. 6256), which provides for a “rebuttable presumption” that imports from China’s Xinjiang region are made with forced labor.  Goods designated for “high priority” enforcement action include cotton, tomatoes, and polysilicon used in solar-panel manufacturing.

On 21 December, the Office of the US Trade Representative (USTR) released its 2021 Report on the Implementation and Enforcement of Russia’s WTO Commitments.  In sum, USTR noted the following concerns with respect to Russia’s compliance:

  • Russia continues to adopt and implement localization measures to provide preferential treatment to domestically produced goods and services;
  • Russia maintains non-science-based import restrictions in the agriculture sector and refuses to recognize other countries’ guarantees on exporting facilities; and
  • Russia’s import substitution strategies for the IT sector, such as the ‘Digital Economy of the Russian Federation,’ raise additional national treatment and import substitution concerns.

Also on 21 December, US Trade Representative Katherine Tai met virtually with Germany’s Federal Minister for Economic Affairs and Climate Action Dr. Robert Habeck.  A USTR summary reflected,

They agreed on the importance of the U.S.-EU Trade and Technology Council as a key forum for building a joint U.S.-EU vision for a transatlantic marketplace that drives a ‘race to the top’ for labor and environmental standards.”

On 23 December, the White House released a detailed summary of proceedings from the Summit for Democracy, which convened virtually on 9-10 December.  While recapping themes from the Summit, the summary also notes additional details on participating governments’ Summit commitments will be made available in January 2022.

Notable UK Developments

On 22 December, UK Prime Minister Boris Johnson spoke with German Chancellor Olaf Scholz, discussing the Omicron variant, outstanding issues surrounding the Northern Ireland Protocol, Russia and Ukraine, along with other bilateral issues.  A 10 Downing Street summary further reflected,

The Prime Minister and Chancellor Scholz welcomed the opportunity Germany’s Presidency of the G7 in 2022 presents for building on the progress made under the UK’s Presidency this year.”

This week, the UK Department for International Trade released guidance entitled, Growth Gateway: UK government support for businesses trading and investing between UK and African markets.”  The document outlines how the UK Government seeks to encourage UK and African businesses with exports and investments.

On 23 December, the UK Government and international partners[1] issued a statement condemning Russian-based Wagner Group’s plan to deploy mercenaries in Mali.  A joint statement spotlighted,

We are aware of the involvement of the Russian Federation government in providing material support to the deployment of the Wagner group in Mali and call on Russia to revert to a responsible and constructive behaviour in the region.”

They chastised the Malian transition authorities for approving funds to hire the mercenaries; further called on Malian authorities to undertake reforms and to restore constitutional order.

Also on 23 December, UK Foreign Secretary Liz Truss issued a statement condemning the Kremlin’s aggressive and inflammatory rhetoric against Ukraine and NATO.  Noting the UK’s support for Ukraine “is unwavering,” she added,

Any Russian incursion would be a massive strategic mistake and would be met with strength, including coordinated sanctions with our allies to impose a severe cost on Russia’s interests and economy.”

Secretary Truss spoke with US Secretary Blinken on Thursday about the situation with Russia.  Secretary Blinken also spoke with NATO Secretary General Jens Stoltenberg about Russia that same day.

On 20 December, the Group of Seven (G7) Foreign Ministers[2] issued a statement expressing “grave concern” after the 19 December Legislative Council elections in the Hong Kong Special Administrative Region (HKSAR) of China.  The statement called on China “to act in accordance with the Sino-British Joint Declaration and its other legal obligations and respect fundamental rights and freedoms in Hong Kong, as provided for in the Basic Law.”  The UK’s leadership of the G7 concludes at the end of this month; Germany takes over in January.

Notable EU Developments

Last Friday, the European Commission said the EU may take the dispute between Lithuania and China to the World Trade Organisation (WTO), if it finds evidence that Beijing has violated international trade rules.  A spokesperson for the Commission told the media,

In order to build a case in the WTO, we need to have enough evidence, so that’s actually what we do now.”

On 21 December, the European Commission published its guidelines on state aid for climate environmental protection and energy, which aims to align the methodology used by Member States for subsidies with the principles and net neutrality goals laid out in the European Green Deal.  The guidelines are set to be formally adopted in January 2022.  Executive Vice President and Competition Commissioner Margrethe Vestager underlined,

The new Guidelines endorsed today will increase everything we do to decarbonise our society. Among others, they will facilitate investments by Member States, including in renewables, to accelerate the achievement of our Green Deal, in a cost-effective way”.

The European Commission unveiled an anticipated taxation legislative package on 22 December comprising of three legislative components:

  1. Proposal for a Directive implementing the OECD’s Pillar Two deal that sets a minimum corporate tax rate, (further information is available here and here). This proposal was released two days after the publication of the OECD’s Model Rules for the implementation of the Pillar Two Minimum corporate tax rate. A fact sheet published by the OECD lays out in more detail how the model rules for a minimum corporate tax rate could be implemented in national laws. It is worth noting that the European Commission anticipates issuing a separate legislative proposal to implement the OECD’s Pillar One Agreement by mid-June 2022.
  2. Proposal for a Directive that aims to address the misuse of shell entities for tax purposes in the EU, (further information can be accessed here and here). This proposal would introduce transparency standards around the use of shell entities, in order to allow tax authorities in the EU to detect easily any type of abuse.
  • Proposals to update the EU’s Own Resources system. This proposal would introduce three new revenue sources for the EU budget, stemming from the revenue linked to the EU’s Emission Trading System, the proposal for a Carbon Border Adjustment Mechanism, and the share of the reallocated profits of very large multinational companies based on the implementation of the OECD’s Pillar One agreement (further information can be accessed here and here).

The Council of the EU, under the leadership of the incoming French Presidency in January 2022, must review these three legislative proposals that must also be unanimously approved by Member States before they can become official EU law.

On 20 December, a trade association – European Aluminium – that represents the entire European aluminium value chain in the bloc announced the launch of two cases before the General Court of the EU.  The association is challenging the European Commission decision in October to suspend the definitive anti-dumping duties on Chinese aluminium flat-rolled products for nine months.

UK-EU Trade Deal Update

On 21 December, UK Foreign Secretary Truss – taking over as the lead UK negotiator on the Northern Ireland Protocol, following the resignation of Lord David Frost last week – had an initial phone call with European Commission Vice President Maroš Šefčovič about the outstanding post-Brexit issues.  According to the statement issued by Foreign Secretary Liz Truss, the UK pursues a “constructive relationship with the EU, underpinned by trade and our shared belief in freedom and democracy.”  Truss added,

The UK position has not changed. We need goods to flow freely between Great Britain and Northern Ireland, end the role of the ECJ [European Court of Justice] as the final arbiter of disputes between us, and resolve other issues.”

Technical discussions to resolve the remaining Northern Ireland Protocol issues will continue in 2022.

On 23 December, the UK Department for International Trade updated its guidance on the list of goods imported into Great Britain from Ireland that are controlled.  From 1 January 2022, the UK will require import declarations when importing controlled goods into Great Britain from Ireland, including goods imported from Ireland through Northern Ireland.  Meanwhile, importers of goods that are not controlled can record the goods in business records without getting authorisation in advance.

Meanwhile, France’s European Affairs Minister, Clément Beaune, announced on Thursday that France is preparing litigation against Britain with regard to the post-Brexit fishing licenses, a contentious bilateral issue these past few months.  Pending a discussion with European Commissioners, the French Minister stressed the proceedings could be launched in the first week of January.

COVID-19 Highlights

South African scientists reported this week that the country passed the peak of the Omicron variant cases, about three weeks after the first cases were detected.  Data from South Africa appears to indicate fewer hospitalizations and instances of severe side effects overall in comparison to previous coronavirus variants.

The US Centers for Disease Control and Prevention (CDC) CDC Director Dr. Rochelle Walensky confirmed on Wednesday that the Omicron variant has overtaken as the dominant COVID-19 strain, accounting for 90 percent of confirmed cases, in most parts of the United States.  US officials have cautioned that differences in demographics and other factors does not necessarily mean the USA will see a similar trajectory of cases or lowered hospitalizations and severe side effects as seen in South Africa.  US officials are also closely tracking data from the Netherlands, the United Kingdom, and New York.  All of these areas are seeing massive rises in Omicron cases and have a higher vaccinated population rate than South Africa.

On 22 December, US President Joe Biden addressed the nation, acknowledging Americans are frustrated with the latest surge of Omicron cases and some restrictions snapping back into place.  He announced the U.S. Government is set to buy 500,000 at-home COVID test kits and mail them to people who want them, with deliveries beginning in January.  He shared the Administration would establish a website in January where people can order free at-home tests.  President Biden also urged Americans to get vaccinated and boosted, noting that former President Donald Trump had recently received his COVID-19 booster shot.  The President also said the Federal Government is standing up new pop-up vaccination clinics across the country.

Separately, on 22 December, the US Food & Drug Administration (FDA) approved emergency use authorization (EUA) for Pfizer’s Paxlovid for use in those over the age of 12.  The next day, the FDA approved EUA for Merck/Ridgeback’s antiviral pill for COVID-19, molnupiravir, for patients 18 years and older, noting it could affect bone and cartilage growth.   Merck is set to ship hundreds of thousands of treatment courses in coming days and one million over the next few weeks.  Pfizer plans to ship about 250,000 courses to the United States in January.

US officials met on 22 December with their European Commission counterparts on progress and next steps towards achieving the US-EU Agenda for Beating the Global Pandemic Vaccinating the World, Saving Lives Now, and Building Back Better Health Security.  A US summary reflected “both sides agreed on the importance of the transatlantic partnership and leadership to beat the pandemic, strengthen the supply chain, and strengthen global health security in the long term.”  They also agreed to “establishing a Financial Intermediary Fund (FIF) for global health security and pandemic preparedness in early 2022 with sustainable capitalization, and noted the United States and European Union will work with the G7, the G20, low and lower-middle income countries, the World Bank, the World Health Organization, and additional organizations to accomplish this goal.”

The European Commission authorized on 20 December 2021 the use of Nuvaxovid, US-based Novavax’s COVID-19 vaccine, following the recommendation by the European Medicines Agency the same day.  Under the contract signed with the European Commission on 4 August 2021, the company will be delivering up to 100 million of their COVID-19 vaccine to the EU starting in the first quarter of 2022.  Member States would be able to purchase an additional 100 million doses through 2022 and 2023.

On 21 December, the European Commission adopted rules to establish a clear and uniform approach that set a binding nine month acceptance period for the EU Digital COVID Certificate for intra-EU travel.  The rules next need to be endorsed by co-legislators in the beginning of 2022 to become effective.

This week, the UK Health and Social Care Secretary Sajid Javid accepted advice from the Joint Committee on Vaccination and Immunisation and approved Pfizer/BioNTech’s vaccine for children ages 5 to 11 years old.  The paediatric vaccine is set to move forward in January 2022.  The UK also donated over four million doses of the University of Oxford/AstraZeneca COVID-19 vaccine to Bangladesh.

With Omicron cases on the upward trend, the UK Government signed two new contracts this week, securing additional doses of antivirals.  This includes 1.75 million additional courses of Merck/Ridgeback’s molnupiravir and 2.5 million additional courses of Paxlovid from Pfizer, which will be available from early next year.

[1] This included Belgium, Canada, Czech Republic, Denmark, Estonia, France, Germany, Italy, Lithuania, Netherlands, Norway, Portugal, Romania, Spain, and Sweden.

[2] The G7 Foreign Ministers include Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America, along with the High Representative of the European Union.