Transatlantic Trade | US and Europe – Week of October 18, 2021

Officials from the United States (US) were in Europe this week, discussing trade matters, including the Section 232 aluminum and steel dispute.  The US Department of the Treasury formally announced an agreement had been reached with some European countries that have enacted unilateral digital services taxes (DSTs).  Also this week, the European Commission adopted its 2022 Work Programme, outlining its priorities for the coming year.   The transatlantic partners further focused on climate change policies/statements, ahead of the upcoming United Nations (UN) COP26 Climate Change Conference in Scotland (1-12 November).  Meanwhile, the European Union (EU) and the United Kingdom (UK) continue to discuss options, as they seek to resolve the Northern Ireland Protocol dispute.

In this issue, we also cover:

• Notable US, EU, and UK developments;

• A brief UK-EU trade deal update; and

• COVID-19 highlights among the transatlantic partners.

Notable US Developments

On 21 October, the Office of the US Trade Representative welcomed the US Department of the Treasury’s announcement that it had reached an agreement with Austria, France, Italy, Spain, and the UK, regarding the treatment of unilateral DSTs during the interim period prior to full implementation of Pillar 1 of the Organization for Economic Co-operation and Development (OECD) agreement.   A joint statement from the US, Austria, France, Italy, Spain, and the UK on the compromise reflected those countries with enacted, unilateral DSTs would not have to withdraw them.  However, it also stated,

[T]o the extent that taxes that accrue to Austria, France, Italy, Spain, and the United Kingdom with respect to existing Unilateral Measures during a defined period after political agreement is reached, and before Pillar 1 takes effect, exceed an amount equivalent to the tax due under Pillar 1 in the first full year of Pillar 1 implementation (prorated to achieve proportionality with the length of the Interim Period), such excess will be creditable against the portion of the corporate income tax liability associated with Amount A as computed under Pillar 1 in these countries, respectively.”

Meanwhile, the agreement includes the US terminating proposed trade actions and commit not to impose further trade actions against these countries with respect to their existing DSTs until the end of the interim period.  Turkey and India, the other two countries covered by the US’ DST investigations, have not joined in the agreement.

US Trade Representative Katherine Tai was in Brussels this week, where she participated in a virtual African Growth and Opportunity Act (AGOA) Ministerial on Wednesday before meeting with her counterpart from Belgium and also attending a roundtable with leaders from the International Trade Union Confederation (ITUC), European Trade Union Confederation (ETUC), and other national trade unions.  On Thursday, Ambassador Tai met with stakeholders from the steel industry; participated in a roundtable with climate and environment leaders; met with the American Chamber of Commerce to the EU and BusinessEurope.  Deputy US Trade Representative Jayme White and Ambassador Tai also met with the European Parliament’s International Trade Committee Chairman on Thursday.  Regarding the Section 232 aluminum and steel dispute, Ambassador Tai told reporters on Thursday that she was “optimistic” about reaching an agreement in the wake of “intensive” conversations with her EU counterparts.  She travelled next to London to attend the G7 Trade Ministers Meeting on Friday.  Ambassador Tai is also set to meet on the sidelines with officials from the UK, Germany and France on Friday.

On Thursday, 21 October, the US Commerce Department’s Bureau of Industry and Security (BIS) published an interim final rule, establishing controls on the export, re-export, or transfer (in-country) of certain items that can be used for malicious cyber activities.  Notably, the rule creates a new License Exception Authorized Cybersecurity Exports (ACE) and requests public comments on the projected impact of the proposed controls on US industry and the cybersecurity community.  BIS argues these items warrant controls because they are tools that “could be used for surveillance, espionage, or other actions that disrupt, deny or degrade the network or devices on it.”  Interested parties have until 6 December to submit comments on the interim rule, which goes into effect on 19 January 2022.

Also on Thursday, the White House released analyses from core national security and foreign policy components of the US Government that collectively will serve as a foundation for US work on climate and security under the Biden Administration.  The Office of the Director of National Intelligence (ODNI) oversaw the development of the first-ever National Intelligence Estimate (NIE) on Climate Change.  ODNI outlined three broad category of risks are:  1) increased geopolitical tension as countries argue over who should be doing more, and how quickly, and compete in the ensuing energy transition; 2) cross-border geopolitical flashpoints from the physical effects of climate change as countries take steps to secure their interests; and 3) climate effects straining country-level stability in select countries and regions of concern.  The Departments of Defense and Homeland Security released frameworks for addressing climate change.  The White House also released a report on the impact of climate change on migration, available here.

Notable EU Developments

On 19 October, the European Commission adopted its 2022 Work Programme, setting out the list of actions that it will take in the coming year, specifying the expected quarterly adoption of initiatives.  The Communication contains 42 new policy initiatives grouped in the six headline ambitions of the President’s Political Guidelines: (1) A European Green Deal; (2) A Europe fit for the digital age; (3) An economy that works for people; (4) A stronger Europe in the world; (5) Promoting a European way of life; and (6) A new push for European democracy.  In its Communication, the Commission states that “in order to minimize the burden linked to the achievement of EU policy objectives, the Commission will fully deploy the ‘one in, one out’ approach” in this work programme.  This principle means that when introducing unavoidable new burdens due to new legislation, the Commission will proactively reduce burdens linked to existing EU legislation in the same policy area.  Following the adoption of the Work Programme, the Commission will start a discussion with the co-legislators – the European Parliament and the Council – to establish a list of joint legislative priorities.

On 21 October, the European Parliament adopted its position on the UN COP26 Climate Change Conference by a broad majority.  The resolution calls on the EU and all G20 members to show leadership in reducing GHG emissions and to commit to reaching climate neutrality by 2050, at the latest.  To accelerate the pace of climate ambition, the resolution also calls for the phase-out of all direct and indirect subsidies of fossil fuels in the EU by 2025, and calls on other countries to take similar measures.  The Members of the European Parliament further urge the EU and its Member States to step up its efforts to mobilise international climate finance for developing countries.

The members of the European Council will meet in Brussels on 21 and 22 October.  They will discuss COVID-19, digital transformation, energy prices, migration, trade and external relations.  In the field of trade, the members will discuss on how to revamp the way the accords are negotiated.  According to some media, one of the potential ideas to break the current deadlock of the EU trade deals is to allow the European Commission to take a more active approach in continually securing a unified position among the Member States through different phases of talks.  With regard to external relations, the European Council is expected to take stock for preparations for, among others, the UN COP 26 Climate Change Conference and for the UN COP 15 Biodiversity Conference.

Notable UK Developments

On 19 October, UK Prime Minister Boris Johnson met with representatives of the automotive sector to discuss Britain’s electric vehicle transition.  The UK Government has set a target of phasing out the sale of new petrol and diesel cars by 2030.  The Government also released its Net Zero Strategy, outlining an extra £350 million to support the electrification of UK vehicles and their supply chains.  That same day, Prime Minister Johnson and Bill Gates announced a new partnership between Breakthrough Energy Catalyst and the UK Government at the Global Investment Summit, which is intended to drive investment into the next generation of ground-breaking clean energy technologies.  The Department for International Trade also launched a new Investment Atlas, an online platform designed to help international investors identify and execute high priority investment opportunities in England, Scotland, Wales and Northern Ireland.

On 22 October, UK International Trade Secretary Anne-Marie Trevelyan led a G7 effort to bolster global supply chain resilience after the pandemic.  With respect to global supply chain challenges, Trade Secretary Trevelyan argued against protectionism and advocated for measures, such as better monitoring and cooperation, to quickly identify and address bottlenecks where they arise.  The G7 is expected to agree to ground-breaking Digital Trade Principles and a joint statement on Forced Labour at the conclusion of the first-ever, in-person G7 Trade Track ministerial.

On 21 October, Trade Secretary Trevelyan launched a new strengthened Trade and Agriculture Commission (TAC), which is set to maintain the UK’s high environmental protection, animal welfare or food standards in all trade negotiations.  There will also be a new Food and Drink Export Council to work in collaboration with industry and governments in Scotland, Wales and Northern Ireland to promote exports from all parts of the UK.

On 20 October, Prime Minister Johnson and New Zealand Prime Minister Jacinda Ardern agreed to a trade agreement in principle, which comes after 16 months of talks.  The New Zealand trade deal follows advanced free trade agreements already struck with Australia and Japan, with the Department of International Trade noting these trade deals collectively help pave the way for UK to join Trans-Pacific Partnership (CPTPP).  The UK released a policy paper on Friday on its approach for negotiations to join CPTPP.

UK-EU Trade Deal Update

On 15 October, the European Commission Vice-President Maroš Šefčovič hosted a meeting with the UK’s Brexit Minister Lord David Frost to start an intensive period of discussions on the package of proposals made by the EU on 13 October (reported last week) to reach common solutions on the implementation of the Protocol on Northern Ireland.  In a statement issued by Lord Frost, the minister “recognised the efforts” of Šefčovič and “underlined that we would discuss them constructively and in a positive spirit”.  The Commission published a statement noting Vice President Šefčovič “welcomes that both sides have agreed to engage intensively and constructively at both expert and political level”.  The statement adds,

[T]he EU seeks to focus on the areas that matter most to Northern Irish people and businesses, and where we can find common ground.”

COVID-19 Highlights

Despite the overall trend of decreasing Delta COVID-19 cases, cold weather US states are reportedly showing the highest rate of new COVID-19 cases.  Meanwhile, officials in the United Kingdom are closely monitoring a new COVID-19 variant – AY.4.2, which some are calling “Delta Plus” – which contains mutations that might give the virus survival advantages.

This week, Pfizer and BioNTech announced they have submitted data to the European Medicines Agency (EMA) supporting the extension of their COVID-19 vaccine for children aged five to eleven.  The filing is based on data from an ongoing Phase 2/3 study that shows that the vaccine induces a strong immune response to children in that age bracket.  Currently, the vaccine is authorised for use in children over 12 years old in the European Union.  The EMA started evaluating the granting the request this week.  EMA’s human medicines committee (CHMP) will review the data on the vaccine and the results from the ongoing study in order to decide whether to recommend the vaccine for children. According to the agency, the outcome of the evaluation is expected in two months, unless supplementary information is needed.  The CHMP’s will forward its opinion to the European Commission, which will issue a final decision.  On Thursday, Pfizer/BioNTech, meanwhile, reported a late-stage trial of a 30-milligram booster dose of their COVID-19 vaccine showed efficacy of 95.6 percent compared with those who received a placebo.

The US Centers for Disease Control and Prevention’s (CDC) vaccine advisory panel met on Thursday to discuss which patient groups should be eligible for COVID-19 vaccine boosters developed by Moderna and Johnson & Johnson (J&J).  Regarding the Moderna vaccine, the panel recommended a 50 µg dose level for people aged 65 and older; people aged 18 to 64 who are at high risk of severe COVID-19; and people aged 18 to 64 with frequent institutional or occupational exposure to COVID-19.  The panel also approved the J&J booster for all that had received a dose of that vaccine.  These moves followed the US Food and Drug Administration’s (FDA) recommendation to allow boosters of these vaccines under emergency use authorization (EUA).  The FDA also approved a so-called “mix and match” COVID-19 booster approach on Wednesday, which means Americans could receive a booster shot of a vaccine different from the one they received initially.  However, the CDC has yet to act on this recommendation.  Meanwhile, on Wednesday, the White House released its plan to vaccinate children between the ages of five and 11, pending authorization from the FDA and CDC of a COVID-19 shot for that age group.

The UK Government announced it has secured two COVID-19 antiviral treatments, pending approval from the Medicines and Healthcare products Regulatory Agency (MHRA), which would add them to their defensive arsenal later this winter:

• molnupiravir, from Merck Sharp and Dohme, which has proven in clinical trials to reduce the risk of hospitalisation or death for at-risk non-hospitalised adults with mild to moderate COVID-19 by 50 percent; and

• PF-07321332/ritonavir, from Pfizer, which is undergoing phase 2 and 3 trials.