On Wednesday, 29 July, the European Union (EU) and China convened its 8th High Level Trade and Economic Dialogue to discuss economic and trade issues, apart from addressing COVID-19.  With more citizens travelling and visiting beaches in Europe and in the United States (US), COVID-19 cases continue to spike.  This report also touches on the ongoing EU-United Kingdom (UK) exit negotiations, US-EU developments, and some of the ramifications of the EU’s invalidation of the Privacy Shield program.

Meanwhile, the Pentagon announced it is moving forward with a sizeable drawdown of US troops in Germany, relocating some to other European posts and returning some stateside.  US Secretary of State Mike Pompeo will visit four of the Three Seas Initiative members’ capitals next week to discuss transatlantic relationships.  In addition, the US continues to see progress with respect to its efforts to develop a vaccine effective against COVID-19. 

EU-China 8th High Level Trade and Economic Dialogue

The EU-China Dialogue talks focused mainly on the joint response to the ongoing coronavirus pandemic, global economic governance issues, bilateral trade and investment concerns, and cooperation in financial services and taxation.  According to EU Trade Commissioner Phil Hogan:

EU-China bilateral and trade relations must be based on the key principles of reciprocity and level-playing field based on clear and predictable rules. Today I have called upon China to engage in serious reform of the multilateral system and its rulebook and to remove the existing barriers impeding access to the Chinese market of EU exporters of goods and services as well as of European investors. Such an approach by China would show a level of responsibility which reflects its economic and trade importance.”

Both sides also exchanged views on the ongoing negotiations for a Comprehensive Agreement on Investment, following the latest round of talks that took place between 20-24 July.  The EU mentioned significant progress has been made on levelling the playing field and reiterated its request for improvements in market access in specific areas, including telecommunications and biotechnology.  The EU also reiterated China needs to authorize the export of EU Member State agricultural products, and raised concerns with respect to restrictions on food exports.  The parties also discussed financial services access for foreign investments.  Both parties agreed to ensure emphasizing the continued relevance of the World Trade Organization (WTO), and the EU highlighted the need for China to engage in negotiations on its industrial subsidies.

EU Appoints First Chief Trade Enforcement Officer 

On July 24, the European Commission appointed Denis Redonnet to the position of first Chief Trade Enforcement Officer.  According to Commissioner Hogan:

This appointment is a statement of the Commission’s commitment to the enforcement and implementation of our trade agreements. As well as ensuring that our partners deliver fully on their commitments, the CTEO will be crucially important in relation to ensuring that our SMEs, which are the backbone of the European economy, get maximum value from our trade deals.”

Denis Redonnet, a French national, currently works as a Director for WTO in Legal Affairs and Trade in Goods in the European Commission’s Directorate General (DG) for Trade.  The new enforcement officer has also held positions in DGs dealing with monetary, international economic affairs and the internal market.

EU-UK Trade Talks 

The EU has issued a timeline that reflects the UK and EU have until October to negotiate an agreement.  If a deal is ratified by EU governments in mid-November, the agreement would then be signed together with the UK side in late November, and approved by the European Parliament in December.  This timeline is extremely tight for the EU’s ratification procedure, which usually takes six months or longer.  The timeline also shows that there is a clear risk that any smaller delays could lead to a scenario in which there is not enough time to ratify a deal.

However, the EU is convinced that it remains in a strong position, after national leaders managed to negotiate a €1.82 trillion budget and coronavirus recovery package.  The deal, which includes a €5 billion Brexit Adjustment Reserve designed to prop up governments, businesses and industries that would be especially hit by a no-deal scenario along with the positive reaction in financial markets, has already bolstered EU27 economies.

Following the 5th round of Brexit negotiations which took place between the 20-24 July, EU Chief Negotiator Michel Barnier stated the UK “had not shown a ‘willingness to break the deadlock’ over fisheries and post-Brexit rules on competition.”  UK Chief Negotiator David Frost said that fisheries and the rules on competition remained the “most difficult areas”, adding he still believes a deal could be reached in September, while cautioning the Government must “face the possibility” of no deal.  He acknowledged the EU had shown a “pragmatic approach” to British demands seeking to limit the role of the European Court of Justice.

The UK and EU also recently held informal talks, with the aim of discussing the key areas of level playing field, fisheries, social security, governance, law enforcement and UK participation in EU programs.  The UK’s stance on state aid is now one of the key issues, with the UK determined to hold onto the power to invest in UK industry as it sees fit.  According to David Henig, UK Director of the European Centre for International Political Economy, “the long-running Airbus/Boeing dispute over illegal subsidies currently affecting UK exports of Scotch whisky to the US is a reminder that the U.K. taking a lax approach to state aid could well lead to future trade disputes affecting UK trade.”

In addition, according to the UK Government, businesses trading across the new Irish border in 2021 will not need extra compensation relating to enhanced customs requirements.  However, experts from UK Parliament have argued that the protocol will inevitably bring about new costs and that more information on what “unfettered” access means is required.   According to Northern Ireland Minister Robin Walker, “Our aim is for the Protocol to work in such a way that there should be no requirement for compensation for Northern Ireland business.”  Walker has also previously stated that no rules of origin forms would be needed and that the practicalities are a work in progress.

Negotiators have since agreed to meet during the weeks of 17 August, 7 September and 28 September, as both sides have missed the July target for agreeing an outline of the deal.  In addition, the UK Government is currently consulting on plans to tackle border disruptions at Dover and the Channel Tunnel.  The Government wishes to put in place plans ahead of the end of the transition period, which ends on 31 December 2020.

EU Court Invalidates Privacy Shield | US Companies Respond

On 16 July, the Court of Justice of the European Union (CJEU) assessed the validity of the US Privacy Shield adequacy decision in light of the requirements stemming from the EU’s General Data Protection Regulation (GDPR) and the European Charter of Fundamental Rights (“Charter”).  The Court decided the US Privacy Shield does not constitute a valid data transfer mechanism, noting:

• The European Commission Decision to adopt Privacy Shield accepted the position that the requirements of US national security laws, public interest and law enforcement would take primacy over the protection of EU personal data, and that US surveillance programs would not be limited to what is strictly necessary in a democratic society;

• There are no limitations under US law on the applicability of these programs to non-US persons, and such persons have no actionable rights against US authorities in respect of their data; and

• The US Ombudsperson Mechanism in the Decision does not provide EU data subjects with an effective right of redress.

The CJEU’s judgment comes five years after it invalidated the EU-US Safe Harbor Program, the Privacy Shield’s predecessor.  The issue before the CJEU was the transfer of data between the EU and the US.  The implications of the judgment could impact transfers between the EU and other “non-adequate” countries.  In response to the Court’s judgment, the European Commission has stated that it is preparing to review the existing adequacy decisions covering the following countries:  Andorra, Argentina, Canada, Faroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand, Switzerland, and Uruguay.  In addition, the Commission is considering updates to the Standard Contractual Clauses (SCCs, which predate the GDPR) to reflect the GDPR, and will now also consider the Court’s judgment as part of their assessment.

The European Data Protection Board (“EDPB”) has also announced that it will discuss the ramifications of the Schrems II decision at a plenary session on 17 July 2020.  The EDPB will also play an important role in the review process for “modernizing” the SCCs and reviewing the existing adequacy findings of the Commission.

Meanwhile, a coalition of 17 international business groups responded to the Schrems II ruling and called on the US and EU to negotiate a cross-border data flow successor agreement.  The coalition noted the court decision affects all industries doing transatlantic transactions, including small and medium-sized enterprises (SMEs).  With the invalidation, the coalition further urged:

It is also important that EU data protection authorities provide guidance for companies that were using Privacy Shield to transfer data to allow them to continue business operations until a successor agreement is reached. This should also include a reasonable enforcement moratorium.”

EU-US Developments

On 30 July, Commissioner Hogan said during a webinar hosted by the Carnegie Endowment for International Peace, “We have made progress in 2020, probably more progress than we’ve made in the previous 15 years and I think we should sit down and talk in the next couple of months otherwise we’ll be putting tariffs on each other the rest of the year.”  Hogan added, “Boeing, according to [US Trade Representative Robert] Lighthizer, declared unilateral compliance to the WTO with respect to the measures they have taken.  Of course we don’t necessarily agree with that in the European Union.”

On 24 July, France and Spain agreed to pay higher interest rates on loans for Airbus’ twin A350 jet, effectively ending their subsidies programs for this aircraft.  Airbus, however, has moved to cease production of the aircraft and claims any rulings on subsidies for that program are therefore obsolete.  Meanwhile, Washington continues to demand that the EU repay “some element” of the subsidies it provided to Airbus years ago.  Since last October, the EU has been paying tariffs on USD 7.5 billion of its exports to the US, including tariffs of 15% on airplanes.

The EU’s move was an apparent act of goodwill and likely came about as a result of a delay in proceedings at the WTO, where the EU is hoping to be granted permission to impose tariffs on past subsidized imports of Boeing.  While the EU has already won the right to retaliate, the amount has yet to be calculated by the WTO arbitrator.  Like the United States, the EU maintains it complies with WTO rulings, saying its latest move “removes any grounds for the US to maintain its countermeasures on EU exports and makes a strong case for a rapid settlement of the long-running dispute.”

The United States also continues to disagree with the EU.  At a WTO Dispute Settlement Body meeting in Geneva on 29 July, the US noted in prepared remarks:

With this new compliance announcement, the EU effectively concedes that the United States was correct that the EU was out of compliance previously.  And given the limited measures covered by the announcement, and the lack of any details on the supposed changes made, no one can take seriously that these changes actually address the full scope of massive, WTO-inconsistent subsidies and bring a resolution to this longstanding dispute.”  The US added, “No Member making a genuine effort to comply could get it so wrong, so frequently, and for so long.”

On Monday, 3 August, the third round of trade agreement negotiations between the US and EU entered its second week.  Despite the upcoming US presidential election, officials do not expect priorities from the US side to change significantly.  Regardless, key issues, including the EU’s digital services tax and agricultural standards, remain as points of contention for both sides.

Next week, US Secretary of State Mike Pompeo will travel to Prague and Pilsen, Czech Republic; Ljubljana, Slovenia; Vienna, Austria; and Warsaw, Poland from 11-15 August.  In Prague, the Secretary is expected to discuss nuclear energy cooperation, the Three Seas Initiative¹, and efforts to counter malign actions of Russia and China.  Secretary Pompeo’s visit to Slovenia will focus on nuclear energy cooperation, Western Balkan integration and 5G information security.  In Vienna, his visit is set to focus on the growing trade and investment relationship via the US-Austria Strategic Partnership.  Secretary Pompeo will also meet with International Atomic Energy Agency (IAEA) Director General Grossi, likely to discuss Iran.  His last stop in Warsaw will include discussions on deepening defense ties, the COVID-19 pandemic, securing 5G networks, and the Three Seas Initiative.

US Military Review Concludes | Drawdown in Germany Moves Forward

On 3 August, the US Department of Defense concluded negotiations with Poland on the Enhanced Defense Cooperation Agreement (EDCA).  The EDCA provides the legal framework for deepening the bilateral defense cooperation.  It will also enable an increased enduring rotational presence of an additional 1,000 US military personnel, above the 4,500 US personnel already on rotation in Poland.  The Pentagon noted:

[T]he EDCA will enhance deterrence against Russia, strengthen NATO, reassure our Allies, and our forward presence in Poland on NATO’s eastern flank will improve our strategic and operational flexibility.”

This development with Poland comes after US Secretary of Defense Mark Esper announced on 29 July that the United States would begin shifting approximately 11,900 troops from Germany, sending thousands of service members home to America and shifting others to different locations in Europe.  The announcement comes after a months-long review of American force posture in Europe; it fulfills President Donald Trump’s demands to reduce US troops in Germany, a country that the President has criticized for not meeting its two percent GDP NATO military expenditure obligation.  The move will shift 5,600 American troops currently in Germany to other NATO countries, largely Belgium and Italy; it would also send about 6,400 troops to new permanent stations in the United States.  This will leave about 24,000 US troops in Germany.

The drawdown will affect tactical units and US European Command (EUCOM), and possibly US Africa Command (AFRICOM), both of which are based in Stuttgart.  EUCOM will shift 600 troops and 300 civilians from headquarters to Mons, Belgium, to join NATO’s military command.  Yet to be decided, AFRICOM and Special Operations Command-Africa could also face a move away from Stuttgart.

The Army’s 2nd Cavalry Regiment in Vilseck, which is the only brigade-sized ground unit left in Germany that numbers about 4,500, will return to the United States.  It remains to be seen where they will be stationed in America; Secretary Esper has said the brigade will regularly deploy to Eastern Europe to train with NATO allies on a rotational basis.  Meanwhile, 2,500 Air Force troops currently stationed in the United Kingdom will remain, cancelling previous plans to relocate them to Ramstein Air Base in Germany.

US Vaccine Update | Operation Warp Speed

On 31 July, Dr. Anthony Fauci, MD, Director of the National Institute of Allergy and Infectious Diseases appeared before a three-hour congressional hearing, testifying about the Federal response to the COVID-19 pandemic.  Acknowledging Russia and China’s vaccine efforts, Dr. Fauci appeared confident the United States would not have to rely on an international vaccine candidate, saying:

I do not believe that there will be vaccines so far ahead of us that we will have to depend on other countries to get us vaccines.”

Via Operation Warp Speed, the US Government secured a $2.1 billion deal with Sanofi Pasteur on 31 July – Sanofi is working with GlaxoSmithKline – to supply the US Government with 100 million doses of its experimental coronavirus vaccine.  The agreement provides for the US Government to secure an additional 500 million doses.

Operation Warp Speed is also focusing on ensuring domestic manufacturing capabilities.  On 5 August, the US Government announced an agreement with the Janssen Pharmaceutical Companies of Johnson & Johnson, to demonstrate large-scale manufacturing and delivery of the company’s COVID-19 vaccine candidate.  The Federal Government will own the resulting 100 million doses of vaccine, which could be used either in clinical trials or distributed as part of a COVID-19 vaccination campaign, if approved by the US Food & Drug Administration (FDA).

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[1] While the Three Seas Initiative is European, the United States is looking to strengthen the economies of its allies in Central and Eastern Europe and thereby reduce their dependence on Moscow and Beijing.  The twelve states that are part of the initiative –which works to support infrastructure, energy, and digital interconnectivity projects – include Austria, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

Frank Samolis, Matthew Kirk and Wolfgang Maschek provided insights for this report.