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Transatlantic Trade: US and European Trade Talk Update – September 18, 2020
Friday, September 18, 2020

This week, the European Commission President gave her first state of the union address, outlining priorities for the Commission and European Union (EU).  EU leaders also hosted a virtual summit with the Chinese President, discussing trade and other matters.  Amid the heightened tensions in the Eastern Mediterranean, the European Council President stopped in Greece and Cyprus.  The United States’ (US) Secretary of State also visited Cyprus last Saturday, ahead of the historic signing of the Abraham Accords between the United Arab Emirates, Israel and Bahrain at the White House on Tuesday, 15 September.

Meanwhile, the United Kingdom (UK) moved forward with its Internal Market Bill, despite push back from the EU and concerns expressed by the United States.  The UK’s Foreign Secretary embarked on a trip to Washington to allay these concerns and to speak with US officials on other mutual issues of concern, such as Russia, Belarus and China.

Topics covered in this report include:

  • European Commission President’s State of the Union Address 

  • EU-China Virtual Summit 

  • US-EU Relations

  • UK-EU Relations

  • US-UK Relations

  • The Eastern Mediterranean Dispute and Belarus | Developments

  • Alexei Navalny Poisoning and Other Russia-Related Developments

European Commission President’s State of the Union Address 

On Wednesday, 16 September, European Commission President Ursula von der Leyen gave her state of the union address, speaking of “NextGenerationEU”, the ongoing COVID-19 pandemic and addressing the need to protect the lives and livelihoods of Europeans along with the stability of the economy.  She also spoke about the Commission’s priorities for the coming year, which includes Brexit, climate change, human rights, migration and technology.

The European Commission President said the EU should take the lead in World Trade Organization (WTO) reform and with other international organisations, noting, [W]ith a strong World Trade Organization that we can ensure fair competition for all, but the truth is also that the need to revitalize and to reform the multilateral system has never been so urgent.”  She criticized “major powers” for undermining multilateral organizations, adding we need “change by design and not by destruction of our national system.”  She added the EU wishes to reach an agreement on digital taxation with the Organisation for Economic Co-operation and Development (OECD) nations and the G20, as long as such an agreement is a fair tax system that can provide long-term sustainable revenue.

Regarding the UK exit talks, Commission President von der Leyen warned the Withdrawal Agreement (including the Northern Ireland Protocol) cannot be changed unilaterally or disregarded, and further suggested the UK is destroying its reputation under the government of Prime Minister Boris Johnson.  Consistently returning to the use of the word “opportunity”, she spoke of the European Green Deal as one of her flagship policies, announcing further reduction in emissions.  She also promised a new migration pact, commenting on the images of the fire from the Moria refugee camp as a reminder of the need for “Europe to come together” and calling on EU Member States to accept their share of responsibility.

With respect to trade talks with the United States, Commission President von der Leyen offered a new transatlantic agenda after the November elections, saying it could “strengthen [the EU-U.S.] bilateral partnership — be it on trade, tech or taxation.”  She warned European governments who advocate closer ties with Russia, spotlighting the poisoning of Alexei Navalny.  She also called for majority voting on the implementation of sanctions in response to hostile actors and foreign policy challenges including from China, Russia, the ongoing crises in the East Mediterranean and Belarus.

EU-China Virtual Summit  

On Monday, 14 September, European Commission President von der Leyen and European Council President Charles Michel hosted a virtual summit with Chinese President Xi Jinping.  The meeting produced few concrete concessions and centered around four key topics:  (1) climate change, (2) trade and economic issues, (3) international affairs and human rights, and (4) COVID-19/economic recovery.

All parties welcomed the progress made in negotiations for the EU-China Comprehensive Agreement (CAI), particularly on the rules surrounding the regulation of state-owned-businesses, forced technology transfers and transparency of subsidies.  However, the EU emphasized that more work needed to be carried out on the rebalancing of market access in the areas of agri-food, financial services and the digital sector, along with sustainable development.  Both parties welcomed the agreement made on geographical indications, improving access for high quality European agricultural products into the Chinese market.  Commission President von der Leyen stressed:

We need (China) to move if we are to achieve our shared objective of finalizing negotiations this year.  In other words, China needs to convince us that it is worth having an investment agreement.”

In a press release following the conclusion of the summit, European Council President Michel said:

Trade can energise our economic recovery.  But we want more fairness.  We want a more balanced relationship.  That also means reciprocity and a level playing field. That’s why we welcome today’s signature of the Agreement on Geographical Indications. It’s a big step in the right direction. We are working on a comprehensive investment agreement and concrete results in other important areas.”

European Council President Michel also reiterated concerns with respect to the People’s Republic of China’s (“China”) new national law on Safeguarding National Security in the Hong Kong Special Administrative Region (“Hong Kong”).  He stated, Democratic voices in Hong Kong should be heard, rights protected, and autonomy preserved.  We called on China to keep their promises to the people of Hong Kong and the international community.”  The parties agreed that this issue, along with the treatment of minorities by the Chinese government in Tibet and Xinjiang, would be discussed at the Human Rights Dialogue in Beijing later this year.

European Council President Michel also said an open and transparent response is needed to address COVID-19, and he encouraged China to pursue an economic recovery that leads to “structural reform” that should also include implementation of the G20 Action Plan to drive sustainable growth and to reduce global tensions.  In the digital domain, the EU wishes to maintain and defend its free, open and secure cyberspace, which, according to Michel, requires countries to uphold the rules-based international system.

Overall, the message appears to be that actions speak louder than words.  Moreover, the EU is expecting reciprocity and transparency for any commitments made with China.

US-EU Relations

 IBM, a US technology company, has raised concerns over pandemic-driven calls in Europe and elsewhere for countries to place tighter controls on cross-border data flows.  During the roll out of IBM’s latest digital trade policy brief, IBM Vice President Chris Padilla told reporters“There are some who argue, particularly in light of the pandemic, that data sovereignty is more important than ever.”  He added, “The fact that we’ve been able to maintain the global economy across borders, with data stored wherever it makes the most sense to store it, shows that data-localization mandates are not the way to go.”

The EU is advocating for data to be stored and processed locally.  IBM’s data trade policy brief was prepared for submission to the EU as part of the EU’s latest trade policy review and identifies three core principles the company would like to see in any trade agreement negotiated by the United States.  This includes provisions that prevent countries from requiring data to be stored locally, provisions that prohibit countries from forcing companies to turn over their source code, algorithms to access the market, along with terms that prevent the adoption of closed digital architectures that compel companies to use domestic technologies.

Meanwhile, on 17 September, the Governments of the United States and Lithuania released the text of a Memorandum of Understanding (MOU) related to 5G Security that recognized, “[I]t is critical for countries to transition from untrusted network hardware and software suppliers in existing networks to trusted ones through regular lifecycle replacements.”  Lithuania and the United States agreed to collaborate on “promoting investments and information sharing in the areas of information and communication technologies and cybersecurity to decrease the security risks in developing, deploying and operating 5G networks and future communication technologies,” along with “raising awareness of the importance of 5G security among the North Atlantic Treaty Organization (NATO) Allies.”

US Secretary of State Mike Pompeo and Lithuanian Foreign Minister Linas Linkevičius signed the MOU the day before in Washington.   A State Department readout of the bilateral meeting reflected Secretary Pompeo “expressed appreciation for Lithuania’s leadership in ensuring the independence and territorial integrity of Belarus and the democratic rights of its people.”  The Secretary also “thanked Lithuania for its commitment to NATO, including spending 2 percent of GDP on defense and contributing to international security efforts in Afghanistan, Iraq, and the Strait of Hormuz.”

At an Atlantic Council event on Tuesday, 15 September, Secretary Pompeo responded to an inquiry of how 5G Security MOUs – such as the one signed with Lithuania and other European countries – would be effectuated, along with what alternatives exist to Huawei.  He noted as a micro-example, information coming into US Embassies must come via trusted networks.  With respect to alternatives, he said, the gap between Huawei and Western technologies is closing.  He expressed confidence that Western trusted vendors will deliver cost-effective deliverables and services at comparable costs.

The Secretary also spoke of US support for the Three Seas Initiative, saying the Initiative is also part of recognizing “the threat that the Chinese Communist Party can pose to the nations around these three seas.”  With respect to NATO, he said:

We’ve asked NATO to relook their strategy to make sure they incorporate the threats that the Chinese Communist Party imposes to NATO nations as well, whether those are cyber threats or threats from space or communication threats to telecommunications infrastructure that could deny NATO the operational capabilities that it will need in time of conflict.”

UK-EU Relations

UK Prime Minister Boris Johnson published an opinion piece in The Telegraph on 12 September, outlining the current status of talks with the EU.  With respect to Northern Ireland, he noted, “And we also took steps to protect free movement at the all-important border between Northern Ireland and Ireland. We agreed that in some limited ways Northern Ireland would continue to conform with EU law for four years. We agreed that this limited alignment would end, unless the Northern Irish assembly voted to continue it. We agreed to do some light-touch checks on goods arriving in Northern Ireland, in case they should go on to Ireland, in order to avoid checks at the North-South border. And on the basis of that excellent deal we left the EU – and so it is deeply regrettable that what seemed so simple and clear to us is seen very differently by our EU friends.”  The Prime Minister further explained the rationale behind moving forward with the UK’s Internal Market Bill, which he argued is to secure a trade deal with the EU that is akin to the EU-Canada free trade agreement.

Former UK Prime Ministers Tony Blair and John Major condemned Prime Minister Johnson’s plans to possibly renege on the Brexit Withdrawal Agreement.  They said the Internal Market Bill risks undermining the success and progress made in securing peace in Northern Ireland, warning: “ this latest ruse has spectacularly misfired and must stop now-before any further damage is done.”

 Nevertheless, the Internal Market Bill passed its second reading in the UK Parliament, with 340 votes to 263.  The bill faces further amendments next week, with one proposed change to require Parliament approve any decision to activate the relevant clauses of the Internal Market Bill.  According to Prime Minister Johnson, the “EU has suggested it is willing to go to extreme and unreasonable lengths… to exert leverage against the UK in our negotiations for a free-trade-agreement”, adding the Internal Market Bill is intended to prevent the EU from exerting such pressure.

Faced by questions from the Northern Ireland Affairs Committee on Wednesday over whether the UK would abide by any arbitration mechanism included in a future trade agreement between the EU and the UK, Northern Ireland Secretary Brandon Lewis refused to commit the government to any such provision.  When queried on whether countries negotiating trade deals with the UK could rely on it to uphold an arbitration clause, Lewis stated they “would be confident in our position.”  This follows the launch of the committee’s Brexit and the Northern Ireland Protocol Inquiry last week, after Lewis admitted that the Internal Market Bill would give the UK Government the power to renege on certain aspects of the agreement; therefore, breach international law.  As part of the Protocol, a joint committee is tasked with negotiating how the border between Northern Ireland and the UK will work.

In further controversy surrounding the Internal Market Bill, Prime Minister Boris Johnson’s Legal Officer for Scotland Richard Keen resigned on Wednesday, stating:  Over the past week I have found it increasingly difficult to reconcile what I consider to be my obligations as a law officer with your policy intentions with respect to the UK Internal Market Bill.”  This follows last week’s departure of the head of the UK’s Government legal department, Jonathon Jones.

Prime Minister Johnson also said he did not believe the EU was negotiating in good faith, and that the UK has no plans to create law that will halt the transport of products from Northern Ireland to Great Britain.  In addition, the Prime Minister said that the UK wants to rewrite elements of the Withdrawal Agreement to prevent the EU from being “abusive”, adding the proposed Internal Market Bill would “ring fence” partners from making extreme interpretations of the provisions.

On Thursday, 17 September, the UK Government published a documentnoting it would only use the provisions contained in the proposed Internal Market Bill, if it considered the EU to be in “material breach” of its good faith or obligations.  The Government said it would use the powers contained in the Bill in conjunction with the available formal dispute resolution mechanisms.  This would apply where, for example, the EU insists tariffs are charged on goods entering the Northern Irish market from the rest of the UK.  In addition, the UK Government said that other EU positions potentially considered to be in material breach would include a requirement of paperwork for Northern Irish goods entering Great Britain, along with an insistence that the EU’s state aid provisions should apply in Great Britain in circumstances when there is no link or only a trivial one to commercial operations taking place in Northern Ireland”; while refusing to give the UK “third country listing” for agricultural goods.

US-UK Relations

During his Wednesday visit to Washington, UK Foreign Secretary Dominic Raab said any threat to peace in Ireland is due to the EU’s “politicization of the issue.”  Raab told reporters that he had had positive conversations with Secretary Pompeo, the Trump Administration and bipartisan Members on the proposed Internal Market Bill and its potential impact on the Good Friday Agreement.  According to Raab, Our commitment to the Good Friday Agreement and to avoid any extra infrastructure at the border between the north and the south is absolute.”  His visit comes after a warning last week from Speaker of the House Nancy Pelosi (D-California) that any deviation from the commitments made to maintaining peace in Northern Ireland would make any final UK-US trade deal unlikely to advance in the US Congress.  Raab stated the UK’s domestic bill is “precautionary” and “proportionate”.  He also said the UK could not have a “regulatory border down the Irish Sea between Northern Ireland and Britain.”

In remarks to the media, Secretary Pompeo said of the ongoing trade negotiations, “The fourth round started now a little over a week ago, and I think our teams are working diligently to make good progress on that important mission.”  According to the Secretary, other topics of discussion at the bilateral meeting included China, Russia, Belarus and Iran.  Regarding the Internal Market Bill, Secretary Pompeo said, “[W]e trust the United Kingdom.  . . .  I am confident they’ll get it right.  We’ve made clear the – our view of the importance of the Good Friday Agreements.”

US presidential candidate Joe Biden tweeted on Wednesday, “we can’t allow the Good Friday Agreement that brought peace to Northern Ireland to become a casualty of Brexit. Any trade deal between the US and the UK must be contingent upon respect for the Agreement and preventing the return of a hard border. Period.”  Biden also retweeted a letter to Prime Minister Johnson from Members of the US House of Representatives Foreign Affairs Committee, which warned a trade deal between the parties would not advance in Congress, if the UK fails to honor its commitments to Northern Ireland.

US Special Envoy to Northern Ireland Mick Mulvaney, who previously served as Acting White House Chief of Staff to President Donald Trump, is expected to soon travel to Belfast, Dublin and London.  Special Envoy Mulvaney confirmed the “trip will be focused primarily on Covid and the prospects for economic development in the near term, though obviously the Internal Market Bill and the Northern Ireland protocol will take a good bit of our attention as well.”  Irish officials welcome the US presence, given its past role in Northern Ireland.  Several US technology companies also have a significant presence in Ireland.   Given Ireland and Northern Ireland’s COVID restrictions on foreign travelers to Ireland (and that the United States is not on the country exemption list), it is expected Special Envoy Mulvaney will be given an exemption due to his diplomatic status.  Mulvaney was in Ireland in February, in his previous capacity as a White House official, meeting with government officials and business leaders.

The Eastern Mediterranean Dispute and Belarus | Developments

Amid heightened tensions in the Eastern Mediterranean, European Council President Michel visited Athens, Greece, and Nicosia, Cyprus, in an attempt to de-escalate the tensions and to advance certain sanctions efforts at the EU level, which have thus far been vetoed.  Signs of de-escalation of the tensions with Turkey occurred following the departure of Turkey’s exploration vessel Oruç Reis from the waters around Cyprus.  During Michel’s visit, Greek Prime Minister Kyriakos Mitsotakis called for a “tangible solidarity” from the European Union on both the migration crisis in the region and the heightened tensions with Turkey.  Prime Minister Mitsotakis stressed Greece’s willingness to start exploratory talks with Turkey on the contested maritime areas, if Turkey ended its oil and gas exploration provocations in the Eastern Mediterranean.  Turkey’s Foreign Minister Mevlüt Çavuşoğlu indicated Turkey stands ready to re-start talks with the Greek Government.

Cyprus continues to maintain its veto position on EU sanctions against Belarus, seeking in return EU sanctions for top Turkish officials related to the situation in the Eastern Mediterranean.  Cypriot President Nicos Anastasiades said during Michel’s visit to Cyprus, that it stands preparedto resume talk with Turkey, subject to these talks being held “based on international law” and not based on “blackmails or threats”.  Michel’s statement following the visit to Cyprus reiterated that the European Summit of 24-25 September would include “strategic debate on the relationship we want to envisage in this part of the Mediterranean, including with Turkey.”

Secretary Pompeo stopped in Cyprus on Saturday, 12 September, to sign an MOU that creates a US-funded new training center in Cyprus.  Known as the Cyprus Center for Land, Open-seas, and Port Security (or CYCLOPS), the center will provide expertise for the rest of the region on border security and nonproliferation.  The State Department also circulated a fact sheet on CYCLOPS.

Of the Eastern Mediterranean disputes, Secretary Pompeo said“Countries in the region need to resolve disagreements – including on security and energy, resource and maritime issues – diplomatically and peacefully.”  He warned, “Increased military tensions help no one but adversaries who would like to see division in transatlantic unity.”  He added, “We remain deeply concerned by Turkey’s ongoing operations surveying for natural resources in areas over which Greece and Cyprus assert jurisdiction in the Eastern Mediterranean.”  

On 17 September, Governments of the United States, Australia, Austria, Belgium, Bulgaria, Canada, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Ireland, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Slovenia, Sweden, Switzerland, the United Kingdom and Ukraine issued a joint statement condemning the partial and complete Internet shutdowns in Belarus.  They called “on Belarusian authorities to refrain from Internet shutdowns and blocking or filtering of services and to respect Belarus’s international human rights obligations, including under articles 19 and 21 of the International Covenant on Civil and Political Rights.”  Meanwhile, the United States has yet to issue any sanctions with respect to the situation in Belarus.

While the EU’s sanctions on Belarus remain pending, three of the largest political groups of the European Parliament, European People’s PartySocialists & Democrats and the liberals, Renew Europe, proposed to give this year’s Sakharov Prize to the “democratic opposition of Belarus”, particularly the women of the opposition, such as Svetlana Tikhanovskaya.  The Prize honours individuals and groups of people who have dedicated their life to the defense of human rights and freedom of thought.

Alexei Navalny Poisoning and Other Russia-Related Developments

Recent revelations regarding the Novichok poisoning of Alexei Navalny have given rise to calls on Germany to cut ties with Nord-Stream 2, the Russian natural gas pipeline project.  Polish Minister for European Affairs Konrad Szymański stressed in a Politico opinion pieceEven now, some European countries are defending their choice to continue participation in the Nord Stream 2 pipeline project — a long-term geopolitical and economic endeavor with Moscow that will make the European Union economically dependent on Russia and undermine our ability to take decisive steps against this type of malign behavior.”  European Commission President von der Leyen raised concerns about Russia’s stance in connection to the Nord Stream 2 pipeline during the State of the Union speech on 16 September.  She stated, To those that advocate closer ties with Russia, I say that the poisoning of Alexei Navalny with an advanced chemical agent is not a one-off — we have seen the pattern in Georgia, Ukraine, in Syria and Salisbury, and in election meddling around the world […]. This pattern is not changing, and no pipeline will change that.”

Secretary Pompeo said on Wednesday after meeting with UK Foreign Secretary Raab, “We stand together in condemning the confirmed poisoning of Alexei Navalny.  Any use of chemical weapons is unacceptable under any circumstances.”   Secretary Raab added, “There must be accountability for it, and we’ll work with all of our allies to that effect, and I think the Russian Government is duty-bound to explain what happened to Mr. Navalny through a full and transparent investigation.  I have to say from the UK’s point of view, very difficult to see any plausible alternative explanation to this being carried out by the Russian intelligence services, but certainly the Russian Government has a case to answer.”

While in Cyprus last weekend, Secretary Pompeo said he raised US concerns with Russia’s money-laundering activities and its regular port calls to the country.  He said:

We know that all the Russian military vessels that stop in Cypriot ports are not conducting humanitarian missions in Syria, and we asked to consider – we asked Cyprus and the president to consider our concerns.”

Meanwhile, the US Government sanctioned two Russian nationals on Wednesday for their involvement in a sophisticated phishing campaign in 2017 and 2018 that targeted customers of two US-based, and one foreign-based, virtual asset service providers, more commonly known as cryptocurrency exchanges.  Secretary of the Treasury Steven Mnuchin said of the action:

The Treasury Department will continue to use our authorities to target cybercriminals and remains committed to the safe and secure use of emerging technologies in the financial sector.”

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

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