Transatlantic Trade: US and European Trade Talk Update



Stacy Swanson, Christina Economides, Laura Delap and Ludmilla Kasulke | Capital Thinking Blog

The United Kingdom (UK) unveiled its new human rights sanctions regime this past week, along with its first designations.  The United States (US) welcomed the action, and some US lawmakers continue to urge the European Union (EU) to adopt a similar regime.  Meanwhile, the EU moved forward with its trade policy review, with some seeking to provide the bloc with additional leverage in trade negotiations.  US Trade Representative Robert Lighthizer spoke this week of transatlantic relationships and other trade matters, including the World Trade Organization (WTO) and the Director-General selection process.  EU-UK talks continue to struggle, with some possible WTO concerns surrounding Britain’s impending full border control plan, which is due to be released this coming week.

UK’s “Magnitsky” Regime Debuts

On 6 July, British Foreign Secretary Dominic Raab gave a Commons statement unveiling the United Kingdom’s new Global Human Rights Sanctions regime and announcing designations related to those involved in human rights abuses.  He stated,

 As we forge a dynamic new vision for a truly Global Britain, this government is absolutely committed to the United Kingdom being an even stronger force for good in the world: . . .  And on human rights, we will defend media freedoms, protect freedom of religion and, with the measures we are announcing and enacting today, hold to account the perpetrators of the worst human rights abuses.  . . . The first designations will cover those individuals involved in the torture and murder of Sergei Magnitsky, the lawyer who disclosed the biggest known tax fraud in Russian history.  The designations will also include those responsible for the brutal murder of the writer and journalist Jamal Khashoggi.  They will include those who perpetrated the systematic and brutal violence against the Rohingya population in Myanmar, and they also include 2 organisations bearing responsibility for the enslavement, torture and murder that takes place in North Korea’s wretched gulags, in which it is estimated that hundreds of thousands of prisoners have perished over the last 50 years.” 

The UK regulations allow for the imposition of travel bans and asset freezes against those involved in serious human rights violations.  This includes (1) the right to life, threatened by assassinations and extra-judicial killing; (2) the right not to be subjected to torture or cruel, inhuman or degrading treatment or punishment; or (3) the right to be free from slavery, servitude or forced or compulsory labour.  The UK Government can also target those who facilitate, incite, promote, or support these crimes, extending beyond state officials to non-state actors.

On 7 July, Senators Benjamin Cardin (D-Maryland) and Roger Wicker (R-Mississippi), co-Chairs of the Helsinki Commission, issued a joint statement commending the United Kingdom for its designations under its sanctions framework of Russian and Saudi officials responsible for the deaths of Sergei Magnitsky and Jamal Khashoggi, respectively.  They noted,

We are encouraged to see the United Kingdom applying its first-ever independent Magnitsky sanctions. These sanctions demonstrate that following Brexit, the UK remains committed to fighting human rights abuse and kleptocracy.  We hope the UK will continue to apply Magnitsky sanctions as needed and develop additional anti-corruption policies to stem the flow of illicit wealth into the country. We also encourage the European Union to move forward on plans to develop its own Magnitsky sanctions. Consequences for bad acts are most effective when imposed in concert.”

In May 2020, Senators Cardin and Wicker urged US Secretary of State Mike Pompeo to ask EU High Representative Josep Borrell to expedite the EU’s adoption of a Magnitsky regime that would impose sanctions on human rights abusers and include provisions for sanctioning corruption.  Senator Cardin is the author of the Global Magnitsky Human Rights Accountability Act, which expanded Russia-specific sanctions in the Sergei Magnitsky Rule of Law Accountability Act to apply globally, making “gross violations of internationally recognized human rights” and “significant” acts of corruption sanctionable offenses in the United States.

EU Approach on Trade Policy Review

European Commissioner for Trade Phil Hogan held an exchange of views with the International Trade Committee of the European Parliament on Monday, 6 July.  As previously reported, the Commission published a consultation note on 16 June, announcing the launch of its review of the EU’s trade and investment policy.  Within this new approach, the European Commission is suggesting an “open strategic autonomy” as the new trade strategy of the European Union.  The Committee in general welcomed the European Commission’s plans, particularly on the new “open strategic autonomy” approach.

Meanwhile, the European Parliament’s Committee is more keen to expand the EU’s options to defend its trade interests.  On Monday, it voted on the proposal for a Regulation on the exercise of the Union’s rights for the application and enforcement of international trade rules.  This proposal for a Regulation is particularly relevant, especially vis-à-vis the US, as it would determine the EU’s enforcement powers to introduce retaliatory measures of trade matters (e.g. tariffs on goods).  The European Parliament envisions a more ambitious approach, where the EU would move beyond retaliation on goods and would extend such retaliatory measures (e.g. tariffs) to services and intellectual property (IP) rights (key US exports).  This approach could prove to be harmful to US tech companies operating in Europe, as well as other US companies whose core business relies on services and IP.

The European Parliament’s Rapporteur for the file, Marie-Pierre Vedrenne, believes introducing a services and IP component into the negotiations would bring “more weight” in the future negotiations.  She also stated, “any retaliatory measures have to be totally targeted and proportional. The US does this very well, we should too. Their impact should be maximal and the effect on our citizens minimal.”  The proposed Regulation will soon enter the stage of inter-institutional negotiations, with the European Commission and the Council of the EU, which adopted its position in April 2020.

Ambassador Lighthizer’s Transatlantic Trade Comments

On Thursday, 9 July, US Trade Representative Robert Lighthizer suggested a path forward to resolving the long-standing large civil aircraft dispute needs to include the EU paying back some of subsidies it paid decades ago with respect to Airbus.  During an online moderated conversation hosted by Chatham House, Ambassador Lighthizer said, “It’s going to require commitments not to do it again, but also paying back some element of the subsidy and that’s tricky because people don’t have the same number.” 

Ambassador Lighthizer was positive about progress in the ongoing US-UK trade negotiations.  “We expect to have all the text laid down, which is really when you start focusing on things.”  He added, “I am optimistic we’ll have an agreement in due course. These things normally take a long time. We’re trying to do it as quickly as we can.”  The Ambassador also acknowledged that some “very, very significant issues” remain to be addressed.

During the discussion, Ambassador Lighthizer challenged the co-existence of bilateral and multilateral trade agreements, arguing there should just be one system that is either a multilateral system or one based on a bunch of bilateral free trade agreements, but not both.  Referencing the EU, the Ambassador stated, “But going all over the world and basically trying to get an edge on everyone in 77 bilateral deals, I would suggest that’s a real challenge to the trade system.”  He added, “It’s never what was intended. And it’s Europeans acting in a very protectionist and anti-multilateral way.”

His comments on the US-EU trade negotiations were not encouraging, with him confirming only a limited trade deal is being discussed at this time.  He furthermore suggested an avenue of collaboration, saying, “what is needed is probably some kind of coalescing around ways to fix the WTO and reset the things that I talk about, which is to say stop this [free trade agreement] business, reset tariffs.”  He reiterated, “Europe is probably the leading anti-multinational force in the world right now on the issue of standards.”

Ambassador Lighthizer also addressed France’s digital services tax (DST), noting, “We’re going to announce that we’re going to be taking certain sanctions against France, suspending them like they’re suspending collection of the taxes right now.”  He added, “And now we have Europe wanting to do it and a bunch of other countries.  We started 301 investigations on about a dozen of them. So that’s the state of the play.” 

Meanwhile, on Friday, 10 July, the Office of the US Trade Representative (USTR) released an updated list of duties on 25% of French goods worth approximately US$1.3 billion related to France’s DST law.  USTR also noted it would delay implementation of the levies for up to 180 days (6 January 2021), since France has not yet started collecting its digital tax.  Notably, the list does not include wine and cheeses – which had been on the Trump Administration’s initial proposed list – and instead focuses on French makeup, soap and handbags.  French Finance Minister Bruno Le Maire said in Brussels on Friday, “If there is no international solution by the end of 2020, we will, as we have always said, apply our national tax.”  Le Maire added, “We call on the U.S. to return to the OECD [The Organisation for Economic Co-operation and Development] negotiations on taxing digital giants.” 

With respect to the WTO Secretary-General selection process, Ambassador Lighthizer affirmed during the Chatham event that WTO reform remains a top priority for the United States in choosing the body’s next leader.  He stressed the next leader needs to understand the WTO, as currently structured, cannot effectively deal with China, adding, “the second-largest economy in the world … is state capitalism.”  He declined to comment on Liam Fox’s candidacy.

WTO Director-General Selection Process

Former British International Trade Secretary Liam Fox has been nominated by the UK for the position of the Director -General of the WTO.  The UK aspires to bring fresh ideas in the international trade debate before it is too late”such as using trade as a means to promote peace and human progress.  However, UK International Trade Secretary Liz Truss expressed caution with the nomination, warning Prime Minister Boris Johnson that Britain could face a legal challenge from the WTO regarding its post-Brexit border plan.  A new border regime established in a post-transition environment could put the UK in a vulnerable position, particularly on issues such as the differences in tariff controls between Great Britain and Northern Ireland, according to Truss.

Other candidacies for the coveted WTO Director-General position include:  Ngozi Okonjo-Iweala (Nigeria), Hamid Mamdouh (Egypt), Amina Mohamed (Kenya), Yoo Myung-hee (Korea), Jesús Seade (Mexico), Tudor Ulianovschi (Moldova), and Mohammad bin Maziad Al-Tuwaijri (Saudi Arabia).  The last day to announce candidates for the position was 8 July.  While European Trade Commissioner Phil Hogan had previously announced his decision to be a candidate, on 29 June he withdrew from the selection process.

On 10 July, General Council Chair David Walker (New Zealand) announced timelines for the next phases in the selection process to choose a successor to departing Director-General Roberto Azevêdo.  According to the WTO, “Under normal circumstances, the second phase of the process in which the candidates ‘make themselves known to members’ would take three months.  But following his discussions with members it has been agreed that the phase two ‘campaigning’ phase will be shortened by one month and will expire on 7 September.”   The third phase of the process is to last no more than two months, which means a new Director-General could be announced either ahead of or just days after the US presidential and congressional elections conclude (3 November).

EU-UK Trade Talks

Last week’s EU-UK negotiations concluded rather abruptly with UK Chief Negotiator David Frost noting “significant differences” remain.  European Trade Commissioner Hogan believes the UK needs to demonstrate more ambition if it seeks to secure a post-Brexit deal with the EU ahead of the transition period at the end of the year.  According to Commissioner Hogan, the UK’s perceived “lack of ambition” has led to “very little” progress; he reiterated that despite the EU’s effort to advance the negotiations “the ball is in the UK’s court”.

Informal talks between the EU and UK resumed on Tuesday evening.  The talks wrapped on Thursday with “significant divergences” remaining.  It seems UK International Trade Secretary Truss’ warning about a possible WTO legal challenge stemming from the post-Brexit border regime has spotlighted significant tensions in the UK Government with respect to its future trading relations.  A leaked letter written by Truss highlighted the “key areas of concern on border policy risks” include a lack of sufficient border controls, failures in tariff management and differences in the Northern Ireland regime – all of which could factor into a possible WTO challenge.

The UK Government plans to publish its full border control plan on 13 July.  According to a presentation by the EU Chief Negotiator to the House of Lord meeting last month, the EU will introduce full border checks with the UK from 1 January 2021, irrespective of the outcome of the current talks on the future relations.  The UK will follow suit with a six-month delay.

On Thursday, the European Commission published guidelines for business, governments and citizens to prepare for the new situation between the EU and the UK after the end of the transition period.  The 35-pages document outlines expected changes in multiple scenarios, whether there is an agreement on the future partnership or not.  It covers issues such as trade in goods and adjacent custom issues, trade in services, energy, mobility issues, energy, company and civil law and many others.

Frank SamolisMatthew Kirk and Wolfgang Maschek provided insights for this report.

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