Hi there from Washington, where the post-holiday lull sees the city’s authorities braced for a few more tumultuous days as pro-Trump supporters roll into town. Congress is expected to certify the electoral college results later on Wednesday. Political types — and indeed financial markets — are watching the vote counting for the Georgia senate run-offs, which looks as though it will leave the Democrats in control of the senate.
Our main column looks at what impact the new EU-China investment deal might have on the Biden administration, while our person in the news is Karen Pierce, the UK’s ambassador to the US.
Biden feels snubbed by EU, but may still co-operate
It’s a funny time in Washington DC right now. The lame-duck president is still ostensibly refusing to leave the White House, the mayor of the capital city has enlisted the assistance of the National Guard to help ward off any violence from pro-Trump rightwing groups, and all ten living former defence secretaries have published an unprecedented and slightly spooky letter reminding the Pentagon that carrying out illegal orders and aiding the subversion of democracy will be frowned upon. That’s before we even get to the coronavirus hospitalisation numbers and the new preoccupation with who will get the vaccine and when.
That might make you think trade types in Washington might’ve missed the EU’s unveiling of a long-awaited investment treaty with China, announced in the usually news-lite period between Christmas and New Year (and which Alan Beattie covered in Monday’s edition of Trade Secrets). They did not. The move was seen quite firmly as a snub to the incoming Joe Biden administration, which has pledged to work with Europe on pressuring Beijing to reform its economic and trade practices.
Jake Sullivan, Biden’s incoming national security adviser, put out a general appeal for the brakes to be put on this pact, but his plea went unheeded. At least two top senators — Republican Pat Toomey of Pennsylvania and Democrat Mark Warner of Virginia — also issued a plea for the EU to delay any agreement with China to give the new US administration a chance to weigh in. Crucially, they acknowledged the damage done to the US’s standing in the world by four years of a “go-it alone approach to trade”, which, they said, “diminished domestic economic growth, alienated longstanding allies, and undermined America’s global standing”. That’s a nod to one of Europe’s defences of its deal, which is that the US did not ask Brussels for permission before concluding its own mini-deal with China.
The pact clearly has geopolitical implications — most foreign-policy watchers see this as a ploy by Chinese leader Xi Jinping to undermine Biden’s efforts for western liberal democracies to face Beijing with a united front. It also hands a prize to China despite its crackdowns on democracy in Hong Kong, its incarcerations of Uighurs in Xinjiang, and its threats to Taiwan. Which possibly bolsters Beijing’s sense that economic relationships with it are so sought after that they are prioritised over human rights issues and other diplomatic concerns.
So far, so bad. But in practical terms, it is unlikely to change the Biden team’s plan of seeking Europe’s help. Even if they’re irked and frustrated by Europe’s apparent efforts to be as transactional and uncooperative with the new administration as Trump has been with the EU over the past four years. That’s because, when it comes to China, the US needs to co-ordinate with Brussels for its trade policy to be effective.
Take, for example, those elements of trade policy that ultimately serve national security interests, such as export controls on semiconductors. Washington has tried to choke off the supply of US tech to Chinese companies by adding those Chinese companies to its so-called “entity list”. This means US companies would need licences to export anything to companies on the list, threatening to cut off Chinese chipmakers from US software and equipment.
As we’ve written before — without seeking co-operation from Europe on things like this, the US could just end up hurting its own manufacturing interests (an argument the industry’s lobbyists push quite hard) without even meeting its national security ends. In a world of international supply chains, without international co-operation Chinese industry can buy the tech it’s excluded from elsewhere, which does nothing to keep potential military tech out of China’s hands. The US will also be keen to co-ordinate with Europe over applying tariffs on Chinese goods to ward off steel and aluminium dumping, reasoning that a joint approach shared among US allies will apply far more economic pressure on Beijing than a piecemeal one could.
It’s undeniable, though, that this is not a great start for hopes of repairing the transatlantic relationship. As we’ve previously said, there are many upcoming tough issues threatening to disrupt transatlantic harmony. China was supposed to be the big unifying force. So much for that. And as Tom Wright, a Europe expert at the Washington-based Brookings Institution points out, the Biden team is not legally allowed to substantively engage with the EU or any foreign government during a transition period, which means the EU will probably not directly hear of the Biden team’s disgruntlement until later this month.
So what next? Well, the Biden team will probably proceed as was planned before this all kicked off. But they may be a little more careful, and a little less secure in the idea that — with Trump gone — Europe will be glad to co-operate with them on China, than they were before this pact was signed.
Person in the news
Karen Pierce, the UK’s ambassador to the US, is our person in the news this week. Pierce, a career diplomat who took on the role in 2020, gave an interview to Bloomberg Television last week in which she was optimistic about the UK reaching a favourable trade deal with the US.
She also told the broadcaster that the UK and US would need to collaborate to counter strategic threats emanating from Moscow and Beijing. With the news on the EU’s investment treaty with China rankling with trade types in Washington, this might be music to the incoming Biden administration’s ears. The UK has been willing to take a much tougher stance on national security issues involving China, most notably on Huawei, than some of its European counterparts, such as Germany.
The food and drink industry has raised serious concerns about the new EU-UK trade deal because businesses face punitive tariffs on goods from the bloc processed at British distribution hubs that are re-exported to member states.
Car companies in Europe and China are using ever more rhodium to meet tougher clean-air legislation, at the same time as supply from South Africa, the biggest producer, has been disrupted by the spread of Covid-19, leading to a dramatic rally in the niche metal.
In light of the crackdown on Alibaba, the Financial Times editorial board cautions that, by being too heavy-handed towards Ant, regulators risk being seen to be targeting the private sector as a whole, as well as the sanctity of private property rights. It would, the piece argues, be a setback for China’s economic development in the longer-term if the private sector were to fall victim to a political drive to entrench the state.
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Marine Le Pen falls short in French regional vote
Marine Le Pen’s far-right Rassemblement National party fell short of expectations in the first round of France’s regional elections on Sunday, leaving the Les Républicains party and other centre-right politicians in a strong position for the second and final set of ballots next weekend.
The relatively poor results for the anti-immigration RN — in a record low turnout of about 33 per cent — will also provide some comfort for Emmanuel Macron, who is expected to face Le Pen when he seeks re-election as president next year.
Le Pen described the low turnout as a “civic disaster” that gave a false impression of the political situation. “If you want things to change, you must vote,” she said in a short speech as the results began to emerge.
Xavier Bertrand, the centre-right leader of the Hauts-de-France region in the north, was on course for re-election and received a boost to his own presidential ambitions, with early estimates from BFMTV after polls closed giving him 44 per cent of the vote, against 24.4 per cent for Le Pen’s RN.
Recalling that the RN had been ahead in the region after the first round in 2015, Bertrand boasted in a speech of “breaking the jaws” of his far-right rivals in this year’s electoral battle. Le Pen had campaigned in the north and hoped to flip the region to her party in Sunday’s vote.
Early estimates suggested that Le Pen’s party might be within reach of a first-round lead in Provence-Alpes-Côte-d’Azur in the south. But even there the performance was less impressive than predicted by opinion polls, which had suggested the RN would take control of the region after the second round in the first such victory in its history.
That now looks less easy to achieve for the RN, since other parties have in the past tended to unite in a so-called “republican front” in second-round votes to keep the extreme right from power.
Nationwide, centre-right lists were forecast to receive about 29 per cent of the votes cast in the first round, against 19 per cent for the RN, 16 per cent for the Socialist party, 13 per cent for the Greens and 11 per cent for Macron’s centrist La République en Marche party.
Incumbent parties performed well, with LR politicians in the lead in the Grand Est region in the east, Auvergne-Rhône-Alpes in the south-east and Ile-de-France around Paris. The Socialists expected to hold Occitanie and Brittany in the west.
Gérald Darmanin, interior minister, said the record low turnout was “particularly worrying”, adding: “Our collective effort must be to mobilise the French for the second round.”
The low turnout did not fulfil the fears of Macron’s ally François Bayrou by benefiting the extreme right or the extreme left, and may have been the result of voter weariness with politics and a desire to enjoy themselves after more than a year of the Covid-19 pandemic.
“The French have their minds on other things completely,” Brice Teinturier of polling group Ipsos told a webinar last week. “We are coming out of the pandemic . . . and the outlook for the economy is getting much better.”
Delta variant begins to spread, threatening EU’s Covid progress
The Delta coronavirus variant that swept the UK has become dominant in Portugal and appeared in clusters across Germany, France and Spain, prompting European health officials to warn further action is needed to slow its spread.
While the new strain, which first emerged in India, still only accounts for a fraction of the total coronavirus cases in mainland Europe, it is gaining ground, according to a Financial Times analysis of global genomic data from the virus tracking database Gisaid. It accounts for 96 per cent of sequenced Covid-19 infections in Portugal, more than 20 per cent in Italy and about 16 per cent in Belgium, the FT’s calculations show.
The small but rising number of cases have raised concerns that the Delta variant could halt the progress the EU has made over past the two months in bringing new infections and deaths down to their lowest level since at least the autumn.
“We are in the process of crushing the virus and crushing the pandemic, and we must in no way let the Delta variant get the upper hand,” France’s health minister, Olivier Véran, told reporters at a Paris vaccination centre on Tuesday.
Véran said that 2 per cent to 4 per cent of virus samples being analysed in France were showing as the Delta variant: “You might say this is still low but it is similar to the situation in the UK a few weeks ago.” The FT’s analysis of Gisaid’s data suggests this figure could be higher.
In Portugal, community transmission of the variant has been detected in the greater Lisbon area, where more than 60 per cent of the country’s new coronavirus cases in the past week have been identified. Non-essential travel to and from the city has been banned in an effort to prevent the spike in cases spreading to the rest of the country.
Scientists across the continent are now looking to the UK — where Covid-19 cases have tripled in the past month and the Delta variant accounts for about 98 per cent of all new infections — for clues about what may happen next and which measures may need to be taken.
After official data showed the Delta variant appeared to increase the risk of hospitalisation by 2.2 times compared with the Alpha variant, the UK government this week imposed a one month delay to the removal of its remaining coronavirus restrictions.
“The decisions the UK makes to reopen life and society will serve as a laboratory for us in Europe,” said Bruno Lina, a virologist in Lyon who advises the French government and helps co-ordinate variant sequencing in the country.
Whether the clusters of Delta infections peppering the EU turn into bigger outbreaks will depend in part on how many people have been fully vaccinated, scientists said, as well as people’s behaviour now that many restrictions on life and business are being lifted.
Recent UK government research has highlighted the need to complete vaccination programmes as quickly as possible. According to data gathered by Public Health England, the first dose of a Covid-19 vaccine is generally less effective against the Delta variant than with the previous strains. Two doses increases protection against symptomatic infection with Delta from 33 per cent to 81 per cent.
While in the UK about 46 per cent of the population has been fully immunised, vaccination rates in most countries in mainland Europe are hovering at between 20 per cent and 30 per cent. About 26 per cent of the population in France has been fully vaccinated.
French authorities are currently trying to contain an outbreak in the Landes region, near the Spanish border, where 125 cases of the Delta variant have been confirmed by genetic sequencing and another 130 are suspected, representing about 30 per cent of recent infections in the area. Clusters of the Delta variant have also been identified in recent weeks in the southern suburbs of Paris and an art school in Strasbourg.
In each case health officials have responded with the same formula: increased contact tracing and a renewed push to vaccinate people in the affected areas.
“If we keep vaccination going at a good pace, and some non-pharmaceutical interventions like masks indoors, we can still repress the circulation of the virus this summer,” said Lina, the French virologist. “This variant will displace the other ones — we must keep that in mind — but it doesn’t mean that it will lead to a new epidemic wave.”
Some scientists fear the Delta variant may have already spread further but gone undetected given that less of the genomic sequencing needed to identify variants has been completed in mainland Europe. While the UK has sequenced more than 500,000 Sars-Cov-2 genomes, Germany, France and Spain have sequenced about 130,000, 47,000 and 34,000 respectively.
“It’s costly, it’s time consuming and it was neglected,” said Antoine Flahault, director of the Institute of Global Health at the University of Geneva.
Denmark, however, has sequenced a high proportion of cases and still only identified a small number of Delta infections, even though the variant arrived in the country at approximately the same time as in the UK.
This could be explained partly, experts said, by differences in demographics and movement, including the number of cases imported into the country from regions with a high prevalence, such as India, and the living conditions in the communities into which it is seeded.
The difference in the pace of Delta’s spread across European countries remained “a little bit of a mystery”, said Jeff Barrett, director of the Covid-19 Genomics Initiative at the Wellcome Sanger Institute in Cambridge.
Still, many experts believe that wherever the Delta variant is introduced, it will eventually become dominant. The key, they say, will be to increase the proportion of fully vaccinated people, while slowing transmission of the virus as much as possible.
“We have to keep the messaging very clear,” said Lina in Lyon. “This is not over.”
Additional reporting by Daniel Dombey, Peter Wise, Guy Chazan and Clive Cookson
EU fails in legal bid to speed up AstraZeneca vaccine supply
The EU has lost a legal bid to force AstraZeneca to speed up delivery of Covid-19 vaccines or risk billions of euros in fines, the latest round in a bitter battle between the bloc and the UK-Swedish pharmaceutical company.
In a ruling on Friday, a court in Brussels criticised AstraZeneca for a “serious breach” of its contract with the EU after repeated shortfalls but refused to impose a new schedule demanded by Brussels that would have required the company to deliver 120m doses by the end of June or pay fines of €10 per dose per day.
The dispute between the European Commission and AstraZeneca has severely damaged the company’s standing on the continent and in February spiralled into a diplomatic row when Brussels threatened to exercise an emergency provision of the Brexit deal to stop vaccines entering the UK via Northern Ireland.
The Brussels court ruled that AstraZeneca should provide 80m doses by the end of September. However, in practice this should have no impact on AstraZeneca, which has already delivered 70m doses and plans to provide the remaining 10m before the end of this month.
The commission insisted that the court judgment would nonetheless put pressure on AstraZeneca because it had “laid the tracks for the delivery of future doses on the basis of clear contractual principles”, including supply from British manufacturing sites.
“The company will have to follow these tracks and it can no longer argue that it cannot use the UK plants for the production of vaccines for the European Union,” the commission said.
The ruling found that the pharma company’s failure to send the EU vaccines manufactured in the UK was inconsistent with making the “best reasonable efforts” on supply required by its contract. But it did not order AstraZeneca to use UK production to fulfil the EU order.
A UK plant operated by Oxford BioMedica is nonetheless expected to start manufacturing for the EU, according to a person familiar with the matter.
AstraZeneca was originally expected to supply up to 300m doses to the EU in the first six months of this year but that forecast was cut sharply after production problems.
With the pace of the EU’s vaccine rollout improving, using mainly Pfizer/BioNTech and Moderna jabs, and some countries imposing restrictions on the AstraZeneca vaccine after the discovery of rare blood clots, there is less practical need for the doses.
Jeffrey Pott, AstraZeneca’s general counsel, said: “AstraZeneca has fully complied with its agreement with the European Commission and we will continue to focus on the urgent task of supplying an effective vaccine, which we are delivering at no profit to help protect people in Europe and around the world from the deadliest pandemic in a generation.”
Ursula von der Leyen, president of the commission, said: “This decision confirms the position of the commission: AstraZeneca did not live up to the commitments it made in the contract. It is good to see that an independent judge confirms this.”
The court is due to hold hearings in September on a second case brought by the Commission seeking judgment on whether AstraZeneca failed in its duty to deliver on the supply contract.
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