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Global Policy Watch

Key Public Policy Developments Around the World From Covington & Burling LLP

What’s New in the TPP’s Intellectual Property Chapter

Posted in Intellectual Property Protection, International Strategy, Trade Agreements

Note: This post is the third in a series of posts on the final text of the Trans-Pacific Partnership (TPP) by Covington’s International and Public Policy lawyers.  The final TPP text, which was released on November 5, 2015, is available here.  TPP is not expected to enter into force until at least 2016, with the timeline dependent on the pace of ratification by member states.  In the United States, this means first securing Congressional approval, after the Agreement is signed by the President, pursuant to the requirements set forth under recently enacted Trade Promotion Authority (TPA).

One of the primary U.S. trade negotiating objectives, as set forth in TPA, is “to further promote adequate and effective protection of intellectual property [IP] rights.”  Free trade agreements (FTAs) to which the United States is a party therefore traditionally include robust IP protection and enforcement obligations.  The final text of the TPP’s IP chapter remains broadly consistent with other U.S. trade agreements.  However, the chapter does include some new, different, and in some cases controversial obligations and limitations.

Pursuant to Article 1.2 (Relation to Other Agreements), TPP obligations are to “coexist” with “existing agreements.”  Because the United States already has FTAs in place with six of the other eleven TPP countries – Australia, Canada, Chile, Mexico, Peru, and Singapore – it is important to read the TPP’s IP chapter in light of the IP chapters in these prior agreements when seeking to evaluate the scope of IP commitments between these countries and the United States.  In addition, the TPP IP chapter includes four country-specific annexes (related to obligations for Chile, Malaysia, New Zealand, and Peru), two annexes clarifying obligations related to Internet Service Providers, and thirteen separate side letters between the United States and other negotiating partners.  The IP chapter also sets out transition periods for a number of countries to comply with certain IP obligations.

IP Protections

Trademarks and Geographical Indications

In general, TPP clarifies and in some cases strengthens protections for brand owners.  TPP provides broad trademark protections, including for sounds, collective marks, and certification marks, as well as specific procedural protections for trademark owners.  In addition, TPP requires Parties to provide for “appropriate measures” to refuse or cancel  trademark registrations if the use of that trademark is likely to cause confusion with an identical or similar well-known trademark.

With respect to domain names, TPP goes beyond previous U.S. FTAs by: providing greater specificity on the elements of an appropriate procedure to settle disputes; requiring that TPP members provide online public access to databases concerning domain-name registrants, consistent with “relevant administrator policies regarding protection of privacy and personal data”; and requiring “appropriate remedies,” at least in cases of cybersquatting with a bad faith intent to profit.

TPP also includes extensive provisions to improve the current level of protections for the use of common food names and to discourage the registration of inappropriate geographical indications designations.  There also are a number of side letters with countries that may be considering new commitments related to geographical indications in other trade agreements.


TPP affirms long-standing international obligations to grant patents in all fields of technology for inventions that are “new,” involve “an inventive step,” and are “capable of industrial application.”  Subject to certain exceptions, TPP clarifies that Parties must also make patents available for “at least one of . . . new uses of a known product, new methods of using a known product, or new processes of using a known product.”

TPP also requires the Parties to provide for patent term adjustment to compensate for “unreasonable delays” in a Party’s issuance of patents.  “Unreasonable delay” is defined to “at least” include more than five years from patent application filing in the territory of the Party or three years from a request for examination of the application, whichever is later.  As a point of comparison to other U.S. trade agreements, the TPP rule is consistent with the U.S.-Chile FTA, while the U.S.-Australia FTA defined “unreasonable delay” as a delay in grant of four years after filing or two years from the request for examination.

Undisclosed Test or Other Data

With respect to pharmaceuticals, the Agreement requires that undisclosed test or other data submitted for marketing approval of a new pharmaceutical product shall be protected for “at least five years” from the date of such approval “in the territory of the Party.”  A “new pharmaceutical product” is defined as “a pharmaceutical product that does not contain a chemical entity that has been previously approved in that Party”.

TPP is also the first U.S. trade agreement to include an explicit reference to protection for biologics.  In particular, the Agreement provides that a Party provide “at least eight years” of protection “from the date of first marketing approval of that product in that Party” or for a period of “at least five years from the date of first marketing approval of that product in that Party”,  and “through other measures”, to “deliver a comparable outcome in the market.”  These provisions have been criticized as falling short of the TPA requirement that IP provisions in U.S. trade agreements reflect a “standard or protection similar to that found in United States law.”

With respect to agricultural chemical products, ten years of protection is provided.  A “new agricultural chemical product” is defined as “one that contains a chemical entity that has not been previously approved in the territory of the Party for use in an agricultural chemical product.”


TPP requires that Parties provide a minimum term of protection for copyrighted works of life-plus-70-years, with caveats for New Zealand (which is provided an eight year transition period with certain exceptions) and Japan (pursuant to its side letter with the United States).  While this 70-year term is consistent with some of the United States’ more recent FTAs, it goes beyond other international agreements, including NAFTA.  TPP also mandates that Parties adopt or maintain laws requiring central governments to use only non-infringing software.

As in previous agreements, TPP affirms the internationally-recognized “3-step test” for copyright  exceptions and limitations.  The TPP also includes a provision, based on a 2012 USTR proposal, stating that the Parties “shall endeavor to achieve an appropriate balance” in copyright, “giving due consideration to legitimate purposes such as, but not limited to: criticism; comment; news reporting; teaching, scholarship, research, and other similar purposes”.  TPP further explains that “[f]or greater certainty, a use that has commercial aspects may in appropriate circumstances be considered to have a legitimate purpose.”

Consistent with prior U.S. FTAs, the TPP’s provisions on technological protection measures (TPMs) require TPP members to provide measures that prevent circumvention of TPMs while permitting exceptions in order to enable non-infringing uses.  In addition, similar to prior U.S. trade agreements and consistent with the U.S. Copyright Act, TPP includes detailed provisions related to limitations on Internet Service Provider (ISP) liability while also seeking to address online copyright infringements effectively.  TPP expressly provides that eligibility for these liability limitations “shall not be conditioned on the [ISP] monitoring its service or affirmatively seeking facts” of infringement.  Several annexes relating to these provisions, however, provide certain clarifications relating to the application of the TPP rules in certain countries.

Trade Secrets

TPP provides the most robust trade secret protections of any U.S. FTA, including by providing protections against unauthorized disclosures to or by “state-owned enterprises.”  It is also the first such agreement to require criminal penalties for trade secret theft, including cyber-theft.  However, the Agreement also allows Parties significant latitude to impose limitations on the availability of such remedies.

IP Enforcement

Building upon the IP enforcement commitments in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and later agreements, TPP requires member countries to provide a range of IP enforcement mechanisms, including civil and administrative procedures and remedies, provisional measures, border measures, and criminal procedures and penalties.  Obligations of note include:

Criminal seizure authority:  TPP permits seizure not only of infringing products but also of “assets derived from, or obtained through, the alleged infringing activity”.

Statutory and additional damages:  TPP requires parties to provide pre-established and/or “additional” damages” for copyright infringements and trademark counterfeiting.  This commitment goes beyond some of the United States’ older trade agreements, including NAFTA, and TRIPS.

Ex officio border measures:  TPP Parties are required to allow the initiation of border measures ex officio with respect to suspected counterfeit trademark or confusingly similar trademark or pirated copyright goods that are imported, destined for export, or in transit.  In the alternative, with respect to goods in transit, the Agreement provides that Parties shall “endeavour to provide” … available information regarding  goods “transhipped through its territory and destined for the territory of the other Party, to inform that other Party’s efforts to identify suspect goods upon arrival in its territory.”

Enforcement in the digital environment:  TPP is also the first U.S. FTA to clarify that most of these enforcement measures (except for border measures) are available “in the digital environment.”

Criminal penalties:  TPP makes criminal penalties mandatory for infringements that are done “willfully and for purposes of commercial advantage or financial gain.”  TPP is also only the second U.S. FTA to include obligations related to unauthorized camcording in theaters, by requiring that “each Party shall adopt or maintain measures, which shall at a minimum include, but need not be limited to, appropriate criminal procedures and penalties.”  Similar to other U.S. FTAs, TPP requires criminal and civil penalties against the interception of encrypted program-carrying satellite signals, as well as against the manufacture or distribution of equipment for that purpose.  TPP goes beyond existing FTAs with TPP parties by also providing for criminal or civil penalties against the interception of encrypted program-carrying cable signals, as well as against the manufacture or distribution of equipment for that purpose.



High Wire Balancing Act in Paris Climate Talks

Posted in Energy Law, Environmental Law, International Strategy

The president and his climate negotiating team seem most like the high-wire artist Philippe Petit, who improbably strung a wire between the towers of the World Trade Center and mustered reserves of guts and grace— leavened by intense focus, preparation, and a mild amount of lunacy— to walk between the twin towers.

In order for there to be a successful Paris climate outcome, the administration must likewise achieve a magnificent balance. It must demonstrate  aggressive U.S. leadership and commitments to inspire other nations to join suit, so that there will be a truly global solution to this global problem. Yet it cannot be so tough that it deters other nations from similarly following suit.

The United States must promote a bottom-up system that flexibly accommodates the circumstances of individual countries, yet it cannot allow so much flexibility that there is no realistic hope of actually bettering the climate situation. It must accomplish an agreement that is legally binding to be meaningful, yet not prove to be so rigid that it falls of its own weight.

Our negotiators must commit to a robust and comprehensive international program addressing emissions mitigation, adaptation to the already locked-in effects of climate change, and assistance for climate-impacted poor nations, yet not do something that is seen domestically  as foolhardy by taking on too great a comparative burden, given the level of growing emissions in countries such as China and India and the degree to which that approach doomed the Kyoto Protocol. It must seek a solution now, even if the trajectory may need to grow more stringent over time.

And it perhaps may try to do all of this within the confines of existing legal authority, so as to avoid the need for implementing legislation that could doom participation by the United States — and the prospect for a meaningful global agreement — if there were a ratification fight before an impossibly divided Congress.

There are three tests by which I suggest we evaluate the success of any agreement:

First, does it prove to be enduring? Can the administration build enough momentum globally, domestically, and with private-sector companies, who see cost-effective compliance options and new clean energy business opportunities, so that its continuance remains inevitable and that it is just too damaging for a new administration to back away from?

Second, does it embrace a common global vision — the stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system — and give a directional sense to the emissions goal. This all needs to be bounded by meaningful science, and a process for updating individual national commitments, with sufficient transparency around individual country goals and their implementation that there is a realistic hope that these goals can be met over time and the worst climatic impacts avoided.

This process of continuous refinement  is akin to the Clean Air Act’s long-standing process for continuously updating the fundamental National Ambient Air Quality Standards and is a structure with which U.S. lawmakers and regulated industries should be very comfortable. It is more like what John Dingell once referred to — on the domestic front— as a “glorious mess” than would be the top-down, more predictable, streamlined, rigid, and compulsory approach of the ultimately unsustainable Kyoto Protocol.

Third, is it truly international, with shared commitments that seem equitable given the world’s growing energy demands?

Few could have foreseen, just months ago, the enormous progress that U.S. negotiators have made in the ramp up to the Paris Conference of the Parties. The enrollment of national goals by the major emitting nations already demonstrates that there can be a global response to this challenge. The idea that China will implement a cap-and-trade program, that it has committed to a green energy dispatch approach, and that it has committed to the growth of renewables equivalent to the entire existing electricity market in the United States is breathtaking.

Likewise, U.S. negotiators come armed with an ambitious and finalized utility-sector Clean Power Plan, aggressive vehicle fuel efficiency standards, and much progress in reducing building-sector emissions— thereby demonstrating the depth of the U.S. commitment to progress across all of our major sources of greenhouse gas emissions.

All of this is not to say — just as Philippe Petit had to contend with the initial challenge of how to string the wire — that this magnificent balance will be achieved with ease or grace. Senate Foreign Relations Committee Chair Bob Corker recently questioned the State Department’s approach to Senate consultation over any Paris agreement. And the overall enterprise seems to be coming up short on commitments. Success should not be judged alone by what happens in Paris, but by the degree to which that balancing act inspires even further and enduring efforts.


This piece originally appeared in Environmental Law Institute’s (www.eli.org) Forum Magazine, November/December 2015.

The Trans-Pacific Partnership Investment Chapter: Maintaining Important Protections for U.S. Investors Overseas

Posted in Trade Agreements

Note: This post is the second in a series of posts on the final text of the Trans-Pacific Partnership (TPP) by Covington’s International and Public Policy lawyers.  The final TPP text, which was released on November 5, 2015, is available here.  TPP is not expected to enter into force until at least 2016, with the timeline dependent on the pace of ratification by member states.  In the United States, this means first securing Congressional approval, after the Agreement is signed by the President, pursuant to the requirements set forth under recently enacted Trade Promotion Authority (TPA).

The final text of the TPP’s Investment Chapter remains broadly consistent with other U.S. investment agreements and includes some important new language that is consistent with the model bilateral investment treaty (the U.S. Model BIT) issued by the U.S. State Department in 2012 after wide-spread consultation among stakeholders.  The Investment Chapter has meaningful protections (with some notable exceptions) for U.S. investors in the Asia-Pacific region, and establishes a workable and transparent investor-state arbitration system for the enforcement of such protections.

Core Investment Protections

The TPP preserves core protections against nationality-based discrimination against investors (Articles 9.4 and 9.5), uncompensated expropriations (or takings) of investments (Article 9.7), and treatment of investments and investors that runs afoul of the obligation to provide fair and equitable treatment and full protection and security (Article 9.6).  Consistent with the U.S. Model BIT,  the fair and equitable treatment obligation “prescribes the customary international law minimum standard of treatment of aliens.”[1]  In general, the provisions articulating these protections align with existing U.S. agreements and do not introduce new norms.

In TPP’s Exceptions Chapter, the self-judging “essential security” provision found in the U.S. Model BIT also is included in the TPP.  Under this provision, “[n]othing in [the] agreement shall be construed to . . . preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to . . . the protection of its own essential security interests” (Article 29.2, emphasis added).

The TPP also includes explicit language confirming that the Investment Chapter does not interfere with a Party’s ability to adopt measures that are otherwise consistent with the Chapter that “it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives” (Art. 9.16).

Investor-State Arbitration Procedures

The TPP permits investors to arbitrate disputes with member states for breaches of the core protections summarized above, and it contains extensive procedural provisions related to such investor-state arbitral proceedings.  In general, these provisions track existing best practices, but in some respects they are novel.

Notably, and atypically, the TPP requires investment tribunals to share their decisions with litigating parties (if requested to do so) before they are finalized, allowing the parties an opportunity to comment on draft arbitration awards (Art. 9.22(10)).  This requirement is surprising in a non-state-to-state dispute context, and will add up to three-and-a-half months of delay to an already lengthy arbitral process.

The TPP also introduces several other procedural provisions not found in older BITs, including provisions: requiring public access to hearings and documents; permitting amicus submissions; establishing a procedure for expedited dismissal of frivolous claims; and permitting TPP members to issue binding joint interpretations of the Investment Chapter.  These provisions appear consistent with existing or evolving practices in other fora.  For example, the 2014 UNCITRAL Transparency Rules favor public access to arbitral proceedings, and state parties to treaties such as the North American Free Trade Agreement have issued joint interpretations of those treaties (although the validity of such interpretations has been contested and the deference afforded to such interpretations has not been uniform).

Broad Coverage of Investments

The TPP includes a broad definition of “investment” that covers a non-exhaustive list of tangible and intangible assets.  Consistent with other recent U.S. investment treaties, it affirms that core investment protections apply to intellectual property rights.

As with prior U.S. agreements, the expropriation provisions do “not apply to the issuance of compulsory licenses granted in relation to intellectual property rights in accordance with the TRIPS Agreement, or to the revocation, limitation or creation of intellectual property rights, to the extent that the issuance, revocation, limitation or creation is consistent with Chapter 18 (Intellectual Property) and the TRIPS Agreement” (Article 9.7(5)).

In addition, the TPP includes a new provision related to forced licensing of intellectual property rights.  This provision, which forms part of a wider prohibition on specified “performance requirements,”[2] would generally prohibit parties from requiring investors, in connection with the making or management of an investment, to adopt royalty rates or license durations that would directly interfere with existing license contracts (Article 9.9(1)(i)).  There are several exceptions to the prohibition on forced licensing and on the other prohibitions on performance requirements, including with respect to pre-existing non-conforming measures that are carved out in annexes to the TPP and measures necessary to achieve legitimate regulatory objectives in areas ranging from competition law to environmental protection.

The TPP does provide a complete carve out for a limited category of claims, noting that any TPP party may “elect to deny the benefits of [the Investment Chapter] with respect to claims challenging a tobacco control measure” (Article 29.5).


Overall, the Investment Chapter that emerged from the TPP incorporates many important features of the U.S. Model BIT.  The agreement underscores that the BIT provisions can exist side-by-side with legitimate regulation and provides for public transparency.  The agreement also ensures a predictable and transparent framework for resolving investment disputes across a range of trading partners not covered by existing investment agreements – from Vietnam to Japan – thereby providing an important avenue for neutral resolution of investment-related disputes that fall under the ambit of the BIT.


[1] This standard protects against, among other things, arbitrary or discriminatory governmental actions, and governmental actions that are inconsistent with basic due process.

[2] Performance requirements are conditions on the establishment or operation of an investment, such as a condition that an investment use a minimum percentage of domestic goods, export a minimum percentage of its production, or transfer a particular technology to domestic partners.

Hosting the G20 Leaders is an Opportunity for Turkey on Growth and Stability

Posted in International Strategy

President Erdoḡan and his Justice and Development (AKP) party clearly won big on November 1 with over 49 percent of the vote.   On November 16-17, Turkey is hosting G20[i] leaders for discussions of global economic and political issues.  Some see that as confirmation that the Erdoḡan-supported AKP government is ready to welcome private investment, and more inclusive development, with open arms.   In fact, it will now be critical to watch how it chooses to address deep political fissures, economic fragility and daunting security and foreign policy challenges in coming weeks.   The new government’s choices will tell investors much about whether Turkey will be a smart place in which to invest, or a market from which investors flee.  Strong early markers include decisions regarding key cabinet officials, pronouncements at the G20 Summit and the credit rating Moody’s gives to Turkey on or around December 4.

History proves that stability and economic growth are mutually reinforcing.  Turkey has the opportunity this week to secure progress on both.  Turkey already is a very important country economically and politically.  Turkey is still the world’s 18th largest economy.  Its location and role make it highly strategic — not just for Europe and the United States, but for Russia, Syria, China (as a key part of its “silk road” strategy) and to the geopolitical realities impacting all of these countries and regions for years to come.  Turkey has substantial assets, such as its educated youth and years of progress on openness, modernization and pluralism.  Yet, Turkey’s current weak economic conditions and slowed growth, domestic violence — including 134 killed by ISIS in October — and issues with ethnic Kurds, along with the burden of millions of migrants and conflict related to Syria and ISIS, and complex relationships with Europe, Russia, the US, Saudi Arabia and Iran (among others)  leaves investors unsure of Turkey’s prospects.  No one has a crystal ball on what President Erdoḡan will do, or how events will unfold.

Investors, therefore, must watch how President Erdoḡan and his administration actually govern.  Particular dynamics, decisions and milestones matter for investors.  First, there are different visions within President Erdoḡan’s own party.  Market-oriented reformers are competing with those now pressing for populist, big spending initiatives.  Second, Turkey will deliver messages about its policy priorities and approaches at the G20 Summit in Antalya.  Third, upcoming ministerial cabinet appointments will foreshadow whether Turkey can attract and encourage investment, both domestic and international, or is more likely to deter it.  Fourth, whether the administration will allow the central bank to manage interest rates and monetary policy independently will become clear as near-term interest rate and spending decisions are made.  Fifth, if President Erdoḡan puts his full weight behind a new constitution which fulfills his wish for an executive Presidency and more centralized power a reality, that too will bear on investors’ perceptions.  Sixth, the commitment of the new government to inclusive governance, public integrity and engagement (including with Turkey’s ethnic Kurds) will help determine the balance to be struck between control and freedom.  This will affect both relationships with the West and with factions at home.

The degree to which the new AKP government will work to build bridges internally and with NATO allies, Europe and the West, and reflect more clearly the commitment to reform and modernization of President Erdoḡan’s earlier years, is not at all clear yet.  In fact, there are strong influencers who would prefer to turn away from openness, and to settle scores. e.g. with pre-AKP elites, and to quash dissent.

This week, while hosting the G20, President Erdoḡan will seek support for Turkey’s economic and political challenges.  The President and his team will seek to boost small and medium-sized enterprises (SMEs), in part to reduce high unemployment among Turkey’s large population of youth, and dramatically ramp up infrastructure investment.   A close eye should also be kept on whether Turkey’s policy stance includes structural reforms (e.g. in labor markets, regulation and tax regimes), fiscal discipline, private investment and sound monetary policy, or is instead aimed primarily at big spending increases that could blow through budget targets, widen already-large current account deficits (now some 5 percent of GDP) and drive the lira down further still.  High visibility at the G20 summit of experienced economic managers like former Deputy Prime Minister Babacan and Finance Minister Simşek could signal a relatively investor-friendly policy approach.   A clear tilt towards “big spending” could portend more influence for Presidential advisors Cemil Ertem or Yiḡit Bulut, with potential risks to near-term macroeconomic stability and for investors.

President Erdoḡan will request G20 support for assisting migrants and to address the instability in Syria and the Middle East.  After the horrific attacks in Paris and  killings in Lebanon — on the heels of over 100 killed by ISIS in Turkey itself — these complex issues are now be at the top of the G20 agenda.  The way in which the response by the G20 affects Turkey will also be very telling.  Investors should watch for political and financial support for Turkey on migration, etc., the level of shared G20 commitments on terrorism and security and Turkey’s own commitments.   This is a critical moment for Turkey, and for the G20, within which deep differences exist on how to deal with the Syria mess, terrorism’s clear and present danger, and the core role of religion and the state.   Any investor in Turkey will be living in a neighborhood shaped by the G20 results.

President Erdoḡan’s AK Party holds only 317 of 550 seats in Parliament.  So, the AKP will need to build coalitions to govern.   The way in which it does so will impact who gets the most important economic ministerial positions, and what overall policy approaches Turkey will now take.  Central bank independence is another core issue.   Will the central bank Governor now have license to tackle high inflation and to raise interest rates?  Or will it be pressed to keep interest rates down and credit flowing despite high inflation?  Turkey is aware that the U.S. may soon raise interest rates.   While sovereign debt may be manageable, the foreign debt of Turkey’s banks and companies has catapulted from 5 percent of GDP in 2008 to some 40 percent now.  With higher interest rates, some of the debt will be hard to service. Turkey, currently one of Morgan Stanley’s “Fragile Five,” is therefore vulnerable financially.  It will take more than short-term spending to sooth markets, and investors.   And poor economic policy choices, frustration with market reactions, heightened risk of terrorism, and ongoing crackdowns against dissenters (and associated companies) will only make things worse.

Institutional investors are often required to invest only in markets which at least two of the major credit ratings agencies deem to be investment grade.    At the moment, Moody’s rates Turkey as investment grade, but has issued a negative “watch” on the country.   S&P already rates Turkey as below investment grade.  Fitch sees Turkey as stable at a BBB- investment grade.   In early December, Moody’s may change its rating.  There is an old saying that “capital is a coward.”  Investors need to watch carefully in coming weeks to see how Turkey addresses the fears and uncertainties that keep investors up at night.


[i] Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States—along with the European Union (EU).

This Week in Congress – November 16, 2015

Posted in Congressional Action

After a short respite to observe Veterans Day, members return to Capitol Hill today with Fiscal Year (FY) 2016 appropriations on the agenda and a looming highway authorization deadline on the calendar.

Negotiations over a long-term federal highway and infrastructure bill are headed into the final phase of congressional negotiation.  Congress faces a Friday deadline to complete work on the highway and infrastructure legislation because the current extension expires on November 20 at midnight.  Even though members were largely back in their districts last week, staff for House and Senate conferees appointed to a bicameral conference committee were working to resolve differences between the versions of the long-term highway and infrastructure authorization bills passed by both chambers.  While both versions of the bill reauthorize the highway program for six years, they both provide funding only for the first three years, requiring Congress to come up with the remaining three years of financing.  In addition, differences remain in in the ways each chamber pays for the programs.  Press reports indicate there is optimism that the bicameral committee will produce the conference report on a long-term bill that can be passed by both chambers and sent to the President for signature before the end of the week.  Should any roadblocks appear, it is likely House and Senate leadership will move quickly to pass another short-term extension of current authorization until the conference committee can complete its work.

Appropriations for 2016 will also be on the agenda this week, even though the fiscal year is already well underway.  Passage of the Bipartisan Budget Act in October established topline allocations for discretionary programs, a breakthrough that is allowing the stalled appropriations process to move forward.  Now that a satisfactory budget framework has been established, House and Senate leadership are strategizing on how to complete appropriations work before a December 11 expiration of current funding, but there does not yet appear to be any clear process for moving forward.  Last week the Senate took up and unanimously passed its first appropriations bill this year, the Military Construction and Veterans Affairs bill.  The House has already passed six of the twelve annual spending bills and was considering a seventh when it had to be pulled from the floor due to a dispute over the Confederate battle flag.  Chairmen of the House Appropriations Subcommittees whose bills have not yet been considered by the full House have scheduled “listening sessions” with representatives who do not serve on the Appropriations Committee to get input on the remaining spending measures, according to press reports.  New Speaker of the House Paul Ryan has reportedly polled the members of his conference on whether to resume consideration of individual spending bills or proceed with an omnibus bill, and apparently there was widespread support for developing a single omnibus spending bill.

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The TPP’s Electronic Commerce Chapter

Posted in Trade Agreements

Note: This is the first of a series of posts on the final text of the Trans-Pacific Partnership (TPP) by Covington’s International and Public Policy lawyers.  The final TPP text, which was released on November 5, 2015, is available here.  TPP is not expected to enter into force until at least 2016, with the timeline dependent on the pace of ratification by member states.  In the United States, this means first securing Congressional approval, after the Agreement is signed by the President, pursuant to the requirements set forth under recently enacted Trade Promotion Authority (TPA).

Notwithstanding its title, the TPP’s chapter on Electronic Commerce (Chapter 14) includes commitments that apply well beyond traditional e-commerce to a wide range of digital communications and trade affecting nearly every sector of the economy.  Although variations on some of these commitments can be found in prior U.S. free trade agreements or other international instruments, the chapter includes several novel commitments, including on cross-border data transfers, forced localization of computing facilities, and compelled disclosure of software source code.  While the commitments are subject to important carve-outs, exceptions, and limitations, violations of these commitments may be challenged by TPP governments pursuant to the dispute settlement mechanism set out in Chapter 28.

Key Commitments

For U.S. companies, some of the key commitments in Chapter 14 are as follows:

  • Cross-Border Electronic Data Transfers. Article 14.11 requires each TPP government (“Party”) to allow the cross-border transfer of information, including personal information, by electronic means, “when this activity is for the conduct of the business of a covered person.”  “Covered person” is defined broadly to mean an investor of a Party (but excluding an investor in a financial institution—see below) or an “investment,” as defined in Chapter 9, and any service supplier of a Party as defined in Chapter 10.  Article 14.11 allows a Party to adopt or maintain a measure inconsistent with this obligation only “to achieve a legitimate public policy objective,” provided that such a measure is not applied in a manner that constitutes “arbitrary or unjustifiable discrimination or a disguised restriction on trade” and “does not impose restrictions on transfers of information greater than are required” to achieve the legitimate objective.
  • Forced Localization of Computing Facilities. Under Article 14.13, no Party may require a “covered person” to use or locate computing facilities (e., “servers and storage devices for processing or storing information for commercial use”) in that Party’s territory as a condition for conducting business in the territory.  This commitment is subject to the same exception language as described in the preceding bullet.  According to USTR, this is the first U.S. free trade agreement ever to include an explicit commitment against forced localization of computing facilities.
  • Transfers of Source Code. Article 14.17 prohibits any Party from requiring the transfer of, or access to, software source code as a condition for the import, distribution, sale or use of such software, or products containing such software, in the Party’s territory.  However, this commitment applies only to “mass market” software (a term that is not defined), and does not apply to software used for “critical infrastructure” (also not defined).  This commitment does not preclude (i) requirements to provide source code pursuant to a “commercially negotiated contract[];” or (ii) a Party from requiring the modification of source code “necessary for that software to comply with laws or regulations which are not inconsistent with” the TPP.  According to USTR, this too is the first such commitment ever to appear in a U.S. free trade agreement.
  • Customs Duties on Electronic Transmissions. Article 14.3 prohibits Parties from imposing customs duties on cross-border electronic transmissions, including content, between persons of the various TPP countries.  This commitment largely follows the moratorium on e-commerce customs duties agreed among WTO members in 1998.  Article 14.3, however, does not preclude Parties from imposing internal taxes, fees, or other charges on “content transmitted electronically,” provided such measures are imposed in a manner consistent with the TPP.
  • Non-Discriminatory Treatment of Digital Products. Article 14.4. prohibits a Party from providing less favorable treatment to digital products, and the creators and owners of those digital products, of other Parties than it accords to “other like digital products.”  (The determination of whether two products are “like products” has a long history in WTO jurisprudence.)  Subsidies, grants, and broadcasting are all excluded from this commitment.
  • Access to and Use of the Internet for Electronic Commerce. Article 14.10 includes a general recognition by the Parties of the benefits of consumers being able to access and use online services and applications of their choice, and to connect the devices of their choice to the Internet.  This text largely reflects the “open Internet” principles enshrined in U.S. law and practice.  Notably, however, this article does not include enforceable commitments, and even the agreed principles are “[s]ubject to applicable policies, laws and regulations.”

Beyond these provisions, the e-commerce chapter addresses several other issues, including methods of electronic authentication and the validity of e-signatures; maintenance of laws on online privacy, consumer protection, and spam (“unsolicited commercial electronic messages”); the benefits of “paperless trading,” and other matters.  Certain of these provisions impose obligations on the Parties, while others merely require Parties to “endeavor” to adopt or implement them.

The entire chapter falls within the scope of the dispute settlement provisions of Chapter 28.  Although the e-commerce commitments are not covered by the investor-state dispute settlement (“ISDS”) provisions of Chapter 9, a government measure that violates a commitment in the e-commerce chapter might also violate an investment commitment in Chapter 9, and to that extent be subject to ISDS.

Additional Limitations

In addition to the commitment-specific limitations and exceptions already discussed, the e-commerce provisions are subject to additional limitations that apply to the entire chapter.  These include:

  • Exclusion of Government Procurement and Government Data Processing. Article 14.2.3 excludes from the scope of Chapter 14: (a) government procurement, and (b) information “held or processed by or on behalf of a Party, or measures related to such information, including measures related to its collection.”  These could be significant exclusions and might, for instance, allow TPP governments to require that processing or storage of government data occur on  domestic computing facilities.
  • Exclusion of Financial Institutions/Financial Services. Under Article 14.1, the term “covered person” excludes “financial institution[s]” and any “cross-border financial service supplier of a Party” as defined in Chapter 11 (Financial Services).  These and related provisions are broadly seen as excluding financial institutions from the scope of Chapter 14.  Instead, financial institutions will be forced to rely on the commitments specifically applicable to financial service suppliers set forth in Chapter 11 and other chapters of the TPP.
  • Incorporation of GATS Exceptions. Chapter 14 commitments also must be read in conjunction with the General Exceptions in Chapter 29.  For example, under Article 29.1.3, paragraphs (a), (b), and (c) of Article XIV (General Exceptions) of the WTO’s General Agreement on Trade in Services (GATS) are incorporated by reference into the TPP.  These GATS paragraphs permit measures necessary to protect public morals or maintain public order; protect human, animal, or plant life or health; or to secure compliance with laws or regulations that are not inconsistent with the GATS.
  • National Security Exception. Under Article 29.2(a), nothing in the TPP, including Chapter 14, precludes a Party from applying measures that “it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.”  Historically, security exceptions based on similar text often have been considered to be largely self-justifying, under the view that they can be invoked by a Party whenever “it considers” the exception to apply.  This could make it difficult for Parties to challenge measures that facially violate one or more Chapter 14 commitments, but which a Party justifies as necessary to protect national security.

Finally, the commitments set forth in Chapter 14 do not apply to any non-conforming measures (i.e., measures that do not conform to commitments set forth in the TPP) identified by a Party.  Article 14.18 also provides that Malaysia is exempt from the commitments in Article 14.4 (non-discriminatory treatment of digital products) and 14.11 (cross-border data transfers) for two years, while Viet Nam is exempt from both of these commitments, and from Article 14.13 (forced localization of computing facilities), for two years.


If adopted as drafted, the TPP’s e-commerce chapter includes several noteworthy commitments that provide a basis to challenge non-tariff barriers to digital trade and commerce confronting companies in TPP countries.  However, when evaluating the benefits and enforceability of these commitments, it is important also to consider the carve-outs, exceptions and limitations to these commitments, including any applicable non-conforming measures.


Zimbabwe (re-)opens to the West

Posted in Africa

Zimbabwe, in an economic quagmire for nearly two decades, has begun to implement economic reforms that, if continued, could help the nation improve the quality of life for the majority of its citizens. This nascent reform movement also suggests that government leaders have realized that its current singular reliance on China will not solve the country’s economic ills.

Recent efforts by Finance Minister Patrick Chinamasa to restructure the country’s debt is a recognition by the government that food dependency, low growth, and virtually no foreign investment is not sustainable as economic policy. Zimbabwe owes creditors $8.1 billion, with nearly half that amount in arrears. Indeed, between 2011 and 2014 alone, 4,610 companies in the manufacturing sector closed, and 55,443 jobs were lost according to United Nations and African Development Bank figures.

Zimbabwe’s reform effort began in 2009 when Zimbabwe moved from hyperinflation—which saw poverty rates rise to 72 percent and triggered the sharpest drop in gross domestic product of any economy since the end of World War II—to a dollar-based economy.

With no other options, the economically fraught country entered into a stabilization program with the IMF and has performed well. At the World Bank/IMF meetings in Lima, Peru last month, Chinamasa presented a plan to restructure the country’s debt that was endorsed by the U.S., the U.K., Germany, France, the World Bank, and the IMF. If it stays on track, Zimbabwe could restructure its outstanding debt by as early as mid-2016, which would be a first step in creating an environment that can attract desperately needed external financing and investment.

Related to these economic reforms is legislation pending in parliament that would allow farmers, black and white, to lease land for 99 years. Long-term leases would help restore the rule of law in a sector characterized by arbitrary land seizures, and signal to foreign investors that commercial contracts may in fact be respected.

The country’s commercial banks need to support any land-tenure legislation so that leases can serve as collateral for badly needed credit and financing for farmers. It is estimated that $2 billion is required to restore a semblance of productivity in the once-robust agricultural sector. Transferable long-term leases that can be used as collateral are the only hope for the recovery of Zimbabwe’s agricultural sector.

Even with progress on debt restructuring and land reform, the country’s indigenization policy, which requires Zimbabweans to own 51 percent of any foreign investment, continues to be a deterrent to revitalizing the economy. While responsibility for implementing the policy has been moved from the more radical Ministry of Youth and Economic Empowerment to the relevant line ministries, the government still needs to be transparent in the enforcement of the policy. Local content laws are part of the investment landscape across Africa, but Zimbabwe’s have been more onerous than any other country in the region.

Zimbabwe has entered a political and economic transition whose outcome is far from clear. The reformers have gained momentum with the tacit support of the country’s 91-year -old president, Robert Mugabe. The increasingly bitter succession struggle, that pits the president’s wife, Grace Mugabe, against the veteran ZANU-PF leader and vice president, Emmerson Mnangagwa, as well as the former party stalwart, Joyce Mujuru, among others, will impact the pace and direction of the reform process. Nevertheless, Zimbabwe has few options but to continue its re-engagement with Western financial institutions and donors.

Zimbabwe’s former friends should work to encourage these fledgling reforms, particularly those aimed at engaging Zimbabwe’s battered but determined private sector. After all, the private sector has contributed significantly to democratic progress across the continent, including in Kenya, South Africa, and Nigeria.

Indeed, the European Union made the right move in 2013 when it lifted most of its sanctions on Zimbabwe, imposed in 2002 in response to electoral fraud and human rights abuses, in an effort to encourage economic and political reform. The EU also extended more than $200 million in financial support. Travel and financial sanctions still remain on Mugabe and his wife, as does an arms embargo on the nation.

Congress and the Obama administration should follow the EU’s lead and sharply reduce its sanctions on Zimbabwe. Even though current sanctions are targeted on 100 individuals and a number of entities, they have been a deterrent to any new investment in the country.

The U.S. can keep sanctions on Mugabe without negatively impacting the majority of Zimbabweans, as current U.S. policy does, by allowing the country to participate in the African Growth and Opportunity Act (AGOA), which provides duty free access to the U.S. market for some 6,400 products.

Participation in AGOA would stimulate job creation, innovation, and economic and political reform as well as support labor-intensive sectors such as manufacturing, apparel, and agricultural producers. In Zimbabwe, business and the private sector are key advocates of reform—this is where the U.S. should be placing support.


This piece originally appeared on the Brookings Africa Growth Initiative’s blog”Africa In Focus

This Week in Congress – November 9, 2015

Posted in Congressional Action

This will be a relatively quiet week on Capitol Hill.  The House of Representatives is on a scheduled district work period, and the national observance of Veterans Day on Wednesday means the Senate will be in for an interrupted, but busy, week.

The Senate is scheduled to resume legislative business on Monday and will vote on the nomination for the U.S. Director of the European Bank for Reconstruction and Development.

On Tuesday morning, the Senate is expected to vote on S. 1356, the House-passed National Defense Authorization Act (NDAA).  This legislation is a revised version of the defense authorization.  This bill complies with the spending limits established in the Bipartisan Budget Act passed by Congress at the end of October. The previous version of the NDAA was vetoed by President Obama, largely due to objections over its spending levels, although the White House also raised objections to language restricting the Administration’s ability to close the detention facility at Guantanamo Bay, Cuba. The recently negotiated and approved budget framework for Fiscal Year (FY) 2016 includes increases for both defense and non-defense spending above limits set by the 2011 sequester.  S. 1356 abides by these new topline numbers and contains a $5 billion reduction in Pentagon spending from the previous iteration of the bill.  The House passed S. 1356 last Thursday on a bipartisan 370-58 vote, and the legislation is expected to receive similar support for swift passage through the Senate. With the budget issue resolved, the White House is unlikely to issue a veto threat over Guantanamo restrictions or other issues.

Following passage of the FY 2016 NDAA, the Senate is expected to begin consideration of its first individual appropriations bill for FY 2016, the Military Construction and Veterans Affairs Appropriations bill.  The annual appropriations process, under regular order, is supposed to be wrapped up before the end of each fiscal year, by September 30.  As we have discussed previously, this year’s process has been held up by disagreement over topline spending numbers, with congressional Democrats demanding that any increase in defense spending be met with a like increase for non-defense programs.  In the Senate, Democrats have been successful in filibustering the Republican majority’s attempts to bring any single appropriations bill to the floor, and their stonewalling of the process played a large part in the eventual negotiation of the Bipartisan Budget Act.  With the budget deal approved, Democratic senators last week supported a motion that allows the Senate to proceed to S. 2029 this week.  The Senate will take up an amendment to increase spending in the bill to meet the levels established by the budget agreement.

Although Senate Democrats allowed debate to proceed on the so-called MilCon-VA bill, that does not foretell smooth sailing for the appropriations process; there is still a lot of negotiation left to occur before the December 11 expiration of current funding.  The Bipartisan Budget Act may have settled topline spending levels, but how that money is allocated among various programs will be up for debate.  In addition, Republican efforts to include policy riders to the spending bills are sure to provoke Democratic opposition, further complicating the effort to enact all 12 annual spending bills before December 11.

The process moving forward is unclear.  Before passage of the Bipartisan Budget Act, the House had approved six of the 12 bills.  Press reports indicate that new Speaker of the House Paul Ryan is polling the members of his conference on whether to resume consideration of individual spending bills or start from scratch and allow appropriators to draft an omnibus bill.  As discussed by our colleagues, <http://www.globalpolicywatch.com/2015/11/appropriations-2016-the-tough-road-ahead-for-speaker-ryan/>, in order to avoid a December shutdown, the House and Senate will need to craft spending bills or an omnibus bill that will not be filibustered in the Senate, and due to Republican efforts to include policy riders on controversial issues, there is currently no clear path on how to complete action on the spending bills and keep the entire government open past December 11, although Republican leaders continue to insist there will be no government shut-down this year.

Behind the scenes this week, the House and Senate transportation committees will be meeting to hammer out the details of a long-term highway authorization bill.  Before recessing last week, the House overwhelmingly passed a six-year, $325 billion transportation bill that would authorize funding for highway programs.  The Senate had passed its version of a six-year, $317 billion transportation bill earlier this summer.  The Senate bill also included a provision to reauthorize the now-expired charter for the Export-Import Bank through 2019; the House-passed version includes that provision, so it appears the Bank will be able to resume operations once the conference report is approved.  A bicameral conference committee will have to be established to resolve differences between the two versions of the legislation and produce a final bill that can be considered by both chambers; the House has already appointed its conferees, and the Senate is likely to do so this week.  The conference committee will have to work quickly because the current extension of highway-program authorizations and funding is set to expire on November 20.  The key differences that will have to be resolved between the two versions of the bill are over the ways each chamber pays for the programs.  Should the conference committee produce a conference report and move the report through both chambers before Thanksgiving, it will be the first time in ten years that Congress will be authorizing a long-term transportation and infrastructure program.

There is a very light hearing schedule this week, due to the House of Representatives being in recess, and the observance of the federal holiday on Wednesday.  The campaign against the Islamic State continues to be the focus of congressional hearings.  Members of the Senate Foreign Relations Committee will be briefed Tuesday afternoon on the campaign against the terrorist group in Syria.  On Thursday morning, the Senate Homeland Security and Governmental Affairs Committee will discuss Islamic State safe havens.  The hearing will no doubt also focus on the reports that IS may be responsible for blowing up the Russian passenger jet in the Sinai Peninsula last week.  A full list of hearings occurring in the Senate is included below:

Tuesday, November 10, 2015

Senate Committees

Examining 30 Years of Goldwater Reform

Senate Armed Services

Full Committee Hearing

9:30 a.m., G-50 Dirksen Bldg.


Foreign Aid Legislation, Nominations, Tax Treaties

Senate Foreign Relations

Full Committee Markup

9:45 a.m., 419 Dirksen Bldg.


Update on the Campaign Against ISIS in Syria

Senate Foreign Relations

Full Committee Closed Briefing

10 a.m., SVC-217 Capitol Visitor Center


Intelligence Issues

Senate Select Intelligence

Full Committee Closed Briefing

2:30 p.m., 219 Hart Bldg.


Thursday, November 12, 2015


Senate Committees


Spending on Unauthorized Programs

Senate Budget

Full Committee Hearing

10:30 a.m., 608 Dirksen Bldg.


Countering ISIS: How Safe Havens Threaten the Homeland

Senate Homeland Security and Governmental Affairs

Full Committee Hearing

9:30 a.m., 342 Dirksen Bldg.


Intelligence Issues

Senate Select Intelligence

Full Committee Closed Briefing

2:30 p.m., 219 Hart Bldg.


Friday, November 13, 2015


Senate Committees


The Impact of Federal Regulations: A Case Study of Recently Issued Rules

Senate Homeland Security and Governmental Affairs

Full Committee Field Hearing

2 p.m., Dreyfus University Center, 230 Laird Rm., 1015 Reserve Street, Stevens Point, Wisconsin


Will President Obama’s New Overtime Regulations Shrink Corporate Restricted Classes?

Posted in Compliance Issues, Uncategorized

Corporate PAC managers may soon find that the universe of employees who receive corporate PAC solicitations has unexpectedly shrunk.  In July 2015, the Department of Labor proposed new regulations that would dramatically increase the number of workers entitled to overtime wages.  The Department of Labor estimates that, under the new regulations, approximately 5 million new white collar workers could receive overtime pay.  Currently, salaried employees are not entitled to overtime pay if they perform certain duties and are paid at least $455 per week (the equivalent of $23,600 annually).  Under the proposed regulations, the duties test would remain the same but the salary threshold would increase to $921 per week/$47,892 annually.  This salary threshold would also be adjusted year-to-year, pegged at the 40th percentile of weekly earnings of full-time salaried workers.

In practice, because the FEC regulations and Fair Labor Standards Act regulations overlap to a degree, some companies take a shortcut in their legal analysis and solicit PAC contributions only from employees not entitled to overtime pay and refuse to solicit those entitled to overtime pay.  Thus, when the number of employees entitled to receive overtime pay increases, the universe of employees solicited by these corporate PACs may fall.

Legally, however, these regulations should not require companies to reduce the size of their restricted class.  While the FEC regulations look to Fair Labor Standards Act regulations for guidance in determining whether an individual’s duties place that individual in the restricted class, the FLSA’s salary cut-off on overtime payments is not relevant to this analysis.  Nonetheless, these new rules may present corporate PACs with a good opportunity to conduct a more thorough “restricted class review” to confirm that solicited employees all fall within the restricted class and to determine whether others may also be solicited.

Appropriations 2016: The Tough Road Ahead for Speaker Ryan

Posted in Congressional Action, Uncategorized

On his way out the door, then-Speaker Boehner did his best to “clean up the barn” for incoming Speaker Paul Ryan. Notably, he negotiated a budget deal with President Obama that, among other things, raised the top-line budget number for the FY 2016 appropriations process. The deal represented a compromise between Republican defense hawks who insisted on higher national security spending and Democrats who wanted higher domestic spending. The package passed the House 266 to 167 and the Senate 64 to 35. President Obama signed it yesterday. On Sunday, Speaker Ryan told FOX News that he wants to transform the GOP from an “oppositional” party into a “propositional” party. With the “barn” clean, the general view is that he can now move on to bigger things.

But not so fast. Yes, the deal settled the overall spending level, but which, if any, new policy riders will be added to the appropriations bills? And how the overall spending allocation gets carved up and distributed among agencies and programs may get caught in the crossfire. . These are hard and controversial decisions, and Congress only has three legislative weeks to make them.

If Congress can’t come to an agreement, a government shut-down is entirely possible after the December 11 deadline—unless Speaker Ryan is willing to violate the so-called “Hastert Rule.” (Former Speaker Hastert sought to only move bills that most Republicans could support, and Speaker Ryan has indicated that he would like to do the same.)

And there’s the rub. How many House Republicans will be willing to vote for appropriations bills that omit any new riders? Will a majority of House Republicans vote for a bill fully funding Planned Parenthood? Or continuing Homeland Security grants to sanctuary cities? Or letting stand Obama regulations restricting hydraulic fracturing and coal mining, subjecting community banks to Dodd-Frank regulations, or new net neutrality rules? This seems unlikely. Republicans ranging from the House Freedom Caucus to the more mainstream House Republican Study Committee will have difficulty getting to “aye.”

Realizing this dynamic, Speaker Ryan may well craft a bill that includes all of the above riders and more. However, such a bill will never get 60 votes in the Senate— the number needed to overcome a Democratic filibuster. It might not even get a majority. In such a scenario, Republicans will be faced with a choice: let the government shut down or negotiate a new bill that can garner 60 Senate votes and the President’s signature. Achieving that, however, might require violating the Hastert Rule.

And there’s more. Earlier this year, the House had passed just six of the twelve annual appropriations bills when the potential for a vote on the Confederate flag stopped all forward movement. That issue (a proposal to ban the flag, and thereby the Mississippi state flag which incorporates it, from federal property) is still out there. Republicans have been loath to vote on (for or against) a Confederate flag amendment, but Democrats could insist on some version of it, raising the issue again and creating a potent negotiating chit for the Democrats.

Then there’s Senate Majority Leader McConnell’s vow not to let the government shut down. Of course, he may not be able to prevent a shut-down if the House refuses to act on a Senate-passed funding bill, but it will focus all eyes on Speaker Ryan. The deep internal rifts plaguing the Republican Party will again be on display.

The budget deal settled one important question—the top-line spending number—but left a slew of contentious issues unresolved. Before Christmas, expect plenty of fireworks.