U.S.-China Trade Relations Heat Up Post Trump Visit

By official accounts, President Trump’s November visit to China went off well with positive atmospherics, including an unprecedented (for a foreign leader) dinner inside the Forbidden City and the signing of over $250 billion of commercial deals and two-way investment agreements. On the other hand, most western analysts have quickly pointed out that much of this was symbolism since most of the commercial deals were already or projected to be in the pipeline and many of the agreements were in the form of memoranda or letters of intent yet to be finalized. More importantly, they noted that there was no commitment on the part of China to undertake major policy and structural reforms that would significantly open up market access or improve the foreign investment environment in the country. Even the subsequent announcement by China that foreign financial firms would eventually be allowed to operate as wholly-owned foreign enterprises indicated there was “no specific timetable” for lifting the equity ownership limit. Current restrictions have “left foreign banks with a combined market share of just 1.5 percent of the Chinese banking system’s assets” (NY Times, Nov 7, 2017) and foreign insurance companies at around the same level.

Recent U.S. Trade Actions toward China

Shortly after the visit, the U.S. Commerce Department announced (on Nov 28) that it would self-initiate “historic antidumping and countervailing duty investigations on common alloy aluminum sheet from China.” In the press release, Commerce Secretary Ross stated that “we are self-initiating the first trade case in over a quarter century, showing once again that we stand in constant vigilance in support of free, fair, and reciprocal trade.” In this process, the International Trade Commission (ITC) is expected to make preliminary injury determinations on or before January 16. Assuming positive findings, Commerce could announce preliminary countervailing duties (CVD) by February and antidumping duties (AD) by April of 2018, with the immediate collection of these duties (as cash deposits) by customs authorities on an estimated $600 million of Chinese aluminum sheet imports. Final ITC determinations would be made a few months afterwards.

Two days later, the United States made public that it had just submitted a third-party brief to the WTO in support of the European Union (EU) position against the recognition of China as a “market economy” despite the expiration last year of relevant provisions contained in China’s 2001 WTO accession protocol. The United States and EU both argued that the continuing pervasive role of the state in the Chinese economy, especially the use of large scale subsidies, has seriously distorted domestic prices, hence necessitating the continued use of third-country price comparisons in antidumping cases. Earlier in June, underscoring the broad significance of this action, US Trade Representative (USTR) Robert Lighthizer told Congress that this case was “the most serious litigation we have at the WTO right now” and a decision in China’s favor “would be cataclysmic for the WTO.” On the same day of this announcement, U.S. Treasury undersecretary David Malpass told an audience in New York that “China’s industrial policy has become more and more problematic for foreign firms” and that “huge export credits are flowing in non-economic ways that distort markets.” “The WTO has shown an inability to resolve disputes, limit subsidies or draw China into the market status that was envisioned when China joined the WTO,” he stated.

Meanwhile, the Trump administration is expected to complete a number of earlier trade actions in the coming year, including two Section 232 (national security) investigations on steel and aluminum, one Section 201 (safeguard) investigation of Chinese solar cells and modules and, more broadly, a Section 301 investigation of China’s policies regarding transfers of technology, intellectual property, and innovation. In initiating the Section 301 investigation in August, the USTR pointed to growing frustration with respect to Chinese policies and practices that “reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China.” The notice pointed specifically to China’s “strategy to become a leader in a number of industries, including advanced technology industries, as reflected in China’s ‘Made in China 2025’ industrial plan.” Under Section 301, President Trump would potentially have the power to impose broad sanctions against Chinese imports and take other actions if a negotiated settlement is not reached that addresses U.S. concerns.

 How will China respond?

China has responded quickly and sharply to these recent U.S. trade actions. At a briefing on December 1, China’s Foreign Ministry spokesman said that “the practice of using a third country to measure the cost of Chinese products in anti-dumping cases must end,” and that the opposition to granting China market economy status “harked back to the cold war.” (South China Morning Post, Dec 1, 2017) In the same article, a senior researcher with a government think tank was quoted as saying that “the China hawks in the Trump administration had been plotting the recent moves, which were part of U.S. efforts to contain China’s rise on the world stage.” She added that “the competition between the two countries will be a permanent fixture….and the balance of power is now tilting towards China.” The following week, a Chinese Commerce Ministry official said that the U.S. rejection of China’s market economy status “undermines the seriousness and authority of multilateral rules.” (Xinhuanet, Dec 4, 2017) Another researcher was quoted as saying that “the U.S. rejection reflects its panic and ideological prejudice.”

It is quite clear from these initial responses that China does not intend to respond positively to U.S. pressure or to undertake significant market reforms at this time. In fact, President Xi Jinping had just re-affirmed the leading role of the party and the state in the economy at the recently-concluded 19th Communist Party Congress in October, just before Trump’s visit to China. Xi called for further measures to support, consolidate, and make more efficient China’s debt-laden state-owned enterprises, and focused on government industrial policies to promote technological advances, innovation, and “national champions,” as laid out in the government’s “Made in China 2025” report. While calling for continued “reform and opening,” Xi proposed setting up more special economic zones to attract foreign high-tech companies into strictly-confined areas of the country, essentially following the pattern of China’s economic development since 1979. Thus, while the market can play a role in the economy, China’s economic policies will continue to be led by the state under this touted model of “socialism with Chinese characteristics.”

As on many occasions in the past, China is thus expected to threaten retaliation against U.S. companies that benefit from the current bilateral trade relations in order to mobilize them against new U.S. trade sanctions. Shortly after the USTR announced its Section 301 investigation in August, a government-owned media reported that “a full-blown trade war between China and the United States still doesn’t seem inevitable, but that shouldn’t prevent Beijing from taking measures to cope with the U.S.’ trade protectionist weapon: Section 301.” (The China Daily, September 5, 2017)   Analysts expect that China would threaten to stop buying aircraft and agricultural products from the United States or impose its own antidumping duties on U.S. imports. (SCMP, Dec 5, 2017) In 2016, China accounted for 62% of U.S. soybean exports, 14% of U.S. cotton exports, and 25% of U.S. aviation exports. (Business Insider, August 18, 2017) Some have suggested that China could also cancel aspects of the “100 Day Plan” trade agreement reached shortly after the Xi-Trump Florida summit, in which China agreed to lift the ban on U.S. beef imports and expand access for certain U.S. financial institutions.

Heading Toward a Trade War?

At this point, given recent U.S. trade actions and China’s response thus far, it is almost certain that trade tensions will increase, but will this lead to a large scale trade war? The immediate question is whether the Trump administration will in fact move ahead to impose serious tariffs and quotas on Chinese imports, pending the completion of its various ongoing investigations. Assuming the investigations validate the premise of recent U.S. trade actions, i.e., that China’s interference in the market has seriously distorted prices and violated U.S. intellectual property rights, the Trump administration will have to take appropriate action to enforce U.S. trade laws or quickly lose credibility especially via-a-vis the Chinese. In fact, President Trump himself noted in a public speech in Beijing that “trade between China and the United States has not been, over the last many, many years, a very fair one for us.” Instead of directly criticizing China, however, Trump “blame(d) past administrations for allowing this out of control trade deficit to take place and to grow.”

As in the past, however, there are likely to be strong concerns and opposition among many in the U.S. business community to the Trump administration taking strong trade remedy actions that could result in China retaliating against their exports or businesses in China. Fully aware of this, China can be expected to use its increasingly large and attractive domestic market as leverage against U.S. trade sanctions. Additionally, U.S. retail and downstream companies that benefit from low-priced Chinese imports (whether dumped or not) are also likely to oppose increased U.S. tariffs or quotas against these imports. It is uncertain at this time how the Trump administration will balance these interests and concerns. Given recent statements by senior administration officials, however, it should not be a surprise to see new U.S. trade sanctions against a range of Chinese imports in the coming months.

Assuming the United States does follow through with trade sanctions, one would expect China to retaliate, directly or indirectly, against U.S. imports and businesses as it has in the past. The only question is how and to what extent China will do so. On the issue of China’s non-market economy status, the fact that the EU and the United States are aligned in making the point that, purely as a matter of fact, China’s state-dominated economy does not allocate investment resources through market economy mechanisms, probably limits the degree to which China can justifiably introduce retaliatory measures focused on these actions. Moreover, while it is still unclear how significant U.S. trade sanctions in these cases will be (especially those related to Section 301), they are likely to have a relatively limited impact on China’s overall exports to the United States. An overreaction on China’s part could backfire and lead to further U.S. responses and eventually escalate into a more serious trade war, in which both have much to lose. In 2016, the U.S. market accounted for about 20% of China’s total exports while U.S. exports to China accounted for about 8% of overall U.S. exports. Moreover, despite its rapidly expanding domestic market, China’s total exports continue to represent nearly 20% of its GDP, as opposed to about 12% for the United States.

On a more positive note, while increased trade tensions could eventually lead to a trade war with dire consequences for both, they would also highlight the need for both sides to address the fundamental issues in our trade relations more urgently. As China’s ambassador to the United States urged in a press briefing just prior to Trump’s visit, bilateral trade disputes should be handled in a “very constructive and pragmatic manner,” so as not to “undermine the overall relationship.” Hopefully, the very real risk of a trade war will prompt the Chinese government to accelerate the reform agenda issued at the Third Plenum of the 18th Party Congress in 2013. In its communique, the first major policy blueprint after President Xi took office, the Party laid out a bold agenda for deepening economic reforms “to allow the market to play a ‘decisive role’ in the allocation of resources” and stated that “both the public and private sectors are the same important components of a socialist market economy.” In this connection, for example, the Section 301 investigation can be seen as an opportunity for China and the United States to work together to develop the rules of the road limiting government support and subsidies to high tech industries and ensuring a level-playing field for all companies, foreign or domestic, and public or private. Such efforts would enhance market reforms that will go a long way to stabilize and strengthen overall U.S.-China economic relations.

The Week Ahead in the European Parliament – December 8, 2017

Summary

Next week, there will be a plenary sitting of the European Parliament in Strasbourg, France. Several significant debates, votes and committee meetings will take place.

On Tuesday, the plenary session of the European Parliament will debate a report of the Committee of Inquiry into Money laundering, tax avoidance and tax evasion (“PANA”). The report concerns the inquiry to investigate alleged contraventions and maladministration in the application of EU law in relation to money laundering, tax avoidance and tax evasion, as exposed by the “Panama Papers” in 2016. The report encourages better regulation of financial intermediaries, improved protection of whistleblowers, and a uniform definition of tax havens. See the report here.

On the same day, MEPs will vote on a report of the Committee on Economic and Monetary Affairs (“ECON”) and the Committee on Budgets (“BUDG”) that proposes extending the  European Fund for Strategic Investments (“EFSI”) until 2020. The report also recommends that additional funds to be provided to finance projects with the most promising social and economic returns in the EU. See the report here.

On Wednesday, MEPs will debate and vote on a resolution on the state of play of Brexit negotiations with the UK with EU chief negotiator Michel Barnier. They will also debate other key issues such as defense, migration or social policies with  EU Commission Vice-President Frans Timmermans. These debates will take place ahead of the European Council meeting, scheduled for December 14–15, 2017 in Brussels.

Meetings and Agenda

Monday, December 11, 2017

Plenary session

17:00 – 21:00 

Debates

  • Resumption of session and order of business
  • Sustainable management of external fishing fleets
  • Rapporteur: Linnéa ENGSTRÖM (Greens/EFA, SE)
  • EU Emissions Trading System (EU ETS): continuing current limitations of scope for aviation activities and preparing to implement a global market-based measure from 2021
  • Rapporteur: Julie GIRLING (CP, UK)
  • EU Citizenship Report 2017: Strengthening Citizens’ Rights in a Union of Democratic Change
  • Beatriz BECERRA BASTERRECHEA (ALDE, ES)
  • Towards a digital trade strategy
  • Marietje SCHAAKE (ALDE, NL)
  • Prospects and challenges for the EU apiculture sector
  • Norbert ERDÕS (EPP, HU)
  • A European Strategy for Low-Emission Mobility
  • Bas EICKHOUT (Greens/EFA, NL)

Committee on Foreign Affairs

19:30 – 21:00

  • Discussion with the 2017 Sakharov Prize laureates – Democratic Opposition in Venezuela – National Assembly (Julio Borges) and all Political Prisoners as listed by Foro Penal Venezolano

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The Brexit Negotiations:  High Drama at Lunch

In its meeting of December 14-15, the European Council should be deciding whether to launch the second phase of the Brexit negotiation which is the discussion on the future relationship between the UK and the European Union after Brexit.

This is eighteen months after the Brexit referendum and almost nine months since British Prime Minister Theresa May triggered article 50 of the Lisbon treaty launching the two-year negotiating process allowed by the treaty to organize the withdrawal of the UK from the EU.

The political will was there on both sides but a last-minute row with the Northern Ireland Unionist party DUP is currently delaying the process, with no certain outcome at this stage.

Hoping a solution will be found, let’s look at the situation as it developed since the beginning of the negotiation.

The Division in Two Phases

When the European Council agreed on ‘guidelines’ for the Brexit negotiation on April 29 of this year, it made a clear difference between the settlement of the past and the negotiation of the future relationship between the UK and the EU 27.

According to article 50 of the EU treaty, the ‘withdrawal treaty’ is a specific instrument which should be agreed to by a qualified majority before the end of 2 years after the procedure has started. The negotiation on the future relationship however will take more time and will be conducted on the model of trade negotiations between the EU and third countries, which require, at the end of the process, an agreement by all EU member states, ratified by national parliaments.

Nothing in article 50 prevents the two negotiations from being conducted in parallel but the European Council guidelines state that the second phase will only start when there has been ‘sufficient progress’ in the first one, a formula deliberately ambiguous, leaving the last word to the EU heads of government.

The UK government at first tried to resist the phasing of the talks but ended up approving it, when its negotiating team realized that they would need time anyway to agree amongst themselves on what future status they wanted.

At this stage, the internal debate in the UK remains wide open over the nature of the new status – the remainers wanting the UK to remain at least in the customs union and internal market, like Norway. Some of the most extreme leavers are pushing for a unilateral withdrawal without any agreement, the relationship being then only based on WTO rules. In the middle are those who want to conclude an agreement similar to the Comprehensive Economic and Trade Agreement (CETA) recently concluded between the EU and Canada. This internal debate still continues and this uncertainty has had a negative effect on the discussion of the first phase.

The three issues in the first phase

Even if the withdrawal treaty will need to address many other technical problems, the EU 27 identified three main issues on which there should be ‘sufficient progress’ in order to proceed to the second phase:

  • The rights of the EU citizens who reside in the UK and of the UK citizens residing in one of the 27 other states at the time of the withdrawal: The EU point of departure was that they should continue to enjoy the same status as before. The UK side, while agreeing in principle, wanted to introduce limitations in the time and restrictions for family reunion but above all refused to recognize any continuing (direct) competence of the European Court of Justice (ECJ) in the UK after Brexit.
  • The ‘financial settlement’: from the EU point of view, it should cover all UK commitments made under the current EU multi-annual financial framework (MFF) and a proportional contribution to the pensions of EU personnel until the day of Brexit. For a long time, the UK side refused to endorse this approach, the debate in London being concentrated on the final figure, with some, even inside the government, arguing that there was no legal obligation for the UK to pay anything at all – or that the financial issue was merely a ‘payment’ from the UK for the concessions which would be included in the new trade relationship.
  • The specific problem of the border between the republic of Ireland and Northern Ireland: the absence of a border between the two was an important element of the settlement of the long conflict which ended with the conclusion of the so called ‘Good Friday’ agreement in 1998. If the UK leaves the internal market and the customs union of the EU, this border will reappear unless very specific solutions are found.

The talks on these three issues took place in a number of formal negotiating sessions presided by minister David Davis for the UK and ex – commissioner Michel Barnier for the EU 27, supported by strong teams at working level.  At one point on September 22, as the negotiators were turning in circles, the British prime minister Theresa May made a speech in Florence offering some useful – but insufficient – concessions.

The aim was to achieve ‘sufficient progress’ before the European Council of 19-20 October. Substantial progress was made on the citizen’s rights issue by that time. But the UK could not agree on a position about the financial settlement other than have the prime minister offer a 20 billion contribution for a two-year transition period after Brexit. There was not the beginning of a solution to the Irish problem.

A new deadline was therefore set for the December European Council. The timing is indeed of great importance due to the fact that ‘the clock is ticking’: a final withdrawal agreement needs to be concluded by the end of March 2019 if the UK does not want to fall from the ‘cliff edge’. This must be the viewed against the backdrop of the increasingly nervousness of the financial industry in London. Leaders in that industry are unhappy about not knowing what the future will look like and are openly critical of the incapacity of the British government to get its act together.

The Progress Made in the Last Weeks

There is a lot of political will on both sides to reach an agreement in December. A major breakthrough came at the end of November when the British government accepted in principle the methodology suggested by the EU for the financial settlement. Work had also progressed on the two other issues, even if the Irish problem continues to be under active discussion. There is thus reasonable hope that an agreement will be reached in time on a common document, which the EU side would consider achieving ‘sufficient progress’ in order to start the second phase.

Theresa May was invited for a lunch with the President of the European Council Jean Claude Juncker on December 4 in order to finalize the document, which had been elaborated in almost nonstop talks at working level in the weeks before. Here are the main agreements it contains:

  • On citizen’s rights, the UK agreed to take ‘due regard’ of ECJ rulings before Brexit and will in certain cases ask the ECJ opinion on the interpretation of EU law. These opinions will not be binding and the ECJ’s supervision of EU citizens’ rights will end after a certain number of years (still to be agreed, probably 10). A new independent authority will be created in the UK to monitor individual citizen’s rights cases. Still under discussion is the definition of family reunion (what the EU asks goes beyond what the UK offers its own citizens) and the right of British citizens living in an EU country on Brexit Day to retain the ‘right … to reside and move freely in the whole EU’ (and not only where they reside at that time).
  • On the financial settlement, as mentioned above, the UK now accepts the methodology suggested in the EU guidelines. This means that it will cover its budget share in the EU’s current multi-annual financial framework (MFF) until it runs up at the end of 2020 (this is what Theresa May had already accepted in her Florence speech) plus the so called ‘reste a liquider’ (the outstanding commitments for projects in the budget which are not yet completed) and contingent liabilities, like loans to third countries. The UK will also cover the ongoing costs of funding the European Union civil servants’ pensions. All these contributions will only be made, as for the remaining member states, when the contribution needs to be paid (which for some pensions, for example, might be payable in more than 30 years from now).
  • Major efforts were made in the last week of November to accommodate the Irish prime minister Leo Varadkar who threatened to block the agreement if a satisfactory solution was not found to the Irish problem. He was all the more nervous since his minority government was about to lose a confidence vote in the Irish Parliament. This did not happen and an ambiguous language was introduced in the text ensuring a continuing ‘regulatory alignment’ between the North and the South of Ireland for the matters mentioned in the Good Friday agreement. 

The Phone Call from the DUP

Prime minister Varadkar agreed with the text on the morning before the lunch between Theresa May and Jean Claude Juncker on December 4. But the Irish were so relieved by this outcome that they leaked the text leak before the lunch. When it fell into the hands of the leaders of the Belfast Unionists of the DUP party, they interpreted the formula as implying that EU regulations would continue to apply to Northern Ireland, separating it ‘de facto’ from the UK regulatory regime. This in their view, might be a step towards the reunification of the Island to which they are vehemently opposed.

The chair of the party Arlene Foster telephoned Theresa May during the lunch to express her disagreement. She said (and repeated publically later) that her party could never countenance ‘any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the United Kingdom’.

Theresa May decided it was wise not to go further before sorting out this problem. Rightly so, given that the Tories were obliged to forge an alliance with DUP in the House of Commons after the Conservative party lost its majority in the June 8 election. The situation is also rendered delicate by the fact that there is currently no executive-body governing Northern Ireland.

At this stage there is no solution in sight and some representatives of the DUP said that they needed time and did not consider themselves bound by the deadline imposed by the EU 27. On the other hand, the ‘regulatory alignment’ formula has reopened the fight in London between those who would like the UK to remain ‘aligned’ with the EU by staying in the EU internal market and the customs union and those who do not want any alignment at all anymore between the EU and the UK.

The Way Forward

A certain time is needed before the 14 December European Council to allow EU capitals to look at the common draft. It was foreseen also that the European Council would agree on ‘guidelines’ for the negotiation of the second phase, or at least for the transition period needed to negotiate the future relationship. This is why the president of the European Council Donald Tusk imposed a deadline for the agreement by the end of this week, Friday 8 December.

The agreement should at least be made before the Foreign and Europe ministers meet in the framework of the General Affairs Council on December 12 to prepare the conclusions of the European Council. It is not customary for the European Council to proceed itself to a drafting exercise at the last minute, even if there are some exceptions to this rule.

The political will on both sides of the channel should be strong enough to allow a solution to be found to the Irish problem and a decision to go to the second phase by the end of this year at the latest. The negotiators know that the industry and the London financial institutions would react dramatically if the Brexit talks gave way to a ‘no-deal’ outcome.

A no-deal would also be catastrophic for the DUP and Ireland in general. Their leaders know it very well.

 

 

The Congressional Agenda for December

As has become customary in recent years, members of Congress face a daunting to-do list in the final weeks of 2017. Both chambers are scheduled to be in session through December 15, but the actual adjournment date for the year is likely to be pushed closer to the Christmas holiday or beyond, given the number of must-pass items on the agenda. In addition to addressing a number of key legislative items that expire in December, including government funding for Fiscal Year (FY) 2018, Republicans are aiming to pass a tax reform package, a crucial policy priority for the GOP, and send it to the President’s desk before the end of the year. While some believe a looming deadline is just what Congress needs to get things done, there is worry on Capitol Hill that the legislative pileup and long-simmering partisan battles on major budget and policy issues has created a prime opportunity for political brinksmanship to paralyze the high-stakes negotiations.

Republicans will first focus on enactment of tax reform. Following House passage of its version of a tax reform bill prior to Thanksgiving, the Senate spent last week debating its version of tax reform. The Senate passed its bill late on Friday under the reconciliation process, which allows the majority to avoid the need to obtain 60 votes to overcome a filibuster. The bill passed the Senate only with Republican support. While passage of tax reform in both chambers represents important victories for the GOP after months of without significant legislative achievements, the road to enactment remains challenging. The House is scheduled to vote on Monday, December 4 on a motion to go to conference with the Senate on the tax bill; a vote on a Democratic motion to instruct conferees is also scheduled in the House on Monday evening. The conference committee, composed of members of the committees of jurisdiction from both parties and chambers will work out the differences between the House and Senate bills. A resulting conference report must be passed by each chamber before it can be sent to the President’s desk for signature. Republicans in the Senate are eager to wrap up negotiations on the bill quickly in order to complete action on the bill before the Alabama special election of December 12, which could see the election of another Democratic vote if Doug Jones defeats Republican nominee Roy Moore; even if Moore wins, he is not seen as a reliable Republican vote, adding to the urgency to complete action before the winner of the special election can be seated.

The differences between the House and Senate bills are significant, but they were narrowed as the Senate wrapped up its debate. Still some issues may complicate the ability to reach a conference agreement that can pass both chambers. For example, a number of Republicans in the House have objected to the inclusion of the provision in the Senate bill allowing oil exploration in the Alaska National Wildlife Reserve. One major difference between the bills, the Senate’s repeal of the individual mandate of the Affordable Care Act, is likely to be accepted by House Republicans. The two bills also have some significant tax-related differences. A few examples: the House eliminates the estate tax, and the Senate does not; the House lowers the cap on the mortgage interest deduction, and the Senate does not; the House compresses the individual income tax rates to four brackets, and the Senate has seven brackets and a higher top rate; there are others as well. Despite the challenges, Republicans have thus far overcome internal disputes and challenges in each chamber. The failure to achieve any other signal legislative success, despite Republican control of all levers of power in Washington, especially their failure to repeal the Affordable Care Act after seven years of promising to do so, provides a powerful political incentive for Republicans to coalesce and pass this once-in-a-generation tax reform legislation before the year concludes. With members in both chambers already on the record with their votes, the prospects for reconciling the two bills and enacting tax reform appear strong.

While the GOP works to pass the tax reform package without any Democratic support in either chamber, Republican leaders are negotiating with Democrats on a variety of other legislative items on which they will need Democratic votes. First on the agenda will be an extension of the current continuing resolution (CR) to keep the government funded and running beyond the current December 8 deadline. Republican leaders are aiming to extend the CR to December 22. During the two weeks under a new CR, they hope to strike a deal on spending levels for the current fiscal year, which began on October 1. In recent weeks, congressional leaders have been working to reach a budget agreement on discretionary spending levels. A deal would likely lift the spending caps established by the 2011 Budget Control Act (BCA). Under the BCA, Congress may only appropriate up to $549 billion for defense programs and $516 billion for non-defense programs in FY 2018, a cut from FY 2017 levels. The Trump Administration and defense hawks on Capitol Hill are looking to boost defense spending upwards of $600 billion, but Democrats are demanding that any increase in defense spending be met with a dollar-for-dollar increase in non-defense spending. Prior to the Thanksgiving recess, it was reported that congressional leaders were working towards a two-year budget deal that would raise statutory spending caps by $180 to $200 billion in total over the next two fiscal years, but an agreement has not yet been announced. Given the attention and floor time that has been dedicated to the GOP tax reform proposal, the House and Senate do not have enough time to continue negotiating a budget agreement and pass a major appropriations bill through both chambers before the December 8 deadline, hence the need for a short-term extension of current funding until December 22.

A setback to reaching a bipartisan spending agreement occurred last week when House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer decided to skip a scheduled negotiating session with Republican leaders at the White House following a tweet in which President Trump expressed his view that an agreement was unlikely because of stark political differences between the parties. In a joint statement, the Democratic leaders said they would not attend the meeting with the President but would instead focus on discussions with their Republican counterparts in Congress. Democrats still wield significant influence in these negotiations because any eventual legislation adjusting spending caps and authorizing spending will need Democratic support, due to expected opposition from fiscal conservatives in the House and the ability of Democrats to filibuster a spending bill in the Senate, where the legislation would require a 60-vote threshold. Pressing from the other direction, House conservatives have expressed displeasure with their leadership’s plans too. The conservatives want to push the entire funding debate into 2018. Some Republicans appear less concerned about a potential government shutdown than in the past because they believe with control of the White House they now have the leading pulpit and could avoid blame if Congress fails to extend the CR. Other Republicans fear that their control of both chambers and the presidency only increases their vulnerability to being blamed for a government shutdown.

The complexity and number of issues to be resolved may mean that additional time is needed beyond December 22 to finalize the legislative text of a year-long appropriations package. One possibility would be for Congress to extend the current CR to December 22 with bipartisan support and reach a deal on top-line budget numbers by that date but then extend the CR again into 2018 in order to produce the legislative text needed to reflect the spending agreement. In any case, the next week will have Capitol Hill in a state of great suspense with the tax conference and the negotiations over the CR both taking place.

One policy matter the minority party is pursuing in any eventual budget deal is a resolution to the ongoing debate over the Deferred Action for Childhood Arrivals (DACA) program. The DACA program, established by President Obama, allowed persons who were brought to the country illegally by their parents when they were children to remain in the country and work, serve in the armed forces, or attend school. The Trump Administration announced in September that it will end the program in March 2018 because it lacked congressional authorization. The delay in terminating the program is designed to give Congress a chance to enact legislation to authorize a similar program. Speaker Ryan formed a Republican working group in the House to develop a proposal on the issue, and Senate Republicans also reportedly established a working group to draft their approach. Several DACA-related bills have been introduced in the House and Senate. While public support for DACA beneficiaries is widespread, there are sharp differences over whether and how to authorize the program by law and whether to include border security and various enhanced immigration enforcement authorities in a DACA legislative package without alienating support from either party. Speaker Ryan has repeatedly told the press that he wants to see Congress consider any DACA fix separate from the FY 2018 spending legislation, but Democrats have indicated they will withhold their support for any appropriations bill that does not include protection for DACA beneficiaries. Senate Republicans too have expressed an unwillingness to consider DACA in the context of appropriations discussions. Whether Democrats will risk a government shutdown over the issue is unclear.

Another policy issue roiling the debate is the renewal of the Children’s Health Insurance Program (CHIP), which expired at the end of September. While the program has continued to function, many states are running out of money for it, so renewal of the program is a priority before the end of this year. The popular program, which enjoys broad, bipartisan support, is a major source of healthcare coverage for children nationwide, providing insurance to more than 8 million children from low- and middle-income working families. The House passed a bill in November providing for a five-year renewal of the program, but Democrats opposed the revenue sources used by Republicans to pay for the bill. The Senate Finance Committee reported its own bipartisan bill, also a five-year renewal, in November, but the offsets to pay for the renewal have not yet been disclosed, and the full Senate has yet to take up the measure. Staff of relevant committees in both chambers reportedly worked through the Thanksgiving recess to try to come to an agreement on reauthorization, and press reports indicate a bipartisan deal could be attached to either the short-term CR or the year-long appropriations measure.

In addition to the critical task of avoiding a government shutdown, Congress is also looking to deliver a third round of disaster relief funding to communities affected by Hurricanes Harvey, Irma and Maria and by western wildfires. In November, the White House requested an additional $44 billion in emergency aid and asked that Congress consider reducing spending elsewhere in order to offset the unbudgeted amounts. The amount of the aid request and the suggestion that appropriated funds be offset were widely criticized by members of both parties on Capitol Hill. The White House has not indicated whether the suggested offsets will be necessary in order to avoid a veto threat on eventual legislation. Several members have floated the idea of including a disaster-aid package in a stopgap funding measure or omnibus appropriations measure for FY 2018, but leadership may be wary of attaching additional items to the critical spending legislation. Congress has already authorized more than $50 billion in disaster aid since October and, as the damage assessments continue, further requests for assistance can be expected into 2018.

Lawmakers are also working towards extending the authorities provided by Section 702 of the Foreign Intelligence Surveillance Act. These authorities are set to expire on December 31. The surveillance authority is considered by the intelligence community to be a pillar of U.S. counter-terrorism efforts, but many privacy and civil liberties advocates are critical of the program and have called for reforms. National security hawks and privacy advocates on Capitol Hill have been debating how to reauthorize the program, for how long to extend the surveillance authority, and what enhanced civil liberties protections can be included in a renewal. Several competing bills have been introduced in both chambers. In early November, the House Judiciary Committee reported the USA Liberty Act, which would reauthorize the program for six years while strengthening civil liberty protections, with bipartisan support. A similar bill was recently introduced in the Senate by Senator Patrick Leahy (D-VT) and Mike Lee (R-UT) that places additional restrictions on intelligence activities. In October, the Senate Intelligence Committee advanced a bill that would extend Section 702 authority through 2025 and include modest reforms. Senators Rand Paul (R-KY) and Ron Wyden (D-OR) and a bipartisan group of House lawmakers have introduced legislation, the Uniting and Strengthening America by Reforming and Improving the Government’s High-Tech Surveillance (USA RIGHTS) Act, that would add more significant privacy protections under Section 702 and maintain the sunset clause requiring congressional reauthorization every four years. Finally, the House Intelligence Committee had waded into the debate with its own bill, providing less extensive civil liberties protection than the House Judiciary Committee’s bill. The Intelligence Committee reported its version of the bill last Friday on a party-line vote. The White House has called for a permanent reauthorization of Section 702, without any additional restrictions on the surveillance authority, but has indicated support for the bill reported out of the Senate Intelligence Committee. It remains unclear which bill will advance, but the likelihood is that the renewal of the authority will be included in the full-year appropriations bill. It is also possible that Congress will be unable to resolve the disputes and will simply renew the authority for a year in the appropriations bill to allow further discussion of the issues.

Finally, we can expect the Senate to continue to process nominations through the month during legislative lulls. The nomination of Kirstjen Nielsen to be Secretary of Homeland Security is pending before the Senate on the Executive Calendar. The nomination of Alex Azar to be Secretary of Health and Human Services is also likely to be reported out of committee in coming weeks; both Cabinet nominees are likely to receive floor votes in December. The Senate is also likely to continue confirming President Trump’s judicial nominees, especially those for the courts of appeals, through the month, as well as nominees to regulatory agencies.

The Week Ahead in the European Parliament – December 1, 2017

Summary

This week is a political group week at the European Parliament. Throughout the week, MEPs will meet in their political groups ahead of the December Plenary session, scheduled for December 11-14, 2017. They will discuss, among other topics, the Brexit negotiations, the final report on money laundering, tax avoidance and tax evasion and the possibility of extending the  European Fund for Strategic Investments (“EFSI”).

On Monday, the Committee on Economic and Monetary Affairs (“ECON”) and the Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) will vote on a draft report by Mady Delvaux (S&D, Luxembourg) and Juan Fernando López Aguilar  (S&D, Spain) concerning the control and checks of cash leaving or entering the European Union. The objective of these new measures is to enhance detection of money laundering and the sponsorship of illegal activities, including terrorism. The report also broadens the definition of “cash” to cover commodities such as prepaid cards or gold bars. See the Commission’s proposal here, and the draft report here.

On Thursday, MEPs from the Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) will question members of the government of Hungary, given the state of the rule of law in the Member State. This session was requested by the Plenary in October, as part of the European Parliament’s assessment of whether there is any threat of serious breaches of EU values in the country.

On the same day, Jeroen Dijsselbloem, President of the Eurogroup, will attend a meeting of the Committee on Economic and Monetary Affairs (“ECON”) to discuss the budgetary plans and then general monetary situation in the Eurozone, as well as the Economic and Monetary Union (“EMU”). His successor is scheduled to be appointed on Monday, December 4, 2017, three days earlier.

Meetings and Agenda

Monday, December 4, 2017

Committee on Foreign Affairs

15:00 – 18:30 

  • Public hearing – Prospects for Libya in the current regional context. The hearing will assess the current political and security situation in Libya, stabilisation efforts as well as EU role, ahead of the two-years deadline of the Libyan Political Agreement
  • Exchange of views with Ditmir BUSHATI, Minister for Foreign Affairs of the Republic of Albania

Committee on Development

15:00 – 18:30

  • 2016 discharge: EU general budget – 8th, 9th, 10th and 11th EDFs
    • Rapporteur for the opinion: Doru-Claudian FRUNZULICĂ (S&D, RO) – 2017/2146(DEC)
  • Mid-term review of the Development Cooperation Instrument (DCI) and the European Development Fund (EDF) – Discussion with Stefano MANSERVISI, Director-General of DG DEVCO of the European Commission, in preparation for the 2018 Strategic Dialogue
  • Humanitarian conditions in Libya – Discussion with Vincent COCHETEL, UNHCR Special Envoy for the Central Mediterranean Route

Committee on International Trade

15:00 – 18:30

  • First discussion on EU –Singapore FTA
  • Annual report on the implementation of the Common Commercial Policy (2017/2070(INI)) – discussion
    • Rapporteur: Tokia SAÏFI (EPP, FR)
  • Preparations for the 11th WTO Ministerial Conference in Buenos Aires – discussion

Committee on Budgets

15:00 – 18:30

Voting time

  • EU guarantee to the European Investment Bank against losses under financing operations supporting investment projects outside the Union (COD) – Vote on the provisional agreement resulting from interinstitutional negotiations (to be confirmed)
    • Rapporteur: Eider GARDIAZABAL RUBIAL (S&D, ES)
  • Guarantee Fund for external actions (COD) – Vote on the provisional agreement resulting from interinstitutional negotiations (to be confirmed)
    • Rapporteur: Eider GARDIAZABAL RUBIAL (S&D, ES)
  • Establishing a centralised system for the identification of Member States holding conviction information on third country nationals and stateless persons (TCN) to supplement and support the European Criminal Records Information System (ECRIS-TCN system) (COD) – Consideration and adoption
    • Rapporteur for the opinion: Bernd KÖLMER (ECR, DE)
  • European Solidarity Corps (COD) – Consideration and adoption
    • Rapporteur for the opinion: Tiemo WÖLKEN (S&D, DE)

Continue Reading

House Tax Bill Opens Door to Expanded Political Activity By Charities

There is one very important political law provision to watch as the tax bill moves to a final vote in the Senate, and potentially a conference committee reconciles the House and Senate versions.  This amendment will remove the ban on partisan political activities by charitable entities, churches, educational institutions and all other organizations exempt from tax under Section 501(c)(3) of the tax code.  If adopted, this change could have a significant effect on the flow of money in future election campaigns.  Here is a short description of the current state of the law, and why the language in the House bill could have a sweeping impact.

Currently, the IRS can revoke the tax-exempt status of a 501(c)(3) organization, such as a church, school, or foundation, if it participates or otherwise intervenes in a political campaign, which includes statements made by representatives of an organization on behalf of, or in opposition to, a political candidate.  This bright line rule has been in place since 1954.  While President Trump issued an Executive Order in May instructing the Treasury Department “to the greatest extent practicable” not to take adverse action against religious organizations for speech on “political issues,” that discretion must be exercised consistent with existing law.The original House tax bill contained a modest exception to current law, ensuring that an entity would not lose its status as “exclusively operated for religious purposes” if the content of a “homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings” contained political content, so long as it occurred in the “ordinary course” of the organization’s regular activities, and resulted in no more than de minimis incremental expenses.House Ways and Means Committee Chairman Kevin Brady proposed an amendment, which was adopted into the final House bill, that dramatically expanded that exception to include all organizations exempt under Section 501(c)(3), not just religious organizations, in any of their normal operations, again, so long as they did not incur more than de minimis incremental expenses.  There was no similar language in the Senate Finance Committee’s bill released last week.

There are several reasons why the House language, if included in the final bill, would likely result in widespread involvement of 501(c)(3) organizations in political campaigns.

First, having the limits set at “not more than de minimis incremental expenses” will presumably allow these organizations to shift certain existing fixed costs, such as in-house staff, to partisan political activity, for this will not result in any “incremental expenses.”  In addition, much internet advocacy involves only de minimis incremental expenses.  Finally, ambiguities in interpreting what “de minimis” and “incremental” mean will presumably come within the Presidential Executive Order’s directive that “to the greatest extent practicable” the provisions shall be interpreted to favor more political speech.

Second, for donors interested in political spending, politically active 501(c)(3) organizations are vastly preferable to other types of nonprofits, for they contain a double tax advantage: not only is the entity exempt from tax on the income it receives, the donors also may deduct their contributions from their income taxes.

Third, 501(c)(3) organizations, like social welfare organizations operating under Section 501(c)(4), are not required to disclose the identity of their donors.  This makes charities unlike more transparent political entities, such as candidate campaigns, party committees, PACs and Super PACs, which must disclose their donors.

If this provision makes it into law, we should expect to see the rapid growth of 501(c)(3) “educational” organizations with significant political operations, as well as existing churches and charities becoming more active politically.  While the House bill provides for this provision to sunset in 2023, between now and then, if enacted, we would expect significant political activity to move into the charitable space.

Covington attorneys are closely tracking tax legislation as it moves through Congress.  If you think you or your organization may be affected by the proposal discussed herein or any other part of tax reform, please let us know.

The Week Ahead in the European Parliament – November 27, 2017

Summary

This week is a mixed committee and mini plenary week at the European Parliament. Several interesting meetings and votes will take place.

On Wednesday, the European Parliament’s plenary session will debate the annual EU budget for the year 2018. Before it can be signed off by Parliament President Antonio Tajani, the provisional agreement negotiated by the Parliament and EU Member States must be approved by the plenary. In the 2018 budget, MEPs advocated for youth unemployment support and supplementary funding for SMEs. See the Commission’s draft budget proposal here, and the budgetary conciliation report tabled for the plenary session here.

On the same day, MEPs will debate the idea of a multilateral court for the arbitration of trade conflicts, as opposed to the existing investor-state dispute settlement mechanisms. MEPs are expected to call on the Commission to acknowledge that disputes in trade partnerships, such as CETA or TTIP, should be adjudicated on by such as court. See the Commission’s recommendation for a Council decision on the matter here.

On Thursday, MEPs will vote on a report on VAT obligations for supplies of services and distance sales of goods. The new legislation would facilitate the cross-border exchange of information between national authorities in order to combat VAT fraud. The legislation would also simplify VAT rules for e-commerce. See the Committee on Economic and Monetary Affairs’ report here, and the Commission’s proposal here.

Meetings and Agenda

Monday, November 27, 2017

Committee on Budgetary Control

15:00 – 18:30 

  • 2016 discharge: EU general budget – Commison (DEC). Discussion with Commissioner Marianne THYSSEN, responsible for Employment, Social Affairs, Skills and Labourt Mobility, in the presence of Iliana IVANOVA, Member of the European Court of Auditors responsible
    • Rapporteur: Joachim ZELLER (EPP, DE)

Committee on Economic and Monetary Affairs, jointly with Committee on Employment and Social Affairs

15:00 – 18:00

Joint meeting with the Committee on employment and Social Affairs (15.00-16.45)

  • Economic Dialogue, Annual Growth Survey discussion and Alert Mechanism report with Valdis DOMBROVSKIS, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Stability, Financial Services and Capital Markets Union and Pierre MOSCOVICI, Commissioner for Economic and Financial Affairs, Taxation and CustomsCommittee on Economic and Monetary Affairs (16.45-18.00)
  • Economic Dialogue and exchange of views on the Commission’s opinion on Draft Budget Plans of euro area member state, with Valdis DOMBROVSKIS, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Stability, Financial Services and Capital Markets Union and Pierre MOSCOVICI, Commissioner for Economic and Financial Affairs, Taxation and Customs

Committee on Employment and Social Affairs

15:00 – 16:45

  • Economic Dialogue and exchange of views on Annual Growth Survey with Valdis DOMBROVSKIS, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Stability, Financial Services and Capital Markets Union and Pierre MOSCOVICI, Commissioner for Economic and Financial Affairs, Taxation and Customs 

Committee on the Environment, Public Health and Food Safety

15:00 – 18:30

  • Agenda not available

Committee on Civil Liberties, Justice and Home Affairs

15:00 – 18:30

  • CEAS reform package – discussion on state of play with different legislative proposals by the Commission and Estonian Council Presidency’s view to ensure coherence throughout CEAS (15.00-16.00)
  • Infringement procedure against UK (CSI and free movement) – discussion with the Commission (16.00-16.30)
  • ETIAS (COD) – joint discussion on state of play of interinstitutional negotiations on two reports by Kinga GÁL (EPP, HU) (16.30-16.45)
  • i-OCTA 2017 – discussion with Philipp AMANN, Head of Unit Strategy, European Cybercrime Centre (Europol) (16.45-17.30)
  • Eurojust (COD) – discussion on state of play of interinstitutional negotiations (17.30-17.45)
  • Progress report on European Agenda on Migration and Fifth report on operationalisation of European Border and Coast Guard – discussion with Commission
    • Rapporteur: Axel VOSS (EPP, DE)

Tuesday, November 28, 2017 

Committee on International Trade

14:30-18:30

  • Discussion on Macro-Financial Assistance
  • Discussion on Report on Implementation of Free Trade Agreements

Committee on Budgetary Control

09:00 – 18:30

  • 2016 discharge: EU general budget – Commission (DEC). Discussion with Commissioner Phil HOGAN, responsible for Agriculture and Rural Development with Nikolaos MILIONIS, Member of the European Court of Auditors responsible. Followed by a short presentation of the recently published ECA Special Report (No 15/2017): Ex-ante conditionalities and performance reserve in Cohesion (9.00-12.30)
  • Respective rapporteurs: Joachim ZELLER (EP, DE) and Georgi PIRINSKI (S&D, BG)
  • ECA Special Report 17/2017: Commission’s intervention in Greek financial crisis. Presentation by Baudilio Tomé MUGURUZA, ECA Member responsible (14.30-15.30)
    • Rapporteur: Hannu TAKKULA (ALDE, FI) 

Committee on Employment and Social Affairs

09:00 – 12:30

  • Coordination of social security systems – Consideration of draft report
    • Rapporteur: Guillaume BALAS (S&D, FR)
  • Protection of workers from risks when exposed to carcinogens or mutagens at work – Consideration of draft report
    • Rapporteur: Claude ROLIN (EPP, BE)
  • Presentation of Commission staff working document Employment and Social Developments in Europe 2017 (ESDE)

Committee on the Environment, Public Health and Food Safety

Votes

  • Objection pursuant to Rule 106: phosphates in meat – Adoption of motion for a resolution.
    • Rapporteurs: Christel SCHALDEMOSE (S&D, DA), Bart STAES (Greens/EFA, BE)
  • Objection pursuant to Rule 106: the use of sweeteners in fine bakery wares – Adoption of motion for a resolution
    • Rapporteur: Françoise GROSSETÊTE (EPP, FR)
  • Objection pursuant to Rule 106: Technical standards for the establishment and operation of a traceability system for tobacco products – Adoption of motion for a resolution
    • Rapporteur: Piernicola Pedicini (EFDD, IT)
  • Objection pursuant to Rule 106: Technical standards for security features applied to tobacco products – Adoption of motion for a resolution
    • Rapporteur: Piernicola Pedicini (EFDD, IT)
  • Objection pursuant to Rule 106 : Renewing the approval of the active substance glyphosate (revised Commission draft act) – Adoption of motion for a resolution
    • Rapporteur: Kateřina KONEČNÁ (GUE/NGL, CZ)
  • A global end to animal testing for cosmetics – Adoption of questions for oral answer
    • Co-rapporteurs: Sirpa PIETIKÄINEN (EPP, FI), Miriam DALLI (S&D, MT), Julie GIRLING (ECR, UK), Frédérique RIES (ALDE, BE), Stefan ECK (GUE/NGL, DE), Eleonora EVI (EFDD, IT), Marco AFFRONTE (Greens/EFA, IT), Sylvie GODDYN (ENF, FR)
  • Agreement between the European Union and the Swiss Confederation on the linking of their greenhouse gas emissions trading systems – Adoption of draft report
    • Rapporteur: Christofer FJELLNER (EPP, SV)
  • International ocean governance: an agenda for the future of our oceans in the context of the 2030 SDGs – Adoption of draft report
    • Rapporteur: José Inácio FARIA (EPP, PT)
  • European Solidarity Corps – Adoption of draft opinion –
    • Rapporteur: Eleonora FORENZA (GUE/NGL, IT)
  • Cost-effective emission reductions and low-carbon investments – Vote on the provisional agreement resulting from interinstitutional negotiations –
    • Rapporteur: Julie GIRLING (ECR, UK)

End of votes

  • Public hearing – The Impact of the UK’s withdrawal from the EU on the environment, public health and food safety

Committee on Industry, Research and Energy

09:00 – 18:30

Votes

  • Promotion of the use of energy from renewable sources (recast) – Adoption of draft report
    • Rapporteur:José BLANCO LÓPEZ (S&D, ES)
  • Energy efficiency – Adoption of draft report
    • Rapporteur: Adam GIEREK (S&D, PL)

End of votes

  • Exchange of views with Mr Tibor NAVRACSICS, Commissioner for Education, Culture, Youth and Sport, as part of the Structured Dialogue
  • Study on “Review of EU-third country cooperation on policies falling within the ITRE domain in relation to Brexit”, presentation by J. Scott MARCUS

Committee on Fisheries

09:00 – 18:30

  • Discussion with João AGUIAR MACHADO, Director General of DG MARE, European Commission

Committee on Civil Liberties, Justice and Home Affairs

09:00 – 18:15

  • Hearing on agreements and cooperation with third countries on migration management and return. The objective of the hearing is to address key elements of the EU external action with third countries on migration management and as regards the EU policy on return. The hearing is structured in three panels: cooperation with third countries and democratic oversight, Mobility Partnerships as an instrument for dialogue and cooperation and EU return policy
  • Implementation and funding of migration related activities in Libya – Discussion with representatives of the Italian Ministry of the Interior, European Commission, European External Action Service and the Estonian Council Presidency (14.30-16.00)
  • Joint meeting with the Women’s Rights and Gender Equality Committee on Report on implementation of Directive 2011/99/EU
  • European Migration Network – Study on illegal employment of third-country nations in the EU – Discussion with a representative of the German National Contact Point of the EMN Federal Office for Migration and Refugees (16.45-17.30)
  • Eurodac system for the comparison of fingerprints of applicants for international protection and identifying illegally staying third-country nationals or stateless persons
    • Rapporteur: Monica MACOVEI (ECR, RO) 09:00 – 18:30

Committee on Constitutional Affairs, jointly with the Committee of Petitions

  • European citizens’ initiative – discussion with Frans TIMMERMANS, First Vice-President of the European Commission on the new proposal for a regulation (15.30-16.30)
  • Workshop on the implications of Brexit on the Irish border (16.30-18.00)
  • Joint meeting with the Committee on Legal Affairs on the interpretation and implementation of the interinstitutional agreement on Better Law-Making (18.00-18.30)

Committee on Petitions, jointly with the Constutional Affairs Committee meeting

09:00 – 18:30

  • European citizens’ initiative – Discussion with Frans TIMMERMANS, First Vice President of the European Commission on the new proposal for regulation (15.30-16.30)  

Wednesday, November 29, 2017

  • Plenary session

15:00 – 23:00

 Debates

  • 2018 budgetary procedure
  • Decision adopted on the State of energy Union 2017
  • Decision adopted on the Fair Taxation package II
  • Transitional arrangements for mitigating the impact of the introduction of IFRS 9
  • Instrument contributing to stability and peace
  • Situation in Yemen
  • Negotiations for a Convention establishing a multilateral court for the settlement of investment disputes (MIC)

Committee on Agriculture and Rural Development

19:00-21:30

  •  “The Future of Food and Farming” – Presentation of the Commission Communication by Phil HOGAN, Commissioner for Agriculture and Rural Development

Thursday, November 30, 2017

Plenary Session

09:00 – 11:20 Debates

  • Ranking of unsecured debt instruments in insolvency hierarchy
  • Implementation of the European Disability Strategy

11:30-13:30 Votes and explanation of votes

  • Draft amending Budget No 6/2017: Reduction of payment and commitment appropriations in line with updated forecasts of expenditure and update of revenue (own resources and fines)
    • Committee: BUDG
    • Rapporteur: Jens GEIER (S&D, Germany)
  • Mobilisation of the European Union Solidarity Fund to provide for the payment of advances in the general budget 2018
    • Committee: BUDG
    • Rapporteur: Inese VAIDERE (EPP, LV)
  • Mobilisation of the Flexibility Instrument to finance immediate budgetary measures to address the on-going challenges of migration, refugee inflows and security threats
    • Committee: BUDG
    • Rapporteur: Siegfried MUREŞAN (EPP, RO)
  • Mobilisation of the European Globalisation Adjustment Fund: application EGF/2017/003 GR/Attica retail
    • Committee: BUDG
    • Rapporteur: Marie-Pierre VIEU (GUE-NGL, FR)
  • Mobilisation of the European Globalisation Adjustment Fund: application EGF/2017/005 FI/Retail
    • Committee: BUDG
    • Rapporteur: Răzvan POPA (S&D, RO)
  • 2018 budgetary procedure
    • Committee: BUDG
    • Rapporteurs: Siegfried MUREŞAN (EPP, RO), Richard ASHWORTH (ECR, UK)
  • Changes to the resources for economic, social and territorial cohesion and to the resources for the investment for growth and jobs goal and for the European territorial cooperation goal
    • Committee: REGI
    • Rapporteur: Iskra MIHAYLOVA (ALDE, BG)
  • EU-Egypt Agreement for scientific and technological cooperation: participation of Egypt in the Partnership for Research and Innovation in the Mediterranean Area (PRIMA)
    • Committee: ITRE
    • Rapporteur: Sofia SAKORAFA (GUE-NGL, GR)
  • EU-Algeria Agreement for scientific and technological cooperation: participation of Algeria in the Partnership for Research and Innovation in the Mediterranean Area (PRIMA)
    • Committee: ITRE
    • Rapporteur: Sofia SAKORAFA (GUE-NGL, GR)
  • EU-Lebanon Agreement for scientific and technological cooperation: participation of Lebanon in the Partnership for Research and Innovation in the Mediterranean Area (PRIMA)
    • Committee: ITRE
    • Rapporteur: Sofia SAKORAFA (GUE-NGL, GR)
  • EU-Jordan Agreement for scientific and technological cooperation: participation of Jordan in the Partnership for Research and Innovation in the Mediterranean Area (PRIMA)
    • Committee: ITRE
    • Rapporteur: Sofia SAKORAFA (GUE-NGL, GR)
  • Accession of Chile, Iceland and Bahamas to the 1980 Hague Convention on the Civil Aspects of International Child Abduction
    • Committee: JURI
    • Rapporteur: Angel DZHAMBAZKI (ECR, BG)
  • Accession of Panama, Uruguay, Colombia and El Salvador to the 1980 Hague Convention on the Civil Aspects of International Child Abduction
    • Committee: JURI
    • Rapporteur: Angel DZHAMBAZKI (ECR, BG)
  • Accession of San Marino to the 1980 Hague Convention on the Civil Aspects of International Child Abduction
    • Committee: JURI
    • Rapporteur: Angel DZHAMBAZKI (ECR, BG)
  • Accession of Georgia and South Africa to the 1980 Hague Convention on the Civil Aspects of International Child Abduction
    • Committee: JURI
    • Rapporteur: Angel DZHAMBAZKI (ECR, BG)
  • Transitional arrangements for mitigating the impact of the introduction of IFRS 9
    • Committee: ECON
    • Rapporteur: Peter SIMON (S&D, GE)
  • Instrument contributing to stability and peace
    • Committee: AFET
    • Rapporteur: Arnaud DANJEAN (EPP, FR)
  • Ranking of unsecured debt instruments in insolvency hierarchy
    • Committee: ECON
    • Gunnar HÖKMARK (EPP, SW)
  • Value added tax obligations for supplies of services and distance sales of goods
    • Committee: ECON
    • Rapporteur: Cătălin Sorin IVAN (S&D, RO)
  • Administrative cooperation and combating fraud in the field of value added tax
    • Committee: ECON
    • Rapporteur: Luděk NIEDERMAYER (EPP, CZ)
  • Situation in Yemen
  • Implemenation of the European Disability Strategy
    • Committee: EMPL
    • Rapporteur: Helga STEVENS (ECR, BE)

 

 

 

 

 

 

The Week Ahead in the European Parliament – November 17, 2017

Summary

This past week was a plenary week in the European Parliament, during which many significant initiatives were adopted by the Parliament.

Last Tuesday, MEPs approved new EU-wide rules for shopping online, in an attempt to protect consumers against fraud and to stop rogue traders in a more efficient manner. Through the revised Consumer Protection Cooperation (CPC) regulation, national enforcement authorities will gain increased capabilities to detect and stop breaches of consumer protection laws online. The coordination between EU Member States will also be improved. See the text adopted here.

On the same day, MEPs debated the “Paradise Papers”, the latest leak of documents that show how individuals seek to minimise their tax liabilities. In a statement, MEPs called on EU Member States to crack down on tax avoidance. For further information, see here.

Last Wednesday, after a fierce debate in the plenary, MEPs adopted a resolution wherein they called on the Council to trigger Article 7 of the Treaty on the European Union against Poland. In the resolution, MEPs states that basic European values are at risk in Poland. The triggering of Article 7 could result in the suspension of Poland’s voting rights in the Council of the EU, but would most likely be vetoed by Hungary. See the resolution here.

Next week will be very busy in the European Parliament, as it is a committee week.

On Tuesday, the Committee on the Internal Market and Consumer Protection (“IMCO”), jointly with the Committee on Legal Affairs (“JURI”), will vote on a draft report on new consumer protection rules that will protect buyers when digital goods purchased online, such as games, films or music, are defective and fail to work. The safeguards include guarantee periods and refunds. See the Commission’s proposal here.

On the same day, the Committee on Legal Affairs (“JURI”) will vote on a draft report and on whether to enter into interinstitutional negotiations on a regulation concerning copyright and related rights applicable to online transmissions of broadcasting organisations and retransmissions of television and radio programmes. The regulation would facilitate the distribution of online TV and radio contents across the EU. See the draft report here, and the Commission’s legislative proposal here.

On Thursday, the Committee on International Trade (“INTA”) will vote on a draft report on setting up an EU regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use items. The draft report strengthens export control on these items, which can include cyber-surveillance technologies, chemicals, explosive-resistant armour, radio equipment and lasers, among others. See the draft report here. Continue Reading

China to Broaden Market Access for Foreign Investors in Financial Services

In the wake of the Chinese Communist Party’s 19th Party Congress, and US President Donald Trump’s visit to China, the Ministry of Finance has announced a high-level roadmap for broadening market access for foreign investors in the financial services industry. This policy development, long under discussion, is part of an effort by the Chinese leadership to bolster deteriorating foreign investor sentiment in the country. Some observers have suggested that the timing of the announcement—immediately after Mr. Trump’s visit—suggests that it is meant to be a kind of gift from Chinese President Xi Jinping to Mr. Trump. Others have surmised that its timing may have been chosen to emphasize that China is committed to opening its markets, but on its own timeline.

Announced on November 10 by Vice Minister of Finance Zhu Guangyao, the roadmap (which was conveyed in oral form, not in the form of a written document) suggests that the Chinese government may fulfill some longstanding requests of foreign investors interested in the industry. According to Mr. Zhu:

  • The current 49% cap on foreign investment in securities companies, securities fund management companies, and futures companies will be raised to 51%; three years after this change, the cap will be lifted altogether, allowing 100% foreign ownership.
  • The current restriction that foreign commercial banks may only own up to 20% of a domestic Chinese bank or financial asset management company (or 25% if there are multiple foreign investors) will be eliminated, allowing for 100% foreign ownership.
  • In three years (the starting point is unclear), foreign investors will be allowed to own up to 51% of life insurance companies (currently, the cap is set at no more than 50%); this cap will be eliminated, allowing for 100% foreign ownership, after five years.

The government’s intent to liberalize market access in the financial services sector does not come as a surprise. Since the beginning of 2017, the State Council has issued multiple notices recommending such changes. The newly announced roadmap appears to be a natural next step in the evolution of this policy.

It is important for foreign investors to keep in mind that this roadmap was a high-level oral announcement, with detailed implementing rules yet to be issued. The timing of and substantive details contained in those implementing rules remain unclear at this time.

For instance, it is possible that China could attempt to use the anticipation surrounding these prospective changes as leverage for negotiating concessions from the U.S., thereby introducing a certain degree of uncertainty. During Mr. Trump’s visit to Beijing, Chinese officials sought lesser scrutiny for Chinese investments in the U.S. (particularly in the high-tech sector), asked for the granting of a financial license for the China International Capital Corporation (“CICC”), and urged “prudence” in the use of trade remedies. With a number of different agencies involved in regulating financial services, internal political factors could also cause delays. Just before the announcement of the new roadmap, a spokesperson for the Ministry of Foreign Affairs said that the easing of market entry barriers would take place “in accordance with China’s own timetable and roadmap.”

The substantive details can also affect the practical benefits of this potential policy change. As government agencies begin to formulate implementation rules, foreign investors are advised to carefully monitor accompanying details such as registered capital requirements, permitted business scopes, application quotas, geographic applicability (e.g., nationwide vs. in free trade zones), anti-trust treatment, rules related to foreign investment in state-owned enterprises, and provisions on the remittance of profits overseas.

Despite uncertainties, the promise of visible progress towards the opening of the financial services sector to greater foreign investment is a significant, positive development for a foreign business community in China that is seeking greater recognition of its contributions to the country’s development and a renewed commitment to continuing China’s long and gradual process of opening its markets.

Eunice Li of Covington & Burling LLP contributed to the research and preparation of this article.

House of Representatives Seeks to Strengthen Subpoena Enforcement Dramatically

In late October, the House of Representatives quietly approved a bill that would dramatically strengthen Congress’s procedures for enforcing congressional subpoenas.  In adopting the bill, the bipartisan leadership of the House Judiciary Committee highlighted the challenges that Congress faces in obtaining materials from executive branch agencies.  Significant portions of the bill, however, apply to all congressional subpoenas, including subpoenas issued to private sector individuals and entities.

After passing the House, the legislation is currently pending in the Senate Judiciary Committee.  The staff of the Senate Judiciary has indicated an interest in enhancing Congress’s subpoena enforcement procedures.  In 2015 and 2016, the Senate engaged in a lengthy legal battle to enforce a subpoena against Backpage, an online forum accused of contributing to sex trafficking, and its CEO Carl Ferrer.  We therefore believe that legislation to strengthen congressional subpoena enforcement is likely, but it is not yet clear whether the Senate will support the House bill or propose its own alternative.

The key provisions of the bill, H.R. 4010, the Congressional Subpoena Compliance and Enforcement Act, include the following:

  • The bill would establish special rules applicable only to civil litigation brought by Congress to enforce a subpoena. Courts would be required to “expedite to the greatest possible extent” the resolution of such cases.  Congress would be permitted to request a hearing before a three-judge panel of the district court, rather than proceeding through the usual district court process.  In such instances, the legislation would eliminate intermediate appeals – any appeal would go directly to the Supreme Court.
  • The legislation would authorize “monetary penalties” against the head of a government agency found by a court to have willfully failed to comply with any part of a congressional subpoena. Importantly, the legislation would prohibit the use of any government funds to pay the penalty, presumably leaving the government official personally on the hook.
  • In a change that has significant implications for companies and individuals that receive congressional subpoenas, the legislation would provide that privileges against responding to a subpoena may be waived if a recipient does not specifically assert the privilege in a detailed privilege log provided to Congress.
  • The legislation also prescribes – with extreme precision – the information that a subpoena recipient must include in a privilege log. The bill would require, for each record withheld, the following:
    • “An express assertion and description of the legal basis asserted for withholding the record.”
    • The type and general subject matter of the record, and the date, author, addressee, and custodian of the record.
    • “The relationship of the author and addressee to each other.”
    • “Any other descriptive information that may be produced or disclosed regarding the record that will enable the congressional committee or subcommittee issuing the subpoena to assess the legal basis asserted for withholding the record.”
  • The legislation would require that subpoena respondents submit electronic information to Congress in the native electronic format.
  • Finally, the legislation reiterates Congress’s longstanding position that it is not bound by common law privileges, including the attorney-client privilege. The bill states that the legislation may not be interpreted “to establish Congress’ acceptance of any asserted privilege or other legal basis for noncompliance with a congressional subpoena.”

Recent disputes between Congress and subpoena recipients – including the Fast and Furious investigation in the Obama Administration and the Senate’s investigation of Backpage – would likely have evolved very differently under the procedures proposed in this legislation.  Indeed, the privilege log requirement may be a direct reaction to issues Congress confronted with Backpage.

Although the legislation was sponsored entirely by Republican Members of Congress, it passed the Judiciary Committee unanimously, and it passed the House under suspension of the rules, which requires a two-thirds supermajority.  Although congressional subpoenas are often the subject of partisan conflict, the wide support for this legislation likely reflects the parties’ shared institutional interests in seeing subpoenas enforced.

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