AI Update: What Happens When a Computer Denies Your Insurance Coverage Claim?

Artificial intelligence is your new insurance claims agent. For years, insurance companies have used “InsurTech” AI to underwrite risk. But until recently, the use of AI in claims handling was only theoretical. No longer. The advent of AI claims handling creates new risks for policyholders, but it also creates new opportunities for resourceful policyholders to uncover bad faith and encourage insurers to live up to their side of the insurance contract.Most readers are familiar with Lemonade, the InsurTech start-up that boasts a three-second AI claims review process. However, as noted in a Law360 article last year, Lemonade deferred any potential claim denials for human review, so the prospect of AI bad faith is still untested.  Now it is only a matter of time before insurers face pressure to use the available technology to deny claims as well.So what happens when a claim is denied?

Ordinarily policyholders, on top of proving that the claimed loss is covered, may assert bad faith. Unlike routine breach of contract claims, a bad faith claim against an insurer is a tort claim based on the insurer’s alleged breach of the duty of good faith and fair dealing. If a policyholder prevails on a bad faith claim, it may be entitled to attorneys’ fees and punitive damages. Bad faith claims provide a counterweight to insurance companies’ information advantages, and can dramatically increase potential damages.

Discovery for Digital Decisionmakers

To prove bad faith, the policyholder usually collects documents and testimony from the responsible claims reviewer. Though the standard for reasonable AI is unsettled, policyholders will likely need to follow an equivalent process. InsurTech claims handling ranges in complexity, so policyholders will face varied challenges in martialing evidence of bad faith.

A basic example is Strawn v. Farmers Insurance Company of Oregon (2013).  In Strawn, the Oregon Supreme Court greenlit a jury award that included $9 million in punitive damages to a class of policyholders challenging Farmers’ “cost containment software program.” Policyholders demonstrated that the program automatically rejected medical claims for costs above the 80th percentile, rather than reasonably assessing claims. In cases like these, a policyholder can simply show that the computer will faithfully apply what is, in essence, a systemic “bad faith” claims rejection system.

Discovery Challenges for Sophisticated AI

Strawn leaves many questions unanswered. The future role of AI is not applying simple formulas, but rather using neural networks to “learn” and reason in ways that their human creators may not fully understand. So the challenge becomes replicating documentation of the AI’s human-like reasoning process.

Policyholders should start by seeking the source code, software specification documents, and experts who can explain how the software was designed to work. For example, in the 2014 case Audatex North America Inc. v. Mitchell Intern., Inc., the Southern District of California granted a plaintiff’s request to obtain source code and related inquiries to help understand the code.

Creative policyholders will then need to devise ways to replicate the AI’s “learned” decision-making process. This might include seeking data on the outcomes of claims processed before the denial at issue, or testing hypothetical claims through the AI system. Depending on how sophisticated the user interface is, discovery may even involve posing inquiries to the AI about the insurer’s goals.

Opportunities for Policyholders

The flip side of that complexity is that bad faith discovery may encourage early cooperation from the insurer. With their technology on the line, insurers may have a heightened incentive to pay what is due or otherwise settle before discovery for several reasons:

  1. Proprietary Code: As AI processes gain sophistication, technology companies must guard their proprietary designs. Insurance companies who give up the underlying code for one claim open themselves to threats of liability to those companies.
  2. Confidentiality: AI technology is only as sophisticated as its data inputs, and the best way to “train” it is to provide data inputs from the insurer’s other claims. This creates a conundrum when the substance of those claims is confidential. An insurance company faces a dilemma if it reveals such information in the course of litigating a claim.
  3. Systemic Bad Faith: Analogous to Strawn, if the acquired code reveals systemic bad faith, an insurer risks invoking dramatically increased liability, like class action litigation.  That would add on to the costly rollback of claims-processing infrastructure and likely outweigh the cost of covering the single claim.

Because of this triple threat to the insurer’s bottom line, the prospect of discovery for a bad faith claim may help policyholders better protect themselves from insurer bad faith going forward. Policyholders should pay careful attention to their insurers and ask questions during underwriting about the claims handling process, with an eye to whether and how AI is used. And if a claim becomes likely, policyholders should carefully assess whether a possible bad faith claim and discovery into InsurTech reasoning provides opportunities to reach a good outcome.

The Week Ahead in the European Parliament –  Monday, March 18, 2019

Summary

This week both Committee meetings and Political group meetings will take place in the European Parliament. Members of the European Parliament (“MEPs”) will prepare the plenary session that will be held next week in Strasbourg.  However, interesting events, votes and debates are set to take place.

On Tuesday, March 19, a press conference will be given on MEP Nirj Deva’s (ECR, UK) idea of launching a European Policy Coordination Committee of China’s Belt and Road Initiative (“BRI”) in Europe.  Last week, it was announced that the Italian government intends to sign a preliminary accord for infrastructure projects with Xi Jinping during his visit to Rome later this month.  The idea is a response to the EU’s growing frustration of a dispersed China strategy.  Not much information on this idea is yet available.  In parallel with Italy’s announcement, the European Commission published a renewed EU-China strategic outlook, stressing that China is (also) a strategic competitor and that dealing with China required rethinking economic law.  A unified approach, especially on China’s BRI is desired by the Commission as the BRI is already involved with several (South) Eastern-European countries.  See the Commission’s paper here.

On Thursday, March 21, the Committee on Civil Liberties, Justice, and Home Affairs (“LIBE”) will vote on a draft report prepared by MEP Dalton Daniel (ECR, UK) on a Regulation on Preventing the Dissemination of Terrorist Content Online. As we reported at the beginning of February, MEP Dalton has expressed concern about the Commission’s proposal, which includes an obligation for social media platforms to take down flagged terrorist content within one hour.  The draft report reduces the scope of the proposed regulation to apply only to publically available content.  The one-hour deadline, however, remains in play.  The report also weakens the monitoring obligations for social media platforms but does not exclude any pro-active measures that platforms are required to take.  See the draft report here.

On Thursday, March 22, LIBE will also debate on a reasoned proposal on the State of Play for the procedure under Article 7(1) TEU regarding Hungary.  MEPs will assess the progress that has been made by the Council in determining, on request by the European Parliament, whether Hungary is breaching or is at risk of breaching the fundamental values.  Commission First Vice-President Frans Timmermans and the Romanian Council presidency are also invited to the discussion.  See the Commission’s Rule of law framework here. 

Meetings and Agenda

Monday, March 18, 2019

Joint Public Hearing: Foreign Affairs and Civil Liberties, Justice and Home Affairs committees

15:00 – 17:00

  • Rule of Law in the Accession Process
    • This hearing will examine the progress and persisting flaws in fulfilling the fundamental criteria of the EU acquis (Chapters 23 and 24) by EU aspirants, in line with Article 2 TEU, covering the shared values of democracy, rule of law and respect for fundamental rights.

Committee on Budgets

15:00 – 17:30

Voting time

  • Proposal for a Council Regulation on measures concerning the implementation and financing of the general budget of the Union in 2019 in relation to the withdrawal of the United Kingdom from the Union (APP)
    • Rapporteur: Jean ARTHUIS (ALDE, FR) 

Committee on Employment and Social Affairs

17:00 – 18:00

Vote

  • Conclusion of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community – Consideration and adoption of draft opinion in letter form
    • Rapporteur for the opinion: Marita ULVSKOG (S&D, SV)

Committee on Industry, Research and Energy

15:00 – 18:30

  • Study on “Sector coupling: how can it be enhanced in the EU to foster grid stability and decarbonise?”, Presentation by Koen RADEMAEKERS, Trinomics BV
  • Energy labelling, Presentation by the European Commission of a package of delegated acts for five priority product groups

Vote

  • Common rules for the internal market in natural gas (COD) – Vote on the provisional agreement resulting from interinstitutional negotiations.
    • Rapporteur: Jerzy BUZEK (EPP, PL)
  • Renewable energy directive, Presentation of delegated act by the European Commission
  • Report from interinstitutional negotiations
    • Horizon Europe
    • EU Defence fund
    • EU Space Programme
    • Connecting Europe Facility

Committee on Transport and Tourism

15:00 – 18:30

Public hearing on the role of inland waterways in the intermodal transport system

  • Experts will share their views with Members on how to make better use of inland waterway transport in the intermodal transport system and how to increase the market share of this sector to achieve the objectives of the Union to increase the efficiency and sustainability of transport, in particular with regard the transport of freight.

Committee on Agriculture and Rural Development

15:00 – 19:00

  • Exchange of views on the ongoing work on the legislative proposals for the CAP 2021-2027 (Strategic Plans Regulation, CMO/Amending Regulation and the Horizontal Regulation)

Committee on Legal Affairs

15:00 – 18:30

Debates

  • Presentation of the study on the future relationship between the UK and the EU in the field of family law following the UK’s withdrawal from the EU.

16:00 – 16:30

Votes

  • Votes on provisional agreements resulting from interinstitutional negotiations (possibly)

Reporting back to committee of the negotiations (Rule 69f(3) for the following

  • Justice programme (COD)
    • Rapporteurs: Heidi HAUTALA (Greens/EFA, FI) and Josef WEIDENHOLZER (S&D, AT)
  • Cross-border conversions, mergers and divisions (COD)
    • Rapporteur: Evelyn REGNER (S&D, AT)
  • Protection of persons reporting on breaches of Union law (whistle-blowers) (COD)
    • Rapporteur: Virginie ROZIÈRE (S&D, FR)
  • Action of the Union following its accession to the Geneva Act of the Lisbon Agreement on Appellations of Origin and Geographical Indications (COD)
    • Rapporteur: Virginie ROZIÈRE (S&D, FR)

 

Committee on Civil Liberties, Justice and Home Affairs

17:00 – 18.30

  • Sakharov event Migration across the Mediterranean: NGOs saving lives in the Mediterranean, Sakharov Prize finalist 2018 – second part

Committee on Constitutional Affairs

15:00 – 18:00

Debates

  • Withdrawal of the United Kingdom from the European Union – state of play – exchange of view with the Chair Danuta Maria HÜBNER (EPP, PL), member of the Brexit Steering Group (15.15-16.15)
  • The EU Green Card concept – exchange of views with Roger CASALE, founder and Secretary General of the organisation “New Europeans” (16.15-17.00)

17:00 – 18:30

Public Hearing on European Parliamentary Elections, European Parties, European Voters

  • This hearing will look into issues like the role of political parties (at national and European level) in the European elections and their capacity to mobilise electors, and the influence of modern means of communication and social networks in the shaping of voters’ political choices. The coordination of Parliament’s and Commission’s information and communication policies in view of the European elections will also be discussed.

Wednesday, March 20, 2019 

Committee on Regional Development

09:00 – 14:30

Votes

  • Adjustment of annual pre-financing for the years 2021 to 2023 (COD)
    • Rapporteur: Mirosław PIOTROWSKI (ECR, PL)
  • Exchange of views with Leo BRINCAT, Member of the European Court of Auditors: presentation of the Special report No 03/2019: European Fund for Strategic Investments: Action needed to make EFSI a full success
  • Exchange of views with Marc LEMAITRE, European Commission, Director-General for Regional and Urban Policy

Thursday, March 21, 2019 

Committee on Budgetary Control

09:00 – 12:30

Committee on Petitions

09:00 – 18:00

Votes

  • Waste management – adoption of a draft resolution
  • Fact-finding visit to Donana National Park, Andalucia, Spain – adoption of a draft report (tbc) 

10.30-12:30

Public Hearing jointly with the Environment Committee

  • The aim of the hearing is to explore the topic of climate change denial under different perspectives and to examine the communication techniques used in politics or by private companies and other actors in society to mislead the public on the negative impact of certain industrial activities or policies on the climate.

Senate Reintroduces IoT Cybersecurity Improvement Act

On March 11, 2019, a bipartisan group of lawmakers including Sen. Mark Warner and Sen. Cory Gardner introduced the Internet of Things (IoT) Cybersecurity Improvement Act of 2019. The Act seeks “[t]o leverage Federal Government procurement power to encourage increased cybersecurity for Internet of Things devices.” In other words, this bill aims to shore up cybersecurity requirements for IoT devices purchased and used by the federal government, with the aim of affecting cybersecurity on IoT devices more broadly.To accomplish this goal, the Act puts forth several action items for the Director of the National Institute of Standards and Technology (“NIST”) and the Office of Management and Budget (“OMB”). Details of these action items and their deadlines are discussed below.

  • NIST is directed to complete, by September 30, 2019, all ongoing efforts related to managing IoT cybersecurity, particularly its work in identifying cybersecurity capabilities for IoT devices. Under the bill, those NIST efforts are to address at least: (i) secure development, (ii) identity management, (iii) patching, and (iv) configuration management for IoT devices.
  • NIST is directed to develop, by March 31, 2020, recommendations on “the appropriate use and management” of IoT devices “owned or controlled by the Federal Government.” These recommendations are expected to include “minimum information security requirements” that address the cybersecurity risks of IoT devices owned or controlled by the federal government. Once these recommendations are issued, OMB will have 180 days to issue guidance to each agency, consistent with NIST’s recommendations.

Additionally, the bill would require NIST to do the following within 180 days of its enactment:

  • Publish a draft report addressing considerations for managing cybersecurity risks associated with the “increasing convergence of traditional Information Technology devices, networks, and systems with Internet of Things devices, networks, and systems and Operational Technology devices, networks and systems.”
  • Consult with cybersecurity researchers and private-industry experts to publish guidance relating to the reporting and resolution of security vulnerabilities discovered in federal government IoT devices.

– OMB will then have 180 days to issue guidelines for each government agency, based on NIST’s recommendations. Those recommendations are required to be consistent with the information security requirements that are imposed on federal information systems in Title 44. OMB’s guidelines are also required to prohibit acquisition or use of IoT devices from a contractor or vendor that fails to comply with NIST’s security vulnerability guidance.

– Once OMB issues its guidance to agencies, these requirements will need to be included in a revision to the Federal Acquisition Regulation (FAR), which governs all federal procurement of goods and services using appropriated funds. No specific date for when these regulations should be promulgated are included in the current draft of the bill.

Notably, the Act also recognizes the debate about what constitutes an “IoT device.” It would apply to a “covered device,” which is defined as a “physical object” that: (1) is capable of connecting to and is in regular connection with the internet, (2) has computer processing capabilities that can collect, send, or receive data; and (3) is not a general-purpose computing device, including personal computing systems, smart mobile communications devices, programmable logic controls, and mainframe computing systems. At the same time, it directs OMB to establish a process for interested parties to petition for a decision that a device is not covered by this definition, potentially providing clarity for makers of devices about whether they are covered by the measure.

This bill follows two failed bills from the last congressional term: the Internet of Things (IoT) Cybersecurity Improvement Act of 2017 and the Internet of Things (IoT) Federal Cybersecurity Improvement Act of 2018. The 2017 and 2018 Acts both focused on “provid[ing] minimal cybersecurity operational standards for Internet-connected devices purchased by Federal agencies.” The prior bills contained only limited guidance to NIST and instead focused on OMB. For example, the 2017 bill required OMB to provide guidelines on specific, enumerated contractual terms in vendor contracts for IoT devices. The 2018 bill directed OMB to consider “voluntary consensus standards” in its promulgation of guidelines on contractual terms.

The current bill also follows increasing efforts by NIST to focus on IoT cybersecurity. Its efforts include development of a “baseline” set of cybersecurity capabilities for IoT devices. NIST announced earlier this month that it is seeking feedback on its proposal, especially insights into identifying those cybersecurity capabilities that could be achieved across the widest set of IoT devices.

Net Neutrality Update: House Hearing and Proposed Legislation

Since the Federal Communications Commission (“FCC”) repealed the 2015 net neutrality rules last year, federal and state lawmakers have debated how to address the issue of net neutrality going forward.  We previously have discussed some of the state net neutrality laws that were enacted, including California’s law, which currently is on hold pending the resolution of Mozilla Corp v. FCC, the lawsuit challenging the FCC’s order that repealed net neutrality rules.  Oral argument for this case was held in the U.S. Court of Appeals for the D.C. Circuit on February 1, 2019.Recent activity in both chambers of Congress suggests that at least some members view federal legislation as the solution to the issue of net neutrality.  Last month, the House Communications and Technology Subcommittee held a hearing on net neutrality, during which witnesses discussed the FCC’s repeal of the 2015 net neutrality rules and their positions on the use of Title II of the Communications Act as a legal basis for FCC regulation of broadband internet service providers (“ISPs”).  House Republicans already have introduced three net neutrality bills, and House and Senate Democrats announced a new bill earlier this week on Wednesday, March 6th.  These more recent developments are discussed in greater detail below.House Hearing and Title II Debate

The current debate surrounding net neutrality, as demonstrated by the dialogue at the February 7 hearing, continues to focus most on whether broadband ISPs should be classified as a Title II telecommunications service providers or instead as a more lightly regulated Title I information service providers.  Republican lawmakers argued at the hearing that Title II is outdated and should not be used as statutory authority to regulate the internet, whereas Democrats defended the 2015 Open Internet Order rules and Title II as their legal basis.

All six witnesses at the hearing expressed their views on the Title II debate.  Former FCC Chairman Tom Wheeler, for example, who favors Title II as a basis for regulation, explained, “Just because an ISP carries content . . . does not mean it should be regulated as though it is a content company.”  Also favoring Title II-backed rules were Mozilla COO Denelle Dixon, Free Press Senior Counsel Jessica Gonzalez, and actress Ruth Livier.

Former FCC Chairman Michael Powell, along with Joseph Franell, CEO of Eastern Oregon Telecom, opposed Title II as a legal basis for FCC rules.  Powell spoke about the need for Congress to take action, noting that “Title II is entirely distinct from net neutrality and is an unnecessary precondition for Congress to establish strong net neutrality requirements coupled with strong enforcement.”

Proposed Legislation in the House

House Energy & Commerce Committee Republicans proposed three separate net neutrality bills in February of this year; those bills exhibit many of the views expressed by Republican lawmakers during the hearing.  Ranking Member Greg Walden (R-OR) introduced H.R. 1101, which would prohibit blocking, throttling, and paid prioritization, and also would prohibit the FCC from relying on Section 706 of the Telecommunications Act of 1996 as a legal basis for net neutrality regulation.  Communications & Technology Subcommittee Ranking Member Bob Latta’s (R-OH) Open Internet Act of 2019 is based on a 2010 draft bill introduced by former Energy and Commerce Chairman Henry Waxman (D-CA), and classifies broadband as a Title I information service, while also providing rules against blocking and throttling.  Consumer Protection Subcommittee Ranking Member Cathy McMorris Rodgers (R-WA) introduced the Promoting Internet Freedom and Innovation Act, which mirrors the protections restored by Washington state’s net neutrality law.  This bill would rely on Title I as a legal basis for net neutrality regulation.  In a letter to House Energy & Commerce Chairman Frank Pallone (D-NJ) and House Communications & Technology Subcommittee Chairman Mike Doyle (D-PA) on February 21, the sponsors of the three bills urged committee Democrats to “work with us on bipartisan legislation to ensure that Americans’ access to an open internet will be permanently protected.”

Democrats in both the House and Senate have been working on their own net neutrality legislation.  At the February 7 hearing, Chairman Pallone discussed the need to “hold Congress accountable for passing strong net neutrality laws” and his plan to work “in a bipartisan manner” to reinstate net neutrality protections.  And this past Wednesday, Democratic leaders unveiled the Save the Internet Act of 2019, which would restore the FCC’s Open Internet Order and its net neutrality protections.  The reinstatement of the 2015 regulations would once again reclassify broadband as a Title II service.  During the introduction of the bill, House Speaker Nancy Pelosi (D-CA) stated that by introducing this law, “Democrats are honoring the will of the people.”

What’s Next

Net neutrality discussions in Congress are expected to continue as lawmakers debate the issues, such as whether Title II reclassification is a necessary component of any net neutrality regulation.  It remains to be seen whether this debate will hinder the passage of bipartisan legislation.  Meanwhile, additional states are considering their own net neutrality laws, following states such as California, Washington, Oregon, and Vermont.

U.S. Department of Justice Announces Foreign Agents Registration Act Enforcement Initiative

Covington issued several client alerts in recent years warning of a rising tide of enforcement of the once-obscure Foreign Agents Registration Act of 1938 (“FARA”). Signs of this trend emerged long before the recent, high-profile Special Counsel’s Office investigation. Nonetheless, there was persistent skepticism abroad in the land, particularly among businesses outside the lobbying industry, that this trend was real or significant. Any remaining doubts were decisively answered last week when the Assistant Attorney General for the National Security Division, John Demers, a Trump appointee, for the first time publicly confirmed DOJ’s intention to make FARA a criminal enforcement priority. The predicted enforcement wave is not at an end. It is just beginning.

Speaking at an annual American Bar Association white collar lawyers conference, Demers told the assembled defense bar that DOJ has shifted from treating FARA as an “administrative obligation and regulatory obligation to one that is increasingly an enforcement priority.” The Assistant Attorney General announced that he was revamping the Department’s FARA Unit, which has overseen “administrative enforcement” of FARA for many decades, by appointing a criminal prosecutor to lead enforcement. The prosecutor, Brandon Van Grack, a deputy chief in the National Security Division’s Counterintelligence and Export Control Section, has spent most of the last 18 months assigned to the Special Counsel’s Office. It appears the Department is also making other staffing changes within the FARA Unit, presumably to reorient it toward enforcement. In his remarks, Demers appeared to emphasize the Department’s intention to pursue unregistered foreign agents.

Since at least the 1960s, the FARA Unit has focused on facilitating compliance with FARA and providing guidance to regulated persons. When the Unit identified an unregistered foreign agent, it typically worked with the agent to ensure that it registered and, sometimes retroactively, disclosed its activities. The small handful of FARA prosecutions that occurred over the past 50 years (after FARA was amended in 1966 with an expanded focus on economic lobbying) all involved some other kind of egregious criminal activity, such as terrorism, espionage, or violating trade sanctions. The Department now seems focused on enforcing stand-alone FARA violations.

For corporations, nonprofits, law firms, lobbying firms, think tanks and others that deal with foreign governments (or, in some cases, even non-governmental “foreign principals”), Demers’ announcement is a fire bell in the night, signaling that DOJ will be far more aggressive in seeking out high-profile test cases to accomplish general deterrence and to cause corporate America to take FARA seriously. The best analogy here is to DOJ’s decision in the early years of the 21st Century to breathe life back into the Foreign Corrupt Practices Act (“FCPA”), another criminal statute that many companies had ceased to take seriously because of infrequent enforcement. Billions of dollars in settlements and legal fees later, every major corporation in America, and many around the world, are heavily focused on implementing elaborate global anti-corruption compliance programs. But FARA remains absent from the compliance policies of most American corporations, including very large ones whose business models involve frequent contact with foreign governments. Few Chief Compliance Officers at major companies are focused on FARA risks. That is likely to change soon.

One unknown is how the appointment of a dedicated prosecutor to oversee FARA enforcement may alter the FARA Unit’s approach to interpreting the statute in advisory opinions and informal guidance provided to the regulated community. Like FCPA, FARA includes vague and barely defined terms. By now, the Department has helped define FCPA through guidance documents and enforcement cases. FARA, in contrast, even after more than 80 years, remains amorphous, with little available case law or guidance. DOJ began publishing its FARA advisory opinions only last year, and there are decades’ worth of opinions that have yet to be published. The statute itself is riddled with anachronistic terminology and provisions that, if interpreted literally, would sweep in an astounding range of routine activities by corporations and nonprofits. Unlike U.S. domestic lobbying laws, FARA can be triggered without any payment at all, and it contains no threshold that would exempt incidental and de minimis activity from triggering registration.  Bills currently pending in Congress to reform FARA focus on toughening it rather than clarifying its meaning and rationalizing its practical impact.

If the Department’s announced intention to pivot from facilitating compliance to enforcement follows the arc that defined DOJ’s approach to reinvigorating FCPA, we can expect to see the Department look for more high-profile FARA settlements like the one it secured recently against the law firm Skadden.  And we can envision that the Department’s focus may extend beyond law, lobbying and public relations firms, given the statute’s extraordinary reach.

The political nature and domestic focus of FARA (which applies only to activities “within the United States”) makes this a rather more dangerous path for DOJ and for the regulated community than was the case with the rebirth of FCPA. FARA’s breadth potentially provides prosecutors with a target-rich environment in which to pursue cases against corporations, individuals, advocacy groups, and others, and we are already seeing signs of a cottage industry of groups that are adept at filing FARA complaints with DOJ for their own purposes. We have long described FARA to clients as a “gotcha” statute, which can be invoked by political opponents and dusted off by prosecutors when other statutes are unavailing. The Department’s announced enforcement initiative will test its discretion in using this powerful prosecutorial tool.

Follow our blog, Inside Political Law, to keep abreast of further FARA-related developments.

The Week Ahead in the European Parliament –  Friday, March 8, 2019

Summary

Next week will be a plenary week in the European Parliament.  A number of interesting debates and votes will take place on, among others, cybersecurity threats from Chinese companies, countering hostile propaganda, and on EU-Russia relations.

On Monday, March 11, Members of the European Parliament (“MEPs”) will vote on a Report on the State of Relations between the EU and the Russian Federation, prepared by the Committee on Foreign Affairs (“AFET”).  The draft report stresses Russia’s continued violation of international law by its annexation of Crimea and underlines that the EU cannot agree with a gradual return to “business as usual”, as long as Russia does not fully implement the Minsk Agreement.  AFET calls for a continued tough stance on Russia for their illegal activities in the Skripal-case and in the Sea of Azov.  The Committee suggests that the EU should stand ready to adopt further sanctions.  The draft report is available here.

On Tuesday, March 12, MEPs will likely adopt a Motion for a Resolution on Security Threats connected with the Rising Chinese Technological Presence in the EU and decide on possible actions to take at the EU level to reduce these threats.  The resolution expresses concerns about the recent allegation against Huawei and fears that Chinese companies may provide unauthorized access for foreign authorities to data and telecommunication of EU citizens and businesses.  The vote comes at a time when national authorities, in particular in Germany, are taking a tougher approach to Huawei’s involvement in their telecom networks.  See the draft Motion for a Resolution here.

On Wednesday, March 13, the European Parliament will vote on Recommendations to the Council of the EU and to the Vice President/High Representative of the Union for Foreign Affairs and Security Policy (“VP/HR”).  The report evaluates and responds to the follow-up of the European External Action Service (“EEAS”) on the Parliament’s 2017 “Report on EU strategic communications to counteract propaganda against it by third parties.”  The recommendations were prepared by MEP Anna Fotyga (ECR, PL) and are already approved by the AFET.  Among many things, the report strongly condemns the interference of third parties in elections and referenda, and the malicious use of bots and algorithms in political campaigns, which they perceive undermine the principles of European democracies and sovereignty. In particular, they condemn the actions that are accountable to Russia, China, Iran, North Korea, and others, and recommends that the Council consider targeted sanctions on those responsible.  See the draft report here.

Meetings and Agenda

Monday, March 11, 2019

Plenary session

17:00 – 23:00

Debates

  • Resumption of session and order of business
  • Exchange of information on third country nationals and European Criminal Records Information System (ECRIS)
    • Rapporteur: Daniel Dalton (ECR, UK)
  • Centralised system for the identification of Member States holding conviction information on third country nationals and stateless persons
    • Rapporteur: Daniel Dalton (ECR, UK)
  • Establishing the European Solidarity Corps programme
    • Rapporteur: Michaela Šojdrová (EPP, CZ)
  • European citizens’ initiative
    • Rapporteur: György Schöpflin (EPP, HU)
  • EU Cybersecurity Act
    • Rapporteur: Angelika Niebler (EPP, DE)
  • European Semester for economic policy coordination: Annual Growth Survey 2019
    • Rapporteur: Tom Vandenkendelaere (EPP, BE)
  • European Semester for economic policy coordination: employment and social aspects in the Annual Growth Survey 2019
    • Rapporteur: Marian Harkin (ALDE, IE)
  • EU-Vietnam Voluntary Partnership Agreement on forest law enforcement, governance and trade
    • Rapporteur: Heidi Hautala (Greens/EFA, FI)
  • EU-Vietnam Voluntary Partnership Agreement on forest law enforcement, governance and trade (resolution)
    • Rapporteur: Heidi Hautala (Greens/EFA, FI)
  • State of EU-Russia political relations
    • Rapporteur: Sandra Kalniete (EPP, LT)
  • Building EU capacity on conflict prevention and mediation
    • Rapporteur: Soraya Post (S&D, SE)

Committee on Budgetary

19:00 – 21:30

Electronic vote

  • Investigations conducted by the European Anti-Fraud Office (OLAF) as regards cooperation with the European Public Prosecutor’s Office and the effectiveness of OLAF investigations (COD) – Adoption of draft report
    • Rapporteur: Ingeborg Grässle (EPP, DE)

Committee on Economic and Monetary Affairs

19:00 – 20:00

Vote

  • Establishment of a framework to facilitate sustainable investment (COD) –
  • Rapporteurs: Bas Eickhout (Greens/EFA, NL) and Sirpa Pietikäinen (EPP, FI)

Committee on Civil Liberties, Justice and Home Affairs

19:00 – 21:45

Debates (19.00 – 19.20)

  • Temporary reintroduction of border control at internal borders (COD) – reporting back to committee on the negotiations
    • Rapporteur: Tanja Fajon (S&D, SI)
  • Listing of third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement, as regards the withdrawal of the United Kingdom from the European Union (COD) – reporting back to committee on the negotiations (Rule 69f(3)
    • Rapporteur: Claude Moraes (S&D, UK)

20.45 – 21.15

  • Preventing the dissemination of terrorist content online (COD) – consideration of amendments
    • Rapporteur: Daniel Dalton (ECR, UK)

Votes 19.20-19.30

  • Strengthening the security of identity cards of Union citizens and of residence documents issued to Union citizens and their family members exercising their right of free movement (COD) – vote on the provisional agreement resulting from interinstitutional negotiations
    • Rapporteur: Gérard Deprez (ALDE, BE)
  • Creation of a European network of immigration liaison officers (recast) (COD) – vote on the provisional agreement resulting from interinstitutional negotiations,
    • Rapporteur: Cécile Kashetu Kyenge (S&D, IT)
  • Internal Security Fund: instrument for financial support for external borders and visa. Amending Annex II to Regulation (EU) No 515/2014 (DEA) – adoption of a draft motion for a resolution
    • Rapporteur: Birgit Sippel (S&D, DE)
  • Asylum, Migration and Integration Fund: amending Annex II to Regulation (EU) No 516/2014 – adoption of a draft motion for a resolution
    • Rapporteur: Birgit Sippel (S&D, DE)

Hearing (19.30 – 20.45)

  • EASO – European Asylum Support Office – hearing of the candidate selected by the Management Board, Ms Nina Gregori, in view of her appointment as new Executive Director for EASO (following Article 30 of the EASO Regulation).

Tuesday, March 12, 2019

Committee on Budgetary

09:00 – 10:00

Debates

10:00 – 12:20
Debates

  • Debate with the Prime Minister of the Slovak Republic, Peter Pellegrini, on the Future of Europe

12:30 – 14:30

VOTES followed by explanations of votes

  • Extending Rule 159 of Parliament’s Rules of Procedure until the end of the ninth parliamentary term
  • EU-Egypt Euro-Mediterranean Agreement (accession of Croatia)
    • Rapporteur: Ramona Nicole Mănescu (EPP, RO)
  • Protocol amending the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data
    • Rapporteur: József Nagy (EPP, SK)
  • Implementing decision on the launch of automated data exchange with regard to DNA data in the United Kingdom
  • Rapporteur: Branislav Škripek (EPP, SK)
  • Authorising Member States to become party to the Council of Europe Convention on an Integrated safety, security, and service approach at football matches and other sports events
    • Rapporteur: Sylvia-Yvonne Kaufmann (S&D, DE)
  • Protocol amending the EU-China Agreement on Maritime Transport (accession of Croatia)
    • Rapporteur: Francisco Assis (S&D, PT)
  • Import of cultural goods
    • Rapporteur: Daniel Dalton (ECR, UK), Alessia Maria Mosca (S&D, IT)
  • Electronic freight transport information
    • Rapporteur: Claudia Schmidt (EPP, AT)
  • Protection of personal data in the context of elections to the European Parliament
    • Rapporteurs: Mercedes Bresso (S&D, IT), Rainer Wieland (EPP, DE)
  • Large predators
  • Security threats connected with the rising Chinese technological presence in the EU and possible action on the EU level to reduce them

15:00 – 00:00

Debates

  • A European human rights violations sanctions regime
  • 2018 Report on Turkey
    • Rapporteur: Kati Piri (S&D, NL)
  • Follow up taken by the EEAS two years after the EP Rapporteur on EU strategic communication to counteract propaganda against it by third parties
    • Rapporteur: Anna Elżbieta Fotyga (ECR, PL)
  • EU-Afghanistan Cooperation Agreement on Partnership and Development
    • Rapporteur: Anna Elżbieta Fotyga (ECR, PL)
  • EU-Afghanistan Cooperation Agreement on Partnership and Development (resolution)
    • Rapporteur: Anna Elżbieta Fotyga (ECR, PL)
  • Association Agreement between the EU and Monaco, Andorra and San Marino
    • Rapporteur: Juan Fernando López Aguilar (S&D, ES)
  • Establishing the Asylum and Migration Fund
    • Rapporteur: Miriam Dalli (S&D, MT)
  • Establishing, as part of the Integrated Border Management Fund, the instrument for financial support for border management and visa
    • Rapporteur: Tanja Fajon (S&D, SI)
  • Establishing the Internal Security Fund
    • Rapporteur: Monika Hohlmeier (EPP, DE)
  • Guidelines for the 2020 Budget – Section III
    • Rapporteur: Monika Hohlmeier (EPP, DE)

Wednesday, March 13, 2019

Plenary session

09:00 – 11:50

Debates

  • Climate change
  • Preparation of the European Council meeting of 21 and 22 March 2019

12:00 – 14:00

Votes followed by explanations of votes

  • Scope and mandate for EU Special Representatives
    • Rapporteur: Hilde Vautmans (ALDE, BE)
  • Appointment of Sebastiano Laviola as a new member of the Single Resolution Board
    • Rapporteur: Roberto Gualtieri (ALDE, IT)
  • EU-Turkmenistan Partnership and Cooperation Agreement
    • Rapporteur: Ramona Nicole Mănescu EPP, RO)
  • Participation of Norway, Iceland, Switzerland and Liechtenstein in the European Agency for the operational management of large-scale IT systems in the area of freedom, security and justice
    • Rapporteur: Monica Macovei ECR, RO)
  • Definition, presentation and labelling of spirit drinks and protection of geographical indications thereof
    • Rapporteur: Pilar Ayuso (EPP, ES)
  • Proposed amendments to Protocol No 3 on the Statute of the Court of Justice of the European Union
    • Rapporteur: Tiemo Wölken (ALDE, DE)
  • Union General Export Authorisation for the export of certain dual-use items from the Union to the United Kingdom
    • Rapporteur: Klaus Buchner (Greens/EFA, DE)
  • Continuation of the territorial cooperation programmes PEACE IV (Ireland-United Kingdom) and United Kingdom-Ireland (Ireland-Northern Ireland-Scotland) in the context of the UK’s withdrawal from the EU
    • Rapporteur: Iskra Mihaylova (ALDE, BG)
  • Listing the third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement, as regards the UK’s withdrawal from the EU
    • Rapporteur: Claude Moraes (S&D, UK)
  • Rules relating to the European Maritime and Fisheries Fund by reason of the UK’s withdrawal from the Union
  • Fishing authorisations for Union fishing vessels in United Kingdom waters and fishing operations of United Kingdom fishing vessels in Union waters
  • Continuation of ongoing learning mobility activities under the Erasmus+ programme in the context of the UK’s withdrawal from the EU
    • Rapporteur: Bogdan Andrzej Zdrojewski (EPP, PL)
  • Establishing contingency measures in the field of social security coordination following the UK’s withdrawal from the EU
    • Rapporteurs: Jean Lambert (Greens/EFA, UK), Marian Harkin (ALDE, IE)
  • Common rules ensuring basic road freight connectivity with regard to the UK’s withdrawal from the Union
    • Rapporteur: Isabella De Monte (S&D, IT)
  • Common rules ensuring basic air connectivity with regard to the UK’s withdrawal from the Union
    • Rapporteur: Pavel Telička (ALDE, CZ)
  • Aviation safety with regard to the UK’s withdrawal from the Union
    • Rapporteur: Kosma Złotowski (ECR, PL)
  • A Europe that protects: Clean air for all
  • Texts on which debate is closed

15:00 – 17:00

Debates

  • Establishment of the European Monetary Fund
    • Rapporteurs: Vladimír Maňka (S&D, SK), Pedro Silva Pereira (S&D, PT)
  • Accessibility requirements for products and services
    • Rapporteur: Morten Løkkegaard (ALDE, DK)

17:00 – 18:00

VOTES (oral explanations of votes will be taken on Thursday)

  • Proposal for a regulation of the European Parliament and of the Council amending Regulation (EC) No 391/2009 with regard to the UK’s withdrawal from the Union
    • Rapporteur: Isabella De Monte (S&D, IT)
  • Proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 1316/2013 with regard to the UK’s withdrawal from the Union
    • Rapporteur: Karima Delli (Greens/EFA, FR)
  • Port reception facilities for the delivery of waste from ships
    • Rapporteur: Gesine Meissner (ALDE, DE)
  • Prolongation of the transitional use of means other than the electronic data-processing techniques provided for in the Union Customs Code
    • Rapporteur: Jasenko Selimovic (ALDE, SE)
  • Combating fraud and counterfeiting of non-cash means of payment
    • Rapporteur: Sylvia-Yvonne Kaufmann (S&D, DE)

18:00 – 23:00

Debates (or at the end of the votes)

  • Minimum loss coverage for non-performing exposures
    • Rapporteurs: Esther de Lange (EPP, NL), Roberto Gualtieri (S&D, IT)
  • Safeguarding competition in air transport
    • Rapporteur: Markus Pieper (EPP, DE)
  • Jurisdiction, recognition and enforcement of decisions in matrimonial matters and matters of parental responsibility, and international child abduction
    • Rapporteur: Tadeusz Zwiefka (EPP, PL)
  • Visa Information System
    • Rapporteur: Carlos Coelho (EP, PT)
  • Unfair trading practices in business-to-business relationships in the food supply chain
    • Rapporteur: Paolo De Castro (ALDE, IT)

Thursday, March 14, 2019

Plenary session

09:00 – 11:50

Debates

  • Annual strategic report on the implementation and delivery of the Sustainable Development Goals
    • Rapporteurs: Francesc Gambús (EPP, ES), Eleni Theocharous (ECR, CY)
  • Implementation of the Generalised Scheme Preferences (GSP) Regulation
    • Rapporteur: Christofer Fjellner (EPP, SE)

12:00 – 14:00

VOTES followed by explanations of votes

  • Motions for resolutions concerning debates on cases of breaches of human rights, democracy and the rule of law (Rule 135)
  • Texts on which debate is closed

15:00 – 16:00

Debates

The Week Ahead in the European Parliament – March 1, 2019

Summary

Next week will be a short week in the European Parliament. Members of the European Parliament (“MEPs”) will meet in Brussels for committee sessions and hold political group meetings to prepare for the following’s week’s plenary meetings.  They will vote, inter alia, on Chinese IT threats; EU-Russia relations; cybersecurity measures to counter foreign propaganda during the 2019 European elections; and the EU’s climate change strategy.  A number of interesting debates and hearings will also take place this week.

On Monday, March 4, MEPs of the Committee on Economic and Monetary Affairs (“ECON”) will hold a structured debate with Margarethe Vestager, Commissioner for competition.  This exchange of views will be the last in this Committee’s session, and will reflect back on the Commissioner’s five year as head of DG Competition.  It is expected that the discussion will cover many recent developments, such as competition policy in the age of digitisation, the Franco-German call for European Champions in light of the Commission’s decision to de-rail the mega-merger between Siemens and Alstom, and the Commission’s recent set-back in court regarding fiscal state aid cases.  The debate will be livestreamed here.

The same day, the Committee on Transport and Tourism (“TRAN”) will vote on the adoption of a draft report regarding discontinuing seasonal changes of time (summer time).  Commission President Juncker called for the EU to abandon seasonal time changes, after 4.6 million Europeans responded to an EU consultation, with a significant majority (84%) expressing their discontent with the current system.  It has been suggested that changing time twice a year may have negative consequences on citizens’ well-being and road safety.  The legislative proposal would require Member States to decide whether they would like to have permanent winter or summer time.  It is feared that this may create a chaotic patchwork of different time zones within the EU.  Member States have reacted negatively and have already postponed the first deadline of April 1, 2019, set by the Commission.  See the draft report here, and the Commission’s original proposal here.

On Thursday, March 7, an inter-parliamentary meeting will be held to celebrate International Women’s Day.  The Committee on Women’s Rights and Gender Equality (“FEMM”) has organized this meeting on “Women’s Power in Politics” for MEPs and Members of national parliaments.  Speakers include EU Commissioner for Justice Věra Jourová, President of the Republic of Croatia Kolinda Grabar-Kitarović, and EU Foreign Policy Chief Frederica Morgherini.  See the full program here. 

Meetings and Agenda

Monday, March 4, 2019

Committee on Economic and Monetary Affairs

15:00 – 16:45

Debates

  • Structured Dialogue with Margrethe VESTAGER, Commissioner for Competition. 

Votes

  • Commission Delegated Regulation amending Delegated Regulation (EU) 2017/588 as regards the possibility to adjust the average daily number of transactions for a share where the trading venue with the highest turnover of that share is located outside the Union – Adoption of Recommendation for “early non-objection.” 

Committee on Transport and Tourism

15:00 – 18:30

Votes

  • Discontinuing seasonal changes of time (COD) – adoption of draft report.
    • Rapporteur: Marita Ulvskog (S&D, SE)
  • Time limit for the implementation of the special rules regarding maximum length in case of cabs delivering improved aerodynamic performance, energy efficiency and safety performance (COD) – vote on the provisional agreement resulting from interinstitutional negotiations.
    • Rapporteur: Karima Delli (Greens/EFA, FR)
  • Road infrastructure safety management (COD) – vote on the provisional agreement resulting from interinstitutional negotiations (to be confirmed).
    • Rapporteur: Daniela Aiuto (EFDD, IT)
  • European Maritime Single Window environment (COD) – vote on the provisional agreement resulting from interinstitutional negotiations.
    • Rapporteur: Deirdre Clune (EPP, IE)
  • Proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 1316/2013 with regard to the withdrawal of the United Kingdom from the Union (COD) – vote on the provisional agreement resulting from inter-institutional negotiations.
    • Rapporteur: Karima Delli (Greens/EFA, FR)
  • Minimum level of training of seafarers (COD) – vote on the provisional agreement resulting from inter-institutional negotiations.
    • Rapporteur: Dominique Riquet (ALDE, FR)
  • Common rules ensuring basic air connectivity with regard to the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the Union (COD) – vote on the provisional agreement resulting from inter-institutional negotiations (to be confirmed)
    • Rapporteur: Pavel Telička (ALDE, CZ)
  • Common rules ensuring basic road freight connectivity with regard to the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the Union (COD) – vote on the provisional agreement resulting from inter-institutional negotiations (to be confirmed).
    • Rapporteur: Isabella De Monte (S&D, IT) 

Committee on Legal Affairs

15:00 – 18:30

Votes (15.30 – 15.45)

  • Petition No 0186/2018 by Mr Pier Paolo Volpe (Italian) on the discretionary powers of the Commission with regard to the application of EU law by the Member States – adoption.
    • Rapporteur: Pavel SVOBODA (EPP, CZ)
  • Use of digital tools and processes in company law (COD) – vote on the provisional agreement resulting from inter-institutional negotiations.
    • Rapporteur: Tadeusz ZWIEFKA (EPP, PL)
  • Adapting a number of legal acts providing for the use of the regulatory procedure with scrutiny to Articles 290 and 291 of the Treaty on the Functioning of the EU (COD) – reporting back to committee on the negotiations (Rule 69f(3)) – vote on the provisional agreement resulting from inter-institutional negotiations.
    • Rapporteur: József SZÁJER (EPP, HU)

Votes (15.45 – 16.15)

  • Conclusion of inter-institutional negotiations – Non-binding criteria for the application of Articles 290 and 291 of the Treaty on the functioning of the European Union.
    • Co-negotiators: József SZÁJER (EPP, HU) and Richard CORBETT (S&D, UK)
  • Justice programme (COD) – reporting back to committee on the negotiations (Rule 69f(3)).
    • Rapporteurs: Heidi HAUTALA (Greens/EFA, FI), and Josef WEIDENHOLZER (S&D, AT)
  • Protection of persons reporting on breaches of Union law (COD) – reporting back to committee on the negotiations (Rule 69f(3)).
    • Rapporteur: Virginie ROZIÈRE (S&D, FR)

Tuesday, March 5, 2019

  • No meeting of notes

Wednesday, March 6, 2019

  • No meeting of notes

Thursday, March 7, 2019

Committee on Budgets

09:00-12:30

Vote

  • Guidelines for the 2020 Budget – Section III (BUD) – Adoption of draft report
    • Rapporteur: Monika HOHLMEIER (EPP, DE)
  • 2019 Budget: Section III – Commission – Any other transfer request
    • Rapporteur: Daniele VIOTTI (S&D, IT)
  • 2019 Budget: Other Sections – Any transfer request
    • Rapporteur: Paul RÜBIG (EPP, AT)
  • Building policy – Rapporteur: Monika HOHLMEIER (EPP, DE) – Any request

Committee on Fisheries

14:00 – 15:30

Votes

  • Conservation of fishery resources and the protection of marine ecosystems through technical measures (COD) – vote on the provisional agreement resulting from inter-institutional negotiations.
    • Rapporteur Gabriel Mato (EPP, ES)
  • European Maritime and Fisheries Fund (COD) – vote on a draft report.
    • Rapporteur: Gabriel Mato (EPP, ES)

Committee on Constitutional Affairs

09:00 – 18:30

Hearing (9.15 – 10.45)

  • Constitutionalism in the European Union and the constitutional interaction between the West and East of Europe – Discussion with Romanian EU Council Presidency (tbc), with EU Commissioner for the European Neighbourhood Policy & Enlargement Negotiations, Johannes Hahn (tbc); and presentations by the invited experts: Ms Anneli Albi (Professor of Law at Kent Law School), Mr Piero Graglia (Associate Professor on History of the International Relations at the School of Political, Economic and Social Sciences, Milan State University) and Mr Kálmán Pócza (Associate professor at the Pázmány Péter Catholic University, Budapest).

Debates

  • Information on the conclusion of inter-institutional negotiations Non-binding criteria for the application of Articles 290 and 291 of the Treaty on the Functioning of the European Union.
    • Co-negotiators: Richard CORBETT (S&D, UK) and József SZÁJER (EPP, HU)
  • In-depth analysis on “A Fiscal capacity for the Eurozone: Constitutional Perspectives” – Presentation by Mr Federico Fabbrini (Full Professor of European Law at the School of Law & Government of Dublin City University (DCU)) of the in-depth analysis commissioned by the Policy Department on Citizens’ Rights and Constitutional Affairs on “A Fiscal capacity for the Eurozone: Constitutional Perspectives.”
  • The withdrawal of the UK from the European Union– state of play – discussion.
    • Guy VERHOFSTADT (ALDE, BE), Parliament’s coordinator for the negotiations on the UK withdrawal from the EU, and Danuta Maria HÜBNER (EPP, PL), Chair of AFCO and member of the Parliament’s Brexit Steering Group

Committee on Women’s Rights and Gender Equality

09:00 – 12:30

The Women’s Rights and Gender Equality Committee, in collaboration with the

Directorate for Relations with National Parliaments, will organise an Inter-parliamentary Committee Meeting on “Women’s Power in Politics”.

  • The topic chosen this year is at the heart of women’s rights because it defines women’s capacity to participate and decide on the collective governing of our societies. Equality between women and men is one of the objectives of the European Union. Over time, legislation, case law and changes to the Treaties have helped shore up this principle and its implementation in the EU. The European Parliament has always been a fervent defender of gender equality and this event wants to highlight the importance of women presence in politics particularly in the framework of the coming European elections.
  • After speeches by Mrs. Blinkevičiūtė, Chair of FEMM Committee, Mr. Papadimoulis, EP Vice-President, Mrs. Jourova, European Commissioner for Justice, Consumers and Gender Equality, and Mrs. Grabar-Kitarović, President of the Republic of Croatia, MEPs and national MPs will discuss two topics: ”Real power of women in politics and how to boost it” and ”Young women in Politics”. The EU foreign policy Chief, Federica Mogherini, will deliver the closing remarks.

Friday, March 8, 2019

  • No meeting of notes

Tariff-Man Holds His Fire, For Now

President Trump tweeted out on Sunday what sounds like good news:  based upon “substantial progress“ in trade negotiations with China, he was postponing a March 2 increase from ten to twenty-five percent tariffs on some $200 billion in U.S. imports from China.  The President even declared expectations of further progress and a “signing summit” at Mar-a-Lago, perhaps as early as March.  Major markets around the globe flashed green, signaling optimism that the results might yet be worth the economic disruption and uncertainty caused by the US-China trade war.

It is true that both sides face pressure – economic and political – to reach a deal.  But all we really know for now is that President Trump sees enough momentum in the talks that hiking tariffs at this time would slow not spur progress.  And if more progress towards a credible, enforceable and verifiable agreement is not made, he can always deploy the tariff hike.

Let’s be clear, this is the end game; the stakes are high for both Presidents Trump and Xi.  Signs and sentiment are mounting that the US economy could fall into a recession before the 2020 election.  To make good on his big promises, and to bolster the U.S. and global economy before the election, the President needs a deal that is a fitting conclusion to a year-long trade war with China.  A year of economic disruption, and Trump’s own words, have raised expectations for a robust, comprehensive agreement. That means not just promises from China to buy up to $1.2 trillion more energy, agricultural products and other products from the U.S. to reduce our persistent trade deficit with China, but verifiable improvements on intellectual property protections, cyber-theft, forced technology transfers, non-tariff barriers, market access for U.S. services companies, and other key “structural issues.”

Xi too faces real challenges: last year China’s economic growth slowed to a three-decade low, as public and private debt mounts and traditional drivers like real estate and infrastructure weaken.  China’s economy has gone through a fundamental change in recent years – from an investment and export-led to a consumption-based economy.  These changes are hard to manage and control.  In January, Xi warned hundreds of abruptly-assembled party officials that: “Globally, sources of turmoil and points of risk are multiplying,” and, “the party is at risk from indolence, incompetence and of becoming divorced from the public.”

Economic risks are a huge concern for Xi, who sees the potential in 2019 for restlessness at home, including if the trade talks blow up and slow growth even further.  If that happens, China’s debt levels, its tightly State-led economy, and global conditions will constrain his ability to respond.  A deal that deescalates the trade war with the United States would boost flagging business and consumer confidence in China, and enable Xi’s government to train its focus on reining in debt and financial risks.  Moreover, some in the Party do see a need to accelerate and deepen economic liberalization.  Xi is interested in control, not liberalization, but he could use the trade talks to ease criticism both of his handling of the economy and of China’s relationship with the United States.

Locking down verifiable specifics on the structural issues, and agreeing on enforcement mechanisms, however, remain far from done.  China still denies it ever forces technology transfers or steals  trade secrets via cyber-theft.  And China most certainly does not want to U.S. to be able to decide unilaterally when and if China has failed its commitments, and to snap back into place high tariffs.  On the other hand, the U.S. is unlikely to agree to any independent arbitration mechanism.

China fears that the U.S. is using the trade talks and other measures to slow its technological progress, not just to prevent it from stealing know-how and using massive subsidies and non-tariff barriers to unfair advantage.  Meanwhile, the U.S. has for years seen China bend or circumvent rules, commitments and agreements, and has accumulated hard evidence of China’s unfair practices and the economic harm they have caused the U.S.  Yet, achieving dominance in ten high-tech sectors (e.g. aerospace, robotics, artificial intelligence, semi-conductors and autonomous, clean-energy vehicles) is the centerpiece of Xi’s 2015 “Made in China 2025” strategy.  The policies and practices that the United States and other trading partners have criticized as mercantilist are core elements of China’s efforts expand into these high-tech sectors, sectors that are also strategic to future prosperity in the United States.

This highlights the sensitivity of the current negotiations.  The future economic strength of both countries is at stake, as is the degree to which the U.S. and China view their relationship as a zero-sum game, or one where mutual benefit and cooperation are possible, and necessary.  The reputation and credibility of both leaders is also on the line.  While the stakes are very high, trust is low.  For China to take the risk of liberalizing during such a major economic transition, the U.S. should give China some certainty on tariff relief if China is implementing the agreement in good faith.

It remains to be seen whether President Trump can reach a deal with President Xi that is “better than any deal that anybody ever dreamed possible.”  Failure to reach a deal seems unlikely, given what is at stake for both leaders.  They could well agree on stabilizing China’s currency and increasing its purchases from the United States to reduce our trade deficit, as well as on market openings and intellectual property  protections that are in China’s own interest, along with some intermediate steps on the thorny structural issues.

There are several directions the Trump administration could go on tariffs in the context of an agreement.  One is to keep the existing 10% tariffs on Chinese imports until China fulfills its commitments.  Another is to lift right away some or all of the current tariffs, with the threat that the tariffs would “snap back” into place if China does not meet its commitments.  In either case, the administration could retain the threat of new tariffs, like those just postponed, if the agreement is breached.  Regardless, enforcement and verification mechanisms will be key.  Reports from private U.S. companies and industry would no doubt be needed to verify progress on complex structural issues to ensure change is actually happening on the ground.  A joint U.S.-China committee to regularly review implementation could be helpful as well.

An effective agreement with China to ensure respect for fair trade and investment, and international rules and agreements, might better and sooner have been reached with the cooperation of like-minded allies, like the EU, Japan and Canada.  This was foreclosed by the administration’s unilateral tariffs on national security grounds against their products.  But it is good news that a US-China agreement may soon be reached; a credible agreement that both see as a “win” would reduce both economic and geopolitical risk and uncertainty, and give the global economy some breathing room.

This article was originally published in The Hill newspaper.

After the Final Report: Expectations Following the Section 809 Panel’s Third Volume of Acquisition Policy Reforms

The Section 809 Panel recently concluded its monumental analysis of defense acquisition law and regulations and released its third volume of recommended changes.  As we have written previously, the Panel’s work stands out from previous acquisition reform efforts with the appendices of detailed legislative and regulatory changes that accompany the commissioners’ analysis and recommendations.

Given the scope of the Panel’s work, few believe that Congress or the Department of Defense (“DoD”) will — or even could — simply adopt the recommendations in full.  Legislative bandwidth for additional acquisition reform is finite, and some of the Panel’s recommendations will prompt robust debate.  In this post, we analyze some of the recommendations that government contractors should follow most closely.  We highlight key issues and address the political dynamics involved in enacting them. Continue Reading

The Week Ahead in the European Parliament – February 25, 2019

Summary

Next week will be a short week in the European Parliament. Members of the European Parliament (“MEPs”) will meet in Brussels for committee sessions. Interesting debates and hearings will take place.

On Tuesday, February 26, the Committee on Legal Affairs (“JURI”) will vote on the provisional agreement on the Copyright Directive in the Digital Single Market reached with the Council of the European Union on February 13.  The Copyright Directive reforms rules on the publishing and use of third-party content online.  It would, for example, require online video platforms to strike licensing agreements with record companies if those profits from their music videos.  Publisher would also be able to seek compensation for their news being displayed on other online news platforms.  The compromised text kept the controversial Article 13, under which online platforms have the obligation to monitor uploaded content to resolve the “value gap” and help rights-holders monetize and control the distribution of their material.  Some critics argue these filters insufficiently distinguish satire from copyright-infringing material and thereby limit the freedom of speech.  Once the political agreement is approved by JURI, it would still have to be adopted in a plenary session and separately by the Member States.  It is uncertain whether the proposed Directive will be approved by the Member States since it is a divisive issue in the German coalition.  The political agreement has also received fierce criticism from the Netherlands, Luxembourg, Italy, Poland and Finland.  Including Germany, these Member States could form a blocking minority.  See the original Commission proposal here.  See the compromise text here.

Also on Tuesday, the Committees on Civil Liberties, Justice and Home Affairs, and Budgetary Control will hear shortlisted candidates for appointment of first ever European Chief Prosecutor.  Out of the 28 Member States, 22 agreed to establish a new European Public Prosecutor’s Office (“EPPO”).  The EPPO will function as an independent but decentralized office of the EU that has the competence to investigate and prosecute crimes against the EU budget, which includes (cross-border VAT) fraud and corruption.  The shortlisted candidates are Jean-François Bohnert (France), Laura Codruţa Kövesi (Romania) and Andres Ritter (Germany).  See the EPPO Regulation here.

On Wednesday, February 27, the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (“TAX3”) will vote on the report outlining its final findings and recommendations after its signature research draws to a close.  TAX3 was set up by the European Parliament on March 1, 2018, to investigate financial crimes, tax evasion and tax avoidance, following a series of media revelations, such as Luxleaks, the Panama Papers, Football Leaks, and the Paradise Papers.  Several of the first recommendations include: strengthening the principle of taxing profits before they leave the EU and phasing out all existing citizenship by investment (CBI) or residence by investment.  The draft report also calls for the centralization of anti-money laundering supervision via an existing or new Union body.  The draft report has been prepared by co-rapporteurs Luděk Niedermayer (EPP, CZ) and Jeppe Kofod (S&D, DK).  See the complete draft report here.  Continue Reading

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