The Week Ahead in the European Parliament – Friday, April 9, 2021

Next week will be a committee week in the European Parliament.  Members of the European Parliament (“MEPs”) will gather virtually and in person in Brussels.  Several interesting votes and debates are scheduled to take place.

On Tuesday, MEPs of the Committee on Civil Liberties, Justice, and Home Affairs (“LIBE”) will have their first debate with the European Commission on its proposal for ‘vaccinations passports’ to enable easier cross-border travel within the EU.  Under the Commission proposal, national authorities would be able to issue a digital certificate as proof that its holder would either be vaccinated against COVID-19; received a negative test result; or has recovered from COVID-19.  A uniform certificate will help other Member States’ authorities recognize its validity and lift their travel restrictions accordingly.  The proposal is on a fast track and will likely be completed before the summer to save the tourism season.  The Commission’s proposal is available here.

On Wednesday, the Committee on International Trade (“INTA”) will have an exchange of views with the EU’s new Chief Trade Enforcement Officer (“CTEO”), Denis Redonnet.  MEPs will likely discuss the implementation of the EU’s Trade Policy Review (“TPR”).  The TPR commits the EU to a more “open, sustainable and assertive” approach to trade.  The EU’s emphasis on assertiveness is made credible by a series of reforms that give the EU and Member States new legal enforcement powers and institutions, such as the introduction of the CTEO.  In particular, the MEPs are set to question CTEO Redonnet on his plans for an anti-coercion mechanism that must deter and counteract coercive action by non-EU countries.  On March 3, 2021, the Commission’s Director-General for Trade, Sabine Weyand, announced on that this could entail a framework Regulation that would allow the Commission to adopt trade-related countermeasures with only a qualified majority of Member States at a technical level.  Specifically, when “a third country tries to force or coerce the EU”, the Commission wants to become faster and more flexible in its response.  CTEO Redonnet is expected to share more details on what this means in practice.    Covington published an alert on the implications of enforcement actions for businesses in the new TPR here.

On Thursday, MEPs of the Committee on the Environment, Public Health and Food Safety (“ENVI”) will consider a Commission Delegated Act with a new procedure to facilitate and accelerate the European Medical Agency’s approval of adapted vaccines against COVID-19 variants.  The Delegated Act would amend Commission Regulation (EC) No 1234/2008 on the examination of variations to the terms of marketing authorizations.  It would apply the procedures that have been established for human influenza vaccines to the context of COVID-19 vaccines.  The Commission Delegated Act has been adopted by the European Commission, but is subject to scrutiny by the European Parliament and Council of the EU.  On April 7, 2021, the Council of the EU already issued an early non-objection.  The adopted Delegated Act under consideration is available here.

For the complete agenda and overview of the meetings, please see here.

U.S. Senators Propose Trade-Pact Waivers Amidst Focus on Domestic Preference Laws

The American Rescue Plan, signed into law last month, includes $1.9 trillion in economic stimulus, healthcare, and related funding.  And just last week the Biden administration released an infrastructure proposal, the American Jobs Plan, that includes $2.3 trillion in transportation, connectivity, power, and other critical infrastructure investments.Contractors are right to view these plans as massive opportunities — but should be cognizant of the regulatory strings that often attach to government spending.  In general, these can include Federal Acquisition Regulation (FAR) and agency-specific FAR supplements for federal procurements, as well as the nonprocurement uniform requirements (2 C.F.R. Part 200) and related agency-specific regulations that attach to Federal grant funds even when disbursed by state or local entities.Now, some Congressional members are seeking to add new restrictions that would significantly overhaul the existing domestic preference regime for Federal procurements — mere weeks after the promulgation of new Buy American regulations and the release of a new Executive Order to further tighten the application of these rules.

Background

Federal procurements are subject to an array of specialized and often overlapping requirements.  But the provisions of the Buy American Act (BAA) and Trade Agreements Act (TAA) are arguably the two most important sourcing preference regimes.

  • BAA Under the BAA, companies doing business with the U.S. Government must formally certify whether end products they deliver are “domestic end products” within the meaning of the BAA and its implementing regulations. See 41 U.S.C. § 8302 et seq.; see also FAR Subpart 25.1.  In general, a product generally qualifies as a “domestic end product” if it is (1) manufactured in the United States; and (2) the cost of its components mined, produced, or manufactured in the United States exceeds 55% of the cost of all components.  FAR 25.101.  Although this rule is easily stated, there are many exceptions to the BAA, including the TAA exception discussed below.
  • TAA The TAA allows the President to waive laws, regulations, procedures, or practices of Government procurement that would discriminate against eligible products or suppliers from “designated countries” so that the United States may comply with its obligations under various international trade agreements. Under the TAA, the President (through the U.S. Trade Representative (USTR)) has granted a BAA waiver for acquisitions that exceed the thresholds in the relevant trade agreement(s), typically $182,000.  When applicable, the TAA prohibits supplying end products to the U.S. Government from non-designated countries.

Recent Proposal

In the days following the passage of the American Rescue Plan last month, a group of Senators (spearheaded by Senators Tammy Baldwin (D-WI) and Sherrod Brown (D-OH)), petitioned President Biden to “temporarily suspend the trade-pact waivers to Buy American and other domestic procurement preferences that allow foreign firms to bid as American companies.”  The Senators’ letter recommended that President Biden immediately “suspend [the TAA waiver] for all extraordinary COVID-19 relief and recovery-related spending (including recovery-related infrastructure spending)” and tell America’s trade partners that we plan to renegotiate the relevant treaties in the future.

If enacted, the recommendation of Sens. Brown and Baldwin would constitute a significant change to federal domestic preference laws.  For decades, contractors have relied on the well-established TAA waiver of the BAA when planning manufacturing and sourcing processes, and supply chains cannot be reorganized overnight.  While the Senators’ letter notes that “removing [the TAA] waiver would not suspend the other [BAA] exemptions built into our domestic preference laws,” there is no question that many contractors could see their previously TAA-compliant products become subject to significant price evaluation penalties under the BAA.

But while this proposal clearly would alter the existing domestic preference landscape, it is less clear whether it would provide the full “boost [to] domestic industries and unemployed Americans” that the Senators predict.  The Senators’ letter cites a concern that the TAA permits “foreign firms to bid as American companies,” but the TAA actually is concerned with the origin of the products, not the ownership of firms.  Generally speaking, a foreign firm can sell a domestically-produced product to the U.S. Government with no BAA price penalty, and the change envisioned by the Senators would not alter this dynamic.  Additionally, much of the American Rescue Plan spending will be channeled through grants to state, local, and other entities, as opposed to direct federal procurement.  Neither the BAA nor the TAA applies to nonprocurement grants or lower-tier contracts funded by federal grants, and so the Senators’ proposal would not have any direct effect on the presumably significant spending to be supported by federal grants.

Finally, there are questions about the feasibility of the proposal given the United States’ existing treaty obligations to provide even-handed treatment to designated country end products in covered procurements.  A similar proposal last year to carve out certain “essential medicines” and other medical procurement from the World Trade Organization (WTO) Government Procurement Agreement (GPA) prompted at least eight WTO members to invoke the GPA’s arbitration procedures.  Given that the essential medicines withdrawal affects only 0.3% of the approximately $129 billion of America’s covered procurements, it seems likely WTO members would similarly object to the carve-out envisioned by Sens. Baldwin and Brown.

It remains to be seen whether the Senators’ proposal ultimately gains traction, but even if it does not, it still serves as a reminder about the enduring political appeal of domestic preference requirements in federal procurements.  It was not long ago that the American Recovery and Reinvestment Act of 2009 (ARRA) imposed an independent domestic production requirement for iron, steel, and manufactured goods used in ARRA-funded projects.  And with a new infrastructure bill on the horizon, it would not be surprising to see other similar domestic preference requirements layered onto that legislative effort.  Contractors interested in pursuing opportunities under these and other federal programs would be well-advised to continue monitoring the development of these potentially significant changes to domestic preference laws.

ESG in the Energy Sector

Like many companies in other sectors, oil and gas companies are increasingly confronted with the need to address Environmental, Social and Governance (“ESG”) imperatives in their businesses.  Traditionally viewed as ‘license to operate’ issues—effectively ensuring that companies continued to have ‘social permission’ to operate—these considerations have assumed an ever-greater importance as companies face both an accelerating energy transition and increased shareholder activism and government regulation. But, whilst many companies are keen to demonstrate their ESG credentials, they are hampered in doing so effectively by an absence of globalised standardised ESG metrics.

The OGA’s ESG Task Force

In response to these competing tensions operating on oil and gas companies, the UK’s Oil and Gas Authority (“OGA”) convened a Task Force to set out a number of disclosure and investor reporting requirements for operators and licensees. Whilst those recommendations will not create any regulatory or mandatory reporting obligations for UK oil and gas companies, the UK Government will closely examine them and may use them as guidelines for any potential future legislation in this area.

The Task Force’s initial focus was on the ‘E’ of ESG. In its report on March 8, 2021, it made a number of recommendations for reporting requirements for companies, including:

  • Requiring operators and licensees to disclose climate related data in their financial reports, and/or websites;
  • Calling on the industry to be mindful of the gap between investor expectations and what is currently reported, encouraging greater disclosure & transparency;
  • Stipulating that disclosure should be both quantitative and qualitative with signalled improvements over time; and
  • Encouraging senior leadership teams to model the required behaviors internally.

Continue Reading

China and the West

In coordinated action on 22 March 2021, the EU, US, Canada and the UK imposed sanctions on four Chinese officials accused of complicity in human rights violations in Xinjiang. The Chinese responded by imposing sanctions on a group of MEPs, European academics and think-tanks on 23 March and followed these announcements by imposing retaliatory sanctions on Canadian and US officials.  The speed of the Chinese response indicates Chinese concerns at the coordination between authorities in the US, UK, EU and Canada.

On 30 March, the Chinese authorities turned up the heat, accusing the EU of racism, slavery and colonial era crimes and encouraging Chinese consumers to widen their boycott of Western products – see below.  These increased tensions may delay the ratification of the EU-China Comprehensive Agreement on Investment for some time – if they do not kill it off altogether.

In the US, Secretary of State Blinken has not shied away from using the same language as Trump officials to describe Chinese actions in Xinjiang as genocide in a speech to NATO in late March, calling for western unity in deterring China’s military ambitions.  And in an apparent response to President Biden’s recent speech at the European Council where he noted the importance of tackling China as a ‘shared foreign policy interest’, Secretary Blinken and HRVP Borrell have announced further joint coordination through the EU-US Dialogue on China.

Can the Damaged UK-China Relationship be Compartmentalized?

China imposed sanctions on 10 UK organisations and individuals on 25 March, including MPs and Essex Court Chambers. This list indicates a clear Chinese determination to respond to any organization criticizing its human rights record.  However, the fact that no serving minister or member of the Government was included in the list, indicates a desire not to completely blow up the relationship – a strategy China also appears to have pursued in dealing with the US Administration.

The UK, equally, does not wish to allow the tensions to spill over into issues which are vital for the post-Brexit UK, such as trade (especially given the deep integration of China into the UK’s supply chains) and the mutual exchange of students; or China’s effective and cooperative participation in the UK-hosted COP26, which is crucial to its successful outcome.  This may explain why the UK has, so far, not imposed sanctions on Chinese officials in Hong Kong. Nor (unlike the US) has it described Chinese activity in Xinjiang as genocide – indeed the Government fought a lengthy and ultimately successful rearguard action against moves to include a provision preventing trade deals with countries accused of genocide in its recent Trade Bill.

This dichotomy is reflected in the UK’s recent Integrated Review of Foreign and Defence Policy. China was described as a “systemic competitor” and “the biggest state-based threat to the UK’s economic security”; but also a country with which the UK needed both to pursue “a positive trade and investment relationship” and to cooperate with China on climate change and biodiversity.  

Public & Political Attitudes are Hardening…

However, compartmentalizing an increasingly challenging relationship will be difficult.  Even before the recent sanctions announcement, the space for positive economic and environmental cooperation between the UK and China was already narrowing – the UK-China relationship has been on a downward trend since the high of the Cameron-Osbourne period (see blog). The UK banned Huawei from its 5G networks; the passage of the National Security and Investment Bill (NSI Bill) gives Ministers a greater say in allowing access for overseas investors to a number of sensitive UK markets; and a series of opinion polls clearly show a British public increasingly hostile to and suspicious of China. The UK PM has specifically set UK foreign policy the goal of competing for influence in developing countries with the aim of reducing reduce dependency on China.

In a comment which sums up the hardening of the UK position, Tom Tugendhat, Chair of the UK’s Foreign Affairs Committee (and one of those sanctioned by Beijing) stated: “If you’re thinking of doing business with China, think hard”.

Impact on Companies

A general increase in political tensions creates challenges for firms operating in China. While retailers and manufacturers sourcing products from Xinjiang have received plaudits from the Chinese State and public, they risk having their products blocked by customs officials in the United States and being criticized in the West for their ethical reputation. Some companies, with limited exposure in China, may feel freer to publicly declare where they stand on issues such as forced labour.  Others, perhaps more exposed to the China market, may feel they need to tread a more careful line.

Last month, a number of European and US-based companies became targets for consumer boycotts in China after making statements about labour conditions in Xinjiang or removing Xinjiang cotton from their supply chains. Companies associated with the Winter Olympics next year will need to balance concerns at whether sponsorship will bring the type of publicity sought, against the possible impact in China of reducing support for the Games.

With public policy teams in the US, EU, UK and China, Covington is well-placed to help clients think through their positioning and would welcome the chance to discuss these issues with you.

China’s 14th Five-Year Plan (2021-2025): Signposts for Doing Business in China

On March 13, 2021, China’s National People’s Congress (NPC) approved the outline of the country’s 14th Five-Year Plan, covering the period 2021-2025. The plan’s economic and social development targets provide critical signposts that companies—both foreign and domestic—would be wise to heed when determining their own plans for the coming months and years in the Chinese market. The full text of the plan can be accessed here in its original Chinese. This article will be updated with a link to an English translation once it becomes available.

The five-year plan is the centerpiece of the Chinese system of industrial planning and policy. Reflecting the transformation of the country over the past 70 years, the content and purpose of the five-year plan has changed substantially since the first plan was issued in Mao Zedong’s China in 1953. As the economy has evolved from a pure command economy to one in which the market plays a greater role, albeit with substantial engagement and interventions by the government, the five-year plan has evolved as well. Early plans set production targets; modern plans are a mixture of principles, guidelines, and targets designed to steer the country’s development. This evolution has not reduced the importance of the five-year plan—it remains a central feature of the Chinese economic system—but it does affect how it should be interpreted and how its guidance is implemented in practice. Ultimately, the five-year plan’s purpose is to set strategic goals, focus government work, and guide the activities of market and non-market entities in China. In developing the 14th Five-Year Plan, China’s leaders set an ambitious agenda to “promote high-quality development in all aspects, including the economy, environment, and people’s livelihood and wellbeing, and realize the rise of China’s economy in the global industrial chain and value chain.” Continue Reading

Supreme Court Narrows Meaning of TCPA Autodialer Definition

Yesterday, the Supreme Court issued its decision in Facebook v. Duguid, adopting a narrow interpretation of a key definitional term in the Telephone Consumer Protection Act (TCPA) and resolving the circuit split we previously described here and here.

In effect, the Supreme Court’s opinion means that to qualify as an “automatic telephone dialing system” (ATDS) under the TCPA, a device must use a random or sequential number generator; a device that calls a prescribed set of telephone numbers without using such a number generator would stand outside that definition and thus not be regulated by the TCPA.

By way of background, the TCPA imposes a consent requirement on calls or text messages that are placed using an ATDS.  The TCPA defines an ATDS as equipment that has the capacity “to store or produce telephone numbers to be called, using a random or sequential number generator,” and to dial such numbers.  The federal appeals courts were split on how to interpret this definition—specifically whether the clause “using a random or sequential number generator” modifies both “store” and “produce,” or whether the clause modifies only “produce.”  The practical difference is that the former approach excludes devices that have the capacity to dial only a prescribed set of telephone numbers.  The latter approach, which the Supreme Court rejected in Duguid, is more expansive, sweeping in any and all equipment that has the capacity to store telephone numbers to be called and to dial those numbers.

In a 9-0 decision authored by Justice Sotomayor, the Court adopted the narrow interpretation.  The Court held that to qualify as an ATDS—and therefore fall within the ambit of the TCPA—a device must have the capacity to store or produce a telephone number using a random or sequential number generator.  The Court reached this conclusion applying a careful analysis of the statutory text, noting that the narrow interpretation is the “most natural reading” of the statute and that it comports with “conventional rules of grammar.”  The Court also found that this interpretation aligns with the TCPA’s “statutory context,” which suggests that Congress was particularly focused on harms produced by random or sequential number dialing.  Finally, the Court noted that a contrary reading of the statute would render “almost all modern cell phones as autodialers,” an outcome the Court appeared eager to avoid.

Duguid is a significant ruling that places important guardrails on the scope of the TCPA, which has generated substantial and costly class-action litigation in recent years.

False Claims Act Update: District Court Rejects DOJ Motion to Intervene for Lack of “Good Cause”

When the United States government decides to intervene in False Claims Act litigation after initially declining intervention, it is not “déjà vu all over again.”  Instead, as one court has recognized, the “government is getting on a moving train,”[1] and it can only be permitted to “intervene at a later date” if it can show “good cause” for doing so.  See 31 U.S.C. § 3730(c)(3).On February 24, 2021, a Tennessee federal district court offered a pointed reminder of this principle when it denied a government motion to intervene in a qui tam suit after DOJ originally had declined to intervene six months earlier.  See U.S. ex rel. Odom v. Southeast Eye Specialists, No. 3:17-cv-00689 (M.D. Tenn. Feb. 24, 2021).  In so ruling, the court vacated a magistrate judge’s Report & Recommendation (“R&R”), which found that DOJ had established “good cause” for intervention.  Although motions to intervene pursuant to Section 3730(c) are often granted, the recent order issued in U.S. ex rel. Odom v. Southeast Eye Specialists illustrates that the “good cause” showing is not a hollow requirement and that it can serve as a meaningful constraint on belated attempts by DOJ to intervene to pursue a case after initially declining to do so.

Case Background

Southeast Eye Specialists involves allegations that the defendants, an ophthalmology practice and affiliated surgery centers, defrauded Medicare by engaging in an improper patient referral scheme in violation of the Anti-Kickback Statute and the FCA.  The relators filed a complaint under seal on behalf of the United States and Tennessee in 2017, prompting DOJ to investigate the allegations.  By statute, DOJ has sixty days to investigate a matter while the case is under seal before making an intervention decision.  See 31 U.S.C. § 3730(b)(4).  As in many FCA cases, DOJ sought and obtained multiple extensions of the sixty-day seal period (which are also permitted “for good cause shown,” id. § 3730(b)(3)).  At the conclusion of its sixth and final extension—more than two years after the original deadline—DOJ declined to intervene, explaining it had not finished investigating and was “not able to decide whether to proceed with the action.”  ECF 41.

Where DOJ declines to “proceed with the action, the [relator] shall have the right to conduct the action.”  31 U.S.C. § 3730(c)(3).  That is what happened here for six months until DOJ filed a motion to intervene.  The provision authorizing such intervention provides: “When a person proceeds with the action, the court . . . may nevertheless permit the Government to intervene at a later date upon a showing of good cause.”  Id.  In attempting to satisfy this standard, DOJ explained that it had “interviewed additional witnesses, continued reviewing the documents [], and obtained and analyzed new high-level Medicare claims data”; noted that relators consented to the intervention; and claimed that “intervention at this early stage . . will not prejudice the defense.”  ECF 66.  The magistrate judge concluded that DOJ demonstrated “good cause,” noting that the standard is interpreted broadly and that courts seldom second-guess the decision “[o]nce the Government has asserted the discovery of new information supporting intervention.”  R&R, Southeast Eye Specialists, 2020 WL 4431464, at *4 (M.D. Tenn. July 31, 2020).

The defendants objected to the R&R on three grounds.  First, the defendants argued that the magistrate judge incorrectly concluded that DOJ had demonstrated good cause by detailing new and significant evidence, when all it pointed to was mere additional investigative activity.    In support of this point, the defendants noted that courts have required the government to show “discovery of new and significant evidence” that “alter[s]” the government’s view of the case to justify late intervention.  See, e.g., U.S. ex rel. Hall v. Schwartzman, 887 F. Supp. 60, 62 (E.D.N.Y. 1995) (“the subsequent discovery of new and significant evidence which has altered [the government’s] view of the magnitude of the alleged fraud . . . are precisely the circumstances which Section 3730(c)(3) was intended to address”).  Second, the defendants argued that the R&R placed undue emphasis on relators’ consent to intervention.  Third, by the same token, the defendants argued that the R&R did not give enough consideration to the prejudice that late intervention would cause defendants.  According to the defendants, the R&R focused narrowly on the fact that formal discovery had not started and that only six months had lapsed between the intervention deadline and DOJ’s motion, and thus did “not fully account for the history of this action,” which had stretched on for years.  Def.’s Objections, ECF 86, at 13-14.

The district court agreed with defendants, and on February 24, 2021, issued an order denying DOJ’s motion to intervene and vacating the R&R.  As discussed below, the order is significant for several reasons.

Takeaways

First, the order in Southeast Eye Specialists shows that at least some courts may be willing to perform a more searching review of DOJ’s claims of “good cause.”  Here, the court found DOJ’s motion unsupported by “new and significant evidence,” noting that the additional investigative activity described in DOJ’s “tepid submission” was “unremarkable” and “fell way short” of demonstrating new evidence.[2]  The case is a reminder that requests for late intervention—like requests to extend the original intervention deadline—are not to be granted automatically and require a legitimate showing of “good cause.”  31 U.S.C. § 3730(b)(3).  See, e.g., U.S. ex rel. Brasher v. Pentec Health, Inc., 338 F. Supp. 3d 396 (E.D. Pa. 2018) (denying the government’s requested extension to the seal period for lack of “good cause” after ten extensions had already been granted over five-year period).  In both contexts, courts may apply the “good cause” standard with teeth to guard against untimely government intervention.

Second, the order is also instructive because it shows that courts do not automatically equate a relator’s consent with “good cause.”  DOJ’s motion asserted that relators’ consent to intervention meant that “the intent of the good cause requirement [was] clearly satisfied.”  ECF 66.  Similarly, the R&R noted that relators’ consent “weighs heavily in favor of allowing” intervention.  2020 WL 4431464, at *5.  However, as the court in this case and other recent cases (cited by the defendants in Southeast Eye Specialists) have recognized, a relator’s consent to intervention is not dispositive, and fairness to the defendant is at least one consideration in the “good cause” calculus.  See, e.g., U.S. ex rel. Drennen v. Fresenius Med. Care Holdings, Inc., 2017 WL 1217118, at *5 n.2 (D. Mass. Mar. 31, 2017) (explaining that basing “good cause” on relator’s consent “would virtually eliminate the ‘good cause’ requirement since a relator may assent for any reason or no reason at all”).  Indeed, the relator’s consent arguably should not even be a factor at all.  The relator’s “consent,” or lack thereof, sheds little to no light on the question of whether there is “good cause” for late intervention.  From a fairness standpoint, the more important question is whether the defendant consents, given that the defendant—not the relator—is the one who will need to deal with the burden and expense of adding new litigants.

The order is a reminder that the “good cause” standard should not be taken for granted.  Although the determination is likely to be fact specific and dependent on the nature of the case and DOJ’s timing, Section 3730(c)(3) holds DOJ to a standard that requires something more than generalized, conclusory claims about the good cause to intervene after initial declination, and that requires consideration of the interests of the defendant.

[1] U.S. ex rel. Drennen v. Fresenius Med. Care Holdings, Inc., 2018 WL 1557253, at *3 (D. Mass. Mar. 30, 2018).

[2] Jeff Overley, “DOJ Suffers Rare Rejection of Late FCA Case Takeover,” Law360 (Feb. 26, 2021), https://www.law360.com/articles/1359646/doj-suffers-rare-rejection-of-late-fca-case-takeover.

Use of FEC Data – The Vice Chair Says the FEC Has Taken “A Wrong Turn”

There are few things as seductive in politics today as good data, and few things as challenging for commercial firms as the statutory bar on the use of FEC data for commercial purposes.  That came to a head yesterday, when the FEC was unable to reach a decision on an advisory opinion request on use of the FEC’s donor data to, among other things, confirm the identity and score potential donors in a client’s existing database.  The case highlights the gap between the regulated community and where a majority of FEC Commissioners may soon take the law.

Aluminate, a commercial vendor that helps clients – often colleges and universities – refine their donor data to more accurately identify and target fundraising and outreach programs, asked the FEC for permission to use the FEC’s donor data when screening their clients’ databases.  The company did not want to use the FEC data to build contact information or to convey to clients specific information about particular individual’s donor history.  Instead, it intended to use the FEC data to better identify the interests of those in the database and score those more likely to respond to particular ‘asks’ the client might have. AO Request.

The initial draft opinion concluded that this was in conflict with the statute’s prohibition on data submitted to the agency being “sold or used by any person for the purpose of soliciting contributions or for commercial purposes…”  52 U.S.C. 30111(a)(4).  FEC AO 2021-01 Draft A This conclusion was met with a fervent cry from Perkins Coie’s political law group – writing as practitioners rather than for any particular client – that such practices were already common and are consistent with the FEC’s precedent on the use of its data.  Perkins Comments.  This was shortly followed by a competing draft response that concluded the request was entirely permissible.  FEC AO 2021-01 Draft B.

Some of what followed was entirely predictable to those who have followed the FEC over the past decade.  The three Commissioners associated with the Democratic Party (Chair Broussard and Commissioners Walther and Weintraub) voted for the original draft prohibiting the conduct.  Two Commissioners associated with the Republican Party (Commissioners Cooksey and Trainor) voted for the draft permitting the conduct.  The most noteworthy feature of the day was the decision of Vice Chair Dickerson to abstain.

In comments at the hearing, Vice Chair Dickerson said that he had concluded that the Commission’s prior decisions on this question had been overly permissive, and had drifted away from a fair reading of Congress’ intent in passing the law.  He emphasized that this data – reflecting citizens’ association with political candidates and causes – brought with it a significant privacy interest that prior FEC decisions had failed to accurately weigh.  His concern with fair notice and the regulated community’s reasonable reliance on prior decisions prevented him from voting to roll back those decisions in this case, but he was unwilling to proceed down a path of legal analysis that he thought was “a wrong turn.”  Consequently, he abstained and the matter failed 3-2.

This matter is important for those who would like to use FEC data in modeling for a commercial purpose or as a tool for solicitations.  The law did not change yesterday, but certainly a flag was raised that this is an area in which practitioners should not assume that precedent teaches them where the FEC will land in future cases.  This particular matter is only partially instructive, for it also highlighted the advantage of using experienced FEC counsel: the facts were at times obscured in a way that increased Commissioners’ suspicions, arguments were raised that were certain to fall on deaf ears, and helpful precedent was ignored.  But that said, Vice Chair Dickerson is a student of this area of law, and if he has concerns that prior decisions are misguided in an area of constitutional importance, everyone interested in how FEC data can be used should be alert to that concern and any statements he may issue later on this issue.

Hydrogen Policy Development in the UK

The UK Government has set itself very stretching emissions targets. A reduction of 68% on 1990 levels by 2030 and a Net-Zero target by 2050. To achieve these goals, the UK established a Committee on Climate Change with responsibility for setting a credible roadmap. It does this though a series of four-year Carbon Reduction Budgets, starting in 2008. The UK met the First and Second Budgets and is on course to meet the Third Budget. However, it is not on course to meet the Fourth and Fifth, covering the period 2023 – 2032. The CCC has set out five main measures to span the gap between the ambition of the 2050 Net-Zero Target and the reality of missing the next two Carbon Budgets. Two of those measures are demand-side. Of the remaining three measures, two involve the increasingly extensive use of hydrogen.

Ten Point Plan for a Green Industrial Revolution

It is for this reason that hydrogen features as one of the main elements of the UK Government’s Ten Point Plan for a Green Industrial Revolution published in November 2020. By 2030, the UK is aiming for 5GW of low carbon hydrogen production, with plans to create renewable energy hubs based around CCUS and hydrogen. The Government aims to use existing gas infrastructure to make hydrogen (blended with natural gas) available for use in domestic cooking and heating appliances across the UK and to support this objective, has announced Hydrogen heating trials, with the ambition of creating a hydrogen Neighbourhood and a potential Hydrogen Town before 2030.

The Industrial Decarbonisation Strategy

The UK’s Industrial Decarbonisation Strategy (IDS), published earlier this month, underlines the importance of Hydrogen in enabling the UK to meet its Net-Zero target. The IDS does not seek to make a decision whether to place the greater emphasis on clusters (more electrification), or on infrastructure investment across the UK (more hydrogen in the mix). However, the Government acknowledges that pursuing a cluster strategy may risk stranding heavy-industry assets (for example cement and steel works) post 2035, leaving greater ‘residual carbon’ in the system by 2050, which would require more offsetting GGR technology.

The IDS’ acknowledgement of a need for an increased focus on hydrogen in the UK’s decarbonisation roadmap to avoid ‘stranded carbon’ was trailed by the December 2020 update to the UK’s CCUS business models. That update included a focus on accelerated work to support hydrogen business models to overcome the cost gap between low carbon hydrogen and higher carbon fuels, such as natural gas. The UK Government is planning a consultation on preferred low carbon hydrogen business models in Q2 2021, with a final model due to be agreed in 2022.

Potential UK Hydrogen Use

In its best-case scenario, the Government estimates that UK domestic hydrogen consumption could be as high as 86 TWh by 2050 and notes early hydrogen opportunities in the conversion of steam boilers and combined heat and power processes for chemicals, refineries and paper. The Government acknowledges that the necessary hydrogen technologies for high temperature direct firing are not yet commercially ready and will require financial support to bring those technologies to market.

UK Government Support to Hydrogen

The UK’s overall approach to reaching Net-Zero is market-led and technology neutral. However, the Government acknowledges that without its intervention to address current market failures (as well as regulatory uncertainties and the high risks associated with novel technologies), it is unlikely that mass hydrogen will find a viable route to market. Accordingly, the UK is considering a range of interventions to support hydrogen development in the UK – including whether fuel standards could play a useful role in helping industry invest – and is reviewing emissions associated with different hydrogen production technologies in order to develop a UK standard that defines low carbon hydrogen.

The Government has put funding at Hydrogen’s disposal – a £240 million Net Zero hydrogen Fund, which will provide capital co-investment in early low carbon Hydrogen production; a £1 billion Net Zero Innovation Portfolio (which it estimates may be complemented by up to £3.5 billion of funding from industry and academia); and a £33 million low carbon hydrogen supply competition.

Policy Formation in the UK

There are a number of organisations which support the development of hydrogen in the UK. Two key groups, which bridge the public-private sector divide are the All Party Parliamentary Group (APPG) on Hydrogen – which is the primary interface for the private sector with Parliament – and the Hydrogen Advisory Council (HAC) – which is the primary forum for Ministerial engagement with representatives from the hydrogen sector. Both groups play an important role in raising awareness of and building support for large-scale hydrogen projects in the UK and in discussing policy options and actions to help the development of hydrogen as a strategic decarbonised energy carrier for the UK.

The APPG met in mid-March 2021. The last meeting of the HAC was in December 2020. Both groups support parallel development of blue and green hydrogen in the UK, on the basis that blue Hydrogen could become a ‘pathway’ to green hydrogen. The HAC is currently drawing up a road-map for cross-sector hydrogen deployment which will support the Government’s UK’s delayed Hydrogen Strategy which is due to be launched in Q2.

The Foundations are Laid, but the UK’s Hydrogen House Needs Building…

However, despite this impressive list of activity in the hydrogen sector, the UK currently lacks a legislative hydrogen framework (including a legal definition of ‘low carbon hydrogen’); an effective business model; and a defined revenue support mechanism (probably a CfD) for projects in the 2020s – all of which are needed to create a credible investment framework. These elements are not likely to come together before early 2022.

Covington’s hydrogen teams are reviewing the development of hydrogen legislation and frameworks in the UK and in other jurisdictions around the world and would be happy to help develop clients’ plans in this sector.

UK Public Inquiries and Select Committees

Last October, the Health and Social Care Committee and the Science and Technology Committee in the House of Commons announced an inquiry into the lessons to be learned from the UK Government’s response to the Covid-19 pandemic. The two committees are conducting joint evidence sessions to examine the impact and effectiveness of the action taken by Government, and the advice it has received, including (among other things):

  • the deployment of non-pharmaceutical interventions, such as lockdowns and social distancing rules;
  • the impact of the pandemic on the social care sector, BAME communities, and other at-risk groups;
  • the test and trace system;
  • the UK’s preparedness for a pandemic; and
  • the development of treatments and vaccines.

The inquiry has already held hearings with clinicians, care providers, the UK Vaccine Task Force, senior government officials, and National Health Service managers. The appearance by the Prime Minister’s former senior advisor, Dominic Cummings, in March was the most high-profile meeting to date. Other parliamentary select committees are conducting their own inquiries, or have held one-off evidence sessions relating to the pandemic.

Although the media attention accorded to some of these hearings demonstrates the increased prominence of parliamentary committees since the select committee system was reformed more than a decade ago, the increasing clamour for an independent public inquiry into the Government’s pandemic response illustrates the limitations of parliamentary scrutiny alone. In particular, select committees tend to focus on their discrete areas of policy responsibility — health, transport, business, and so on — rather than looking at Government action holistically, across all relevant departments and agencies. They also lack the investigatory resources and evidence-gathering powers of independent public inquiries, most of which tend to be established under the Inquiries Act 2005 (the “2005 Act”).

For the same reason, opposition parties tend to favour statutory public inquiries over parliamentary commissions of inquiry. Although parliamentary commissions can be afforded powers that are not customarily given to select committees — including the power to send for evidence and to invite specialist advisors to examine witnesses, which was granted to the Parliamentary Commission on Banking Standards — they may be perceived by political parties as an inadequate substitute for a statutory inquiry.

Given the way the pandemic has dominated global and national headlines for over a year, it is inevitable that there will eventually be a public inquiry into the UK’s response. The Prime Minister has committed to an inquiry in principle, but has resisted starting the process while the pandemic is ongoing, on the basis that it could distract ministers and officials who need to remain focused on the vaccination campaign.

The terms of reference for such an inquiry will be hotly contested, and its scope and timelines will be the subject of intense political debate. They will define whether the inquiry produces useful lessons-learned or scores cathartic political points. Opposition parties will push for the inquiry to be as broad as possible and to take place on a timeline which will deliver potential ammunition for the 2024 General Election. For the same reason, the Government is likely to try to limit the scope and adjust the timing. Recent experience suggests that a multi-year process is almost inevitable. The House of Commons Library has calculated that the average statutory inquiry under the 2005 Act takes two and half years to publish its final report.

Who will lead the inquiry will also be closely examined. Inquiries led by retired judges have become the accepted norm. But the breadth of issues that may need to be considered — from public health and epidemiology issues, to vaccine development, to the economic response — may weigh in favour of appointing a retired civil servant or a panel of experts with knowledge and experience of the subject matter.

With such a large public enquiry on the near horizon, it is important for any company that may be involved to understand the legal, political and reputational risks in such intense exposure. An appearance before a public inquiry is not something to be taken lightly, and doing so effectively requires considerable preparation, as well as an understanding of the rules and culture of the relevant forum — whether a parliamentary committee, a statutory inquiry, a Royal Commission, or some other relevant body.

Although the rules governing parliamentary select committee enquiries are somewhat opaque, resting on old precedents that have rarely been tested in the past century, the position is not the same for public inquiries established under the 2005 Act. For example, select committees generally seek evidence by informal request, and there is no effective way of compelling a person to appear before a committee hearing if they refuse. While the House of Commons retains the ability to censure a non-cooperative witness, as they did with Mr Cummings in the past, the impact on the individual is political and reputational: refusal by a company executive to attend following an invitation to do so would likely be damaging both for that executive and for their company.

Conversely, statutory public inquiries under the 2005 Act have a range of significant powers. For instance, the chairman of an inquiry may give notice requiring a person to attend to give evidence or produce documents, and it is an offence for a person to fail without reasonable excuse to do anything required pursuant to such a notice. Non-statutory public inquiries — such as the Chilcot Inquiry into the UK’s role in the Iraq War, which was established as a committee of Privy Counsellors — offer relatively greater procedural flexibility. But because such inquiries rely on the voluntary compliance of witnesses, we expect that opposition parties will push for any pandemic-related public inquiry to be placed on a statutory footing under the 2005 Act. This will ensure, for example, that witnesses can be required to give evidence under oath.

The form of questioning also differs substantially between public inquiries under the 2005 Act and inquiries by parliamentary committees. Members of Parliament and peers conduct the questioning in select committee hearings, they usually have limited time to explore issues in detail, and rapid-fire questions are often designed to achieve “soundbite” responses. In contrast, questions during statutory inquiries under the 2005 Act are often led by lawyers, and may involve lengthy analysis of documentary records or the testimony of other witnesses. The Inquiry Rules 2006 also afford certain procedural rights to so-called “core participants” in the inquiry — i.e. individuals with a direct and significant role or interest in the matters to which the inquiry relates, or who may be subject to explicit or significant criticism.

There is a general presumption that inquiries are public and the responses given are, therefore, available to the media and to members of the general public. Reputations can be enhanced or destroyed through engagement with parliamentary or public enquiries. Done right, an appearance before an inquiry can be beneficial to a participant’s reputation, and it offers a unique opportunity to set the record straight and give a different side of the story to the one that may be running in the media. However, careful preparation is required before any company or individual gives evidence to an inquiry, or appears as a witness — particularly if the inquiry relates to matters that could give rise to follow-on litigation, criminal investigations, or regulatory enforcement actions. Companies and their representatives also need to be aware of potential political agendas and media angles.

Covington has significant experience helping individuals and entities to prepare for appearances before UK parliamentary and public inquiries.  We would be delighted to apply that experience to help clients prepare effectively, or think through their strategy in making an appearance before an inquiry.

*post updated March 31, 2021

 

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