EU Policy Update

Brexit and Elections in the UK and France

The legislative elections in the UK on June 8 resulted in what few observers expected: Theresa May, who was hoping to increase her majority in the house of Commons, instead lost it.  In order to ensure a majority for the confidence vote in her new minority government, she had to secure the support of the Northern Irish Democratic Unionist Party (“DUP”).  This came in exchange for a commitment to over ₤1 billion in public spending in the region (in addition to relaxing spending rules on another ₤500 million committed to by the last government).

Brexit was hardly discussed during the campaign, but the new political context, with the prime minister having lost her majority and much of her popularity, reopened the debate over the new relationship with the Union.

Meanwhile, the formal Brexit negotiations began as planned on June 19, even before the new British government had been confirmed, with a meeting in Brussels of the UK Secretary of State for Exiting the EU, David Davis, and his European Union counterpart, Michel Barnier.  The next session will take place on July 17.

The atmosphere was made easier than anticipated by the acceptance by the British side, soon after the election, the European negotiators’ demand for a phasing of the talks – with the liquidation of the past being addressed before the future relationship.  Indeed, this gives more time for the internal debate in the UK on the future relationship to reach a conclusion.

The first issue discussed was the rights of the EU citizens in the UK and of British citizens in the EU after Brexit about which each side has presented a position paper (here and here).  The UK has not yet presented its position on the financial settlement, which the EU side hoped to discuss at the next meeting.

Meanwhile, the two-round elections for the French National Assembly took place on June 11 and 18.  As foreseen, the audacious strategy of the new president, Emmanuel Macron, succeeded in giving a large majority to the new party he created just a year ago: “La République en Marche” elected 303 parliamentarians on a total of 577.  However, 57.36 % of those allowed to vote abstained, the highest level in the history of the Fifth Republic.  Edouard Philippe, a former supporter of the center right leader Alain Juppé, was confirmed as the prime minister.

The June European Council focused on security and defense, foreign affairs, climate change, economy, trade and migration.  See the Council Conclusions here, and President Tusk’s remarks on the meeting here.

The European Council reaffirmed its commitment to cooperate at EU level to fight online radicalization, prevent and counter violent extremism, tackle terrorism financing, and improve information sharing and the interoperability of security databases.

The leaders also agreed on the need to launch an inclusive and ambitious “permanent structured cooperation” (“PESCO”) to strengthen Europe’s security and defense.  Within three months, member states are supposed to agree a common list of criteria and commitments, together with concrete capability projects, in order to begin this cooperation.  In addition, the European Council welcomed the Commission’s communication on a European Defense Fund and looked forward to its swift operationalization.  It called for rapid agreement on the proposal for a European defense industrial development program.

Tech and Digital Single Market Policies

Therese Comodini Cachia has stepped down as Rapporteur on the proposed Copyright Directive file, as she is leaving her post as an MEP to take up a seat in the national parliament in Malta.  The file has been taken on by Axel Voss (German MEP, center-right EPP), also a member of the lead Committee on Legal Affairs (“JURI”).  He has stated that his aim is to strike a balance in the proposal between the interests of copyright holders and consumers.  A vote in the Committee is tentatively scheduled for October 10, and the full plenary vote is expected by the end of 2017.  Meanwhile, on June 14, 2017, Catherine Stihler MEP published her final opinion on the copyrights directive proposal on behalf of the European Parliament’s Committee on Internal Market and Consumer Protection (“IMCO”) committee ­– see here.

On June 15, 2017, the European Parliament adopted a report calling on EU and national authorities to ensure “fair working conditions and adequate legal and social protection for all workers” in the growing collaborative economy – see here.  The report states that last year’s European Commission guidelines on the so-called “gig economy” did not bring “sufficient clarity” on how to apply EU legislation to this nascent field, which the MEPs found disappointing.

On June 9, the European Parliament’s Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) released a draft report on the proposed ePrivacy Regulation – see here.  The general thrust of the changes proposed by the LIBE Committee was to increase privacy protections, including through a return to the privacy by default requirements.  The deadline for the submission of amendments to this report was July 10, 2017.  The plenary vote in the Parliament is scheduled for October 2017, though many MEPs feel that this timeline is too ambitious, given the complexity of the issues at stake.

On July 7, 2017, the Council formally appointed Mariya Gabriel as the new Commissioner for digital economy and society – see a press release here.  The appointment takes effect immediately.  This followed a June 20, 2017 European Parliament hearing to question the designated Digital Commissioner, Mariya Gabriel.  Her responses to the MEPs’ questions have now been made public – see here.  She outlined her intention to launch new proposals on cybersecurity and data flows.  She also emphasized her focus on the social aspects of digital policy.  The MEPs then voted to approve her appointment on July 4, 2017 – see here.

The European Commission has fined Google €2,424,495,000 for breaching EU competition rules – see a Commission press release here, and a factsheet here.  The Commission alleges that Google abused its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service.  Google must now end the conduct within 90 days or face penalty payments of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company.  The Commission is expected to conclude swiftly two other open investigations against Google.

Communication and Media Policies

The lead committee of the European Parliament on the new EU telecoms regulation (the Industry, Research and Energy committee, “ITRE”) has postponed its vote on proposals until September.  This was expected to be ready for a committee vote in July. However, the large number of amendments proposed to the code has resulted in a further delay in the process.  Once adopted by the committee, the code is expected to go up for a vote in the full European Parliament before the end of the year.  The Electronic Communications Code was first proposed last September by the European Commission, following a review of EU telecom regulation – see here.

The Council finalised its position on the Audio Visual Media Services Directive (“AVMSD”) in late May – see the Council position here and a European Commission press release here.  Trilogue negotiations, initially scheduled for June, began on July 10, 2017.

Roaming charges in the European Union no longer apply from June 15, 2017 – see a press release here.  EU citizens traveling within the EU will be able to call, text and connect on their mobile devices at the same price as they pay at home. The three institutions held events to celebrate this change, which they claim as a major policy victory of this Commission’s term.

Energy and Environment Policies

On July 4, the European Parliament adopted a resolution calling for greater longevity and repairability, and raising concerns around planned obsolescence of devices and software.  The Members of the European Parliament (“MEPs”) noted that a balance must be struck between innovation, consumer demand, and environmental protection, but raised concerns at the increasing volume of electronic waste and the perceived short lifespan of current electronic devices.

In its resolution, the Parliament called on the Commission to establish minimum resistance criteria for robustness, repairability and upgradeability for product categories, where this is practically possible.  It recommended that these criteria be supported by standards developed by the European standardization organizations, CEN, CENELEC and ETSI.

In addition, the Parliament highlighted the potential of new business models to promote the overall durability of products – such as usage-based business models that treat “products as services”.  In a parallel to U.S. debates on a “right to repair,” the Parliament cited “the importance of safeguarding the option of going to an independent repairer, for example by discouraging technical, safety or software solutions which prevent repairs from being performed other than by approved firms or bodies.”

Finally, the Parliament also called for the protection of consumers against planned obsolescence, for both devices and software.  MEPs called for the Commission to define planned obsolescence, and consider establishing an independent system to test for in-built obsolescence in products.  They also recommended that software updates be reversible, and for greater compatibility and upgradeability of software necessary for hardware devices to be kept in service.  See the Parliament’s resolution here, and a study commissioned by the Committee on the Internal Market and Consumer Protection that informed the resolution here.

Internal Market and Financial Services Policies

On June 21, the Commission proposed a new Directive containing transparency rules for tax planning intermediaries such as tax advisors, accountants, banks and lawyers.  The rules target schemes that use losses to reduce tax liability, rely on special beneficial tax regimes, or arrangements through countries that do not meet international good governance standards.  Such intermediaries will be required to report the schemes they develop within five days, and before they are used by their clients.  Where the intermediary cannot or will not disclose the advice – either because they are bound by privilege or secrecy rules, or because they are based outside the EU – the duty to report the scheme to the authorities will fall on the company receiving the advice.  Where the advice is developed by in-house counsel, it will be for those implementing it to report it to the tax authorities.  See the Commission’s proposal here, the annex thereto here, a press release here, and Q&A here.

In its meeting of June 16, the Economic and Financial Affairs Council failed to agree a proposal that would allow Member States to lower the VAT rate for e-books, to bring it in line with paper books.  Such agreement was expected, but the file, which must be agreed unanimously under a “special legislative procedure,” was blocked by the Czech Republic, in an attempt to gain leverage over another piece of legislation relating to VAT.  (The Ministers’ disagreement can be seen in the video of the June 16 Council meeting – see here.)  This other legislation ­– the “general reverse charge mechanism” (see that proposal here) – would enable Member States to run a pilot to collect VAT only at the last point of sale, rather than throughout the supply chain.  The Council was prepared to allow a five-year pilot (see the Maltese Presidency’s proposed compromise text here), but the Czech Republic wants this amended to allow a longer, 10-year pilot scheme.  See the proposed Directive on the VAT applied to books, newspapers and periodicals here, and the Council’s proposed General Approach here.

Life Sciences and Healthcare Policies

On June 29, the European Commission published its long awaited Communication on “A European One Health Action Plan against Antimicrobial Resistance”.  The Action Plan outlines multiple initiatives the Commission proposes to foster the fight against antimicrobial resistance (“AMR”).  The Action Plan is structured around three pillars: (i) making the EU the best practice region in terms of fighting AMR growth, (ii) boosting research, development and innovation, and (iii) shaping the global agenda by making the EU more influential on AMR internationally.  The action proposed by the Commission includes: supporting the use of IT solutions in developing tools for diagnosing human and animal infections; supporting research into the development of new diagnostic tools in humans and animals to guide practitioners with regard to the use of antimicrobials; fostering the development of new effective preventive vaccines for both humans and animals; working with the European Medicines Agency (“EMA”) so support SMEs in their R&D efforts towards innovative or alternative therapeutic approaches for the treatment or prevention of bacterial infections; and supporting research into the development and assessment of interventions that prevent the development and growth of AMR in various settings, such as hospitals.  The nature of these initiatives is still unknown, but the Commission’s follow-up to this announcement will create a number of opportunities for the industry to intervene and advocate its position.  See the Communication here, a factsheet here, and the Commission’s press release here.

On the same day, the Commission also published its “EU Guidelines for the use of antimicrobials in human health”.  The document provides guidelines to all healthcare actors, including the pharmaceutical industry.  It recalls that the pharmaceutical industry is a key player in the fight against AMR, and recommends that the industry ensure monitoring of resistance and off-label use after the launch of new compounds in compliance with post-marketing obligations; ensure that financial incentives are compliant with the stewardship principles laid down in the Guidelines; abide by the rules that apply to advertising and marketing to healthcare professionals; and engage with national and international policy makers to support the shaping and development of new policies aimed at ensuring and promoting adequate antimicrobial prescribing and designing new reimbursement systems.  See the Guidelines here.

On June 22, the Heads of State or Government of the EU 27 agreed on the procedure for the relocation of the EMA and on revised criteria for selecting its new seat.  The EMA is currently based in London, but will have to relocate after Brexit.  The final decision on the EMA’s new location is now likely to be adopted before the General Affairs Council, to be held in November 2017.  EU Member States wishing to host the EMA can apply until July 31, 2017.  See the decision on the revised criteria here.

On June 16, the EMA announced that the Clinical Trials Regulation (Regulation 536/2014, the “CTR”) will not come into force before 2019, instead of October 2018, as previously foreseen.  The CTR establishes a centralized database and entry point for all information relating to the submission of clinical trial applications and data relating to EU clinical trials.  The delay results from difficulties in establishing the IT infrastructure to enable this.  Before coming into force, the proper functioning of the EU portal needs to be audited under the responsibility of the EMA.  The CTR will then come into force six months after the Commission publishes the results of this audit.  See the EMA’s announcement here.

On May 31, the EMA and the European Commission published a Q&A on regulatory guidance for pharmaceutical companies to prepare for Brexit.  The guidance is addressed to both human and veterinary drug companies.  This guidance follows the “Notice to Marketing Authorization Holders of Centrally Authorized Medicinal Products” published by the EMA and the Commission on May 2, 2017.  The EMA stated it will issue further guidance documents to help pharmaceutical companies prepare for the UK’s withdrawal from the EU.  See the Q&A here.

Trade Policy and Sanctions

On July 6, after long negotiations that began in 2013, agreement was reached “in principle” on an EU-Japan free trade deal.  The outline plan was signed in Brussels, in a meeting between the Japanese Prime Minister, Shinzo Abe, and the European Commission president, Jean-Claude Juncker.  It came on the eve of the annual summit of the G20 group of leading economies in Hamburg, on July 7 and 8.

The symbolic meaning of this timing was underlined by both sides: “I believe Japan and the EU are demonstrating our strong political will to fly the flag for free trade against a shift toward protectionism”, Abe told a joint news conference with Jean-Claude Juncker and the President of the European Council, Donald Tusk.

He added that the deal signified the creation of “the world’s largest free, advanced, industrialized economic zone”.  Indeed, the agreement paves the way for trading in goods without tariff barriers between two of the world’s biggest economic areas.  Both sides will also benefit from the removal of non-tariff barriers, such as incompatible product standards.  Two of the most important sectors concerned are Japanese car imports in the EU and, for Europe, EU farming goods exports to Japan.

A full, workable agreement may take some time to conclude, even if officials insist the key snags have been overcome.  President Juncker said he hoped the deal could take effect in early 2019.  However, the agreement as currently envisaged will neither include a dispute settlement mechanism for investors, nor will it cover data flows.

In its meeting of June 22-23, the European Council again considered French proposals for an EU system to screen foreign investments (sometimes dubbed an “EU CIFIUS”, after the equivalent U.S. system).  The leaders fell short of a consensus, calling instead for more reciprocity and better trade defenses.

French President Emmanuel Macron had wanted EU leaders jointly to call on the European Commission to examine “ways to screen investments from third countries in strategic sectors”, but that line did not make it into the final conclusions of the European Council summit.

Instead, the watered-down conclusions state that the leaders welcome an initiative by the Commission “to analyze investments from third countries in strategic sectors”, but leaves out any reference to the screening of acquisitions from abroad.

President Macron’s plan, which in particular is intended to prevent Chinese state-owned companies from buying up high-tech companies in the EU, had faced opposition in Northern and Eastern European countries, as well as inside the European Commission.

China Seeks Public Comments on Draft Regulation on the Protection of Critical Information Infrastructure

On July 11, 2017, the Cyberspace Administration of China (CAC) released the draft Regulation for the Protection of the Critical Information Infrastructure (“Draft Regulation”) for public comment (official Chinese version available here). The comment period ends on August 10, 2017.

Aiming to add greater clarification to the Cybersecurity Law, which took effect on June 1, 2017, the Draft Regulation clarifies the scope of Critical Information Infrastructure (“CII”) and elaborates on how CII operators are supposed to protect their networks against cyber threats. The Draft Regulation also sets out additional obligations CII operators face, including allowing officials to perform cybersecurity inspections, among others.

The Draft Regulation may help reduce some of the confusion surrounding the key phrase “critical information infrastructure,” which constitutes a crucial part of China’s fast-evolving cybersecurity regulatory framework. But many important questions remain unanswered in the current draft. Companies that either operate in the sectors identified in the Draft Regulation or that supply operators in those sectors should be mindful of the requirements relating to cybersecurity, especially relating to cybersecurity reviews and procurement of network services and products, and closely monitor the regulatory developments.

Key elements of the Draft Regulation are summarized below.

Classification of CII and CII Operators

The Cybersecurity Law defines CII broadly as “infrastructure that, in the event of damage, loss of function, or data leak, might seriously endanger national security, national welfare or the livelihoods of the people, or the public interest.” Article 31 of the Cybersecurity Law references a number of “key sectors,” including telecommunications, energy, transportation, water conservation, financial services, utility, and e-government.

Article 18 of the Draft Regulation further clarifies the scope of CII, specifying that “critical network infrastructure and information systems” operated or managed by entities in the sectors identified below should be considered CII, if such infrastructure, “in the event of damage, loss of function, or data leak,” may “seriously endanger national security, national welfare or the livelihoods of the people, or the public interest.” The entities that can be identified as operators of CII include:

  • Governmental agencies, and entities in the sectors of energy, finance, transportation, water conservation, healthcare, education, social insurance, environmental protection, utilities and so on;
  • Information network operators such as operators of telecommunication, broadcasting networks, and the Internet, as well as service providers of cloud computing, big data, and other large-scale public information services;
  • “Manufacturing and research and development entities” in sectors such as national defense, large-scale equipment, chemical engineering, and food and drugs;
  •  “News units,” including broadcasting stations, TV stations, and news agencies; and
  •  “Other key sectors.”

Continue Reading

Key Takeaways from Trump Administration Memo on Buy American Laws

Earlier this week, colleagues in our Government Contracts Group published an article about a recent Trump Administration memo regarding the “assessment and enforcement of domestic preferences in accordance with Buy American Laws,” and which follows the Administration’s April 2017 Buy American Executive Order.  In the article, Justin Ganderson, Scott Freling, Fred Levy and Sandy Hoe discuss the Trump Administration’s “buy American” vision and provide six key takeaways for government contractors.  The article is available here.

Kentucky Raises Contribution Limits in July, Adjusts Reporting

Starting this month, nearly all of Kentucky’s campaign contribution limits increase, excepting contributions that remain either unlimited in amount or prohibited.

Perhaps the most substantial change is the establishment of building fund accounts for political party executive committees, which may now accept unlimited funds from corporations. Also of note is the elimination of an aggregate $10,000 or 50%-of-total-contributions limit on how much a candidate or slate of candidates may accept from certain committees, which would have the practical effect of allowing parties to direct more funding into contested races.

Limits are raised to $5,000 annually to any executive committee or caucus campaign committee (up $2,500 over the prior limit); to $2,000 per election for candidates and slates (+$1,000/election); and to $2,000 annually for permanent committees and contributing organizations (+$500/year). The latter two limits would be adjusted every other year. Limits on cash and anonymous contributions would also be raised to $100 from $50.

Other changes include increased thresholds for campaign finance reporting and modified reporting dates. The Kentucky Registry of Election Finance prepared a helpful summary of the changes.

Kentucky’s new campaign finance law follows a trend we have observed over the past ten years. As contributions to outside groups that are permitted to receive unlimited funds have surged, campaign resources have shifted away from candidates and parties and toward outside groups.  One response to this dynamic has been a push to raise contribution limits to candidates and parties. As discussed during the legislative debate, Kentucky’s new law does just that.  Expect more states to follow suit.

The Congressional Agenda for July

The three-week July work period is set to begin on Capitol Hill this week, with members returning from the Independence Day recess only to resume debate on the same issues that have consumed their attention for the first half of 2017. Health care repeal-and-replace efforts are again front and center as the Senate continues to attempt to cobble together a bill that can secure 50 votes from among the 52 Republican senators. The lengthy process of developing legislation to undo President Obama’s signature health care law, the Affordable Care Act (ACA) has led Republican leadership to put off action on a number of other Republican priorities for the 115th Congress. This deferral is creating a pileup of legislative priorities that have been delayed until the health care issue is resolved. Among the delayed items are comprehensive tax reform and infrastructure modernization. Congress also confronts looming deadlines for a number of authorizations and Fiscal Year (FY) 2018 funding, all set to expire on September 30, 2017. The Senate also has a backlog of executive branch nominees to process. Members of the House are currently scheduled to be in session for only 13 days this month and members of the Senate plan to be in session for 15 days before departing for the annual month-long August recess, leaving a very short window of time for Congress to tackle a growing number of items on its to-do list. Although some members of both parties in both chambers have suggested that Congress forego its August recess, the odds of an August session are still very long.

At the top of the agenda remains Republican efforts deliver on the campaign promise of repealing and replacing the ACA, an issue that has beleaguered Republican leadership in the House and Senate for much of this year. Senate Majority Leader Mitch McConnell postponed a planned vote on the draft Senate Republican health care bill, the Better Care Reconciliation Act (BCRA), until after the Fourth of July recess following mounting pressure from both conservative and moderate members of his conference to make additional changes to the legislation. An analysis by the nonpartisan Congressional Budget Office (CBO) found the draft legislation could account for 22 million more Americans possibly becoming uninsured over ten years, but also found the bill would cut the federal deficit by $321 billion over that same time period. The cost savings would be driven by cuts to Medicaid and lower subsidies to help people buy insurance. Given the narrow Republican majority in the Senate and unanimous opposition expected from Democrats, Leader McConnell can only afford to lose two Republican votes pass the legislation. At least five Republican senators had publicly stated their opposition to the bill before the CBO score was released and the vote delayed, and more senators opposed the current bill during the July 4 recess. Press reports indicate negotiations over the legislation have continued, and that Leader McConnell has submitted several additional proposals to the CBO for analysis, which can be expected as early as this week. The path to a Senate vote remains unclear. Conservative and moderate Republicans oppose the current draft for different reasons. The more moderate members of the conference worry about the cuts to Medicaid and potential loss of coverage for their constituents, while the more conservative opponents argue the bill does not go far enough in repealing all of the provisions of the ACA. Senator Ted Cruz has recently proposed his own compromise that would allow insurers to offer plans that do not meet ACA coverage requirements, but moderates fear that enactment of that bill would likely devastate the remaining ACA-compliant plans. With the stark dichotomous positions within the Republican conference, it is increasingly difficult to see how Leader McConnell can cobble together a bill that will garner the necessary votes for Senate passage.

Leader McConnell himself appeared to acknowledge the reality last week when he suggested that Republicans would have to work in a bipartisan manner to shore up the crumbling ACA infrastructure in most states if Republicans are unable to pass any version of their legislation. Conservative groups immediately hit back at Senator McConnell, a further reflection of the challenges facing the majority party as it tries to enact elements of its agenda with a Republican President in the White House. News reports suggest, however, that Leader McConnell, an unusually accomplished legislative tactician, was correct in wanting a vote prior to July 4. While home over the recess, Republican senators were often confronted by constituents opposed to the bill. Although the votes were not there before the recess, Republicans now appear to be even further from achieving this long-sought legislative goal.

Comprehensive tax reform remains another top priority for congressional Republicans and the White House. The chief tax-writing committee of the House, the Ways and Means Committee, will continue its series of hearings on tax reform proposals, with two hearings scheduled over the next three weeks: one related to the benefits of tax reform for small businesses and a second related to the benefits of such reform for individuals and families. Members of the Senate Finance Committee are reportedly preparing to develop their own legislation. House Ways and Means Committee Chairman Kevin Brady and other key congressional Republicans, including Speaker of the House Paul Ryan, Senate Majority Leader Mitch McConnell, and Senate Finance Committee Chairman Orrin Hatch have reportedly been working with Administration officials, including Gary Cohn, Director of the White House National Economic Council, and Treasury Secretary Steven Mnuchin to coalesce around a tax code overhaul that could quickly pass both chambers.

Even though these factors signal positive steps forward for tax reform legislation, key policy differences remain an obstacle in the negotiating process. The border adjustment tax (BAT) remains the most controversial component of House leadership’s plans for comprehensive tax reform. Ways and Means Chairman Brady recently announced a longer phase-in period for the BAT provision he previously outlined. Still, the BAT continues to face resistance from the retail industry and consumer groups. The members of the conservative House Freedom Caucus have been working on their own tax reform legislation, which would include welfare reform, and have called for leadership to abandon the BAT. Without a concrete proposal the Republican conference can get behind and a shrinking timeline for floor consideration later this year, the opportunity to achieve comprehensive tax reform is shrinking. And the assumption remains that tax reform must be done in 2017 because members are not going to want to vote on the issue in an election year.

The chances for success on any eventual tax reform legislation are also imperiled by key policy differences between different factions of the Republican conference in ongoing budget discussions. Unless both chambers can adopt a budget resolution for Fiscal Year 2018, there will not be a legislative vehicle for reconciliation instructions, a procedural necessity for Republicans to prevent a Democratic filibuster of the eventual tax reform legislation in the Senate. Failure to adopt a budget would in essence compel bipartisan negotiations on tax reform, an approach most Republicans do not yet seem to favor.

As has been the case during other budget debates of recent years, House Republicans are struggling to settle an intra-conference dispute that has pitted fiscal conservatives, who want to cut federal spending and reduce the deficit, against defense hawks, members who want to increase defense spending, while moderates want to try to work out a bipartisan funding deal. House Budget Committee Chairman Diane Black appears to have struck a compromise of $621 billion for defense spending in FY 2018 and $511 billion for nondefense spending. She has been trying to sell that compromise to the Republican conference, but disagreements remain over how to reduce roughly $200 billion in entitlement spending over the next decade in order to achieve the negotiated level of discretionary spending. Another challenge is that leadership has been waiting to consider an FY 2018 budget resolution until the health care reform legislation is resolved, because of the desire to rely on cost savings from the ACA repeal in any FY 2018 budget resolution. The failure of the health care reform effort would have adverse consequences for the budget process as well.

Without an agreed-upon budget resolution setting spending levels for FY 2018, the window to conduct effective work on individual FY 2018 appropriations bills before the end of the current fiscal year is also shrinking. The annual budget blueprint is used to provide appropriators with their discretionary spending levels for the year ahead, but again this year the House and Senate Appropriations Committees are conducting their work without a budget framework. Even without an established topline number, members of the House Appropriations Committee are expected to continue subcommittee markups during the July work period, as they did in June, with discretionary levels set at the current budget resolution level of $511 billion. Democrats and moderate Republicans object to that funding level for domestic programs, arguing that increases are needed for domestic programs if defense programs are to receive increased funding. The Senate Appropriations Committee will start is FY 2018 subcommittee markups this week. Press reports indicate the Committee may be preparing legislation set to roughly the same levels as FY 2017 funding, which could be adjusted at a later time if a new bipartisan agreement is reached.

Members have widely recognized that there is not enough time remaining on the calendar to move all 12 of the annual appropriations measures through each chamber before the September 30 deadline, and a stopgap measure or continuing resolution (CR) will likely be necessary to allow more time to complete this work. The suggestion from Rep. Tom Graves (R-GA) to bundle all 12 of the bills into an omnibus measure, to be presented for a single vote on the House floor rather than 12 separate votes, appears to have considerable support among Republicans in the House, but the concept is likely unworkable in the Senate, where the GOP majority would need the support of several Democratic members in order to even consider the legislation.

While these major budget and policy issues will continue to consume much of the attention on Capitol Hill and in the media in July, there are several items ready for floor consideration in the House and Senate this month.

The Senate will continue to spend a great deal of floor time processing nominations. The pace at which executive branch positions are being filled has been much slower than during previous administrations. Nominations are being made more slowly by the administration, and Senate Democrats have been invoking various procedural mechanisms to delay consideration of executive nominees. When the Senate returns this week, it will take up the nomination of law professor Neomi Rao to serve as head of the Office of Information and Regulatory Affairs in the Office of Management and Budget, in effect the regulatory czar. Consideration of additional nominees to fill sub-Cabinet executive branch positions will follow on the floor and hearings for nominees will continue in committees. Among these, the Senate Judiciary Committee will hold a high-profile hearing to consider the nomination of Christopher Wray to serve as Director of the Federal Bureau of Investigation, replacing the fired James Comey. Given the circumstances of Director Comey’s dismissal and the ongoing investigations in alleged Russian interference in the 2016 elections, the Wray hearings are likely to dominate the news when they occur. Barring any unforeseen issues arising during the hearings, Mr. Wray should be confirmed before the August recess.

Legislation to reauthorize four different Food and Drug Administration (FDA) user fees was advanced on a bipartisan basis by the Senate Health, Education, Labor and Pensions Committee in May (S. 934) and the House Energy and Commerce Committee in June (H.R. 2430), potentially setting up floor votes in both chambers at some point in the next three weeks. The legislation would renew and enhance the four FDA drug, medical device, biosimilar and generic drug user-fee provisions. The current law expires on September 30, and the FDA has indicated it may begin noticing layoffs if the law is not renewed prior to the August recess.   The administration’s views on the legislation are unclear because neither version of the bill includes the President’s FY 2018 budget proposal of a substantial increase in user fees in order to make up for a proposed decrease in the FDA’s budget.

The House and Senate Armed Services Committees each reported their versions of the annual National Defense Authorization Act (NDAA) for FY 2018 in June. The House will consider its version of the legislation this week, and the Senate version should see floor consideration too in July. The annual authorization bill sets Department of Defense policy and authorizes spending levels for the year ahead. The House Committee advanced its $696 billion authorization bill by a vote of, 60-1 while the Senate Armed Services Committee unanimously reported its $700 billion authorization for national defense operations and overseas contingency operations. Aside from their marginally different topline allocations, the House and Senate bills diverge slightly on policy and when passed by their respective chambers, the two versions of the legislation will have to be reconciled by a conference committee.

Legislation to reauthorize and reform the National Flood Insurance Program (NFIP) may get floor time in the House in July. The current authorization for the NFIP expires on September 30. The NFIP has been under scrutiny following its handling of claims following Superstorm Sandy in 2012 and a ballooning $24 billion debt. Numerous members have called for reforms to the program, including proposals for privatization. House Financial Services Committee Chairman Jeb Hensarling successfully pushed seven NFIP-related bills through the committee in late June. These bills are expected to be packaged together into a single vehicle when brought to the House floor for consideration. Among the measures are administrative reforms to the NFIP to increase accountability, the establishment of a $10,000 cap on the annual chargeable risk premium for any single family home, and the development of private or community flood maps as an alternative to the NFIP’s outdated maps. One of the major points of contention is the duration of the NFIP. Republicans support a five-year reauthorization, but Democrats are calling for a longer term, up to ten years. Also at issue is how much of the program should be run out of the private insurance market. The Senate Banking Committee is also reportedly working on a draft bill, and some of its members have already introduced their own legislation. As with a number of other items on the congressional agenda, the window to reach a consensus on a final product that can pass both chambers is getting shorter as the deadline approaches. Failure to extend the NFIP by September 30 would not doom the program, because an extension would likely be included in any CR if the issue is not resolved by then.

Senators may begin debate on a bipartisan energy bill introduced by Energy and Natural Resources Committee Chairman Lisa Murkowski and Ranking Member Maria Cantwell. During the 114th Congress, Senator Murkowski and Senator Cantwell successfully shepherded to Senate passage the first comprehensive energy bill (S. 2012) since 2007 and appear poised to attempt the same legislative achievement this year. The Senate legislation was subject to joint House-Senate conference committee negotiations last fall to resolve differences between House and Senate bills, but conferees did not come to an agreement before the close of the 114th Congress. The new Senate bill, the Energy and Natural Resources Act of 2017 (S. 1460), largely follows the previous iteration, providing updates and improvements to national energy efficiency, grid infrastructure, energy supply, government accountability, and land conservation. Senate Majority Leader McConnell began the Rule 14 process to place the legislation on the Senate Legislative Calendar, allowing it to skip committee consideration.

Efforts to reauthorize the Federal Aviation Administration (FAA) are underway in both chambers, and members are again up against a September 30 deadline for the current authorization. House Transportation and Infrastructure Committee Chairman Bill Shuster introduced the 21st Century Aviation Innovation, Reform & Reauthorization (AIRR) Act, a six-year reauthorization bill which contains a controversial proposal to privatize the country’s air traffic control (ATC) system, a move supported by President Trump and included in his first budget submission to Congress. The full committee voted to approve Chairman Shuster’s legislation on a party-line vote, 32-25. A bipartisan proposal has emerged in the Senate, where Commerce, Science, and Transportation Committee Chairman John Thune and Ranking Member Bill Nelson have introduced a four-year reauthorization bill that does not include privatizing ATC operations. The bill was approved and reported to the Senate by the Committee on a voice vote. Chairman Thune has acknowledged publicly that there is insufficient support in the Senate for the ATC privatization. That major difference between the two bills will present an enormous hurdle for conference negotiations should the House and Senate each pass its own version of the FAA bill.

Finally, the various inquiries related to Russia’s alleged interference in the 2016 elections will continue to draw congressional and media attention. The investigation continues to be a focus of the House and Senate Intelligence Committees, as they continue to call in witnesses and request evidence. Prior to the recess, former Homeland Security Secretary Jeh Johnson appeared in a public session before the House Intelligence Committee and acknowledged that the Obama Administration had knowledge of Russian hacking activities in the summer of 2016, but waited to publicize any information for fear of politicizing the election process. The House Oversight and Government Reform Committee and the Senate Judiciary Committee are carrying out investigations over former National Security Advisor Michael Flynn’s conduct and potential ties to Russia, as well as allegations that the President sought to stop the FBI from investigating General Flynn. Senator Dianne Feinstein, Ranking Member of the Senate Judiciary Committee and a member of the Senate Intelligence Committee, has called on Judiciary Committee Chairman Chuck Grassley to expand the committee’s probe to include “all issues that raise a question of obstruction of justice.”   She also asked Chairman Grassley to consider issuing subpoenas to compel testimony from Director of National Intelligence Dan Coats and National Security Agency Director Mike Rogers about whether President Trump asked them to take any action related to the FBI’s Russia investigation. Director Coats and Director Rogers both refused to discuss their personal conversations with the President at a Senate Intelligence Committee hearing last month. Department of Justice Special Counsel Robert Mueller is also leading an independent investigation into any potential ties between the Trump 2016 presidential campaign and Russia. All of this activity will continue in the wake of President Trump’s face-to-face meeting with Russian President Vladimir Putin last week at the G20 summit in Germany.

July is looking increasingly important to the Republican agenda, and the Democrats are likely to double down on their heretofore consistent and unwavering opposition, especially in the Senate, to that agenda in the hope of sending Republicans home without any significant accomplishments (aside from the confirmation of Justice Gorsuch) for the August recess.

The Week Ahead in the European Parliament – July 7, 2017

Summary

Next week will be a committee week in the European Parliament.  Next week will also be the last week of parliamentary activities before the Summer break.  There will be interesting votes in committee, as well as public hearings, as the Parliament seeks to “clear the decks” before the summer.

The Parliament will resume its activities as of August 28, 2017.  The next Week Ahead in the European Parliament will therefore return on August 25, 2017.

On Monday, the Committee on Industry, Research and Energy (“ITRE”) will organize a public hearing on “Clean Energy Package – The Future of the EU Electricity Market“.  The hearing will touch on the Clean Energy Package adopted by the European Commission on November 30, 2016.  The hearing seeks to allow ITRE Committee Members, relevant stakeholders and experts to discuss the content of the package.  See the program of the hearing here.

On Tuesday, the Committee on the Environment, Public Health and Food Safety (“ENVI”) will vote on the provisional agreement resulting from interinstitutional negotiations on the Commission proposal to amend the Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment (“RoHS 2”).  This proposal aims to solve problems caused by RoHS 2, in order to make it more compliant with circular economy principles.  Solutions proposed by the Commission include: avoiding that the secondary market operations for medical devices, monitoring and control instruments be prohibited by July 22, 2019 (which would be non-compliant with the principle of circular economy as it would reduce the lifetime of products); and permitting the repair of “new-in-scope EEE”, other than medical devices and monitoring and control devices, with spare parts that are not compliant with RoHS 2.  See the Commission proposal here, and the draft report of the ENVI Committee here.

On the same day, the ENVI Committee will vote on its own-initiative report on “legitimate measures to protect whistle-blowers acting in the public interest when disclosing the confidential information of companies and public bodies.”  The report seeks to reinforce the protection of whistleblowers to enhance public health protection.  The ENVI Committee proposes that the definition of whistle-blower be broadened to encompass as many scenarios as possible; and the scope of reporting should be extended to breach of the public interest and not only cover unlawful acts.  Committee members also aim to allow such reporting to an independent institution or to the public, alongside clear reporting mechanisms.  See the draft report here.

Also on Tuesday, the ENVI Committee will vote on its report on the Commission proposal on the inclusion of greenhouse gas emissions and removals from land use, land use change and forestry.  The proposal seeks to set an obligation for each EU Member State to compensate emissions generated by land use by an equivalent elimination of CO2 from the atmosphere.  This measure is part of the implementation of the Paris Agreement.  See the draft report here, and amendments tabled to the report here and here.

Finally, on Tuesday, there will be a hearing on the impact of Brexit on aviation, organized by the Committee on Transport and Tourism (“TRAN”).  The likely impact of Brexit on the aviation industry (including from the perspective of airlines, airports and the tourism industry) will be debated among stakeholders and high-profile representatives.

A last hearing of the Committee on Employment and Social Affairs (“EMPL”) will take place on Thursday.  The hearing will focus on the Protection of workers from the risks related to exposure to carcinogens or mutagens at work.  The objective of this public hearing is to discuss the economic and scientific rationale behind the Commission proposal aimed at amending the Directive on the same subject, and its main implications for the actors concerned.  For further information, see the program of the hearing here.

Continue Reading

U.S. House Considering Major Change to Trade Association PAC Fundraising Rules

The U.S. House Committee on Appropriations is considering a major change to the way trade associations are allowed to raise money into their political action committees (PACs).  Currently, if a trade association wants to solicit money from its member companies’ employees, it must first get advance approval from the company, and each company can authorize only one trade association to solicit its employees for any calendar year.  The current draft of the Financial Services and General Government Appropriations bill, which provides funding for the Federal Election Commission (FEC), includes a rider that would prohibit the FEC from using any of the appropriated funds to enforce these trade association PAC fundraising rules.  In another piece of welcome news for trade associations, the bill would also prohibit the Securities and Exchange Commission (SEC) from requiring public disclosure of companies’ trade association dues payments, a provision which was also successfully included in last year’s appropriations bill by agreement with the White House.

The practical effect of this provision would be that the FEC could not enforce the existing restrictions on trade association PAC fundraising at all during fiscal year 2018 (October 1, 2017 through September 30, 2018).  If this provision were not enforced, this could have a major impact on trade association PAC fundraising.  The dual restrictions of 30118(b)(4)(D) can severely limit a trade association’s ability to raise money for its PAC.  Currently, if a trade association wants to solicit a member company’s employees, it must first convince the company to allow the solicitation, but the FEC’s rules severely limit what the trade association can say when making the request.  Most companies are members of more than one trade association, but can currently only approve one of those associations’ PAC solicitations.  Thus, companies must choose between supporting the PAC of a large business-wide trade association (like the Chamber of Commerce or National Association of Manufacturers), or a more industry-specific trade association.  With these burdens lifted, trade associations will be able to solicit funds freely from the executives, administrative staff, and stockholders of all of their member companies, plus those individuals’ families.  This should come as welcome news to trade associations, but will be less exciting to member company executives who could face an onslaught of new solicitations.

However, this all comes with two major caveats.  First, the bill does not eliminate the solicitation rule.  Instead, it essentially prohibits enforcement of the rule for FY2018.  If the FY2019 appropriations bill does not contain the same restriction as this FY2018 bill, then the FEC presumably could resume enforcement of violations, including violations that occurred in FY2018.  Second, even if the FEC is barred from enforcing this prohibition, the Department of Justice might theoretically be able to, acting independently, bring criminal charges for knowing and willful violations.

Therefore, even if this provision remains in the final bill, it would be prudent to seek advice of counsel before making a solicitation that violates the fundraising restrictions.  The bill passed through subcommittee markup on Thursday with no changes.The same bill also includes other political and election law provisions, including elimination of the Election Assistance Commission, which provides guidance on election best practices; restrictions on the IRS’ ability to enforce the rule against religious organization political activity; a prohibition on any IRS rulemaking that would regulate the political activity of 501(c)(4) social welfare organizations; and a prohibition on any SEC requirement that companies disclose their political contributions or trade association dues.

 

Ross Outlines Trump’s Commercial Policy Toward Africa

Last week in a speech to the U.S.-Africa Business Summit sponsored by the Corporate Council on Africa, Secretary of Commerce Wilbur Ross signaled that there would be continuity in U.S. commercial policy to Africa.

Ross struck a positive tone and noted that President Trump described Africa as a “place of opportunity” at the May G-7 meeting in Taormina, Italy. The secretary also noted that the strong growth in U.S. exports to Africa over a 15-year period, total trade is up over the same timeframe, and the U.S. trade deficit with Africa has declined. As he put it, the U.S. has to continue the transition from aid to trade in its relationship with Africa, an approach consistent with the Clinton, Bush, and Obama administrations. With key senior Africa positions still unfilled, especially at the State Department and the National Security Council, Ross’ remarks are a step forward in filling the gap on Trump’s Africa policy.Here were Ross’ key points:

  • The African Growth and Opportunity Act (AGOA) continues to be the cornerstone of the U.S.-Africa commercial relationship. Ross did say that the Trump administration takes AGOA’s eligibility requirements “very seriously,” which may be a signal that the frequency of out-of-cycle reviews will increase. He said also that the administration will “vigorously protect” U.S. companies and workers, calling on African governments to help U.S. companies resolve obstacles and investment barriers.
  • Though the secretary noted that bilateral trade agreements can be more effective than multilateral trade agreements, Ross made no commitment to increase the number of bilateral investments treaties (BITS) beyond the six the U.S. currently has with governments in sub-Saharan Africa. Nor did he make any reference to a post AGOA relationship with Africa or the need to move toward reciprocity in the trade relationship.
  • Ross made a full-throated appeal for the full implementation of the WTO’s Trade Facilitation Agreement (TFA), which came into force in February. African countries are expected to benefit more than others from the implementation of the TFA, as trade costs in Africa are anticipated to fall on average more than 16 percent.
  • Ross took a not-too-thinly veiled swipe at China’s practice of subsidizing products and bidding low to win procurement contracts. Low-cost procurement, he argued, has often been to Africa’s detriment and a deterrent to American firms entering African markets. At the same time, he noted that U.S. firms were actively pursuing 147 tenders valued at more than $44 billion.
  • Finally, the secretary made two references to “our” Advisory Council on Africa. This appears to signal that the Commerce Department will continue the Obama-era presidential advisory committee on doing business in Africa, albeit under a different name. The continuity of the committee’s existence would be a welcome development, helping ensure continued private sector input into Trump’s commercial policy to the region.

Clearly, several themes were missing from the secretary’s remarks. There was no reference to regional integration, a trend critical to accelerating growth on the continent, creating larger markets, and attracting more U.S. investment and exports. The European Union’s Economic Partnership Agreements, which threaten to put U.S. goods and services at a significant commercial disadvantage across the region, also received no mention. Support for small and medium U.S. companies entering the African market was only mentioned in passing. There were no new U.S. initiatives proposed.

On balance, however, Ross reassured many in the U.S. and Africa who have been looking for an indication of the Trump administration’s commercial policy toward the continent.

ADESINA CHALLENGES THE U.S. 

Indeed, Akinwumi Adesina, the president of the African Development Bank, seemed to signal as much in his remarks following the secretary. Adeptly playing to his American audience, Adesina started with a call to “let us be great together,” and noted that Africa offers investors “the deal of the century.”

The African Development Bank president, however, went on to challenge the Trump administration to shift from not just aid to trade but to investment as well. Adesina made the point, implicitly, that the U.S. is falling behind when it comes to its presence in the African market.

In sharp contrast to Ross’s positive rendering of U.S.-Africa commercial trends, Adesina noted that U.S. exports to Africa have declined from $38 billion in 2014 to $22 billion in 2016. Africa’s exports to the U.S. have declined even more sharply, according to Adesina, $113 billion in 2008 to $26.5 billion in 2015. And, as is well known, China is Africa’s largest trade partner, with $102 billion in exports in 2015.

To underscore his message, Adesina pointed out that Africa’s key partners have launched substantial initiatives toward Africa: Japan at $30 billion, China at $60 billion, and South Korea at $10 billion. India has also opened a $10 billion soft credit window.

The good news from last week’s U.S.-Africa Business Summit is that the Trump administration appears to understand the importance of the African market. As well, Ross was clear in his advocacy for U.S. business success on the continent. However, as Adesina made clear, there is commercial competition across the continent that will only get stronger.

The Week Ahead in the European Parliament – June 30, 2017

Summary

Next week Members of the European Parliament (“MEPs”) will gather in Strasbourg for the last plenary sitting before the Summer break.

Interesting votes and debates will take place.

On Tuesday, MEPs will vote on the own-initiative report voted in the Parliament’s Committee on the Internal Market and Consumer Protection (“IMCO”) on European Standards.  The report advocates an open, inclusive, transparent and market-driven European standardization system open to all actors, from business to public authorities, standardization bodies and any other interested parties.  Moreover, the IMCO members believe the EU should maintain a key role in the international standardization activities.  The report also calls on the Commission to: urge the European Standardization Organizations (“ESOs”) to encourage and contribute to high-quality interoperable and open standards; improve collaboration between ESOs, National Standardization Bodies (“NSBs”) and relevant stakeholders through an Annual Standardization Forum; harmonize the conditions for European stakeholder organizations eligible for Union Financing (Annex III of Regulation 1025/2012); use technology to help identify future ICT developments which could benefit from standardization (“technology-watch activities”); prepare a European register including all existing European standards; and work with the ESOs and NSBs to promote easily accessible points of access with information for users on available standards and their specificities.  See the report here.

Continue Reading

Supreme Court Narrows Nationwide Injunctions on Travel Ban Executive Order, Effectively Reinstating Key Provisions

International Employment

Earlier this week, the Supreme Court issued a ruling staying certain parts of the injunctions entered by the Fourth and Ninth Circuit Courts of Appeal against Executive Order No. 13780, the so-called “travel ban” Executive Order (the “Order”), and the State Department issued clarifying guidance last night. The effect of the Supreme Court ruling is to allow implementation of the Order to move forward with respect to foreign nationals from Iran, Libya, Somalia, Sudan, Syria, and Yemen (the “Restricted Countries”) who do not have “bona fide relationships” with persons or entities in the United States. (For further background on the Order, see our prior alert.) As we have previously advised, U.S. employers who employ foreign nationals from the Restricted Countries should carefully consider whether international travel for such employees is necessary; if so, such employees should carry extensive documentation reflecting his or her ties with the U.S. employer to establish a “bona fide relationship.”

Background

The injunctions had prevented the Trump Administration from enforcing the provision of the Order that temporarily suspended entry into the United States of certain nationals from the Restricted Countries. The Ninth Circuit’s injunction had also enjoined enforcement of the Order’s provisions temporarily suspending the Refugee Admissions Program and capping the annual number of refugees at 50,000 for fiscal year 2017.

The Supreme Court’s decision partially reinstated those provisions, but only as to foreign nationals without ties to persons or entities in the United States. For foreign nationals who have “bona fide relationships” with persons or entities in the United States, the injunctions remain in effect and the Order cannot be enforced against them. And the Order cannot be enforced against refugees with bona fide ties to the United States, even if this results in numbers exceeding the 50,000-person annual cap on refugees for fiscal year 2017.

Bona Fide Relationships

The State Department issued new guidelines last night to American embassies and consulates providing further clarification on what types of relationships are “bona fide.” According to the guidelines, a “close family” relationship is bona fide, and “close family” is defined as a parent, parent-in-law, spouse, child, adult son or daughter, son-in-law or daughter-in-law, and sibling (whole or half). This category also includes step relationships. The guidelines also provide that “close family” does not include grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, brothers-in-law, sisters-in-law, fiancés, and other extended family members.

Consistent with the Supreme Court’s decision, the guidance also specifies that bona fide relationships with U.S. entities must be formal, documented, and formed in the ordinary course, rather than for the purpose of evading the Order. The guidance notes that hotel reservations do not constitute bona fide relationships with a U.S. entity for purposes of the Order. So, for example, employees of U.S. companies, students accepted to study at American universities, foreign workers who have accepted employment in the United States, and lecturers invited to address American audiences will likely not be barred from entry, even if they are from one of the Restricted Countries, so long as they hold a valid visa or green card. The Supreme Court decision noted that relationships formed specifically for the purpose of evading inclusion in the travel ban do not qualify as “bona fide” relationships, and the guidelines support this exclusion.

Looking Ahead

The Supreme Court’s decision is a ruling on the stay of the injunction only, not a ruling on the merits of the challenges to the Order itself. The Court has also granted certiorari in the underlying appeals and is scheduled to hear oral argument on the merits of the Order during the October 2017 term, after which more changes are possible. It is also possible that parts of the appeal may become moot—for example, because of time limits for enforcement included in the original Order. In addition, the State Department Guidance indicates that consular officers will be responsible for determining whether foreign nationals have bona fide ties with the United States on a case-by-case basis, which could lead to inconsistency in enforcement.

An employer in the U.S. that employs foreign nationals from one of the Restricted Countries should review whether any such employees are scheduled for international work travel. Such foreign nationals should only be sent on international travel assignments if absolutely necessary, and the employee should carry documentation reflecting his or her relationship with the U.S. employer. Employers should also monitor the immigration status of their foreign national employees from the Restricted Countries to ensure that employees do not fall out of status while Supreme Court review of the Order is pending.

LexBlog