The Brussels Effect –The EU’s Digital Strategy Goes Global

By Carl Bildt, Erika Mann and Sebastian Vos on Posted in EU Law and Regulatory

On February 19, the European Commission laid out its ambitious plans for regulating data, AI, and the digital sphere. These set the stage for the next five years’ work for President von der Leyen’s Commission in this critically important, and ever expanding, domain. Crucially, in its plans the Commission is making a concerted attempt to call on the “Brussels effect”.

This term, coined by Anu Bradford of Columbia Law School, describes how the EU effectively sets global norms. Businesses adopt strict EU rules to legally operate on the European market, then adhere to them globally to minimize the cost of compliance. As EU rules come to be seen as the gold standard, other governments and international organizations replicate them, further strengthening this effect.

President von der Leyen has actively combined her goal for a “Geopolitical Commission” with a focus on two regulatory domains – the digital and the environmental (through its European Green Deal). It is on these two fields of the EU’s newly energized social and industrial policy that many of the Commission’s geopolitical contests are likely to take place. For both, the strength of the Brussels effect will simultaneously be an important part of the EU’s strategy, and a gauge of its geopolitical weight.

As the EU seeks to define and export its digital strategy, political and business actors in Europe are working overtime to shape the approach chosen in Brussels. But the EU must also heed voices from outside Europe. It needs to resist the urge to enact regulations that uniquely benefit European business, at a cost to others. It likewise needs to avoid rules that force businesses to adopt Europe-only solutions – this is not only inefficient, it risks that European consumers would miss out on the most innovative digital services. If Brussels gives in to these urges, then the European approach will not serve as the global standard in the digital sphere.

A Strategy in Four Parts

The Commission’s approach was outlined in four parts: two strategies, on digital and data, and two documents on AI and related issues of liability. Taken together, these represent a concerted strategy to position the EU as a leader in AI research and regulation, and in the wider data economy. (For a more detailed overview, see this Covington Blog.)

Digital Strategy

The Commission’s Communication on “shaping Europe’s digital future” presents the EU’s overall vision for “European technological sovereignty” – a European society powered by digital solutions rooted in common European values.

The paper lays out the EU’s plans to make Europe less reliant on imported digital solutions by boosting investment in EU-based innovation.  It also outlines plans to regulate for greater “fairness” and user choice, and against concentration of market power in the digital sphere. This chimes with current thinking in some European circles on “prevailing digital platforms.” (On this point, see further this Covington Blog.)

Data Strategy

The European Data Strategy lays out how the Commission hopes to crack open and bring together the wealth of industrial data held by the private sector. The idea is to enable European businesses in particular to draw on this data to create value – as Internal Market Commissioner Thierry Breton put it, so “that European data will be used for European companies in priority, […] to create value in Europe.”

The data strategy is also aimed at addressing the Commission’s concern that vast troves of privately held data create barriers to entry for newcomers, and give insurmountable advantages to incumbents that can test new business ideas on their internal data.

Risk-Based Regulation of AI

The AI White Paper presents a framework for fostering EU research on AI – and to regulate its applications. The Commission proposes that deploying AI in a high-risk sector and in a high-risk manner – what this means will be much debated – would be subject to greater scrutiny, and likely require a mandatory pre-marketing conformity assessment.

In keeping with the Brussels effect’s global scope, this would apply to all AI application providers active on the European market, regardless of their origin.

Liability for AI, IoT, and Robotics

Finally, the Commission’s Report on the safety and liability implications of AI, IoT, and robotics looks to update EU product safety rules to ensure that harm caused by defective digital solutions can always be compensated. To this end, it also considers reversing the burdens of proof on plaintiffs under national liability rules for damage caused by the operation of AI applications.

Pivot to Berlin, and Paris

Various aspects of this strategy have been leaked in the past weeks, and the subject of fevered lobbying by EU industry and Member States. Over the next two years, Germany and France are likely to bookend much of the legislation contained in the EU’s digital strategy – and in both countries, current structural factors give power to industry.

Launchpad: Berlin’s EU Council Presidency

Germany is ramping up preparations for its July to December 2020 Presidency of the Council of the EU. That semester will see the launch of many of the concrete proposals set out in the Commission’s digital strategy. As the Presidency, Germany’s representatives will chair (and set the agenda for) discussions by Member States in the Council, from the technical level to the ministerial. This gives Berlin outsize influence in how the Commission’s proposals will land.

Yet Berlin’s time in the European limelight comes as national politics looks ever more uncertain, with the governing coalition at risk, the leading CDU party facing a leadership crisis, and – if the coalition can hold until then – elections in the Fall of 2021. Such instability gives a yet stronger voice to the regulatory specialists and bureaucrats who have been working directly on these issues, and in particular to their counterparts in industry.

In Brussels, German industry representatives have made clear their views of the importance of promoting European digital and AI research and development. This is no surprise: Germany’s globally strong automotive, high-end manufacturing, robotics, material sciences, and biomedical industries are ever more data-driven. German business has realized – and convinced Germany’s politicians – that its position can only be safeguarded if it shapes actively the conditions for continued global success. They also realize that the EU’s norm-setting power can be a potent tool to this end.

Landing Zone: Paris’s EU Council Presidency

European legislation typically takes around 18 months to be adopted. And, 18 months after the German Presidency follows Paris’ turn at the helm, with the French Presidency running from January to June 2022. Paris and Berlin are well seized of the significance of this timing and, in October 2019, signed a joint Declaration and a roadmap for their cooperation to boost Europe’s capacity to develop advanced technologies and AI.

Yet in Paris as in Berlin, the domestic vulnerability of the Macron government gifts influence to French industry – which until late last year counted Thierry Breton (now EU Commissioner for Internal Market and Services) as one of its leaders. Indeed, President Macros will face reelection in April 2022, halfway through the French EU Council Presidency.

All Systems Go: The Broader EU Lobbying Effort

It is of course not just Berlin and Paris that are keenly interested in European data, digital, and industrial policy. For example, their Economy Ministers were joined in a February 4 letter to Vice-President Vestager on EU Competition policy by their counterparts in Italy and Poland. Of their five asks of EU Competition law under this new Commission, four related to data and digital platforms. The fifth called for greater flexibility in assessing EU mergers – a reference to the debate on promoting “European champions.”

Meanwhile, the European industry lobby more broadly has been hard at work ensuring its voice is heard in Brussels. This effort has been led by familiar representatives of European industry – indeed, the European Round Table of Industrialists (“ERT”) and BUSINESSEUROPE, for example, figure prominently the meetings declared by Commission President Von der Leyen and her team, and by Internal Market Commissioner Breton and his team.

Brussels Effect or Brussels Firewall?

At the heart of the Commission’s proposals is a tension between regulation that adds a measure of certainty (such as in questions of AI liability) and protectionism.

Fostering Research and Innovation

It is of course important to foster research and entrepreneurship in Europe – which is responsible for only 11% of the “unicorns” created since 2011, lagging rather behind the U.S.’s 51% and China’s 25%. Indeed, it is much harder to achieve a Brussels effect if you are not home to the most innovative industry: you may not know what to regulate for, miss the real regulatory concerns on the horizon, and be unable to boost your industry in foreign markets.

The Commission is also to be applauded for aiming to create some certainty for businesses on complex questions such as liability. If done properly, this can help industry mitigate risk.

Risks of Protectionism

On the other hand, the EU must resist the urge to resort to protectionism.

If EU rules are so onerous, or so limiting, that they make it uneconomical to offer the “EU standard” data service or platform worldwide, then providers will fragment their offering. They will provide alternative, perhaps less innovative, services exclusively for the European market. Likewise, if it becomes most efficient to develop an EU-specific offering in Europe, this may promote European business in their “home” market in the short term – but those EU solutions are unlikely to be globally competitive, limiting their commercial promise and their contribution to the EU’s geopolitical agenda.

In either case, overly onerous or protectionist regulations risk fragmenting the global digital market further, and the emergence of a “great Brussels firewall”. Not only would this be a regrettable extension of existing trends in the fragmentation of the digital sphere, it would fatally undermine the very Brussels effect that the Commission wants to produce.

Global Actors Must Promote Balance

Yet the global nature of most European industries means that it is hard for the Commission to disregard the voices of industry abroad. This works both ways. Foreign companies’ presence in Europe is also crucial to developing the right talent for Europe’s digital transformation, and global industry is a major investor in the very R&D that the Commission wants to promote.

Non-EU, global industrial players – which, like their European counterparts, are ever more clearly data-driven businesses – need to speak up in the Brussels policy debates that are now in full swing.

Von der Leyen’s “Geopolitical Commission” hopes to set not only European but global rules for the digital sphere. But if the non-European voices are not heard, Brussels’ own voice will carry less weight, and this may signal the end of the Brussels effect.

US-China Economic Relationship

By Timothy P. Stratford on Posted in China, Congressional Action, International Strategy, Trade Agreements

Tim Stratford delivered this testimony before the the U.S. House Committee on Ways and Means February 26, 2020:

Chairman Neal, Ranking Member Brady, and distinguished members of this committee, thank you for the opportunity to share my assessment of the U.S.-China economic relationship following conclusion of the Phase One trade agreement between our two countries.

Over the past 38 years I have devoted my career to promoting fair and beneficial trade relations between the United States and China, because it’s seemed to me that getting this relationship right is one of the most consequential tasks and challenges of our time. I have done this as a lawyer, U.S. diplomat, general counsel of a major American company’s operations in China, and as three term chairman of the American Chamber of Commerce in China. As a former U.S. trade negotiator, I salute the extraordinary efforts of our negotiators today and understand the daunting challenges they face.

I would like first to discuss the trade policy issues that have negatively impacted this incredibly important relationship, and the extent to which they are addressed in the Phase One agreement. I would then like to discuss the agreement’s place within the context of the overall U.S.-China economic relationship, which is increasingly defined by competition and increasingly inseparable from national security considerations. Finally, I would like to offer some thoughts on lessons learned, as well as on U.S. objectives over the coming months and years and possible approaches for achieving them.

Issues in the U.S.-China Trade Relationship

As I see it, U.S. trade negotiators have confronted three types of issues with China, with the three types listed below in ascending order of difficulty and criticality:

Continue Reading

Drug Pricing Investigations in the 116th Congress

By Brian D. Smith, Gary Heimberg and Morgan Schreurs on Posted in Congressional Investigations, Food and Drug Law

Consistent with popular predictions and our prior posts, Congress made drug pricing a key item on its investigative agenda in the first year of the 116th Congress.  Several factors contributed to the uptick in congressional drug pricing oversight activity, including the elevation of new Democratic chairs in the House with longstanding interests in drug pricing issues, and continued bipartisan interest in examining aspects of the pharmaceutical industry that affect price, such as the supply chain, patent protection, and generic entry.  In 2019, more than ten committees took various forms of investigative action on drug pricing, including by issuing document request letters and holding more than twenty hearings.  Although the general topic of drug pricing has long been of interest to Congress, the magnitude and focus was somewhat different in 2019.

Over the past year, we have seen an increased effort by Congress to investigate specific substantive issues in the U.S. pharmaceutical market that may affect the pricing of drugs.  For example, some committees held hearings or conducted inquiries on issues such as the supply chain, market competition, patents and generics, and patient out-of-pocket costs.  Committees have also looked at therapeutic classes of drugs, such as insulin, as a means of examining various market forces such as generic competition and antitrust considerations.  We have also observed some Members seeking to tie oversight activities to legislative efforts by using oversight to highlight and build public support for particular pieces of legislation, such as the CREATES Act, HR 3, and the Grassley-Wyden plan.

As we enter 2020, it now seems clear that the last five or so years of drug pricing investigations have progressed over an arc with three phases.  First, in the early days of modern drug pricing investigations Congress focused on perceived outliers.  This was the era that began around 2015 and included the infamous case of Martin Shkreli and Turing, which increased the price of the anti-parasitic drug Daraprim by more than 5000%.  Soon, however, Congress had fewer perceived outliers to highlight.  And when it tried to investigate some that it perceived as outliers, it often ran right into the complexities of the system.  Mylan, for example, countered criticism of its EpiPen price by noting that the company’s actual net price had not been increasing even as the list price increased.  The costs in the system, it seemed, were going elsewhere.  Third, then, Congress became more intrigued about these systemic factors affecting drug prices and turned its attention there.  These more narrow investigations of systemic issues have been the key hallmark of drug pricing investigations in 2019.

The level of congressional oversight and investigative activity on drug pricing is likely to continue this year, and it could very well intensify as we move closer to the national elections.  For example, the Democratic National Committee recently launched an advertising campaign that criticizes the President and Republicans in Congress for not achieving drug pricing reforms.  Some of the broad investigations of industry practices that began last year are continuing this year as well, and we expect any new investigations to continue the trend of looking at systemic issues.  We also expect that drug pricing investigations will continue across many different committees, companies, and classes of drugs for the rest of 2020.

In the meantime, pharmaceutical companies can continue to evaluate critically the issues that may bring congressional scrutiny.  Companies can prepare now by developing response plans under guidance from counsel experienced in handling congressional investigations.

The French telecoms regulator has entered the fray “prevailing digital platform”

By Miranda Cole and Barbara Monti on Posted in EU Law and Regulatory

In his speech in Austin, Texas in 2019[1] and subsequent interviews,[2] the Chairman of the French Electronic Communications and Postal Regulatory Authority (ARCEP) and former general rapporteur at the French Competition Authority, Sébastien Soriano, suggested that it is no longer appropriate to apply the “Schumpeterian paradigm” to technology companies that he characterised as having reached “… a critical size making it unlikely that external innovation will reverse the situation”.Since then, Mr. Soriano has spoken about addressing the market power of “prevailing platforms”(“plateformes structurantes”). Last week, ARCEP defined “prevailing platforms” in a strategic note “Prevailing digital platforms – Elements of reflection relating to their characterization”.[3] This strategic note effects the shift in approach that Mr Soriano proposed.Taking into account the current definitions of digital platforms, ARCEP has defined “prevailing digital platforms” as follows:“online platform operators or operating system providers which, in particular because of their intermediation activity in accessing internet services and content, and because of their importance, are able to significantly limit the ability of users to engage in economic activity or communicate online”.

To determine whether a given operator falls within this definition, ARCEP has set out a set of indices (partly based on the criteria used by the European Commission to characterise operators with significant market power in the electronic communications sector).

While ARCEP has declined to indicate whether these indices are cumulative or alternative, it has identified three “main” indices (of the total of seven):

  1. the platform is unavoidable, either because it has “bottleneck-power” (i.e., it has the capacity to develop and preserve, because of the network effects it benefits from, a customer base in which a significant proportion of its users remain captive), or because its downstream position induces dependence.
  2. the platform has a certain size in terms of the number of unique users.
  3. the platform is integrated into an ecosystem controlled by the group to which it belongs, and this ecosystem enables leverage from one sector of activity to another.

The four “secondary” indices are:

  1. the platform is an essential gateway to a range of digital content (a “gatekeeper”).
  2. the platform has access to large quantities of high quality data.
  3. where an advertising network is (directly or indirectly) associated with the platform, the platform’s market share in the advertising market is significant.
  4. the financial valuation of the company owning the platform(s).

In its strategic note, ARCEP notes that access, transparency, non-discriminatory treatment, and separation of activities obligations should be applied to “prevailing digital platforms”.

[1] South-by-South West Festival, “A Robin Hood Regulation to Free Us From Big Tech”, Sébastien Soriano, March 8, 2019.

[2] For example: interview “Démantèlement des Gafam: “on raisonne dans une logique de l’ancien monde””, April 2, 2019.

[3] ARCEP, strategic note “Plateformes numériques structurantes – Eléments de réflexions relatifs à leur caractérisation”, Décembre 2019.

The Week Ahead in the European Parliament –  February 14, 2020

By Sebastian Vos on Posted in EU Law and Regulatory

Summary

Next week, Members of the European Parliament (“MEPs”) will gather in Brussels for Committee Meetings.  Many interesting votes and debates are scheduled to take place.

On Wednesday, during a joint meeting of the Committee on Industry, Research and Energy (“ITRE”) and the Committee on the Internal Market and Consumer Protection (“IMCO”), Commissioner for the Internal Market Thierry Breton will present his long awaited White Paper on Artificial Intelligence and a European Strategy for Data.  The two highly anticipated documents will set out the Commission’s approach to future legislative initiatives on regulating Artificial Intelligence (“AI”) and common European data spaces.  Two previous versions of the Commission’s White Paper on AI have been leaked, and gave insights into the Commission’s thought process.  For example, the Commission was initially considering an outright (temporary) ban on the use of facial recognition technology in public spaces; but, as a subsequent leak showed, it has shifted to a risk-based approach to AI that makes use of biometric data.  After the White Paper is presented, the Commission will seek input from stakeholders, which will feed into a formal legislative proposal, expected in Q3 2020.

A key element for fostering innovation and developing more capable AI is the widespread access to (high quality) data.  Commissioner Breton will therefore simultaneously present a draft European Strategy for Data to increase access to and the quality of data.  This will likely not only be limited to government-to-business data sharing, but may also include provisions on business-to-business data sharing.  Multiple drafts of the strategy have been leaked and describe how the Commission is planning to fund the creation of EU-wide, common, interoperable data spaces for certain sectors – such as healthcare, mobility, and energy.  The Commission is then expected to present a proposal for a legislative framework in Q4 2020 that will establish a governance framework for data sharing.  This will probably include rules on data formatting standards and data sharing obligations for governments and (possibly) also businesses.

On Thursday, the Committee on Civil Liberties, Justice, and Home Affairs (“LIBE”) will hold a hearing on the use of Artificial Intelligence by law enforcement agencies and judicial authorities in criminal matters.  For example, MEPs will debate the ethical and fundamental rights implications of predictive policing and facial recognition technology.  Among the organizations represented during this hearing are the Council of Europe, the UN Center for Artificial Intelligence and Robotics, EUROPOL, and the European Network against Racism AISBL.

Meetings and Agenda

Monday, February 17, 2020  Continue Reading

The Week Ahead in the European Parliament –  January 31, 2020

By Sebastian Vos on Posted in EU Law and Regulatory

Summary

Next week will be a committee and political group week in the European Parliament.

MEPs will spend a good portion of their week with their political groups, where they will prepare for the plenary session in Strasbourg, scheduled for February 10-13, 2020. They will discuss, among other topics, the future relationship with the UK post-Brexit, the EU-Vietnam trade deal, the humanitarian situation of refugees, the EU Gender Equality Strategy, the fight against hatred and racism, and the illegal trade in pets. MEPs will also prepare for their first plenary debate with Christine Lagarde, the new President of the European Central Bank.

On Monday, MEPs from the Committee on Environment and Public Health (“ENVI”) will hold a debate with Andrea Ammon, the Executive Director of the European Centre for Disease Prevention and Control (“ECDC”), where they are expected to discuss the recent Coronavirus outbreak.

On Thursday, Laura Codruţa Kövesi, the EU Chief Prosecutor, will discuss the state of play on the establishment of the European Public Prosecutor’s Office with MEPs from the Civil Liberties Committee (“LIBE”). The Office is expected to be operational by the end of 2020.

Meetings and Agenda

Monday, February 3, 2020

Committee on the Environment, Public Health and Food Safety

15:00 – 18:30

  • Exchange of views with Mr Thierry Breton, Commissioner for Internal Market
  • Exchange of views with Ms Andrea Ammon, Executive Director of the European Centre for Disease Prevention and Control (ECDC)
  • European Semester for economic policy coordination: Annual Growth Survey 2020
  • Objection pursuant to Rule 112: draft Commission Implementing Regulation concerning the non-approval of propolis extract as a basic substance in accordance with Regulation (EC) No 1107/2009 of the European Parliament and of the Council concerning the placing of plant protection products on the market
    • Rapporteur: Joëlle Mélin (ID)
  • Objection pursuant to Rule 112: Draft Commission Implementing Decision authorising the placing on the market of products containing, consisting of or produced from genetically modified soybean MON 87708 × MON 89788 × A5547-127, pursuant to Regulation (EC) No 1829/2003 of the European Parliament and of the Council
    • Co-rapporteurs: Tilly Metz (Verts/ALE), Sirpa Pietikäinen (PPE), Günther Sidl (S&D), Anja Hazekamp (GUE/NGL), Eleonora Evi (NI)

Committee on Foreign Affairs

15:30 – 17:30

  • EU-Canada relations – state of play and impact of the 2019 Federal elections
  • Strategic dialogue with Olivér Várhelyi, European Commissioner for Neighbourhood & Enlargement, on the performance rewards 2020 under the Instrument for Pre-Accession Assistance (IPA II)

Tuesday, February 4, 2020

  • No meetings of note

Wednesday, February 5, 2020

Committee on Foreign Affairs

13:00 – 13:45

  • Presentation of the revised enlargement methodology by Olivér Várhelyi, Commissioner for Neighbourhood and Enlargement

Thursday, February 6, 2020

Committee on Economic and Monetary Affairs

09:00 – 12:30

  • Monetary Dialogue with Christine LAGARDE, President of the European Central Bank (09.00-11.00)

Committee on Civil Liberties, Justice and Home Affairs

09:00 – 12:00

  • Question for written answer E-002515-19 to the Commission by Cornelia Ernst (GUE/NGL) on the European migration control in Morocco
  • LIBE Mission to the EU Agency for the Operational Management of Large-Scale IT Systems in the Area of Freedom, Security and Justice (eu-LISA), Tallinn, Estonia, 29-30 October 2019

Debate in association with the Committee on Budgetary Control

  • Establishment of the European Public Prosecutor Office -presentation of the state of play by Laura CODRUŢA KÖVESI, EU Chief Prosecutor (10.00-11.30)
  • Establishing the Internal Security Fund

 Friday, February 7, 2020

  • No meetings of notes

Companies Should Understand USMCA’s Labor Obligations as They Are Significant and Likely to Be Enforced

By Shara Aranoff, Cindy Owens, John K. Veroneau and Kate McNulty on Posted in Trade Agreements

Because labor-related obligations in existing U.S. trade agreements are general and largely hortatory, few enforcement actions have been taken with regard to these obligations. The labor obligations in the Agreement between the United States of America, the United Mexican States and Canada (“USMCA” or “Agreement”), however, are specific and likely to be enforced. In fact, unprecedented support of the USMCA by U.S. labor unions suggests that they are likely to press this and future administrations to vigorously enforce USMCA labor obligations, especially with regard to Mexico. Companies doing business in Mexico or sourcing goods from Mexico should understand USMCA’s labor obligations and develop compliance plans in preparation for entry into force of the Agreement.

Background

President Trump is set to sign the implementing legislation this week, which finalizes the United States’ ratification of the Agreement. Based on the terms of the Agreement, the USMCA will enter into force three months after the last notification is received by the Parties indicating that each Party has “completed the internal procedures required for entry into force.” Although it is unclear precisely when the USMCA will enter into force because many of the implementation requirements are still being worked out by the Parties, we think that companies should be prepared for the Administration’s enforcement of the new labor provisions.

The USMCA contains significant new labor-related provisions, including the:

  1. Requirement for Mexico to pass legislation recognizing the right of workers to engage in collective bargaining.
  2. First of its kind “Facility-specific Enforcement Mechanism” that is a rapid response mechanism to allow complaints to be brought against facilities for violating the rights of freedom of association and collective bargaining.
  3. New enforcement and monitoring mechanisms that allow for the inspections of factories and facilities that are not living up to their labor obligations.
  4. New “labor value content” rules for the automotive sector.

Below is an overview of each of these new provisions.

Worker Representation and Collective Bargaining

The USMCA Labor Chapter contains obligations requiring all Parties to adopt and maintain in law the labor rights as recognized by the International Labor Organization (“ILO”) Declaration on Rights at Work, including core worker representation and collective bargaining rights. The Annex to the Labor Chapter also includes obligations that are specific to Mexico, such as requirements that Mexico pass legislation recognizing the right for workers to engage in collective bargaining.

Facility-specific Enforcement Mechanism, Verifications and Penalties

The USMCA includes the strongest labor rights monitoring and enforcement mechanisms in any U.S. free trade agreement concluded to date. These include the creation of a “Facility-specific, Rapid Response Labor Mechanism” established through the addition of a special Annex to the Dispute Settlement Chapter of the Agreement. Under this mechanism, a Party believing that labor rights are being denied at a particular facility in the territory of another Party may request the establishment of a panel to investigate the matter. The powers of the panel include conducting on-site verifications at the facility in question, subject to the responding Party’s consent.

Where the verification (or a lack of cooperation by the responding Party) leads to a determination that the facility in question is, in fact, failing to accord labor rights to workers, that facility may be subject to punitive measures by the foreign Party that initiated the complaint. Such measures include a suspension of preferential tariff treatment for goods manufactured at the facility, or the imposition of penalties on goods or services provided by the facility. Furthermore, where a facility found to have failed to accord labor rights is owned or controlled by the same person as other facilities producing similar goods or services with prior violations, penalties may be extended to the goods or services of all such facilities.

Labor Value Content Rule for Automobiles and Trucks

Under the Rules of Origin Chapter, in order to make preferential duty claims for imports of passenger vehicles and light and heavy trucks, the Agreement sets forth specific percentages of vehicle content that must be manufactured with a minimum hourly wage of US $16 per hour. The specific percentage required begins at 30 percent labor value content (“LVC”) and increases annually before reaching its final (fully phased-in) value of 40 percent three years after entry into force. The intent of this provision is to protect U.S. automobile manufacturing jobs and prevent the shift of manufacturing jobs to lower wage jurisdictions. The Parties are currently working on uniform regulations for the rules of origin impacting the LVC and also other origin requirements for aluminum and steel and regional value content requirements for the automotive industry.

Steps Companies Should Consider

In light of the increased scrutiny and focus on labor rights in Mexico, we recommend that companies consider taking the following actions:

  1. Develop a comprehensive understanding of their supply chain in Mexico and the labor policies and standards of their Mexican suppliers, manufacturers, and service providers.
  2. Develop a written code of conduct for suppliers and service providers in Mexico.
  3. Ensure supplier, manufacturing, and service contracts reflect USMCA labor rights obligations with risk allocated accordingly.
  4. Institute a robust internal control process to monitor compliance with the code of conduct in order to avoid loss of duty preference claims, imposition of penalties, and potential delayed or rejected shipments.
  5. The automotive sector should continue to review LVC as the Parties to the Agreement further define critical details for implementation of the LVC and create new uniform regulations.

The Week Ahead in the European Parliament –  January 24, 2020

By Sebastian Vos on Posted in EU Law and Regulatory

Summary

Next week, Members of the European Parliament (“MEPs”) will gather in Brussels for committee meetings and plenary sessions.  Important votes and interesting debates are scheduled to take place.

On Tuesday, MEPs of the Committee for Industry, Research and Energy (“ITRE”) will have a structured dialogue with Commissioner for the Internal Market Thierry Breton.  It is likely that the dialogue will be dominated by questions about the Commission’s draft White Paper on AI that was leaked on January 17, 2020.  The draft White Paper sets out proposals for a European approach to regulating AI.  One striking and provocative example is the proposal to include a time-limited ban on the use of facial recognition technology in public spaces.  Many Member States, such as Germany and France, have already invested heavily in deploying facial recognition systems around critical infrastructure, such as train stations and airports.  A final White Paper on AI is expected to be presented by Commissioner Breton on February 19, 2020.

On Wednesday, MEPs will vote in a plenary session whether to express their consent to the EU-UK Withdrawal Agreement, commonly referred to as the Brexit deal.  Last week, the Committee on Constitutional Affairs (“AFCO”) adopted a report that recommended the plenary to give its consent to the Brexit deal.  It is widely expected that the European Parliament will indeed do so.  Nevertheless, it is a significant moment as the vote will formally conclude the UK’s withdrawal from the EU.  On January 24, 2020, Commission President Ursula von der Leyen and Council President Charles Michel signed the agreement on behalf of the EU and Prime Minister Boris Johnson signed on behalf of the UK, concluding the ratification process from the UK’s side.  For the European Parliament, this means that all British MEPs (73) will give up their seat and a partial redistribution of seats will take place between the political groups.  The total number of MEPs will be reduced from 750 to 705, with 27 seats shared among underrepresented Member States, such as France, Italy, Spain and the Netherlands.

On Thursday, MEPs will vote on a resolution that will call on the Commission to adopt secondary legislation by June 2020 that would introduce one common charger for mobile electronic devices.  MEPs argue that this would enhance consumer welfare and significantly reduce e-waste.  In 2009, the Commission already signed a voluntary agreement with industry players to adopt one common charger. However, this has not had the desired effect and MEPs would like to see the Commission take stronger action.

Meetings and Agenda

Monday, January 27, 2020 

Committee on Economic and Monetary Affairs / Committee on Employment and Social Affairs

16:00 – 18:30

  • Economic Dialogue and exchange of views on the Autumn Package of the 2020 European Semester (Recommendation on the economic policy of the euro area, on the Annual Sustainable Growth Strategy, on the Alert Mechanism Report and on the Joint Employment Report) with:
    – Valdis DOMBROVSKIS, Executive Vice-President for An Economy that Works for People
    – Paolo GENTILONI, Commissioner for Economy
    – Nicolas SCHMIT, Commissioner for Jobs and Social Rights

Committee on Legal Affairs

15:00-18:30

Votes

  • Statements by the candidates for the Chairs of the Board of Appeal of EUIPO (17.00-17.30)
  • Discussion with Margrethe VESTAGER, Executive Vice-President of the European Commission with responsibility for a Europe Fit for the Digital Age (17.30-18.30)

Committee on Regional Development

15:00-18:30

Debates

  • Priorities of the Croatian Presidency of the Council of the EU – presentation by Davor BOŽINOVIĆ, Minister of the Interior and Dražen BOŠNJAKOVIĆ, Minister of Justice (15.00-17.00) 

Joint debate on JHA Brexit related matters (17.00-18.30)

  • Report on Brexit: “Refugee protection and asylum policy” of the EU Affairs Committee of the House of Lords – presentation by Lord Michael JAY, Chair of the Committee
  • Family reunification post-Brexit – exchange of views with Jon FEATONBY, Policy and Advocacy Manager (Refugees and Asylum) at British Red Cross
  • “No-deal Brexit preparedness concerning family reunification under Dublin III Regulation” – question for oral answer to the Commission by Claude MORAES (S&D, UK) – presentation by the Commission under Rule 138

Committee on Civil Liberties, Justice and Home Affairs

19:00 – 21:30

Votes

  • Election of the third Vice-Chair
  • Search and rescue in the Mediterranean (SAR) (RSP) – adoption of motion for a resolution
  • Rapporteur: Juan Fernando LÓPEZ AGUILAR (S&D, ES) 

Debate (19.30-20.30)

  • Exchange of views with Dunja MIJATOVIĆ, Commissioner for Human Rights, Council of Europe

Tuesday, January 28, 2020

Committee on Budgetary Control

09:00 – 12:30

  • CONT mission to the Czech Republic (26-28 February 2020) – exchange of views in preparation for the committee mission
  • Follow-up on recent press reports of alleged fraud in EU agricultural funding in Italy – exchange of views with Commission and OLAF representatives

Committee on Industry, Research and Energy

09:30 – 11:00

  • Structured dialogue with Thierry BRETON, Commissioner for Internal Market

Committee on Legal Affairs

09:00 – 16:30
Debates

  • Priorities of the Croatian Presidency of the Council of the EU – exchange of views (14.30-16.00)
  • Representative actions for the protection of the collective interests of consumers (COD), reporting back to committee on the negotiations (Rule 74(3)) (16.00-16.30)
  • Rapporteur: Geoffroy DIDIER (EPP, FR)

Committee on Civil Liberties, Justice and Home Affairs

09:00 – 16:30

Joint debate (09.00-10.10)

  • State-of-play on the negotiation and implementation of EU readmission agreements and arrangements – presentation by the Commission
  • Conclusion of the Agreements between the European Union and Belarus on the readmission of persons residing without authorization and on the facilitation of the issuance of visas, presentation by the Commission and consideration of draft recommendations, rapporteurs Petar VITANOV (S&D, BG) and Antony HOOK (Renew, UK) 

Debate

  • EU Drug Markets Report 2019 – presentation by Alexis GOOSDEEL, Director and Wil van GEMERT, Deputy Executive Director of Europol, Operations Directorate (10.50-11.50) 

Votes

  • EU/Montenegro and EU/Serbia status agreements: actions carried out by the European Border and Coast Guard Agency in Montenegro and Serbia (NLE), adoption of two draft recommendations (consent), rapporteur Bettina VOLLATH (S&D, AT) (11.50-12.00) 

Afternoon

Debate

  • The future of the EU internal security and EU Internal Security Strategy – discussion with Ylva JOHANSSON, Commissioner for Home Affairs (14.30-15.30) 

Possibly

  • Visa reciprocity and visa suspension – presentation of two reports by the Commission (15.30-16.30)

Committee on Constitutional Affairs

11:00-18:30

  • Priorities of the Croatian Presidency of the Council of the EU – presentation by Nikolina BRNJAC, State Secretary in the Ministry of Foreign and European Affairs of Croatia (14.30-16.00)

Wednesday, January 29, 2020 

Plenary session

15:00-18:00

Debates

Resumption of session

  • International Holocaust Remembrance Day – 75th anniversary of the liberation of Auschwitz

Order of business

  • Withdrawal Agreement of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community
  • Rapporteur: Guy VERHOFSTADT (Renew Europe Group, BE)

18:00-18:15

Votes (oral explanation of votes will be taken on Thursday)

  • Withdrawal Agreement of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community
  • Rapporteur: Guy VERHOFSTADT (Renew Europe Group, BE)

18:15-23:00

Debates (or at the end of the votes)

  • Rights of indigenous peoples
  • India’s Citizenship (Amendment) Act 2019
  • Urgent humanitarian situation on Greek Islands, especially of children – ensuring protection, relocation and family reunification
  • EU strategy for mobility and transport: measures needed until 2030 and beyond
  • One-minute speeches (Rule 172)

Thursday, January 30, 2020

Plenary session

09:00 – 11:20

Debates

  • Commission Work Programme 2020 

11:30-13:30

VOTES followed by explanations of votes

  • Parliament’s calendar of part-sessions – 2021
  • Parliament’s calendar of part-sessions – 2022
  • Common charger for mobile radio equipment
  • Gender pay gap
  • India’s Citizenship (Amendment) Act 2019

 Friday, January 31, 2020 

  • No meetings of notes

House of Representatives Passes 8-K Trading Gap Act

By Devika Singh on Posted in Congressional Action

On January 13, 2020, the House of Representatives in a vote of 384 to 7 passed a bill titled the 8-K Trading Gap Act. The bill would require companies to promulgate policies and procedures that prohibit corporate executives from trading company stock during the time period between the occurrence of a major corporate event and the public disclosure of the event. As brief background, a company must file SEC Form 8-K to report the occurrence of certain corporate events deemed by the SEC to be important to shareholders. Form 8-K lists specific qualifying events, which include senior officer appointments and departures, bankruptcies, and the acquisition or disposition of significant amounts of assets. A company has a maximum of four business days from the occurrence of an 8-K event to file the form. This time period is referred to as the “8-K trading gap” because, in theory, insiders would be able to trade on the basis of the information during this period.

Although the law at all times prohibits corporate insiders from trading specifically on the basis of material non-public information, the law does not explicitly prohibit corporate insiders from trading during the 8-K trading gap. Representative Carolyn B. Maloney, who introduced the bill, has warned that because of this, corporate insiders practically speaking still have a “head start on the public, allowing them to sell off stock or cash in on private information.” Representative Maloney cited as support for this legislation a 2015 study of  profits made by corporate insiders during 8-K trading gaps.

Senator Chris Van Hollen introduced a Senate version of the bill in September of 2019. It remains to be seen when and if the Senate will pass the bill, which is still with the Senate Committee on Banking, Housing, Urban Affairs.

The Supply Chain Security Constellation: Mapping Recent U.S. Government Actions

By Samantha Clark and Jeff Bozman on Posted in Compliance Issues, Congressional Action, Cybersecurity, Defense Issues, Government Contracts

The new year has already brought significant news for companies that do business with the U.S. government, and for those that trade in materials and technology that represent priorities for national security stakeholders.  Our colleagues in the firm’s CFIUS practice thoughtfully analyzed the regulations implementing the Foreign Investment Risk Review Modernization Act, and other experts explained the impact of the “Phase I” trade agreement with China.

More supply chain security developments are in the works, including forthcoming rules to implement Section 889 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 and Executive Order 13873, Securing the Information and Communications Technology and Services Supply Chain.

To understand the impacts on business operations, companies need to understand the nuances of the rules and the ways these fast-moving developments interact with each other.  We created a map to summarize what we are calling the Supply Chain Security Constellation.  It offers a brief history of recent activity and flags the upcoming actions that business leaders and compliance counsel should monitor.

We welcome the chance to discuss with impacted entities how these rules will affect particular supply chain management decisions and broader risk mitigation strategies.

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