Brexit, the EU’s Response, and a Focus on Defense

On December 15, at the end of their traditional end of the year European Council, the 27 “remaining” EU heads of state or government had a short meeting, without Theresa May, to set out how the EU will handle the Brexit process once the UK has notified it of its intent to leave the Union.

They issued a seven-point statement addressing the procedural arrangements they have decided, on their side, for the implementation of Article 50 of the Lisbon treaty.  They did not, however, address the substance of the negotiations, the first step on which must be made by the UK.  The British Prime Minister confirmed, in the margins of the Council, that she intends to trigger Article 50 at the end of March 2017.  For Covington’s full analysis, please see the Global Policy Watch blog post on this topic by Jean De Ruyt and Sebastian Vos, available here.

At the end of 2016, EU defense policy received significant attention from policymakers in Brussels. On November 14, the Foreign Affairs Council endorsed the EU Global Strategy in the area of Security and Defense (see here); on December 30, the European Commission presented an European Defense Action Plan (see here); and the EU heads of States and Governments held a discussion on defense policy during their last summit on December 15, covering the EU “global strategy” in the areas of security and defense, the so called “European Defense Action Plan”, and the implementation of the common set of proposals that follow up on the EU-NATO Joint Declaration signed in Warsaw in July 2016 (see the Council Conclusions here).

This European focus on defense issues is caused by an increased awareness of the geopolitical uncertainties around Europe, and a political consensus that has emerged on the industrial benefits of a strong defense sector for the broader economy.  Among the initiatives announced, the most significant is the creation of a European Defense Fund that would include two distinct financing structures—a “research window” and a “capability window”.  The research window would fund collaborative defense research projects at the EU level, with an initial budget of € 90 million until 2020, and € 500 million per year after 2020.  The capability window would support the joint development of defense capabilities—i.e., military assets—financed through the pooling of national contributions of those Member States that decide to participate.  The European Commission has high hopes for this capability window, expecting it to mobilize around € 5 billion a year.

Tech and Digital Single Market Policies

On January 10, 2017, the European Commission published their proposal for a Regulation on Privacy and Electronic Communications (“ePrivacy Regulation”) and a “Communication on Building a European Data Economy” (see the proposed Regulation here, the Communication here, Fact Sheet here, and Commission Press Release here).

The new ePrivacy Regulation updates the 2009 ePrivacy Directive and ensures that it reflects the changes introduced by the new General Data Protection Regulation (“GDPR”).  Among other things, the proposal addresses consent rules and obligations for the processing of communications data, access to data on a user’s device, the use of cookies, access to metadata, and spam and direct marketing communications.

The ePrivacy Regulation will apply to traditional as well as new providers of electronic communications services, such as social media sites and OTT providers.  Telecom operators and platforms which breach the ePrivacy Regulation are liable to pay fines of up to € 20 million, or 4 % of global sales, whichever is greater.

The Council and Parliament will now review the draft Regulation, and the Commission hopes this can be approved before the GDPR enters into force on May 25, 2018.

The Communication on Data Flows examines proven or potential barriers to the free movement of data, and presents options to remove “unjustified and or disproportionate” data localization rules in the EU.  However, significantly, the Commission has not at this stage proposed concrete legislative measures to prevent data localization.  The Communication also considers data liability, the portability of non-personal data, interoperability, and standards.

Building on the principles established during the negotiations on the EU-U.S. Privacy Shield last year, on January 10 the Commission also published a Communication outlining its strategic approach to international personal data transfers (“Exchanging and Protecting Personal Data in a Globalized World”, see here).  In 2017, the Commission will fast-track discussions on possible adequacy decisions (allowing for the free flow of personal data to countries with “essentially equivalent” data protection rules to those in the EU), particularly with Japan and Korea, but also with other countries such as India and Latin American countries.

Finally, on the same day, the Commission also proposed a new Regulation outlining data protection standards within the EU institutions and bodies—see here.

For Covington’s full analysis of these proposals, please see the Inside Privacy blog post on this topic by By Dan Cooper, available here.

On January 9, 2017, Commissioner Günther Oettinger was questioned by members of the European Parliament Budgets, Budgetary Control and Legal Affairs Committees, regarding his appointment to the Budget and Human Resources portfolio.  Commissioner Oettinger is due to take up this role, and a likely promotion to Vice President, to replace Kristalina Georgieva, who is leaving the Commission for the World Bank.  It is expected that Commissioner Oettinger’s new portfolio will be approved by the end of the week.  In the interim, Digital Vice President Andrus Ansip has temporarily taken over Commissioner Oettinger’s digital workload.  Ansip will retain his current duties as a Vice-President and it is unclear whether he will assume Commissioner Oettinger’s former duties permanently.  It is understood that Carlos Moedas, the Commissioner for Research, Science and Innovation, has also been approached to take on the role.

On December 21, 2016, the Court of Justice of the EU (“CJEU”) ruled that Member States may not impose a general obligation to retain data on providers of electronic communications services (Joined Cases Tele2 Sverige AB v Post-och telestyrelsen and Secretary of State for the Home Department v Tom Watson and Others, see the judgment here, and the Court’s press release here).

The cases relate to the general obligation imposed, in Sweden and in the UK, on providers of electronic communications services to retain communications metadata (for 6 to 12 months) for the purposes of prevention, detection or prosecution of crime (not necessarily “serious” crime).  In the UK, the case examined the Data Retention and Investigatory Powers Act (“DRIPA”) 2014.  DRIPA has since been replaced by the Investigatory Powers Act, which came into force in Autumn 2016.

The Court held that the general and indiscriminate retention of traffic data and location data contravenes EU law, but Member States can use targeted retention of that data solely for the purpose of fighting serious crime.  However, this data retention is limited to what is “strictly necessary”.  Access by national authorities to the retained data must be subject to conditions, including prior review by an independent authority, and the data being retained within the EU.  For Covington’s full analysis, please see the Inside Privacy blog post on this topic, available here.

On December 13, the Article 29 Working Party (made up of representatives of national data protection regulators in the EU) issued new guidance on three important aspects of the new General Data Protection Regulation (“GDPR”).  The new guidance focuses on data portability (see here), the role of Data Protection Officers (see here), and the “One Stop Shop” mechanism (see here).  It comes into force in May 2018.  Although it has been formally “adopted”, the Article 29 Working Party is inviting stakeholder comments on the new guidance, until January 31, 2017.  For Covington’s full analysis, please see the Inside Privacy blog post on this topic, available here.

On December 9, the Justice and Home Affairs Council meeting discussed improving law enforcement access to data and the role of communications service providers in criminal investigations.  At the meeting, the Slovak Presidency produced a summary of responses to a September survey of Member States’ positions on law enforcement access to encrypted information (see here).  The Member States decided against new laws on encryption and law enforcement access at this stage.  Instead, the Member States asked the European Commission to begin a “reflection process” to find practical solutions.  In addition, the Council proposed to give Europol more powers in accessing encrypted devices and information.  See the Council’s press release here (page 7).

Communication and Media Policies

On December 14, 2016, the European Parliament and Council informally agreed new rules on spectrum management.  These would make the 700 MHz band available for wireless broadband by 2020, enabling a shift to 5G mobile internet.  See the Commission’s press release here,

On December 13, European Member States approved rules on “fair-use” rules for EU-wide roaming.  The implementing regulation was then adopted by the Cabinet of Commissioners on December 15.  The EU has pledged to end all roaming charges for European customers using their mobile subscriptions abroad by mid-June 2017.  The fair use policy is designed to prevent abuses of these new measures.  The final rules have some clear limits on mobile data usage.  See the implementing regulation here.

On December 8, Campos Sánchez-Bordona, Advocate General (“AG”) of the Court of Justice of the EU (“CJEU”) delivered an Opinion asserting that sales of multimedia players which link users to copyrighted works without the owners’ consent is an infringement of intellectual property laws (see the Opinion here).

The Opinion relates to a Dutch case where a company called Filmspeler sold hardware serving as an intermediary between a TV and internet sites.  The player was equipped with add-ons linking to websites streaming films, series and live sports matches, whose broadcast was not authorized by the rightsholder.  The AG’s opinion is not binding, but is typically followed by the CJEU, which is expected to hand down its ruling on the matter in 2017.

Energy and Environment Policies

In early 2017, the European Commission is expected to adopt a proposal to amend Directive 2011/65/EU on the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS2 Directive”, see here).  The RoHS2 Directive prohibits the marketing in the European Union or the European Economic Area (“EU/EEA”) of electrical and electronic equipment that contains lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls, and polybrominated diphenyl ethers, subject to certain concentration limits and exempted substance applications.

The amendment is expected to address known concerns with the current RoHS2 Directive. In particular, the current text prohibits all supply of non-compliant electronic medical devices, in-vitro diagnostic medical devices (“IVDs”) and monitoring and control instruments beyond July 22, 2019.  This provision severely restricts the important second-hand market of used, repaired or refurbished devices, as well as new devices that are still in the supply chain.  Therefore, the Commission is expected to propose the removal of the July 22, 2019 deadline for all non-compliant medical devices and IVDs, as well as monitoring and control instruments that were first marketed in, or imported into, the EU/EEA before their RoHS2 cut-off dates.  It would allow for the continued supply in the distribution chain or resale of certain older devices that were first marketed or imported before July 22, 2014 (for medical devices and monitoring and control instruments), July 22, 2016 (for IVDs), or July 22, 2017 (for industrial monitoring and control instruments).

Furthermore, the proposal is also expected to include other amendments to the RoHS2 Directive, including the removal of the deadline for the Commission to decide on the renewal of existing application exemptions.  The proposal is expected to be adopted by the European Commission as part of a Circular Economy package of legislative proposals.

For Covington’s full analysis, please see the Inside Medical Devices blog post on this topic by Cándido García Molyneux, available here.

Internal Market and Financial Services Policies

On January 10, 2017, the European Commission brought forward proposals to reduce barriers to cross-border provision of services in regulated industries.  The Commission issued guidance on the reforms it believes are needed in key regulated professions (see here)—singling out architects, engineers, lawyers, accountants, patent agents, real estate agents and tourist guides.  It also published three legislative proposals:

  • a new Regulation establishing a “European services e-card” (see here), a simplified online portal for service providers to seek the documentation needed to provide services abroad;
  • a new Directive to improve existing mechanisms under the Services Directive (Directive 2006/123/EC) by which Member States notify the Commission and each other of any new authorization schemes and requirements related to services that they bring forward (see here); and
  • a new Directive establishing a proportionality test that Member States would need to meet before adopting any new regulation of professions (see here).

These three proposals will now be considered by the Council and Parliament under the ordinary legislative procedure, which will normally take at least 18 months.  See the Commission’s press release here, and Fact Sheet here.

On December 6, 2016, the Council of the European Union formally adopted a proposal for a Council Directive granting tax authorities access to anti-money laundering information.  In particular, the proposal requires that Member States give their tax authorities the power to access information on beneficial ownership of financial account holders, and information derived from customer due diligence procedures carried out by financial institutions.  The Directive amends the Council Directive 2011/16/EU on administrative cooperation in the field of taxation, and will enter into force on January 1, 2018.  See the full text of the proposed Directive here.

Life Sciences and Healthcare Policies

On December 8, as part of the overall mid-term review of the Horizon 2020 Program, the European Commission opened a public consultation on the Interim Evaluation of Joint Undertakings (“JUs”) operating under Horizon 2020.  The Commission seeks the views of any organizations that take part in Horizon 2020, and in calls for proposals for JU initiatives, including from industry, researchers and innovators.  The Commission also seeks input in particular from all stakeholders that were involved in calls for proposals within Innovative Medicines Initiative (“IMI”) between 2014 and 2016.  The results of the evaluation will help enhance the performance of the JUs, and will be communicated to the European Parliament and the Council of the EU, national authorities, and the research community.

This consultation affords industry an opportunity to explain possible flaws in the current JUs, and propose solutions to these shortcomings.  The results of the consultation on JUs will feed into the overall review of the Horizon 2020 Program, the results of which will form a Commission Communication, and which will inform a Staff Working Document on the future of such JUs.

The consultation runs until March 10, 2017.  The overall review of Horizon 2020 is expected to be finalized by the end of 2017.  See more information on the consultation on JUs here, and the questionnaire here.

Looking forward, in early 2017, after more than a two-year delay, the European Commission is expected to publish a report assessing whether alcoholic beverages should be subject to EU ingredient labeling obligations.  In 2011, the EU institutions adopted Regulation 1169/2011 on the provision of food information to consumers (see here).  The Regulation imposes on a number of food producers the obligation to label their products to better inform consumers on various matters, such as the list and quantity of ingredients and a nutrition declaration.  Food producers had to comply with this obligation by December 13, 2016.  However, at the time the Regulation was being adopted, uncertainty arose as to whether the ingredient and nutrition declaration labeling obligation had to be imposed on alcoholic beverages and alcopops (i.e., mixtures of alcohol and soft drinks).

The main difficulty was building a consensus between the EU Member States on the definition of alcoholic beverage and alcopops.  The Member States had different views on what ought to be covered by the definition, and on the scope of the labeling obligation (some were in favor of labeling for beers, others for spirits and liquors only).  This debate has led to alcoholic beverages being excluded from the obligation to provide ingredient and nutrition information.  Following this exemption, the European Commission committed to publishing a report on the pros and cons of a labeling obligation on alcoholic beverage.  The report was originally set to be published by December 13, 2014, but has been delayed several times.  Its publication is now expected for February 2017.

Trade Policy and Sanctions

December 2016 was an important month for the EU’s trade policy.  After major efforts, on December 13, the Council reached an agreement on a reform of its trade defense instruments.  The original proposal by the EU Commission had been presented in April 2013, but some member states insisted for keeping “as is” the so-called “lesser duty rule”, which prevented the EU imposing tariffs for dumped products comparable to those imposed by the U.S.  The final compromise allows the lesser duty rule to be waived in some well-defined cases.  The discussion was made difficult by the context of the crisis caused by dumped steel exports from China, and the debate over its market economy status—which China considers it should have received automatically at the end of 2016.  See the Council’s press release here.

On December 15, a last minute compromise was reached at the level of the European Council itself, allowing the Netherlands to sign the EU-Ukraine Free Trade Agreement.  The Dutch government had refused to sign it after its rejection in a (non-binding) national referendum in April 2016.  At the request of the Dutch prime minister, the EU heads of government made a “legally binding” declaration, according to which the FTA with Ukraine “does not confer on Ukraine the status of a candidate country for accession”, “does not require additional financial support by the member states to Ukraine”, and contains “no obligation for the Union or its member states to provide collective security guarantees or other military aid” to Ukraine.  See the Council Conclusions on Ukraine and the annexed Decision here.

On December 21, Eleanor Sharpston, the Advocate General of the Court of Justice of the EU (“CJEU”), presented a long Opinion on the question asked by the European Commission of the CJEU in 2013 on how the FTA with Singapore should be concluded—either by the European Union alone, or by the EU and its Member States acting jointly (Opinion 2/15).  The answer to this question had become particularly important in the context of the signature of the agreement with Canada (“CETA”).  Sharpston said that “not all parts of the agreement fall within the EU’s exclusive competence and therefore the agreement cannot be concluded without the participation of all the Member States”.  She enumerated the matters she considers of exclusive and of “mixed” competence.  She also stated that, when Member States ratify a trade agreement, they can only refuse their assent for those elements for which they are competent—i.e., those for which there is mixed competence—not those which are under exclusive EU competence.  The Court’s Judgment is expected in the spring of 2017.  See AG Sharpston’s Opinion here, and the CJEU’s press release here.

In December, European Parliament Committees began examining CETA, the EU-Canada trade agreement.  They face significant pressure from interest groups, which continue to fight against its signature by the Member States in the fall.  The Parliament is expected to vote on the agreement in a plenary session in February.  It is likely to pass, but the debates in December showed that parts of the European Left continue to mount a fierce battle against it. The suspension of the cooperation between the two largest party groups in the Parliament—i.e.,  the center-right parties (“EPP”) and the Socialists (“S&D”)—will not help.

The EU side had hoped to conclude the EU-Japan FTA in a last round of negotiations in December, taking advantage of the vacuum left by the rejection of the Trans-Pacific Partnership by the incoming U.S. President.  The Japanese side, however, continued to defend strong positions on agriculture products.  In a statement on December 18, the EU’s chief trade negotiator said that a deal is possible “by early next year”, if Japan“opens up to EU farm goods and Europe can agree to granting unfettered access to Japanese cars”.  Japanese negotiators will come to Brussels in early 2017, and Prime Minister Shinzo Abe will visit in March.