Brexit, the EU’s Response, and U.S.-EU relations

On February 8, the UK House of Commons approved by 494 votes to 122 the British Government’s Brexit legislation – the European Union (Notification of Withdrawal) Bill (see here).  This legislation, proposed by Prime Minister Theresa May, would give her Government the power to trigger the UK’s exit from the EU under Article 50 of the Treaty on European Union.  The House of Commons rejected nine attempted amendments, including one to guarantee the future rights of EU nationals.  A clean Bill was sent to the House of Lords.

On March 1, however, the Lords amended the Bill to guarantee EU nationals the right to stay in the UK after it leaves the EU.  On March 7, they further amended it, with the largest turnout for any vote in the House of Lords since 1831, to require that the Government give both Houses of Parliament a “meaningful vote” on the final terms agreed with the EU for the UK’s withdrawal.  This is intended to enable Parliament to reject a UK decision to leave the EU without an agreement on a future relationship, which the UK Government says would weaken their negotiating position.  However, such a rejection would be unlikely to stop the UK leaving the Union automatically, two years after notification under Article 50, with or without an agreed deal.  With that, the Lords concluded their debates on the Bill.

The Bill will now be sent back to the House of Commons, which will resume its consideration on March 15.  The Commons are expected to reject the Lords’ amendments, but the consequent delays to the parliamentary process mean that the Prime Minister will not be able to give formal notification of its intention to leave the EU under Article 50 of the Treaty on European Union, and trigger the two-year negotiating window, until late March.

After an informal meeting of EU heads of government in Malta on February 3 (see the EU Policy Update of February 9, 2017, here), EU officials continued their preparation for the Brexit negotiations.  It is understood that the Commission’s chief negotiator, former Commissioner Michel Barnier, with the backing of a number of Member States, intends that the Brexit talks should first focus on the two key “separation” issues: the status of EU citizens currently living in the UK and UK citizens currently resident in other EU Member States, and an agreed methodology for calculating the UK’s “exit bill” – chiefly, spending commitments agreed before the UK notified the EU of its intention to leave, and pensions liabilities for EU staff.  Estimates have put this bill at around 60 billion Euros.  The Commission expects to complete these negotiations by December, after which it will begin to discuss the future EU-UK relationship.  Such a timetable would take up nine of the 18 months that will in practice be available for the negotiations (see the Global Policy Watch Blog on this point, here), and is therefore likely to be resisted by the UK.

Meanwhile, on February 20, the new U.S. Vice President, Mike Pence, met the Presidents of the European Council and the European Commission, Donald Tusk and Jean-Claude Junker.  The Vice President expressed “the strong commitment of the United States to continued cooperation and partnership with the European Union”, adding that, “whatever our differences, our two continents share the same heritage, the same values and above all the same purpose, to promote peace and prosperity through freedom, democracy and the rule of law, and to those objectives we will remain committed.

This visit followed discussions at the Security Conference in Munich on the future relationship between the Trump administration and Europe.  Various U.S. participants, including the Vice President, raised the need for European members of NATO to meet their commitment to spend 2% of their GDP on defense.  The White House has since announced that President Trump will attend the inauguration of the new NATO headquarters in late May.  The President will also meet a number of EU leaders at the May 26-27 G7 summit in Sicily, Italy.

Tech and Digital Single Market Policies

On February 16, 2017, the Members of the European Parliament (MEPs) voted to adopt a non-legislative Resolution on “Civil law rules on robotics” (see the Resolution here, and the European Parliament’s procedural file here).  The Resolution considers the legal and economic consequences of the rise of robots and artificial intelligence devices.  It calls for common EU definitions of cyber physical systems, autonomous systems, and smart autonomous robots.  It asks that robots be classified into these three categories (and any subcategories) and registered in a central database.  The Parliament also asks that the Commission establish a European Agency for Robotics and Artificial Intelligence, which, among other things, would run this registry.

As to civil liability rules, the Parliament was of the view that these should not restrict the type or the extent of the damages which may be recovered, nor should they limit the forms of compensation which may be offered to the aggrieved party on the sole grounds that damage is caused by a non-human agent.  According to the Parliament, the liability of a robot should also be proportional to the actual level of instructions given to the robot and its degree of autonomy.  Thus, the greater a robot’s learning capability or autonomy, and the longer a robot’s training, the greater the responsibility of its trainer for its actions.  The Parliament suggested establishing a mandatory insurance scheme for producers or owners of robots, supplemented by a fund to cover damage caused by uninsured robots.

The Resolution also includes specific provisions relating to autonomous cars, drones, care robots and medical robots; a draft Code of Conduct for Robotic Engineers; a code for research ethics committees when reviewing robotics protocols; and model licenses for robot designers and users.  The Parliament’s non-binding Resolution will now be sent to the Commission, which will decide whether to propose regulation in this area.

The Commission’s proposals on Copyright continue to be considered by the European Parliament (the proposed Directive on copyright in the Digital Single Market, see here).  MEP Therese Comodini Cachia (Maltese, centre-right, see here) is the “rapporteur” responsible for preparing the report on the proposed Directive in the lead Committee for Legal Affairs (“JURI”).  In February, the Industry, Research and Energy (“ITRE”), Culture and Education (“CULT”) and Internal Market and Consumer Protection (“IMCO”) committees  all provided their separate opinions on the draft copyright proposals.  MEP Comodini Cachia is expected to finalise her lead report on the copyright proposals in early March 2017.

On February 13, MEP Marju Lauristin (Estonian, center-left, see here) was selected as the rapporteur for the proposed ePrivacy Regulation for the lead Civil Liberties, Justice and Home Affairs (“LIBE”) Committee.  Various MEPs who were involved in the negotiations on the General Data Protection Regulation, such as Jan Philipp Albrecht, Michal Boni and Sophia In t’Veld, have been selected as shadow rapporteurs to examine the ePrivacy proposals for the other political groups in the same committee.

On February 9, 2017, the European Parliament’s LIBE committee passed a draft non-legislative Report warning of the dangers of big data to fundamental rights (see the draft Report here, European Parliament procedural file here, and press release here).  The Report calls for the Commission, Member states and Data Protection Authorities to take “any possible measures” to minimise “algorithmic discrimination”, including price discrimination, where consumers are offered different prices for a product based on data collected from their previous internet behaviour, or targeting of certain groups or persons defined by their race, colour, ethic or social origin, religion, or political views.  It argues that big data can sometimes be used to circumvent requirements under privacy rules, such as the obligation to anonymize certain data.  It also calls for more transparency when companies develop big data models.  The Report will now proceed to a plenary vote, which could take place in Strasbourg on 13 to 16 March.

On February 22, 2017, the U.S. administration sent a letter to the European Commission explaining that the new administration’s recent executive orders do not undermine commitments made under the EU-U.S. Privacy Shield.  The letter was sent by Bruce Swartz, deputy assistant attorney general and counsellor to the U.S. Department of Justice.  EU Justice Commissioner, Věra Jourová, will visit Washington in late March to discuss the Privacy Shield deal.

Communication and Media Policies

The European Parliament’s Committees for Industry, Research and Energy (“ITRE”) and Internal Market and Consumer Protection (“IMCO”) are working on a joint report on the Commission’s proposed European Electronic Communications Code (see the proposed Directive here) part of the Commission’s Telecoms Reform package (for more details, see the Covington EU Policy Update of October 6, 2016, here).

We understand that, on February 6, 2017, the ITRE Committee’s rapporteur, MEP Pilar del Castillo Vera (Spanish, center-right) finalized her Committee’s desired changes to the Electronic Communications Code proposal.  She will now work with the IMCO Committee rapporteur, MEP Dita Charanzová (Czech, center) to produce a joint report outlining their proposed changes to the draft Directive.

The Commission’s Telecoms Reform package also includes a proposal to make the Body of European Regulators for Electronic Communications (“BEREC”) a formal Agency of the EU (see the proposed Regulation here).  BEREC, established as part of the 2009 revision of the Telecoms rules, comprises the heads of the EU Member States’ national telecommunications regulators.  March 8, 2017, will see the launch of a public consultation on BEREC’s 2018-2020 strategy.

On February 16, 2017, the European Union Agency for Network and Information Security (“ENISA”) published a study on technical guidelines for the implementation of minimum security measures for Digital Service Providers (“DSPs”, see here).  This report, together with other relevant technical standards, will feed into the discussions on the implementation of article 16(1) of the 2016 Directive on security of network and information systems (the “NIS Directive”) concerning DSPs’ security measures.

The study outlines common baseline security objectives for DSPs. It also describes different levels of sophistication of security measures that would fulfill these security objectives, with a particular focus on cloud computing service providers, online marketplaces, and online search engines.

Energy and Environment Policies

In February, the European Parliament and Council began their consideration of a proposal to amend the “RoHS 2 Directive” (Directive 2011/56/EU on the restriction of the use of certain hazardous substances in electrical and electronic equipment, see the proposal here).  The Directive prevents the placing on the market of electrical and electronic equipment (“EEE”) containing six substances, subject to certain exceptions.  The banned substances include lead, mercury, cadmium, Hexavalent chromium, PBBs (polybrominated biphenyls) and PBDEs (polybrominated diphenyl ethers).

The proposed amendment aims to address a number of specific concerns with the current legislation affecting the continued use and resale of devices that were already placed on the market.  In particular, it proposes to remove the July 22, 2019 deadline for all the supply of non-compliant EEEs, which severely restricts the secondary market of electronic medical devices, in-vitro diagnostic medical devices, and industrial monitoring and control instruments.  The proposal also provides for an exemption for non-compliant spare parts and cables used to repair, reuse or update all EEEs that fall outside the scope of the old RoHS Directive (Directive 2002/95/EC) and which are placed on the market before July 22, 2019.  This amendment should ensure that all EEEs in scope of the RoHS Directive and placed on the EU market before July 22, 2019, can be repaired with the necessary spare parts and cables.

In the European Parliament, MEP Adina Vălean (Romanian, center-right) is the rapporteur for the proposal in the Committee for Environment, Public Health and Food Safety.  In January, MEP Vălean was also nominated as chair of the Committee for Environment, Public Health and Food Safety.  The report on the proposal is expected to be adopted in July of this year.  The European Parliament and the Council are expected to adopt the proposal swiftly, without any major amendments.

On February 14, the European Commission presented a proposal to amend the EU’s examination comitology procedure with the aim of forcing Member States to vote and take responsibility in the adoption of controversial decisions mostly affecting health and the environment, such as pesticides, GMOs, and chemicals (see here).  If adopted, the proposed amendments are likely to result in an even stronger precautionary approach and the adoption of fewer approvals of politically sensitive products in the EU.  The amendments would also mean that companies who seek to have such products approved will need to put more effort into influencing Member States and their national constituencies if they are to succeed.  The amendments are also likely to result in increased litigation before the EU Courts.

Given that the proposal needs to be adopted by the European Parliament and the Council in accordance with the ordinary legislative procedure, it remains to be seen whether the Council will in fact consider the proposal, or will simply sit on it.

For Covington’s full analysis, please see the Global Policy Watch blog post on this topic by Cándido García Molyneux, available here.

Internal Market and Financial Services Policies

On February 2, the European Commission launched a three-month public consultation on the future of the Common Agricultural Policy (“CAP”).  The CAP was developed in the sixties, and has since undergone numerous reforms, the latest of which was agreed in 2013 and implemented in 2015.  Nevertheless, the complexity of the final legislation left all parties dissatisfied, and unforeseen developments, such as increased market uncertainty and climate change, were left unaccounted for.  These challenges spurred the need for further reforms to the CAP – in particular, its modernisation and simplification.

The responses to the consultation will help the Commission in drafting a Communication on the policy by the end of 2017.  The consultation will close on May 2, 2017.  See the Commission’s online questionnaire here; the consultation website here; the Commission’s press release here; a factsheet here; and further information on the CAP here.

On February 22, the Council reached a common position on a proposal for a Council Directive amending the Anti-Tax Avoidance Directive (“ATAD”) to prevent companies gaining tax advantages through hybrid mismatches with third countries.  A hybrid mismatch occurs when two countries offer differential treatment to the same financial instruments, income or entities for tax purposes, and where that difference in treatment results in double non-taxation (either through a double tax deduction or through a tax deduction with no corresponding taxable receipt).  The Commission’s proposal establishes a rule whereby, in the event of a hybrid mismatch, the tax deduction would be denied by whichever country is a Member State, with a preference that it should only take effect in the source country.  Currently, the ATAD only applies to hybrid mismatches between Member States, but the proposal would counteract hybrid mismatches where one or more of the counterparties are resident outside the EU.  The European Parliament must now give its non-binding opinion on the proposed Directive, after which it will be adopted formally by the Council.  Member States will have to transpose the Directive into national law by December 31, 2019.  See the proposal for the Directive here, the Council’s common position here, and its press release here.

Life Sciences and Healthcare Policies

On March 6, the Council formally adopted the Regulation on medical devices (“MDR”) and the Regulation on in vitro diagnostic medical devices (“IVDR”).  This follows lengthy legal-linguistic checks to ensure coherence and equivalence across the EU’s 24 official languages.  The Regulations address long-term safety issues surrounding medical devices and in vitro diagnostics that are already on the market.  The legislation would achieve this by holding notified bodies and manufacturers accountable for the safety of the products that they release or approve, and by making medical devices more easily traceable throughout the supply chain.  A vote in the European Parliament is scheduled for April, and will most likely take place during the April 3 to 6 plenary session.  Once passed, the legislation could be published as early as May 2017, and the MDR and the IVDR would enter into force in 2020 and 2022, respectively.  The Council’s position on the MDR can be found here; and on the IVDR here.

Relatedly, on February 16, 2017, the Court of Justice of the European Union handed down a judgment in a case involving substandard industrial silicone breast implants.  The plaintiff, Mrs. Schmitt, alleged that TÜV Rheinland, the body that audited the breast implants manufacturer’s quality system, should have been able to ascertain the inferior quality of the silicone used.  The Court found that – while the notified body is not under a general obligation to carry out unannounced inspections, examine devices or examine the manufacturer’s business records – where there is evidence signifying that a medical device may not be compliant with the requirements laid down in Directive 93/42, the notified body must take all necessary steps to ensure that it fulfills its obligations.  In so deciding, the Court followed the opinion of Advocate General Elizabeth Sharpston (see here).  See the judgment of the Court of Justice here, and its press release here.

On February 15, the European Commission published its Roadmap on “Optimizing the Internal Market’s industrial property legal framework relating to supplementary protection certificates (“SPCs”) and patent research exemptions for sectors whose products are subject to regulated market authorizations”.  In the roadmap, the Commission says it may introduce legislation to provide for an SPC manufacturing waiver.  This would allow competitors of SPC holders to produce generic drugs or biosimilars for export purposes, while the initial SPC is still in force.  However, this is merely one of the options the Commission is proposing, and it will consult on this and other proposals from early 2017.  See the Roadmap here.

On March 2, 2017, the European Parliament adopted an own-initiative Report on “EU options for improving access to medicines”, calling on the European Commission and Council to control drug prices.  Among other things, the report suggests enhancing the transparency in the costs of R&D and the marketing of drugs; accelerating the marketing and pricing of biosimilar and generic drugs; and introducing new legislation on transparency for price-setting procedures and reimbursement.  Similarly to the Commission’s Roadmap (above), it proposes the introduction of an SPC manufacturing waiver to allow EU-based generic companies to produce generic drugs and export them to countries not covered by SPCs.  The report can be found here.

Trade Policy and Sanctions

On February 13, the French and German Ministers of Economy and the Italian Minister for Industry sent a letter to the EU Commissioner for Trade, Cecilia Malmström, expressing their concern that “a growing number of non EU investors” buy European technologies which could be used for strategic objectives in their own country, while those investors’ countries maintain barriers for investments from European countries. The letter says that they “are worried about the lack of reciprocity and about a sell-out of European expertise which we are currently unable to combat with effective instruments”.

The Commission reacted positively to the letter and started consultations with the Member States.  A 2011 attempt to create a “European CFIUS” of this sort met with strong resistance from the Member States, principally because they prefer to act at the national level, rather than creating any Union competence in this field.  The magnitude of Chinese investments in high technology firms in Europe in the last few years, however, might encourage them to welcome this new initiative more positively.

On February 15, the plenary of the European Parliament ratified the EU-Canada Comprehensive Economic and Trade Agreement (“CETA”).  408 MEPs voted in favor, 254 voted against, and 33 abstained. The Canadian Prime Minister, Justin Trudeau, addressed the European Parliament in Strasburg the following day.  The Canadian Parliament is now expected to ratify CETA in the coming days, paving the way for its provisional implementation to start, most likely in early April.

Contrary to what was expected, the negotiation of the EU-Japan Free Trade Agreement will not be concluded in the first months of 2017.  Numerous problems remain, the most difficult being Japanese tariffs in the agricultural sector.  The talks are now expected to conclude in late 2017.