Elections in Europe, Brexit, and a Presidential Visit

On June 7th, 2017, the UK went to the polls in a “snap” general election called by the Prime Minister, Theresa May.  The outcome was inconclusive, a “hung Parliament” with no single party holding a majority of the seats.

The Conservative Party holds the largest number of seats, 318 of the 650 Members of Parliament (and one still too close to call). The Northern Irish Democratic Unionist Party (10 MPs) will support a minority Conservative government – which would command a bare majority of the MPs in Parliament, as the seven Sinn Fein MPs will follow tradition and not take their seats in the UK Parliament.  This is likely to complicate the Brexit negotiations, and will make it hard for the Conservative Party to implement its domestic policy platform – and many commentators expect a further UK election, sooner rather than later.

Last month, on May 7, Emmanuel Macron was elected President of France with a two-thirds majority over Marine Le Pen, leader of the extreme right party “Front National”. The same evening, Macron greeted his jubilant supporters in the grounds of the Louvre, to the sound of the Ode to Joy, the anthem of the European Union. If President Macron is to implement his ambitious program aimed at restoring France’s competitiveness, he will first need his party, re-named “La République en Marche” to succeed in two-stage Parliamentary elections on June 11 and 18. For Covington’s full analysis of Macron’s victory in the presidential elections, and its implications for the Brexit negotiations, see a Covington blog post here.

On May 22, the EU27 European Affairs ministers formally appointed Michel Barnier as the EU negotiator for the Brexit talks, and adopted detailed negotiating directives with almost no dissent (see here). It was agreed later with the British team that the negotiation would start on Monday, June 19. This allows sufficient time for the new British government to be in place after the UK general election on June 8.

Meanwhile, on May 21, the German Social Democratic Party (“SPD”) led by former European Parliament President Martin Schulz lost the regional election in North-Rhine Westphalia. This was a double blow: the state is both the SPD’s heartland and Schulz’s home state.  The result, which follows other SPD defeats in regional elections the weeks before, means that Chancellor Angela Merkel is thought ever more likely to win the German federal election on September 24.

The U.S. President, Donald Trump, arrived in Brussels on May 24 after visits to Saudi Arabia, Israel and the Vatican. The President came for a meeting of the NATO heads of state and government, arranged around the official inauguration of the new NATO headquarters. President Trump repeated his well-known message that the European allies should meet their pledge to spend 2% of their GDP on defense. He surprised the other leaders by omitting any reference in his speech to the Article 5 commitment to mutual defense, which is the cornerstone of the transatlantic relationship.

President Trump also met European Commission President Jean-Claude Juncker and European Council President Donald Tusk.  After the meeting, Tusk hinted at lingering disagreements: “we agreed on many areas, first and foremost on counter-terrorism …  but some issues remain open, like climate and trade”.  The disagreement on climate was confirmed when, on June 1, President Trump announced that the United States would withdraw from the Paris agreement and seek to renegotiate better terms.  The President’s call to renegotiate the Paris deal was rejected immediately by the European leaders.

According to leaks in the German press, the American President also used his meeting with the EU institutional leaders to express his strong displeasure with the huge trade surplus of Germany with the United States.  This may explain why, in a campaign speech in Munich a few days later, Angela Merkel made a statement that would be much repeated worldwide: “we Europeans truly have to take our fate into our own hands… The era in which we could fully rely on others is over to some extent … That is what I experienced over the past several days”.

Tech and Digital Single Market Policies

On May 4, 2017, the European Data Protection Supervisor (EDPS) issued his 2016 Annual Report in an address to the European Parliament.  He called for lawmakers to pay more attention to Artificial Intelligence and big data.  Looking further forward, the EDPS felt that the definition of “personal data” would become irrelevant over time, because big data models can identify people out of any data set or behavior pattern.  In the shorter term, his focus for 2017 will be on the “interoperability of different databases and systems” used in Europe’s border system and Europol’s data protection policies.  See the Annual Report here.

On May 10, the European Commission released the mid-term review of its Digital Single Market strategy (see a press release here, the full Communication here, and Covington’s full analysis here), alongside the final report on their e-commerce sector inquiry, see here).  The DSM strategy review covered three topics: the Data Economy, Online Platforms and Cybersecurity.

  • On the data economy, the Commission will publish a legislative proposal In Fall 2017 on cross-border flows of non-personal data within the EU.  This would, inter alia, address whether and how certain data stored in another Member State should be made available for regulatory control purposes.  The Commission will also launch an initiative in Spring 2018 on the accessibility and reuse of public and publicly funded data, and pledged to “further explore” how public administrations could access privately held data, under clearly defined conditions, for the execution of their public interest tasks.
  • In the area of online platforms, the Commission will prepare an initiative by the end of 2017 to address unfair contractual clauses and trading practices identified in platform-to-business relationships.  See Covington’s full analysis of the Commission’s plans in relation to online platforms here.
  • The Commission also announced that it plans to review the 2013 EU Cybersecurity Strategy by September 2017.  It will also review the mandate of the European Union Agency for Network and Information Security (“ENISA”).

Continuing on this theme, on May 22, 2017, ENISA and three companies (Infineon, NXP, and STMicroelectronics),issued a common position on cybersecurity.  This document reflects the concerns of industry and provides a set of suggestions for policy makers, It was agreed in December but only publicly released on May 22, 2017.  See a press release here, and the original position paper here.

On May 16, 2017, President Juncker announced his intention that the Bulgarian MEP, Mariya Gabriel, should be the new Digital Economy and Society Commissioner (see a press release here).  She was proposed by the Bulgarian Government as Commissioner to replace former Commission Vice-President Kristalina Georgieva.  President Juncker also presented her with a mission letter, outlining her responsibilities (see here).  Mariya Gabriel will be formally appointed by the Council, following consultation with the European Parliament and a formal “exchange of views” in the European Parliament.

On May 24, 2017, the European Commission launched a consultation on the Database Directive, see here.  The Database Directive, adopted in 1996, harmonizes the treatment of databases under copyright law in the EU, and provides for certain sui generis rights for the creators of databases.  The European Commission intends to update the Directive to reflect new big data industry developments.

Looking ahead, Estonia has scheduled at least a dozen conferences to explore how different sectors can benefit from the disruptive impact of technology, as part of their Presidency of the Council, which begins July 1.  Estonia intends to focus the debate on how technology could help us make social protection schemes smarter, less costly and more useful to citizens.

The European Parliament is preparing an own-initiative report called “Towards a Digital Trade Strategy” (see here).  MEP Marietje Schaake will be the rapporteur for this report (see her dedicated site on the issue here).  We understand that the report will aim to address the role of data flows and cybersecurity in international trade agreements.

Communication and Media Policies

On March 10, 2017, Therese Comodini Cachia (Maltese MEP, centre-right EPP), the rapporteur in the lead Committee on Legal Affairs (“JURI”), finalised her report on the Proposed Copyright Directive.  JURI Committee members have submitted over 1,000 amendments to Comodini Cachia’s report (see here).  These amendments will be debated on June 19 or 20 in the European Parliament, and a vote in the Committee is tentatively scheduled for September 28.  The European Parliament tentatively expect to vote on the copyright proposals in the full plenary by the end of 2017.  However, on June 8, 2017, Comodini Cachia announced that she will step down as an MEP, putting this timetable in doubt.

On June 9, 2017, the Internal Market and Consumer Protection Committee (IMCO) approved their Opinion on copyright reforms in the EU (see here).  The opinion was adopted, with 19 voting in favor, seven voting against and six abstentions.  All proposed amendments on ancillary copyright for press publishers failed, which means that the European Commission wording on the ancillary copyright was retained in the Opinion.

On June 7, the Body of European Regulators for Electronic Communications (“BEREC”) will launch three public consultations on Net Neutrality.  These will cover BEREC’s medium-term strategy 2018-2020, Internet protocol interconnection practices in the context of Net Neutrality, and BEREC’s regulatory methodology for quality of service assessment for the implementation of Net Neutrality provisions.  All the public consultations will run for four consecutive weeks, and will end on 5 July 2017.  See a press release here, and the three consultations on the BEREC Consultation Platform here.

On May 23, The Council finalised its position on the Audio Visual Media Services Directive (“AVMSD” – see the Council position here, and a European Commission press release here).  This opens the way for trilogue negotiations to start in June.  Under this Council compromise text, the AVMS rules may be extended to video sharing platforms, including social media sites hosting audio-visual media.

Energy and Environment Policies

On May 2, 2017, the European Commission published a legislative proposal for a Regulation on a Single Market Information Tool.  If adopted, the proposed Regulation would empower the Commission to request information from companies and trade associations, from a wide variety of industrial, technological and services sectors, if the Commission finds that serious difficulties in applying European Union law may undermine an important Union policy objective.  Companies and trade associations failing to provide the requested information would be subject to significant fines.

If adopted, the proposed Regulation would increase the transparency requirements to which companies active on the EU market are already subject.  These include the disclosure rules of Regulation 1049/2001 on public access to EU documents, proactive publication of testing data by EU Agencies, and the Court of Justice’s (“CJEU”) broad interpretation of the concept of information on emissions into the environment that must always be disclosed.

For Covington’s full analysis of the proposal, see Covington’s client alert here.

Internal Market and Financial Services Policies

In May, the European Aviation Safety Agency (“EASA”), an EU agency with regulatory responsibilities in the field of civilian aviation safety, has published a public consultation on technical and operational requirements for drones. The proposed rules address such matters as geo-fencing, identification, security and privacy.  Under the proposals, owners will have to register drones weighing more than 250 grams.  Member States may define zones or airspace areas where drones are prohibited or restricted for security or privacy reasons.  Exemptions are included for model aircraft, which the agency noted have “good safety records”.  However, enthusiasts will need to get special authorization to deviate from EU rules.  The EASA hopes to publish final guidance material, including certification specifications and lists of acceptable means of compliance for drone operators, by Q2 2018.  See further details here, including a link to the full Notice of Proposed Amendments.

On May 10, 2017, the European Commission launched a public consultation on a proposed Company Law package.  The Commission hopes to facilitate the use of digital technologies in interactions between companies and Member States (e.g., for company formation).  It intends to provide a framework for cross-border conversions and divisions, as well as the existing EU rules on and cross-border mergers.  It also hopes to harmonise conflict-of-law rules as they apply to companies throughout the EU.  See the consultation here; it closes on August 6, 2017.

On May 23, the Council agreed on a proposal for a Council Directive on Double Taxation Dispute Resolution Mechanisms in the European Union.  The proposal aims to enhance and make more effective dispute resolution mechanisms for firms within the EU. It follows from convention 90/436/EEC on the elimination of double taxation in connection with the adjustments of profits of associated enterprises.  The Council only consults the European Parliament on this proposal, as it is subject to the “special legislative procedure”.  On June 8, the Committee on Economic and Monetary Affairs (“ECON”) in the European Parliament will vote on its report on the proposal.  The Committee is expected to recommend amendments, including requesting that EU Member States have an adequate level of financial and technical resources to solve disputes; reinforcing the integrity requirements which apply to persons in charge of dispute resolution; and avoiding sanctioning tax payers before a final decision is adopted.  Once the plenary has adopted its position on the file, the Council will formally adopt their agreed position as it stands.  See the proposal here; the ECON Committee’s draft report here; amendments tabled to the report here; and the Council’s agreed position here.

On May 29, the European Council formally adopted new rules aimed at preventing tax avoidance through non-EU countries.  The directive will prevent companies from exploiting taxation mismatches arising from different tax systems in EU and non-EU states (“hybrid mismatches”).  A hybrid mismatch occurs when the tax treatment of an instrument or an entity in one country differs from that of another country and does not take into account the treatment in the other involved country, creating a mismatch.  The new rules complete the Anti-Tax Avoidance Directive (“ATAD”).  The directive on hybrid mismatches was adopted without discussion at a meeting of the Competitiveness Council.  It follows an agreement by EU Ministers on this file on February 21, 2017, and the opinion of the European Parliament of April 27, 2017.  Member States will have until January 1, 2020 to transpose the directive into their domestic legal systems (January 1, 2022 for one specific provision, a new Article 9a on reverse hybrid mismatches).  See the directive here.

On May 30, representatives of the Council and the European Parliament agreed on amendments to EU rules on venture capital and social enterprises .  These changes aim to boost investment in start-ups, thereby granting them better access to finance, and promoting innovation.  The proposal, which amends Regulations 345/2013 and 346/2013, is part of the EU’s plans for a Capital Markets Union (“CMU”).  It aims to increase investment opportunities for funds by expanding the range of eligible companies that the funds can invest in, as well as simplifying administration procedures.  In particular, larger fund managers – i.e., those with assets under management of more than €500 million – will be able to market and manage European venture capital (“EuVECA”) and European social entrepreneurship (“EuSEF”) funds.  Moreover, the range of companies in which EuVECA funds can invest will be expanded to include unlisted companies with up to 499 employees (small mid-caps) and SMEs listed on SME growth markets.  The agreement will now be submitted to EU Ambassadors for authorization on behalf of the Council.  Both the Council and the European Parliament will then likely adopt the legislation without discussion.

Also on May 30, the EU agreed on a package setting out simple, transparent and standardized securitization (“STS”).  The agreement also forms part of the CMU action plan.  Securitization occurs when a financial instrument is created by a lender by combining assets for investors to purchase, which eases access to a broader range of investors, thereby increasing liquidity and unlocking capital for new loans.  The prompt implementation of the proposed packaged could make up to €150 billion of additional funding available to the real economy.  STS securitizations will also make new investment opportunities available for institutional investors (e.g., pension funds or insurance companies).  The agreement will now be followed by further technical talks finalizing the proposal.  The Permanent Representatives Committee (“COREPER”) of the Council of Ministers will likely endorse the agreement ahead of the European Parliament’s plenary vote.  For further information, see a Commission memorandum here; and further information here.

On May 31, the European Commission presented a “reflection paper on the deepening of the Economic and Monetary Union” (“EMU”, see here).  The paper describes a roadmap to finalize the EMU by first completing the banking union and then setting up a genuine fiscal union.  The process should be accompanied by institutional developments, such as the creation of a Eurozone treasury and the appointment of a “EU Finance Minister” combining the posts of Chairman of the Eurogroup and Commissioner in charge of economic affairs.  The Commission also proposed the development by 2019 of “sovereign bond-backed securities” for the Eurozone – securitized financial products issued by a bank or an institution, but without debt mutualization among the member states, which would differentiate them from the “Eurobonds” rejected by Germany ever since the start of the Eurozone crisis.

Life Sciences and Healthcare Policies

On May 2, the European Commission, jointly with the European Medicines Agency (“EMA”) published a Notice making recommendations to pharmaceutical companies holding an EMA marketing authorization on how to avoid any interruption in the provision of those products in the EU post-Brexit.  These include basing themselves in the EU or the European Economic Area, and performing all monitoring, conformity and control procedures in these regions.  See the Notice here.

On May 15, the European Commission announced that it had opened an investigation into possible unfair drug pricing and possible abuse of dominance for five cancer drugs commercialized by Aspen Pharma.  The Commission will analyze whether Aspen Pharma’s price increases lead to an abuse of a dominant position, in breach of Article 102 of the Treaty on the Functioning of the EU.  This is the first formal investigation into excessive pricing practices in the pharmaceutical industry.  Should the Commission find an infringement, this could considerably limit the discretion of pharmaceutical companies in setting and increasing prices.  See the Commission’s press release here.

On May 23, the European Commission published criteria for selecting a new EMA host city (alongside similar criteria for the relocation of the European Banking Authority).  These include assurance that the EMA can continue its operation from the date of Brexit, good international transport links, and appropriate facilities and conditions for family members (including in schools, social security and labor market).

On May 29, the European Commission opened a public consultation to evaluate the adequacy and efficiency of the EU blood, tissues and cells legislation (i.e., Directives 2002/98/EC and 2004/23/EC).  The consultation seeks to gather the views of various stakeholders, including healthcare professionals using blood, tissues and cells in their clinical practice, to assess whether legislation has achieved its initial objectives, or whether any modifications are necessary for the Directives to remain fit for purposes.  Should any overhaul or modification of the legislation be required, the views collected will serve as a support for possible legislative amendments or initiatives.  The public consultation runs until August 31, 2017.  See a summary of the consultation here, and the questionnaire for companies and organizations here.

Trade Policy and Sanctions

On May 16, 2017, the Court of Justice of the EU answered a request for an Opinion by the EU Commission on the nature of the trade agreement between the EU and Singapore. The Commission had asked for this opinion in order to know if this agreement should be considered of exclusive community competence or “mixed” – i.e., some of its provisions falling under the national competence of the member states, with all national (and in some countries regional) parliaments needing to ratify them. The opinion brings some relief to the EU institutions by limiting the elements of the Singapore agreement which make it “mixed” to two specific provisions: the arbitration of investor-state disputes, and portfolio investment. This ruling contradicts the opinion expressed in December by the Court’s Advocate General, who argued that areas such as transport services, intellectual property rights, and labor and environmental standards were also mixed competences. See the judgment here, and a press release here.

The European Commission decided on May 11 to impose anti-dumping duties on Chinese pipes and tubes made out of iron and steel. The duties were provisionally imposed in November last year and are now permanently established. They range from 29.2 percent to 54.9 percent, which is considerably lower than the actual dumping margin, which was found to range from 39.9 percent to 103.8 percent. Indeed, under the still valid lesser-duty rule, duties can only be levied at the level of the actual injury that has been calculated. See the measures here, and a Commission press release here.

European and Japanese negotiators made “lots of good progress” during the mid-May session of the EU-Japan Trade negotiation, according to European Trade Commissioner Cecilia Malmström. She added that she was “very confident” a political agreement could be reached this year. A political agreement would mean concluding about 90 percent of the trade deal – most significantly, the question of market access for EU agricultural products and Japanese car exports in return – leaving only some minor aspects to be sorted out later.

On the occasion of President’s Trump visit to Brussels on May 25, the U.S. and the EU agreed on a “joint action plan” on trade, aimed at filling the vacuum caused by the suspension of the TTIP negotiation. According to EU sources, the new instrument will be an effort to ease trade in food products, reduce red tape and reaching an agreement on standards in the car sector and other industries.