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 On 30 June 2022, the Council of the EU (the “Council”) and the European Parliament (the “Parliament”) reached a much awaited agreement on the proposal of the European Commission (the “Commission”) for the Regulation on foreign subsidies distorting the internal market (the “FSR”) (see our alert on the proposal). This political agreement swiftly concludes the trilogue discussions initiated in the beginning of May this year, after the Council (see our blog post) and the Parliament (see our blog post) each adopted their own positions. The agreement has been approved by the Permanent Representatives Committee (“COREPER”) of the Council on 13 July and the Committee on International Trade of the European Parliament on 14 July.

The FSR grants substantial new powers to the Commission and “will help close the regulatory gap whereby subsidies granted by non-EU governments currently go largely unchecked”, according to remarks from Executive Vice-President of the Commission, Margrethe Vestager. It will be deeply transformative for M&A and public procurement in the EU.

The agreement on the FSR did not lead to any major changes in the proposal made by the Commission. The most notable points of discussion between the Parliament and Council and the outcome of this agreement are:

  • The thresholds above which companies are obliged to inform the Commission about their foreign subsidies remain unchanged compared to the Commission’s proposal;
  • The time period in which the Commission has to investigate foreign subsidies in large public procurement has been reduced. In the same way, the retroactive application of the FSR has been limited to foreign subsidies granted in the five years prior to the application of the regulation;
  • The Commission will issue guidelines on the existence of a distortion, the balancing test and its power to request notification of non-notifiable transactions, at the latest three years after the entry into force of the FSR; and
  • A commitment to a multilateral approach to foreign subsidies above the FSR and the possibility for the Commission to engage in a dialogue with third countries has been included.

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Continue Reading The Council of the EU and the European Parliament agree on the Foreign Subsidies Regulation

This quarterly update summarizes key federal legislative and regulatory developments in the second quarter of 2022 related to artificial intelligence (“AI”), the Internet of Things, connected and automated vehicles (“CAVs”), and data privacy, and highlights a few particularly notable developments in U.S. state legislatures.  To summarize, in the second quarter of 2022, Congress and the Administration focused on addressing algorithmic bias and other AI-related risks and introduced a bipartisan federal privacy bill.

Artificial Intelligence

Federal lawmakers introduced legislation in the second quarter of 2022 aimed at addressing risks in the development and use of AI systems, in particular risks related to algorithmic bias and discrimination.  Senator Michael Bennet (D-CO) introduced the Digital Platform Commission Act of 2022 (S. 4201), which would empower a new federal agency, the Federal Digital Platform Commission, to develop regulations for online platforms that facilitate interactions between consumers, as well as between consumers and entities offering goods and services.  Regulations contemplated by the bill include requirements that algorithms used by online platforms “are fair, transparent, and without harmful, abusive, anticompetitive, or deceptive bias.”  Although this bill does not appear to have the support to be passed in this Congress, it is emblematic of the concerns in Congress that might later lead to legislation.

Additionally, the bipartisan American Data Privacy and Protection Act (H.R. 8152), introduced by a group of lawmakers led by Representative Frank Pallone (D-NJ-6), would require “large data holders” (defined as covered entities and service providers with over $250 million in gross annual revenue that collect, process, or transfer the covered data of over five million individuals or the sensitive covered data of over 200,000 individuals) to conduct “algorithm impact assessments” on algorithms that “may cause potential harm to an individual.”  These assessments would be required to provide, among other information, details about the design of the algorithm and the steps the entity is taking to mitigate harms to individuals.  Separately, developers of algorithms would be required to conduct “algorithm design evaluations” that evaluate the design, structure, and inputs of the algorithm.  The American Data Privacy and Protection Act is discussed in further detail in the Data Privacy section below.…

Continue Reading U.S. AI, IoT, CAV, and Data Privacy Legislative and Regulatory Update – Second Quarter 2022

On July 1, 2022, the U.S. Department of Commerce (“Commerce”) issued proposed rules implementing President Biden’s emergency declaration to provide temporary tariff relief on certain imports of solar cells and modules from Cambodia, Malaysia, Thailand, and Vietnam.[1] Commerce has provided the public with a 30-day period to comment on the proposed rules.

If enacted…

After more than seven months since China’s Personal Information Protection Law (《个人信息保护法》, “PIPL”) went into effect, Chinese regulators have issued several new (draft) rules over the past few days to implement the cross-border data transfer requirements of the PIPL.  In particular, Article 38 of the PIPL sets out three legal mechanisms for lawful transfers of personal information outside of China, namely: (i) successful completion of a government-led security assessment, (ii) obtaining certification under a government-authorized certification scheme, or (iii) implementing a standard contract with the party(-ies) outside of China receiving the data.  The most recent developments in relation to these mechanisms concern the standard contract and certification.

Chinese Government Issues Draft SCCs

On June 30, 2022, the Cyberspace Administration of China (“CAC”) released draft Provisions on the Standard Contract for the Cross-border Transfers of Personal Information (《个人信息出境标准合同规定（征求意见稿）》, “Draft Provisions”) for public consultation.  The full text of the Draft Provisions can be found here (currently available only in Mandarin Chinese).  The public consultation will end on July 29, 2022.…

Continue Reading Cross-border Data Transfer Developments in China

Importers of merchandise into the United States must use “reasonable care” in the importation process, which includes providing accurate and complete information necessary for U.S. Customs and Border Protection (“CBP”) to process and release the merchandise into the United States.[1]  Importers who fail to take this obligation seriously do so at their peril, because catching importer mistakes that result in duty underpayments is an enforcement priority for CBP.  If CBP determines that an importer has failed to exercise reasonable care, CBP may impose substantial civil penalties, even if an error was unintentional.[2]  However, where importers discover their own import compliance errors before CBP does, they may significantly reduce their exposure to penalties by proactively and voluntarily disclosing such errors to CBP with a “prior disclosure.”  This article summarizes the fundamentals of a prior disclosure, and reports on recent efforts by CBP to standardize prior disclosure practices across U.S. ports of entry.

Prior Disclosure Fundamentals

CBP encourages importers to file prior disclosures,[3] and it often makes sense for an importer to do so.  The statutes, regulations and procedures that govern the importation of merchandise into the United States are complex and constantly changing, such that even the most experienced and vigilant importers make mistakes.  A prior disclosure allows an importer to disclose its violations of Customs laws and regulations to CBP and pay any unpaid duties or fees owed.  In exchange, the importer limits exposure to otherwise applicable penalties, by limiting the penalty to the interest owed.  CBP benefits as well, receiving prompt payment of duties owed (plus interest) without using internal resources to conduct an investigation of the reported violations and enforce a penalty order. …

Continue Reading Voluntary Disclosures to CBP: What Importers Need to Know About the Changing Landscape

The UK government has reported a successful start to the implementation of the National Security and Investment Act 2021 (the “NSIA” or “Act”). During the first three months (Jan-March 2022) in which the new NSIA regime has been active, the Investment Screening Unit (“ISU”) received 222 filings and reviewed 17 transactions in depth. Of those 17 transactions, three have been cleared unconditionally, with the other 14 transactions still under review at the end of the reporting period.

Mandatory NSIA filings, which represented 196 of the total flings, were most commonly made in six sectors: defence, military and dual-use, critical suppliers to government, artificial intelligence, data infrastructure and advanced materials.  There were significantly fewer filings in other sectors, with fewer than five filings per sector in areas such as synthetic biology, civil nuclear, advanced robotics and transport.

Collectively, these figures and other data suggest that the NSIA regime is operating, so far, broadly in line with expectations. While there are fewer filings than expected overall, this may reflect a broader global slowdown in M&A and investment activity. The ISU further reports that it is meeting, and often working well within, the maximum statutory time periods for the assessment of filings. The ISU indicates its willingness to complete reviews expeditiously where possible, including for in-depth assessments.…

Continue Reading UK National Security and Investment Regime Working Well

The UK government has reported a successful start to the implementation of the National Security and Investment Act 2021 (the “NSIA” or “Act”). During the first three months (Jan-March 2022) in which the new NSIA regime has been active, the Investment Screening Unit (“ISU”) received 222 filings and reviewed 17 transactions in depth. Of those 17 transactions, three have been cleared unconditionally, with the other 14 transactions still under review at the end of the reporting period.

Mandatory NSIA filings, which represented 196 of the total flings, were most commonly made in six sectors: defence, military and dual-use, critical suppliers to government, artificial intelligence, data infrastructure and advanced materials.  There were significantly fewer filings in other sectors, with fewer than five filings per sector in areas such as synthetic biology, civil nuclear, advanced robotics and transport.

Collectively, these figures and other data suggest that the NSIA regime is operating, so far, broadly in line with expectations. While there are fewer filings than expected overall, this may reflect a broader global slowdown in M&A and investment activity. The ISU further reports that it is meeting, and often working well within, the maximum statutory time periods for the assessment of filings. The ISU indicates its willingness to complete reviews expeditiously where possible, including for in-depth assessments.…

Continue Reading UK National Security and Investment Regime Working Well

Last month, the U.S.-EU Trade and Technology Council (TTC) met in Paris-Saclay for the second time since its launch in June 2021. (The first ministerial took place in Pittsburgh in September. France hosted this session as holder of the rotating presidency of the Council of the EU.) The meeting was co-chaired by Secretary of State Blinken, Secretary of Commerce Raimondo, and U.S. Trade Representative Tai, and European Commission Executive Vice Presidents Vestager and Dombrovskis. European Commissioner Breton also joined the discussions and the French ministers for foreign affairs, economy, and trade (Le Drian, Le Maire, and Riester) hosted the opening dinner.

The TTC is a new model of economic integration through regulatory coordination. Although both sides reserve their “regulatory autonomy,” they have also invested significant political capital, time, and effort into this process. The TTC spans broad policy areas including tech standards, climate, supply chains, export controls, and investment screening. It operates through ten working groups, which meet at staff working levels and seek input from outside stakeholders. For instance, the European Commission sponsors a “Trade and Technology Dialogue” facility to conduct outreach to the private sector and civil society. Through this technical work, the TTC’s aim is to shape the “rules of the road” for the global economy to favor liberal democracies, leveraging the transatlantic community’s half of global GDP. The ministerials set the themes and political direction for the working groups.

Against the backdrop of Russia’s ongoing aggression against Ukraine, the U.S. and EU noted that the TTC has become a “central pillar” of the transatlantic partnership, “indispensable” in facilitating coordination on sanctions and export controls. It will serve as a forum to monitor and discuss the Russia sanctions and may coordinate their eventual removal. Indeed, the TTC has arguably become more of a geopolitical tool than originally intended. Its 48-page joint statement reflects the breadth and depth of the underlying discussions and signals various future policy directions.…

Continue Reading U.S.-EU Trade and Tech Council: Paris Takeaways and Next Steps

On 4 May 2022, the Council of the EU (the “Council”) formally adopted its position on the proposal of the European Commission (the “Commission”) for a Regulation on foreign subsidies distorting the internal market (the “Foreign Subsidies Regulation”) (see our alert on the proposal). On the same day, the European Parliament (the “Parliament”) also adopted its position on the Foreign Subsidies Regulation (see our blog post). The Council’s adoption confirms the Commission’s initial proposal of the regulation while seeking to limit the Commission’s power to investigate foreign subsidies.

The three most important things for you to know about the recent amendments to the Foreign Subsidies Regulation:

  • The thresholds above which companies are obliged to inform the Commission about their foreign subsidies have been increased, reducing the scope of the new rules to a narrower set of acquisitions, mergers and public procurements. In addition, foreign subsidies of less than EUR 5 million would not be subject to notification and foreign subsidies of less than EUR 200,000 would escape any scrutiny.  
  • The time period in which the Commission has to investigate foreign subsidies in large public procurements has been reduced. Furthermore, the “retroactive” application of the Foreign Subsidy Regulation is limited to foreign subsidies granted in the five years prior to the application of the regulation.
  • The application of some concepts (e.g., the power to request prior notification) will be subject to further guidance by the Commission.

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Continue Reading The Council of the EU endorses the European Commission’s proposal on the Foreign Subsidies Regulation

Securities and Capital Markets

On March 21, 2022, the SEC proposed landmark rules regarding climate-related disclosures that would, if finalized, impact both domestic and foreign private issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934.  The much-anticipated proposal will elicit discussion regarding the type, amount, and materiality of certain climate-related information that a company could be required to report.  The proposal also highlights the significant shift in market expectations globally regarding a company’s oversight of evolving climate-related risks and opportunities.  The SEC also published a fact sheet describing the proposed new disclosure requirements, which includes a matrix outlining the proposed phase-in periods and accommodations for the new disclosures.  The timing and scope of final rules remains uncertain, but the earliest that certain large accelerated companies would need to comply with the proposed rules if adopted would be 2023 (with the possibility of a filing by 2024).

Below we summarize:

  1. Background developments that led to the proposal;
  2. Key provisions of the proposed rules;
  3. Controversial elements of the proposal that may engender further debate; and
  4. What companies should be doing now.

Background

In recent years, investors have become increasingly focused on climate-related issues and risks related to a company’s business.  This heightened awareness has resulted in the SEC taking various steps to address investor demand for more transparent, comparable, decision-useful climate-related disclosure.  For example, in 2010, the SEC released guidance on how companies should apply existing disclosure requirements pertaining to a company’s business operations and exposure to material climate-related matters.[1]

In March 2021, SEC Commissioner and then-Acting Chair Allison Herren Lee requested public input from investors, companies and other market participants on whether current disclosures regarding climate-related opportunities and risks provided adequate information to investors.[2]  ESG-related task forces were also established with the purpose of evaluating climate-related disclosures and claims.  In July 2021, SEC Chair Gary Gensler announced the SEC would propose mandatory climate-related disclosure rules.  In September 2021, the SEC’s Division of Corporate Finance issued a Sample Letter to Companies Regarding Climate Change Disclosures to provide companies with additional guidance regarding climate-related disclosures.
Continue Reading SEC Proposes Landmark Climate-Related Disclosure Rules