Federal Reserve Takes Extraordinary Actions Supporting Financial Markets to Mitigate COVID-19 Impact

Yesterday, on Sunday, March 15, 2020, in response to the COVID-19 pandemic’s impact on U.S. and global economic activity, the Federal Reserve’s Federal Open Market Committee (“FOMC”) cut the target range of the federal funds rate to 0 to 1/4 percent until such time as the FOMC is “confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”  Together with announcing the rate cut, the Federal Reserve took a series of extraordinary actions to support financial markets and promote the flow of credit to households and businesses.  The Federal Reserve’s actions followed announcements by other federal financial regulators intended to ease the impact of COVID-19 on the U.S. economy.

Federal Reserve Actions to Support Financial Markets and the Flow of CreditIn addition to the FOMC’s interest rate cut, the Federal Reserve announced the following actions on Sunday:

  • Fed Balance Sheet Expansion: The FOMC announced that over the coming months, it will (1) increase its holdings of Treasury securities by at least $500 billion, (2) increase its holdings of agency mortgage-backed securities (“MBS”) by at least $200 billion, and (3) reinvest all principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in agency MBS.
  • U.S. Dollar Liquidity Swap Lines: The Federal Reserve maintains standing swap lines with foreign central banks to help provide liquidity in U.S. dollars to overseas markets.  Yesterday, together with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank, the Federal Reserve agreed to lower the pricing on standing U.S. dollar liquidity swap lines by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 25 basis points.  The foreign central banks with regular U.S. dollar liquidity operations also agreed to begin offering U.S. dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered.  These steps were intended to enhance the provision of U.S. dollar liquidity in those overseas markets.  According to the central banks, the new pricing and maturity offerings will remain in place “as long as appropriate to support the smooth functioning of U.S. dollar funding markets.”
  • Discount Window: The Federal Reserve took two steps to “encourage[] depository institutions to turn to the discount window to help meet demands for credit from households and businesses at this time.”  First, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent.  This reduction in the primary credit rate reflects both the 100 basis point reduction in the target range for the federal funds rate and a 50 basis point narrowing in the primary credit rate relative to the top of the target range.  Second, the Federal Reserve announced that depository institutions may borrow from the discount window for periods as long as 90 days, prepayable and renewable by the borrower on a daily basis.
  • Bank Capital and Liquidity Buffers: The Federal Reserve announced that it “supports firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner.”  The OCC and FDIC have not announced similar policies with respect to banks that they supervise.
  • Reserve Requirements: Effective March 26, 2020, the Federal Reserve reduced reserve requirement ratios to zero percent.  Currently, net transaction account balances in excess of $16.9 million but less than $127.5 million are subject to reserve requirement ratios of 3 percent, and balances in excess of $127.5 million are subject to reserve requirement ratios of 10 percent.  Eliminating reserve requirements should boost banks’ Liquidity Coverage Ratios (“LCRs”), as excess reserves held at a Federal Reserve Bank are Level 1 High Quality Liquid Assets (HQLAs) under the LCR.
  • Intraday Credit: The Federal Reserve announced that it “encourages” depository institutions to utilize intraday credit extended by Reserve Banks to support the provision of liquidity to households and businesses and the general smooth functioning of payment systems.

Treasury Secretary Comments on Emergency Powers

Hours before the Federal Reserve issued its announcement, U.S. Secretary of the Treasury Steven Mnuchin said in televised interviews that he would ask Congress to reinstate powers that regulators used to support the economy during the 2008-09 financial crisis but were eliminated as part of the Dodd-Frank Act.  Secretary Mnuchin did not clarify which specific powers he would ask to be restored.  The Dodd-Frank Act rescinded or restricted several tools used by federal agencies to restore market confidence during that crisis.  For instance, Dodd-Frank amended section 13(3) of the Federal Reserve Act to require prior approval of the Treasury Secretary to establish an emergency lending program under that authority, and to require such a program to have broad-based eligibility so that it can no longer be used to provide exclusive, tailored assistance to specific firms on an ad hoc basis.

OCC and FDIC Guidance

The Federal Reserve’s extraordinary actions also followed the issuance of guidance last Friday, March 13, 2020, by the OCC and FDIC addressing, among other things, how banks should work with their customers affected by COVID-19 issues.  The OCC and FDIC statements both emphasize that prudent efforts to modify the terms on existing loans for affected customers should not be subject to examiner criticism, and that loan modifications should not all result in a troubled debt restructuring (or adverse classification).  The statements further provide that the OCC and FDIC support and generally will not criticize efforts to accommodate customers in a safe and sound manner.  The OCC statement also noted that the OCC will consider the unusual circumstances that banks experiencing higher levels of delinquent and nonperforming loans as a result of COVID-19 face when reviewing a bank’s financial condition and determining any supervisory response.

The FDIC statement provides that the FDIC will not assess penalties or take other supervisory action against banks that take reasonable and prudent steps to comply with regulatory reporting requirements if those banks are unable to fully satisfy those requirements because of the effects of COVID-19, while the OCC statement encourages banks that are encountering difficulties filing timely regulatory reports to contact the supervisory office to discuss the situation.

Both statements express the agencies’ understanding that banks may need to temporarily close or otherwise reduce access to a facility to take precautionary measures or because of staffing issues.  The FDIC statement further notes that the FDIC, working with a bank’s state regulator, will expedite any request to operate temporary facilities to provide more convenient availability of services, and that in most cases a bank can begin the approval process with a telephone call to the FDIC, followed by a written notification.

Interagency Statement

Similarly, last Monday, March 9, 2020, the Federal Reserve, OCC, FDIC, CFPB, NCUA, and Conference of State Banking Supervisors issued a statement encouraging financial institutions to meet the financial needs of customers and members affected by COVID-19.  The interagency statement notes that prudent efforts to support borrowers and other customers in affected communities that are consistent with safe and sound lending practices should not be subject to examiner criticism.  The statement also notes that if financial institutions have persistent staffing and other operational challenges, regulators will expedite any request to provide more convenient availability of services in affected communities.

A Coronavirus Contractor’s Guide to the PREP Act

We’ve covered several topics already this week on the U.S. Government’s varied responses to the COVID-19 outbreak and how these responses will affect contractors that do business with the government, including BARDA’s EZ-BAA for COVID-19 diagnostics, mission-essential services during the outbreak, and how excusable delay provisions may help federal contractors affected by the outbreak.  But one area that has yet to receive in-depth discussion is the federal government’s mechanisms for addressing liability concerns raised by the use and distribution of countermeasures to the virus.  After all, while contractors are no doubt responding with appropriate speed and diligence in developing and deploying various COVID-19 countermeasures, no contractor wants to be the subject of a product liability, warranty, or negligence lawsuit later down the road.

Thankfully, Congress anticipated this concern and addressed it in 2005 by passing the Public Readiness and Emergency Preparedness Act (“PREP Act”), codified at 42 U.S.C. § 247d-6d.  Since enactment, the PREP Act has been used to issue declarations covering various countermeasures, including therapeutics, diagnostics, devices, vaccines, and constituent materials for pandemic influenza, acute radiation syndrome, smallpox, Botulism, anthrax, Zika, nerve agents, certain insecticides, and Ebola.  And earlier this week, the Secretary of the U.S. Department of Health and Human Services (the “Secretary”) issued a declaration pursuant to the PREP Act specifically for COVID-19 countermeasures.

This post will cover the PREP Act generally before discussing the implications of the COVID-19 declaration.

The PREP Act

The PREP Act authorizes the Secretary to issue a declaration providing covered individuals and entities with protection from suit and liability under federal and state law for losses related to the administration or use of specifically identified countermeasures.  Such a declaration then permits assertion of immunity from suit — which can be far more advantageous than litigating entitlement to reimbursement as may be required under other forms of liability protection (such as insurance or indemnification for unusually hazardous risks under Public Law 85-804).

To provide this immunity, the Secretary must issue a declaration after determining that a disease, condition, or other threat constitutes a present (or credible risk of a future) public health emergency.  This declaration is distinct from other forms of public health emergency declarations such as under Section 319 of the Public Health Services Act.  The Secretary must define the scope of protections afforded by each PREP Act declaration, including the covered countermeasures, geographic areas, subject populations, time periods, and means of distribution covered by the declaration.

However, the PREP Act does have its limits:  For example, it does not provide immunity for losses caused by willful misconduct or for cases brought in non-U.S. tribunals or under non-U.S. law.  In addition, PREP Act declarations generally limit the potential scope of protection by covering the administration or use of covered countermeasures only when they are distributed in connection with or have a relationship to a federal contract, grant, or other agreement — or, in some cases, as authorized in a declared public health emergency.

As a compliment to the immunity protections, the PREP Act provides for a no-fault compensation program for eligible individuals for serious physical injuries or death directly caused by the administration or use of countermeasures identified in the declarations.  Funds must be appropriated by Congress for this purpose.

The COVID-19 Declaration

Earlier this week, the Secretary issued a PREP Act declaration for certain medical countermeasures against COVID-19.  This declaration is effective as of February 4, 2020 and covers through October 1, 2025 (taking into account an additional one-year period intended for disposition of covered countermeasures).

The scope of the protection provided by the declaration is as follows:

  • Countermeasures — any antiviral, any other drug, any biologic, any diagnostic, any other device, or any vaccine used to treat, diagnose, cure, prevent, or mitigate COVID-19, or the transmission of SARS-CoV-2 or a virus mutating therefrom, or any device used in the administration of any such product, and all components and constituent materials.
  • Activities — manufacture, testing, development, distribution, administration, and use of the covered countermeasures.
  • Persons — manufacturers, distributors, program planners, qualified persons, and their officials, agents, and employees, as well as certain additional persons connected to the administration of the covered countermeasures.
  • Population and Geographic Area — no limits.

Covered countermeasures must also be qualified pandemic or epidemic products, security countermeasures, or drugs, biological products, or devices authorized for emergency or (in some cases) investigational use.

Importantly, the declaration limits immunity to recommended activities involving covered countermeasures that are related to present or future federal contracts or other federal transactions or agreements, or activities authorized by authorities with jurisdiction to prescribe, administer, deliver, distribute or dispense covered countermeasures following an emergency declaration.  For planners of governmental programs, immunity is limited to the extent they obtain covered countermeasures through voluntary means — a distribution limit intended to discourage seizure of privately held countermeasures.

Several aspects of the COVID-19 declaration are noteworthy in comparison to past PREP Act declarations.  For example, as noted above, the declaration has a retroactive effect — extending back to February 4, 2020.  The declaration also covers not only the COVID-19 virus but also viruses mutating from SARS-CoV-2, recognizing research on the virus’ potential to mutate.  Additionally, the COVID-19 declaration only covers “present or future” U.S. Government agreements and does not cover past agreements — meaning contractors who have previously developed a product with government funding may want to enter into new U.S. Government agreements to obtain protections if their product is repurposed for use of addressing the COVID-19 outbreak.

Expanding the Coronavirus Disease 2019 (COVID-19) Response through Diagnostic Development

In the latest World Health Organization daily situation report, as of March 11, 2020, the WHO reported 118,326 COVID-19 cases confirmed and 4,292 deaths worldwide, and the U.S. Centers for Disease Control and Prevention (CDC) reported 938 cases and 29 deaths in the United States.  The same day, WHO characterized COVID-19 as the first global pandemic sparked by a coronavirus.  Additionally, the Secretary of the U.S. Department of Health and Human Services (HHS), issued a Declaration under the Public Readiness and Emergency Preparedness Act (PREP Act) to provide liability immunity for entities against any claim of loss caused by, arising out of, relating to, or resulting from the manufacture, distribution, administration, or use of covered medical countermeasures (MCMs).  Prioritized pathways are now available to expedite review of new, responsive technology proposals for MCMs from diagnostics to therapeutics.

In a previous post, we announced the Biomedical Advanced Research and Development Authority (BARDA)’s launch of an Easy Broad Agency Announcement (EZ-BAA) particularly created for the COVID-19 response.  Since then, BARDA has expanded the EZ-BAA’s scope to seek new diagnostic submissions.  In addition, BARDA narrowed the scope of a pre-existing BAA to prioritize areas of interest that support the novel coronavirus response.  Both submission opportunities are described in further detail below.

BARDA, under the Office of the Assistant Secretary for Preparedness and Response (ASPR) in HHS, continues to be the sole federal agency point of entry to expedite review and approval of COVID-19 proposal submissions.  In that capacity, BARDA continues to solicit market research packages and encourages interested stakeholders to submit their research on COVID-19 MCMs.  BARDA emphasizes that SARS-CoV-2, the virus that causes COVID-19, is the third coronavirus in less than 20 years, prompting the need for rapid development of responsive solutions.

We continue to monitor the legal, regulatory and commercial implications of COVID-19, and Covington has launched the COVID-19 Legal and Business Toolkit to help clients keep apprised of key developments.

Expanded EZ-BAA to Include Diagnostics

In February, BARDA announced new public-private partnerships to develop MCMs for COVID-19, including vaccine candidates and therapeutics for those already infected with SARS-CoV-2.  BARDA is continuing to seek submissions to create new public-private partnerships and has also broadened the possible responsive technologies to include “abstracts for nonclinical assays and models to support the development of multiple medical countermeasures.”  In addition to MCMs, BARDA is also prioritizing accurate, timely diagnostics.  To support that priority, a streamlined EZ-BAA for COVID-19 for molecular diagnostics is now available.  Key requirements include that diagnostic submissions must leverage FDA-cleared platforms and have a viable plan to meet requirements for the FDA to consider Emergency Use Authorization within 12 weeks of an award.

The EZ-BAA will be open for submissions until March 18, 2020 at 5:00 PM EDT, unless otherwise extended.  Available awards are expected to be less than $750,000 per project.

Focused Areas of Interest for COVID-19 and SARS-CoV-2 Infection Response

On March 9, 2020, BARDA also adapted its pre-existing BAA to prioritize proposal submissions for COVID-19 response.  BARDA is focusing on the following areas of interest:

  • AOI 7.7.1 Diagnostic assay for human coronavirus using existing FDA-cleared platforms
  • AOI 7.7.2 Point-of-care diagnostic assay for detection of SARS-CoV-2 virus
  • AOI 7.7.3 Diagnostic assay for detection of COVID-19 disease (SARS-CoV-2 infection)
  • AOI 8.3 COVID-19 Vaccine
  • AOI 9.2 COVID-19 Therapeutics
  • AOI 9.3 Immunomodulators or therapeutics targeting lung repair
  • AOI 9.5 Pre-exposure and post-exposure prophylaxis
  • AOI 10 Respiratory Protective Devices
  • AOI 11 Ventilators
  • AOI 17 Advanced Manufacturing Technologies

All other proposals for areas of interest unrelated to COVID-19 will be placed in a queue for later review.  The BAA is open to all responsible offerors, which include single entities or teams from private organizations, Government laboratories, and academic institutions.  Multiple awards of various values are anticipated dependent upon the program’s priorities and available funds, and BARDA may award any appropriate contract type under the FAR or Other Transactions Authority (OTA).  BAA Submission occurs in two stages:  Stage 1 requires submitting a Quad Chart and White Paper; Stage 2 requires submitting a Full Proposal.  For more information about the BARDA BAA submission process please visit ASPR’s website or the System for Award Management.  The submission deadline under this BAA is October 31, 2020.

The Show Must Go On: Mission-Essential Services During the Coronavirus Outbreak

As the COVID-19 virus extends its global reach, defense contractors may be called upon to begin implementing their contracts’ mission-essential services plans. These plans, required by DFARS 252.237-7023, facilitate mission-essential functions in extended crisis situations, including pandemics, which are explicitly noted in the DFARS. As the coronavirus outbreak continues, defense contractors should check whether their contracts include this clause and assess their readiness to implement the requirement if DoD requests activation of the company’s plan.

DFARS 252.237-7023, promulgated partially in response to the 2009 H1N1 influenza pandemic, governs contractor performance of essential contractor services that support mission-essential functions. Under the clause, mission-essential functions include “those organizational activities that must be performed under all circumstances to achieve DoD component missions or responsibilities,” without the performance of which DoD’s ability to provide vital services or exercise authority, direction, and control would be significantly impaired. These functions generally do not include all services provided under a contract, but rather, only those the contract specifically identifies as essential.[1] Common examples include services that support vital systems, such as ships leased, owned, or operated to support military missions, associated base and installation support activities, and similar services provided under the Security Assistance Program to foreign military sales customers.

Mission-essential services plans generally must identify any provisions for acquiring essential personnel and resources to support continued operations for 30 days, or until normal operations are resumed. [2] These plans are intended to address challenges posed in maintaining essential contractor services during crises, including delays between activating the plan and personnel availability on-site, established alert and notification procedures for mobilizing essential personnel, and other issues.[3]

When necessary, Contracting Officers will notify defense contractors to activate their plans,[4] and may also request that contractors update existing plans as necessary in light of the current outbreak and submit any changes for approval. If a contractor anticipates not being able to perform any of the essential contractor services identified in its plan, the contractor is required to “notify the Contracting Officer or other designated representative as expeditiously as possible and use its best efforts to cooperate with the Government in the Government’s efforts to maintain the continuity of operations.”[5] Contractors also may be called upon to provide training or other support to Government or other contractor personnel to ensure that they can perform essential services if the contractor cannot. This could result in a deductive change or partial termination of the contract.

Contractors performing essential services in accordance with these plans must segregate costs associated with such performance and must negotiate an equitable adjustment if costs increase or decrease based on performance in accordance with the plan.[6] Unless a longer period is approved, contractors have 90 days from the date they are directed to continue performance to notify the Contracting Officer of any increase or decrease in cost and request an equitable adjustment that addresses price, schedule and/or delivery.

Defense contractors would do well to look to their contracts and the plans they have in place to refresh themselves on what services are identified as essential under their contracts, and review their operations to ensure that they can provide any essential services as required. If directed to activate their mission-essential services plan, a contractor should also ensure that any subcontractor performing essential services is likewise directed to activate their mission-essential services plan. They should also make plans to segregate any costs associated with performance once a plan is activated, to support a request for equitable adjustment.

[1] DFARS 252.237-7023(b); see also DFARS 237.7602(a).

[2] See DFARS 252.237-7024 (establishing minimum plan requirements for DoD solicitations supporting mission-essential functions).

[3] Id.

[4] See DFARS 237.7602(b); 75 Fed. Reg. 66680, 66681 (Oct. 29, 2010).

[5] DFARS 252.237-7023(d)(2).

[6] DFARS 252.237-7023(f).

Climate Change: The EU Moves Toward a Carbon Border Adjustment Mechanism

Last week, the European Commission took a major step to implement the climate aspects of its European Green Deal.  It presented a proposal for a European Climate Law and two consultations on its announced Climate Pact and Carbon Border Adjustment Mechanism (“CBAM”).

The European Commission intends to present a proposal for a CBAM by the summer of 2021.  The consultation (currently first as a so-called “feedback period”) on the CBAM is intended to allow stakeholders to give their views on the different aspects of the possible mechanism discussed in the Commission’s Inception Impact Assessment.

The idea of a CBAM has been considered in the EU and elsewhere for many years.  As the argument goes, the need for such an adjustment is based on the reasoning that European trade-exposed energy-intensive industries that are subject to the EU’s Emissions Trading System (“ETS”) and other EU climate standards are at a disadvantage against foreign producers that are not subject to similar emission reduction requirements.  This, in turn, results in foreign producers increasing their emissions despite European industries’ efforts, i.e. so-called “carbon leakage.”

The European Commission’s proposed goal that the EU achieves climate neutrality by 2050 has reinforced the position of those advocating for the need to adopt a CBAM.  Supporters of the CBAM claim that it will ensure that all goods consumed in the EU/EEA, whether imported or produced domestically, are treated the same way and encourage other countries across the world to also decarbonize.  In line with this, in its Communication on an European Green Deal of December 2019, the Commission announced that “should differences in levels of ambition worldwide persist, as the EU increases its climate ambition, the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage. This would ensure that the price of imports reflect more accurately their carbon content.”

In its Inception Impact Assessment, the Commission reiterates this position and states that “[a]s long as many international partners do not share the same climate ambition as the EU, there is a risk of carbon leakage.”  The Inception Impact Assessment also states that the mechanism “would ensure that the price of imports reflect more accurately their carbon content.  The measure would need to be designed to comply with World Trade Organization rules and other international obligations of the EU.”  Not surprisingly, it also states that the mechanism “would be an alternative to the measures that currently address the risk of carbon leakage under the EU ETS.”  Indeed, the introduction of a carbon adjustment mechanism would likely mean that industries covered by the mechanism would no longer benefit from free allowances under the EU ETS.

The Inception Impact Assessment also clarifies that the development of a CBAM would be based on three building blocks: (i) a legal instrument, which could for example include a carbon tax on selected products, a new carbon customs duty or tax on imports, or the extension of the EU ETS to imports; (ii) a methodological approach to evaluate the carbon content and carbon pricing of imported products; and (iii) a possible limitation of the Mechanism to only some industrial sectors (e.g., cement).

The Commission’s consultation on the CBAM raises important climate, international trade, development, and economic issues.  To list but a few:

  • Should the adjustment mechanism target specific industries (g., cement, aluminum, steel, or chemicals), or instead apply horizontally across all industrial production? A prudent approach would be that considered by the Commission and to initially focus on one or two sectors, as pilot projects, such as cement.  Introducing the CBAM from the start to all industrial sectors is likely to increase the risk of legal challenges. Based on the experiences gained with the selected pilot projects, the EU could later decide whether, and under what terms, to extend the CBAM to other sectors.
  • How will the EU be able to develop an objective methodology to calculate the carbon footprint of a product? This is the key question for the viability of the CBAM.  Before adopting any mechanism, it should be clarified how the EU will be able to get reliable and verifiable information on the carbon footprint of the products produced in third countries. There is a major risk that third countries may either not cooperate and not provide any data, or even if they do cooperate, provide data that it is not reliable.  In order to limit the risks of legal challenges, the EU should have a clear idea on how to deal with lack of reliable data from third countries before it takes any steps to introduce the CBAM.

Moreover, even if reliable data can be obtained from third countries, the EU should consider how to deal with situations where two identical or similar products have different levels of carbon footprint due to their different production methods and technologies.  Should the EU in such cases apply a different border tax or levy? And how could such different treatment on identical or similar products be compatible with WTO law?

  • To what extent should the existence of an emissions trading scheme similar to the EU’s ETS in the product’s country-of-origin exempt the imported product from any border adjustment? To which minimum standards should these non-EU emissions trading schemes be subject? As a related question, would there be some kind of “de minimis” level of carbon footprint, below which the border tax would not be applied? Would there be differentiation among WTO countries, g., accepting a higher level of non-actionable “de minimis” level from a defined group of (small or vulnerable) developing countries?
  • What design should the CBAM have to also ensure the EU’s compliance with its international obligations under multilateral environmental agreements that call for “common but differentiated responsibilities” in the fight against climate change?

Interested parties may submit comments until April 1, 2020.

The Week Ahead in the European Parliament –  March 6, 2020

Summary

Next week, there will be a plenary sitting of the European Parliament in Brussels, Belgium. Although the Treaties provide that the European Parliament’s plenary sessions must take place in Strasbourg, France, due to the extraordinary circumstances caused by coronavirus COVID-19, the plenary session will exceptionally take place in Brussels. Several significant debates and votes will take place.

On Monday, Commission Executive Vice-President Frans Timmermans will discuss the new Climate Law proposal with MEPs. Under the proposed legislation, Europe will strive to become carbon-neutral by 2050.

On Tuesday, Members of the European Parliament (“MEPs”) will debate the current status of EU and national efforts to contain coronavirus COVID-19 with Ursula von der Leyen, European Commission President. MEPs will also discuss the role of the new “EU corona response team.”

On Wednesday, MEPs will debate the EU’s next long-term budget and the consequences of EU Member States’ failure to agree to the 2021-27 Multiannual Financial Framework during the special EU summit of February 20-21, 2020.

Meetings and Agenda

Monday, March 9, 2020 

Plenary Session

17:00 – 21:00

Debates

  • Climate law
  • Banking Union – annual report 2019
    • Rapporteur: Pedro MARQUES (S&D, PT)
  • Competition Policy – annual report 2019
    • Rapporteur: Stéphanie YON-COURTIN (RE, FR)

Tuesday, March 10, 2020 

Plenary Session

09:00-11:50

Debates

  • (possibly) Votes on requests for urgent procedure (Rule 163)
  • Conclusions of the special European Council Meeting of 20 February 2020 on the Multiannual Financial framework
  • Joint debate – European Semester
  • European Semester for economic policy coordination: Annual Sustainable Growth Strategy 2020
    • Rapporteur: Aurore LALUCQ (S&D, FR)
  • European Semester for economic policy coordination: Employment and Social Aspects in the Annual Sustainable Growth Strategy 2020
    • Rapporteur: Klára DOBREV (S&D, HU)

12:00-12:30

Formal Sitting

  • Address by Nana Akufo-Addo, President of the Republic of Ghana

12:30-14:30

Votes followed by explanations of votes

  • International road passenger transport services by coach and bus in the border regions: cabotage operations between Italy and Switzerland
    • Rapporteur: Markus FERBER (EPP, DE)
  • International road passenger transport services by coach and bus in the border regions: cabotage operations between Germany and Switzerland
    • Rapporteur: Markus FERBER (EPP, DE)
  • Amendment of the EU-Morocco Euro-Mediterranean Aviation Agreement (accession of Bulgaria and Romania)
    • Rapporteur: Sven SCHULZE (EPP, DE)
  • Implementing decision on the launch of automated data exchange with regard to dactyloscopic data in the United Kingdom
    • Rapporteur: Juan Fernando LÓPEZ AGUILAR (S&D, ES)
  • Texts on which debate is closed

15:00-21:00

Debates

  • New Circular Economy Action Plan
  • SME strategy
  • Strategy with Africa
  • The current situation in Georgia
  • Five years of implementation of the Minsk Agreements, a roadmap from war to peace

Wednesday, March 11, 2020 

Plenary Session

09:00-11:50

Debates

  • Preparation of the European Council meeting of 26 and 27 March 2020

12:00-14:00

Votes followed by explanations of votes

  • Protocol on the implementation of the EU-Guinea-Bissau Fisheries Partnership Agreement (2019-2024)
    • Rapporteur: João FERREIRA (GUE/NGL, PT)
  • Protocol on the implementation of the EU-Guinea-Bissau Fisheries Partnership Agreement (2019-2024) (Resolution)
    • Rapporteur: João FERREIRA (GUE/NGL, PT)
  • Protocol on the implementation of the EU-São Tomé and Príncipe Partnership Agreement
    • Rapporteur: Nuno MELO (EPP, PT)
  • EU-Montenegro status agreement on actions carried out by the European Border and Coast Guard Agency in Montenegro
    • Rapporteur: Bettina VOLLATH (S&D, AT)
  • EU-Serbia status agreement on actions carried out by the European Border and Coast Guard Agency in Serbia
    • Rapporteur: Bettina VOLLATH (S&D, AT)
  • The reopening of the prosecution against the Prime Minister of the Czech Republic on the misuse of EU funds and potential conflicts of interest
  • Revision of the guidelines for trans-European energy infrastructure
  • EU disability strategy post 2020
  • Texts on which debate is closed

15:00-21:00

  • Topical debate (Rule 162)
  • European Industrial Strategy
  • Shortage of medicine

Committee on Economic and Monetary Affairs

Debates

08:30-09:00

  • Adoption of Agenda
  • Chair’s announcements

Votes

  • European Semester for economic policy coordination: Annual Sustainable Growth Strategy 2020 -adoption of draft report
    • Rapporteur: Aurore LALUCQ (S&D, FR)

End of vote

Thursday, March 12, 2020 

Plenary Session

09:00 – 11:50
Debates

  • Debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)

12:00-14:00

Votes followed by explanations of votes

  • Motions for resolutions concerning debates on cases of breaches of human rights, democracy and the rule of law (Rule 144)
  • Texts on which debate is closed

15:00-16:00
Debates

  • Major interpellations (Rule 139)

 Friday, March 13, 2020 

  • No meetings of note

The EU Lifts Restrictions to Imports of Poultry Meat from Ukraine Following the Regionalization of the Country Due to an Outbreak of HPAI

The European Commission has just adopted a Regulation that will lift the existing ban on imports of poultry meat from Ukraine that was triggered by the January 2020 Highly Pathogenic Avian Influenza (“HPAI”) outbreak in the western part of the country.

On January 19, 2020 the Ukrainian authorities informed the World Organization of Animal Health (“OIE”) of an outbreak of HPAI in the village of Bugakiv, in the Nemyriv district of Vinnytsia Oblast (region).  As a result of this, all imports of poultry meat from Ukraine into the EU were effectively banned, as exporters could no longer meet the requirements of Commission Regulation 798/2008.

That Commission Regulation requires that every consignment of poultry meat from Ukraine be accompanied by a veterinary certificate signed by an official veterinarian declaring that the meat comes from a territory in Ukraine listed in Part 1 of Annex I to the Commission Regulation that is free from HPAI and other diseases.  As a result of the HPAI outbreak in the Nemyriv District of Ukraine, Ukrainian veterinary officials could no longer declare that any consignment of poultry meat from Ukraine came from an Ukrainian territory listed in Annex I free from HPAI.  Thus, no imports of Ukrainian meat into the EU could be authorized.

In response to the HPAI outbreak, Ukrainian authorities implemented a stamping-out policy to control and limit the spread of HPAI.  They also submitted information to the European Commission on the epidemiological situation in Ukraine and indicated the areas placed under restriction.  The Ukrainian authorities made use of Article 65 of the EU-Ukraine Association Agreement, which establishes a special procedure for the recognition of regionalization decisions following a disease outbreak in Ukraine.  Such regionalization allows for the division of the country into separate zones so that one (usually smaller) part of the territory cannot be considered free from HPAI, while the rest of the country can.  Following this, the European Commission’s Standing Committee on Plants, Animals, Food, and Feed (the “PAFF Standing Committee”) voted in favor of amending Part 1 of Annex I to Regulation 798/2008 to reflect these two new zones.

The adopted Regulation only bans imports of poultry from a limited area, composed of a number of municipalities, including that of Bugakiv village itself, and surrounding areas in the Nemyriv district.  Major centers of commercial production of poultry meat in Ukraine fall outside the prohibited zone.  This is a significant improvement with respect to prior outbreaks, when the operation of Commission Regulation 798/2008 effectively banned imports from entire regions (“Oblasts”) of Ukraine.

The new Regulation also removes the ban against imports of poultry meat from the regions of Kherson, Odessa, and Chernivtsi.  These regions were banned from exporting poultry meat to the EU during the prior outbreak of HPAI in Ukraine in 2016 – a ban that had not since been lifted.

The Regulation will enter into force on March 7, 2020.  It will allow Ukraine to effectively make use of the additional duty free quota of 50,000 tons of poultry meat per year that it obtained under the Agreement on Poultry that the EU and Ukraine concluded last year.

50 years of the Non-Proliferation Treaty

STATEMENT OF STEPHEN G. RADEMAKER
Senior Of Counsel, Covington & Burling LLP

“50 Years of the Non-Proliferation Treaty: Strengthening the
NPT in the Face of Iranian and North Korean Nonproliferation Challenges” 

Subcommittee on the Middle East, North Africa, and International Terrorism
Subcommittee on Asia, the Pacific, and Nonproliferation

Committee on Foreign Affairs
U.S. House of Representatives

March 3, 2020

Chairman Deutch, Chairman Bera, Ranking Member Wilson, Ranking Member Yoho, and Members of the Subcommittees, I appreciate the invitation to appear before you today to discuss the Nuclear Non-Proliferation Treaty and the two greatest threats facing it today: Iran and North Korea.

I will begin by making some observations about the treaty itself, and then move on to a discussion of the challenges presented by the Iranian and North Korean nuclear weapons programs.

  1. Reflections on the NPT

You will hear very contradictory views expressed about the NPT.  On the one hand, there are those who celebrate its strength, pointing out that, with 191 states parties, it is the one of the most universally-adhered to treaties in history, and that it has limited the spread of nuclear weapons to just nine countries, which is a much smaller number than anyone would have predicted when the treaty entered into force 50 years ago tomorrow.

On the other hand, there are critics who will point out that nine countries is four more than the five countries that are permitted to possess nuclear weapons under the treaty, that permitting even five nuclear weapon states was five too many, and that the treaty is bound to collapse because of its inherent unfairness to the non-nuclear weapon states.  For many of these critics, the kind of problem we face today with Iran and North Korea was inevitable, and could only have been avoided if the five nuclear weapon states had moved much faster over the past 50 years to abolish nuclear weapons from the face of the Earth.

Personally I see the NPT as much more a story of success than of failure.  It’s remarkable to consider how far the treaty has come from its somewhat inauspicious beginnings, and the many challenges it has overcome in the intervening years.

For starters, there’s the astonishing fact that despite all the complaints about how unfair the treaty is in advantaging five nuclear weapon states over everyone else, initially two of the five nuclear weapon states refused to join the treaty.  Neither France nor China acceded to the NPT until 1992, 22 years after the treaty entered into force.

As for the rest of the world, the list of treaty successes is considerably longer than the list of treaty failures.  We often forget how many countries were actively exploring the development of nuclear weapons before the treaty came along.  Back then it wasn’t countries like Iran and North Korea we were worried about, but rather much more technologically-advanced countries like Sweden, Italy, Switzerland, and Australia–countries that could produce nuclear weapons much more readily than Iran and North Korea if they decided to do so.

South Africa possessed nuclear weapons under the Apartheid government, but gave them up and joined the NPT in 1991.  Ukraine found itself in possession of the world’s third-largest nuclear weapons arsenal upon the dissolution of the Soviet Union, but gave that up and joined the treaty in 1994.  Argentina and Brazil long appeared to be locked into a nuclear arms race, but in the 1990s they decided that they would prefer a relationship like the one between France and Germany to the one between Pakistan and India, and both countries abandoned their nuclear programs in favor of the treaty.

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

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

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:

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