The Week Ahead in the European Parliament – March 30, 2018

Summary

Next week is a constituency week for Members of the European Parliament (“MEPs”).  MEPs will go back to their home countries to handle national issues, or convene in their parliamentary delegations to work on matters related to non-EU Member States, after a short Easter break.

This past week, however, a number of initiatives were voted on by the Parliamentary committees.

On Tuesday,  the Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) voted on an own-initiative report by Barbara Spinelli (GUE/NGL, IT) on media pluralism and freedom in the EU.  LIBE seeks to enhance the working conditions of journalists, their integrity and independence in particular.  The Committee calls on the Commission and EU Member States to adopt appropriate measures to attain these objectives through various means, including through ensuring net neutrality and addressing new challenges, such as “fake news” and “hate speech”, appropriately.  44 MEPs voted in favor, 3 voted against, and 4 abstained.  See the report here, and the amendments tabled to the report here.

Also on Tuesday, the Committee on Environment, Public Health and Food Safety (“ENVI”) adopted a motion for a resolution on the midterm evaluation of the “LIFE” Program, which is the EU’s funding instrument that supports environmental and climate action projects in the EU.  Through the LIFE program, the bloc offers grant opportunities to SMEs, large companies, NGOs, and authorities to support their projects in sectors including energy, climate change, biodiversity and waste.  The resolution outlines the Parliament’s position on the midterm evaluation report that the European Commission published in November 2017.  The Commission’s report evaluates whether the program meets its objectives at midterm.  See the Commission’s report here, the parliamentary resolution here, and the amendments tabled to the resolution here.

On the same day, the Committee on Employment and Social Affairs (“EMPL”) voted on a draft report by Claude Rolin (EPP, BE) on the protection of workers from the risks related to exposure to carcinogens or mutagens at work.  The objective of the proposal is to adopt a new set of thresholds for exposure to eight new cancer-causing chemical agents.  See the report here.

 Meetings and Agenda

  • No official meetings in the European Parliament are planned before April 9, 2018.

New Wave of Trade Lobbying Presents FARA Registration Concerns

Washington is awash with lobbyists seeking to address new steel and aluminum tariffs, and other potential tariffs, on behalf of both foreign and domestic clients.  Lobbying on trade issues in some circumstances may trigger Foreign Agents Registration Act (“FARA”) obligations.  The connection between trade lobbying and FARA was the subject of close scrutiny several decades ago, when Congress considered the issue in a 1991 hearing.  The latest changes in U.S. trade policy are bringing this issue back into focus.  Today, Covington issued a client advisory addressing the interplay between trade lobbying and FARA, which you can read here.

CLOUD Act Creates New Framework for Cross-Border Data Access

On March 23, 2018, Congress passed, and President Trump signed into law, the Clarifying Lawful Overseas Use of Data (“CLOUD”) Act, which creates a new framework for government access to data held by technology companies worldwide.The CLOUD Act, enacted as part of the Consolidated Appropriations Act, has two components.Part I:  Extraterritorial Reach of U.S. Orders and Comity Rights for Providers

The first part of the CLOUD Act provides that orders issued pursuant to the Electronic Communications Privacy Act (“ECPA”) can reach data regardless of where that data is stored.  This portion of the law addresses the question at the heart of United States v. Microsoft, the Supreme Court case that was argued on February 27.*

Part I of the Act also creates a new statutory mechanism by which technology companies can challenge warrants based on the material risk of a conflict with the laws of qualified foreign countries—specifically, those countries that enter into bilateral agreements of the type contemplated in Part II of the Act and that afford reciprocal comity rights to the United States (referred to as a “qualifying foreign governments”).  The CLOUD Act also preserves the common law rights of providers to bring comity challenges based on conflicts of laws with other countries (i.e., those that are not “qualifying foreign governments” under the Act).

Under this new statutory comity framework, a provider may file a motion to modify or quash U.S. legal process if it reasonably believes: (1) the customer or subscriber is not a U.S. person and does not reside in the United States, and (2) the required disclosure would create a material risk of violating the laws of a qualifying foreign government.

In any such challenge, a court may modify or quash the legal process upon finding that: (1) the required disclosure would violate the qualifying foreign government’s law, and (2) the interests of justice dictate that the legal process should be modified or quashed.  In conducting this second inquiry, courts are to consider a series of comity factors set out in the statute.  During the pendency of such a challenge, the provider may notify the qualifying foreign government of the existence of the legal process and thereby allow the foreign government to raise any concerns directly with the U.S. Government.

Part II:  Framework for Bilateral Agreements on Cross-Border Data Requests

The second part of the CLOUD Act creates a framework for new bilateral agreements with foreign governments for cross-border data requests.  Under these bilateral agreements, the United States and participating foreign governments would remove legal restrictions that otherwise prohibit technology providers from complying with the other country’s legal requests.

Previously, governments had to invoke mutual legal assistance treaties (“MLATs”) to obtain evidence stored in another country.  Under the MLAT process, a foreign government seeking information from a U.S. provider would ask the U.S. Department of Justice to obtain a U.S. court order for that information.  Part II of the CLOUD Act creates a new framework that instead allows foreign governments to serve legal process directly on U.S. providers, without the necessity of first making an MLAT request to the U.S. Department of Justice.

Because the CLOUD Act has no effect on a foreign government’s jurisdiction over U.S. companies, any obligation by a provider to comply with a foreign order issued pursuant to such an agreement must arise under the foreign law.  In other words, the CLOUD Act removes barriers that might otherwise prohibit a U.S. provider from complying with a foreign government’s order, but the CLOUD Act does not compel a U.S. provider to comply with any foreign order.

Not all governments can enter into bilateral agreements under the CLOUD Act.  Before a country may do so, the Attorney General must submit certain written certifications to Congress regarding the foreign country.  Those certifications must find that the country meets specific criteria establishing that its domestic law affords robust substantive and procedural protections for privacy and civil liberties.  Additionally, the foreign government must adopt procedures to minimize the acquisition and retention of information about U.S. persons and cannot impose a decryption obligation on providers through the agreement.

Bilateral agreements must also contain a number of limits on the types of orders that may be submitted by the foreign government directly to a U.S. provider, including:

  • Orders must be for the purpose of obtaining information relating to a serious crime, including terrorism.
  • Orders must identify a specific person, account, address, device, or other identifier.
  • Orders must comply with the foreign government’s domestic law.
  • Orders must be based on requirements for a reasonable justification based on articulable and credible facts.
  • Orders must be subject to judicial review prior to, or in enforcement proceedings regarding, enforcement of the order.
  • Orders for interceptions must be for a fixed and limited time, may not last longer than reasonably necessary to accomplish the order’s purposes, and may only be issued if the same information could not be obtained by a less obtrusive method.
  • Orders may not be used to infringe freedom of speech.

Foreign governments that enter such bilateral agreements must also agree to periodic compliance reviews by the U.S. Government.

Finally, the CLOUD Act contains specific provisions addressing how these bilateral agreements will be entered into and renewed.  Under those provisions, once the Attorney General certifies a new agreement, it is to be considered by Congress.  The agreement will enter into force unless Congress enacts a joint resolution of disapproval within 180 days.  Every five years, the Attorney General is to review his or her determination that a foreign country meets the requirements for entering into a bilateral agreement.  If he renews that determination, he is to submit a report to Congress containing the reasons for the renewal, any substantive changes to the agreement or to foreign law, and how the agreement has been implemented and what problems or controversies, if any, have arisen.

* Covington represents Microsoft Corporation in United States v. Microsoft, No. 17-2.

The Week Ahead in the European Parliament – March 23, 2018

Summary

Next week is a committee week in the European Parliament.

Members of the European Parliament (“MEPs”) are expected to discuss and vote on a number of interesting files before they leave Brussels for a short Easter break.

On Monday, the European Parliament’s Budgetary Control Committee (“CONT”) and the Committee on Civil Liberties, Justice and Home Affairs (“LIBE”) will consider a draft report on Slovakia.  The report is being prepared by the ad-hoc parliamentary delegation that visited the country to assess the situation on the ground following the assassination of Ján Kuciak.  The work of the ad-hoc delegation will feed into a resolution that is likely to be subject to a vote in the European Parliament’s next plenary session.

On Tuesday, LIBE will also vote on its own-initiative report on media pluralism and freedom in the EU.  LIBE seeks to enhance the working conditions of journalists, and especially their integrity and independence.  It calls on the Commission and the EU Member States to adopt appropriate measures to attain these objectives through various means, including ensuring net neutrality and addressing appropriately new challenges, such as “fake news” and “hate speech”.  See the draft report here, and the amendments tabled to the draft report here.

Also on Tuesday, the Committee on Environment, Public Health and Food Safety (“ENVI”) will vote on a draft resolution on the midterm evaluation of the “LIFE” Program.  LIFE is the EU’s funding instrument that supports environmental and climate action projects in the EU.  Through this program, the EU provides grant opportunities to a number of actors, including SMEs, large companies, NGOs, and authorities, to support their projects in a variety of fields, such as energy, climate change, biodiversity and waste.  The report outlines the Parliament’s position on the midterm evaluation report that the Commission published in November 2017.  The Commission’s report evaluates whether the program meets its objectives at midterm.  See the Commission’s report here, the draft parliamentary resolution here, and the amendments tabled to the resolution here.

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USTR Finds China’s IP Practices Cause at Least $50 Billion in Harm: Proposed Tariffs and Investment Restrictions Ratchet Up U.S.-China Trade Tensions

March 22, 2018

Earlier today, the administration announced its findings that China’s theft of U.S. technologies and intellectual property (“IP”) have caused at least $50 billion in harm to the U.S. economy per year. In response, President Trump issued an order announcing its intent to impose additional tariffs on Chinese imports, curtail Chinese investment in the United States, and challenge Chinese technology licensing rules in the World Trade Organization (“WTO”). This announcement caps the administration’s seven-month investigation of China’s IP practices.

The administration plans to solicit public comments on proposed additional 25 percent tariffs covering certain products from sectors such as aerospace, information communication technology, and machinery, which have benefited from China’s IP policies. The Office of the U.S. Trade Representative (“USTR”) has indicated that it will publish a proposed product list within “the next several days,” which will start a 30-day public comment period, after which USTR will publish the final product list in the Federal Register.

These tariffs would be the latest in a series of new U.S. duties. Earlier this year, President Trump imposed tariffs on imported solar cells and panels and washing machines following a pair of safeguard trade cases under Section 201 of the Trade Act of 1974. And on March 8, the administration announced steel and aluminum tariffs pursuant to Section 232 national security investigations, due to take effect on March 23, 2018.

In addition to the tariff measures, the presidential memorandum directs the Secretary of the Treasury to propose within 60 days, in consultation with other agencies, executive action “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.” The scope of these restrictions is unclear for now, but could implicate ongoing debates about expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”), which has reviewed and blocked numerous Chinese transactions involving U.S. entities on national security grounds.

The WTO challenge will target China’s discriminatory IP licensing practices, based on a statement from the president. According to USTR, U.S. and other foreign companies are required to license their technologies to Chinese firms on non-market-based terms favoring the Chinese party. By contrast, these restrictions do not govern licensing agreements between two Chinese entities under similar circumstances.

The actions announced today mark the culmination of the investigation launched by the USTR in August 2017 under Section 301 of the Trade Act of 1974 (“Section 301”) of China’s technology transfer and other IP practices. In particular, USTR investigated “whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.” The statute authorizes a broad range of possible retaliatory tools—including any “appropriate and feasible action within the power of the president”—that the president may direct, not limited to industries directly linked to identified harms. Today, the USTR released a report outlining its findings that China’s IP policies are unreasonable or discriminatory and burden or restrict U.S. commerce.

Beijing has signaled that it is prepared to deploy “all necessary measures” in response to any U.S. trade actions that it views as running afoul of international trade rules. In a brief statement, China’s Ministry of Commerce (MOFCOM) condemned the U.S. announcement as representing “unilateralism and protectionism” and as contrary to U.S. and global interests. MOFCOM emphasized that China “does not wish to fight a trade war, but is certainly not afraid of a trade war.” China could retaliate in a number of ways, including by imposing tariffs that hurt U.S. sectors with domestic political leverage, such as agriculture. For example, following the imposition of tariffs on solar cells and panels, China appeared to respond by self-initiating an antidumping investigation into sorghum imported from the United States. In response to the Section 232 tariffs, China has proposed an additional 15 percent tariff on 120 products worth a total of $977 million, including fresh fruits, nuts, wine, and seamless steel pipes, and a 25 percent tariff on eight other products worth $1.992 billion, including pork, pork products, and recycled aluminum. This reaction suggests a response similar in size and type—commensurate with the impact of the U.S. tariffs and citing WTO justification. Beyond tit-for-tat retaliation, China may challenge U.S. trade actions through the WTO. U.S. companies with business interests in China should also be prepared for more informal and opaque actions that impede their business goals in China.

Administration Announces Procedures for Product-Specific Exclusions from Steel and Aluminum Tariffs

On March 19, 2018, the U.S. Department of Commerce published procedures for seeking product-specific exclusions from the tariffs on steel and aluminum announced on March 8, 2018. According to these procedures, an exclusion may be granted only if (1) a particular product is not produced in the United States “in a sufficient and reasonably available amount,” (2) U.S. production of a particular product is not of “a satisfactory quality,” or (3) there is “a specific national security consideration” that warrants an exclusion.

Under the procedures announced by the Department of Commerce, parties seeking exclusions from these tariffs—which are 25 percent on steel and 10 percent on aluminum—must submit information, including the type of steel or aluminum for which an exclusion is sought, the foreign supplier of the steel or aluminum product, and the intended business use in the United States for the imports in question.

The Department of Commerce has provided forms on which this and other information must be submitted for both steel exclusions as well as aluminum exclusions. There is no time limit for seeking an exclusion for imported steel or aluminum, and the Department of Commerce advises that its review of exclusion requests will normally take 90 days or less. Exclusion requests will be posted online, and objections to exclusion requests may be filed within 30 days after their posting.

These procedures were foreshadowed in President Trump’s proclamations on steel and aluminum of March 8, 2018. In these proclamations, President Trump announced that 25 percent tariffs would be imposed on steel imports, while 10 percent tariffs would be imposed on aluminum imports. Imports from Canada and Mexico were exempted from tariffs on both steel and aluminum in the president’s March 8 proclamations.

Imports from other countries may also be exempted pursuant to ongoing negotiations. Australia, for instance, appears likely to be exempted. The administration has suggested that additional country exemptions could lead to tariffs increases from the 25 percent and 10 percent tariff rates currently applicable to steel and aluminum products, respectively.

The European Union—which is the second-largest foreign supplier of steel and aluminum to the United States, after Canada—has expressed concern with the imposition of these tariffs and may take a variety of actions in response. Specifically, the EU may challenge these tariffs in the World Trade Organization or impose retaliatory tariffs of its own. Covington’s Péter Balás, who most recently served as Deputy Director General, DG Trade to the European Commission, is monitoring the EU response.

The March 8 announcement followed a March 1 listening session, during which President Trump announced that tariffs would be imposed on steel and aluminum imports. On February 16, the Department of Commerce announced that it had recommended the imposition of global tariffs or other trade restrictions pursuant to its ongoing national security investigations of steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962.

The Week Ahead in the European Parliament – March 16, 2018

Summary

Next week will be very busy in the European Parliament, as it is a committee week.

On Tuesday, the Committee on Transport and Tourism (“TRAN”) will vote on a draft report by Markus Pieper (DE, EPP) on safeguarding competition in air transport. The proposed measures would protect European airlines against unfair competition practices adopted in or by non-EU Member States. It aims to give the EU a better set of tools for scrutinizing unfair practices, and the power to propose countermeasures, including financial ones. See the draft report here.

On the same day, the Committee on Economic and Monetary Affairs (“ECON”), will put questions to Elke König, Chairperson of the Single Resolution Board (“SRB”), the central resolution authority within the European Banking Union.

On Wednesday, the Committee on Industry, Research and Energy (“ITRE”) will vote on a report by Jerzy Buzek (PL, EPP) on common rules for the internal market in natural gas. The new rules would enforce EU gas market legislation on suppliers from non-EU Member States. They would apply to all future gas pipelines leading to the EU from non-EU Member States (including Nord Stream 2). See the draft report here.

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A Review of Pending FARA Reform Bills

In recent months, Congress’s efforts to reform dramatically the Foreign Agents Registration Act (“FARA”) have picked up steam. As we explained in our recent FARA guide, FARA is a complex and broadly worded criminal statute that requires any “agent of a foreign principal” to register with the Department of Justice and file detailed public reports every six months. The breadth of the statute, its criminal penalties, the absence of interpretive guidance, and the growing attention paid to the 1930s era law by federal prosecutors combine to create dangerous and difficult-to-manage risks for multinational companies, lobbying firms, and public relations firms.  FARA reform bills making their way through Congress could introduce new uncertainties and sweep still more companies within the statute’s broad scope.  In a new client alert, Covington provides a summary of the two bills under consideration, describes the current state of play, and reviews the bills’ implications for multinational and foreign corporations and lobbying and public relations firms with foreign clients.

Next Up: Section 301: Companies and Global Markets Should Prepare for the Risk of Rising U.S.-China Trade Tensions

Following the recent U.S. announcement of tariffs on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962, the United States is now poised to implement trade sanctions against China stemming from an investigation of that country’s intellectual property (“IP”) practices. Such sanctions, which could include significant and maybe even unprecedented unilateral tariffs and investment restrictions, could lead to a more complicated and uncertain U.S.-China trade relationship.

On August 18, 2017, United States Trade Representative (“USTR”) Robert E. Lighthizer launched an investigation under Section 301 of the Trade Act of 1974 (“Section 301”) of China’s technology transfer and other IP practices. In particular, USTR is investigating “whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.” If USTR finds that action is warranted, it may employ a broad range of possible retaliatory tools—including any “appropriate and feasible action within the power of the President” that the President may direct—to address the situation. The scope for retaliatory action is not limited to industries directly linked to identified harms. Although USTR has until mid-August to release its findings, there appears to be strong political pressure to announce U.S. retaliation in the very near future.

Recent U.S. trade actions, as well as President Trump’s own public statements, suggest that the imposition of tariffs is likely. Earlier this year, President Trump imposed tariffs on imported solar cells and panels and washing machines following a pair of safeguard trade cases under Section 201 of the Trade Act of 1974. And on March 8, the administration announced steel and aluminum tariffs pursuant to Section 232 national security investigations. President Trump himself is a long-time supporter of tariffs. During his 2016 campaign, then candidate Trump advocated for a 45 percent tariff on Chinese imports. The United States is also reportedly considering additional forms of retaliation, including restrictions on Chinese investment and visas.

Public statements suggest that the U.S. may not feel constrained by the possibility of a challenge to its retaliatory measures at the World Trade Organization (“WTO”). In its 2018 Trade Policy Agenda, USTR touted its intent to “use all tools available—including unilateral action where necessary” to “prevent countries from benefitting from unfair trade practices.” Moreover, in its annual report on China’s compliance with its WTO commitments, USTR stated that “the United States erred in supporting China’s entry into the WTO on terms that have been ineffective in securing China’s embrace of an open, market-oriented regime,” adding “it is now clear that WTO rules are not sufficient to constrain China’s market-distorting behavior.”

Such sentiments are being expressed against the backdrop of long-standing concerns about China’s forced technology transfer policies and other IP theft. In fact, the announcement of a Section 301 investigation received wide-spread bipartisan support by U.S. Members of Congress (see, e.g., here and here). While supporters have urged the administration to take strong action, some have explicitly warned that such action should be WTO-consistent.

This past weekend, Ambassador Lighthizer met with trade leaders from the European Union and Japan to discuss the Section 301 investigation and possible actions that could be taken against China. These discussions were scheduled with an eye toward developing a coordinated approach with respect to concerns regarding Chinese treatment of foreign companies. Much of the discussion, however, involved European and Japanese concerns regarding the newly announced U.S. tariffs on steel and aluminum products. There is some concern that the U.S. actions regarding these tariffs could make the EU and Japan less willing to work closely with the United States in addressing longstanding concerns over Chinese IP practices that are the subject of the Section 301 investigation.

While it seeks to reopen dialogue with the Trump administration, Beijing has also signaled that it is prepared to respond vigorously to U.S. trade actions that it views as running afoul of international trade rules. China could retaliate in a number of ways, including by seeking to impose politically-sensitive tariffs whether outright or through its own domestic processes. For example, following the imposition of tariffs on solar cells and panels, China appeared to respond by self-initiating an antidumping investigation into sorghum imported from the United States. Beyond tit-for-tat retaliation, China will almost certainly challenge U.S. trade actions through the WTO. U.S. companies with business interests in China should also be prepared for more informal and opaque actions that impede their business goals in China.

The outcomes of the Section 301 investigation and China’s reaction to these outcomes will have wide-ranging implications for companies doing business in China and the United States.

The Week Ahead in the European Parliament – March 9, 2018

Summary

Next week, there will be a plenary sitting of the European Parliament in Strasbourg, France. Several significant debates, votes and committee meetings will take place.

On Tuesday, Members of the European Parliament (“MEPs”) will vote on a report on cross-border parcel delivery prices. Under the new proposed legislation, part of the e-commerce package, cross-border parcel carriers will be required to report their prices to national authorities and to the European Commission, who will then publish the tariffs. This in turn would allow companies and consumers alike to compare prices more easily. See the report here.

On Wednesday, MEPs will vote on a resolution on the framework of future EU-UK relations prepared by the European Parliament’s Brexit Steering Group and approved by the Conference of Presidents. The resolution provides that although an association agreement could be an appropriate framework for the future EU-UK relationship, even countries that are closely aligned with the EU, with identical legislation, cannot enjoy benefits or market access similar to EU Member States. See the draft resolution here.

Also on Wednesday, MEPs will vote on the European Parliament’s draft negotiation position on reforms to the EU’s long-term budget, post-2020 (Multi-Annual Financial Framework). The draft negotiating position provides that the EU should promote research programs, support young people and small companies, as well as continue to support farming and regional policies. However, new priorities, including defense, security and migration, should also be financed.

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