Brexit and the EU’s Reaction

The October regular meeting of the European Council, on October 20-21, was British Prime Minister Theresa May’s first.  She gave a presentation on the UK Government’s current state of preparation for the Brexit negotiations.  Since Article 50 of the Treaty on European Union has not yet been triggered, the other Member States did not react or comment, faithful to their position that no negotiation, even informal, may start before the UK’s formal notification of its intention to leave under that Article.

The European Council held a debate on the state of implementation of EU migration policy and on the relationship with Russia—in light of the so-called “Normandy format” summit on Ukraine that had taken place the day before, and of the ongoing bombardments of the Syrian city of Aleppo by the Russian armed forces.  They also discussed various aspects of EU trade policy (see Section 8 of this Policy Update).

On October 25, the European Commission presented its 2017 Work Program, outlining its legislative program for the coming year—see here.

Tech and Digital Single Market Policies

On October 25, as part of its 2017 Work Program, the Commission announced that it will produce a framework for adequacy decisions on the exchange of personal data with third countries.  See the Work Program here (page 5, item 13).

On October 27, a legal challenge to the EU-U.S. Privacy Shield was made public on the website of the Court of Justice of the EU.  Lodged at the EU’s General Court on September 16, the challenge was brought by privacy advocacy group Digital Rights Ireland.  See the public filing for Case T-670/16 here.

Looking further ahead, the Commission has stated that it intends to publish a “Free Flow of Data Initiative” at the end of November.  This would contain measures to reduce data localization requirements in Europe.

Communication and Media Policies

In September, the European Commission announced its proposals to reform the EU copyright regime (see its Communication here and draft copyright Directive here, and a draft Regulation on certain online transmissions of broadcasting organizations and retransmissions here).  In November, the European Parliament’s rapporteurs for the Commission’s copyright package were confirmed, both in the Committee on Legal Affairs.  Maltese European People’s Party (center-right) MEP Therese Comodini Cachia will draft the report on the copyright Directive; and German Socialists & Democrats (center-left) MEP Dietmar Köster will draft the report on the online transmissions and retransmissions Regulation.

Energy and Climate Change Policies

On October 14, 2016, 190 countries agreed to reduce the worldwide use of hydrofluorocarbons (“HFCs”) by amending the Montreal Protocol on Substances that Deplete the Ozone Layer (“Montreal Protocol”, see here).  HFCs are powerful greenhouse gases, frequently used in refrigerators and air conditions as substitutes for chlorofluorocarbons (“CFCs”) and hydrochlorofluorocarbons (“HCFCs”).  The Montreal Protocol already phases out CFCs and HCFCs, due to their ozone-depleting characteristics.

The amendment agreed (see here) sets out a timetable to gradually reduce the consumption and production of HFCs.  It also links the reduction efforts for HFCs and HCFCs, as it recognizes their similar industrial applications.  This timetable and baseline differs per country, depending on their economy and expected needs.  For example:

• The agreed timetable requires that the EU, U.S. and other developed countries ensure that, by 2036, their production and consumption of HFCs is no more than 15% of their production and use in the years 2011 to 2013, plus 15% of the baseline of HCFCs expressed in CO2 equivalents.  The gradual reduction must begin in 2019.

• In contrast, China and most other developing countries must ensure that, by 2045, their production and use of HFCs is no more than 20% of their production and consumption in the years 2020-2022, plus 65% of the baseline of HCFCs expressed in CO2 equivalents.  These countries must start to limit their production and consumption of HFCs by 2024.

• Bahrain, India, Iran, Iraq, Kuwait, Oman, Pakistan, Qatar, Saudi Arabia, and the United Arab Emirates are subject to an even more favorable timetable.

The amendment agreed also includes an exemption for the use of HFCs in certain air conditioners for which no suitable alternatives exist in countries with average temperatures of 35 degrees Celsius for two months per year for ten consecutive years.  The existence of suitable alternative substances for these air conditioners will be reviewed periodically by a subsidiary body of the Montreal Protocol.

In the EU, Regulation No. 517/2014 on fluorinated greenhouse gases (see here) already limits the amount of HFCs that may be placed on the market as of 2016.  The Regulation also foresees the gradual elimination of the most damaging HFCs in specific products and equipment, such as refrigeration and air-conditioning systems.

Internal Market and Financial Services Policies

On October 4, the European Commission endorsed regulatory technical standards (“RTS”) submitted by the three European Supervisory Agencies (“ESAs”) controlling the exchange of over-the-counter derivatives which are not centrally cleared.  Under the European Market Infrastructure Regulation (“EMIR”), introduced in 2012 following the financial crisis, certain derivatives must be centrally cleared, and for those not centrally cleared, EMIR requires the bilateral exchange of collateral to mitigate risks—and the new RTS provide the rules to govern this.  The first clearing obligations came into operation this year.  The most significant change from the existing standards is the removal of concentration limits for pension funds.  The decisions take the form of a delegated regulation, and the European Parliament and the Council have until January 4, 2017 to challenge them, after which they will be published in the Official Journal.  The final swap margin rules adopted will come into effect in January 2017.  See the provisions of the draft RTS here.

On October 25, the Eurozone announced the approval of a third bailout package of € 2.8 billion for Greece.  The disbursement consists of two parts: € 1.1 billion will be used for debt servicing, and an additional € 1.7 billion will be disbursed to clear arrears.  Greece has now received € 31.7 billion out of the € 86 billion granted under the financial assistance program negotiated with the Eurogroup in July 2015.  The latest tranche of the bailout was disbursed after Greece met key reform commitments, known as the “15 milestones,” including pension reforms, banking oversight, and proceeding with a privatization plan.  The country has also taken steps to make a new privatization and investment fund operational.  See the European Stability Mechanism’s press release here.

Also on October 25, the European Commission re-launched an initiative to establish a Common Consolidated Corporate Tax Base (CCCTB) in Europe.  The project aims to harmonize taxable profit across the EU and establish a single method for multinational companies to calculate taxable income—which the Commission says would reduce the compliance costs of calculating taxable income according to each of the 28 Member States’ own provisions.  The last time the Commission proposed a CCCTB, it faced significant challenges in the Council given its complexity, the risks Member States saw in altering highly technical and long-established aspects of their tax legislation, and concerns over competency.  Nevertheless, the Commission hopes to have the CCCTB operational by 2021, and believes that the political prominence given to corporate tax transparency issues in recent months, make the proposal more likely to find support in the Council.  See the Commission’s press release here, and Q&A here.

Life Sciences and Healthcare Policies

On October 19, the Court of Justice of the European Union (“CJEU”) delivered a judgment assessing whether German legislation that provides for a fixed-price system for the sale of prescription medicines by pharmacists complies with the European free movement of goods principle.  This case arose in the context of proceedings initiated before German courts by an association for the protection against unfair competition, the Zentrale zur Bekämpfung unlauteren Wettbewerbs.  The association contested the bonus scheme concluded between a German organization (i.e., Deutsche Parkinson Vereinigung, an association aimed at improving the quality of life of patients suffering from Parkinson’s disease) and a Dutch online pharmacy, whereby members of the organization could benefit from bonuses when buying from the Dutch pharmacy.  The German association had argued that the bonus scheme infringed the provisions of German law imposing a fixed price for prescription medicine manufacturers and retailers.  The CJEU found that the German fixed-price medicines policy restricts competition between pharmacies and, more importantly, that it constitutes an unlawful breach of the free movement of goods principle.  The Court held that this restriction cannot be justified considering, inter alia, that: (i) the German fixed-price system could impede access to products sold by foreign mail pharmacies more than it prevents the access to German domestic medicines; (ii) price competition is likely to lead to beneficial effects for consumers (such as an enhanced production of prescription-only medicines, and a cheaper price offering in Germany); and finally, (iii) that it is not demonstrated that the German fixed-price system in fact leads to a better geographical allocation of pharmacies in Germany.  See the full judgment here.

On October 21, the European Commission opened a public consultation on strengthening EU cooperation on Health Technology Assessments (HTAs).  “Health Technology” is a notion that encompasses various aspects of healthcare products or services, such as pharmaceuticals, surgical procedures and medical devices.  An HTA is, more particularly, the assessment of the added value new Health Technology brings in comparison to existing techniques.  National authorities use HTAs to identify how to provide patients with the best treatment, taking into account their health budget.  The public consultation aims to gather the views, needs and experiences of different stakeholders (including public authorities, the industry, citizens, relevant international organizations and healthcare providers) to support the Commission’s ongoing impact assessment on strengthening EU cooperation on HTAs.  The consultation will run until January 13, 2017.  See more information and a questionnaire here.

On October 24, the European Commission published its “Evaluation of the Action Plan against the rising threats from antimicrobial resistance”.  This review assesses the added value and effectiveness brought by the Commission Action Plan on Antimicrobial Resistance 2011-2016.  The conclusion can be summarized as follows: the Action Plan added value (as it stimulated many actions at national level; was a symbol of the EU political commitment; and enhanced the international cooperation with international organizations, such as the WHO); but it is too early to tell how much value it brought to the treatment of human and animal infections, given the ongoing activity in this field.  See the Evaluation here.

Trade Policy and Sanctions

The Comprehensive Economic and Trade Agreement between the EU and Canada (CETA) could not be signed as foreseen on October 27, on the occasion of a planned summit with Canadian Prime Minister Justin Trudeau.  Most reservations to the text had been lifted before the European Council—notably those of Germany and Austria, as well Romania and Bulgaria’s demand that Canada grant their citizens visa-free travel.  But Belgium announced it could not sign, so long as it did not have the formal agreement of the Wallonia and Brussels region, and of the Belgian Francophone Community.  In the Belgian institutional system, indeed, regions and communities have the right in principle to prevent the federal government from concluding international agreements—a competence that had never been exercised to date.  An agreement was finally concluded at the Belgian level but (just) too late for the summit with Canada to take place as scheduled on October 27.  On October 28, however, the Council adopted the Decision enabling the EU to sign CETA (see the Council Decision here, and its press release here), alongside a Joint Interpretative Instrument reflecting the Member States’ concerns (see here).  Canadian Prime Minister Trudeau and his EU counterparts then signed the Agreement—and its counterpart Strategic Partnership Agreement—in Brussels on October 30 (see the Commission’s press release here, and a “fact sheet” here).  This paves the way for its provisional application (with the notable exclusion of elements such as investment protection provisions) once the European Parliament has consented to CETA’s conclusion.

On September 30, the European Commission presented a proposal to update the so-called “dual use” Regulation adopted in 2009 (see here).  The main reason for the update is to address the emerging trade in cyber-surveillance technology and the risks it creates for international security and human rights.  The proposal aims to encourage member states to reinforce the surveillance of products of this kind when they issue export licenses, in order to prevent their use as defense or surveillance tools in countries with a proven track record of human rights violations.  See the proposed revised Regulation here.

On October 18, the European Commission adopted a communication calling for more robust trade defense instruments and urging the Council to act to solve the problem of overcapacity (see the Commission’s Communication here, and its press release here).  The issue has taken on increasing importance as, at the end of this year, China will claim its right to market economy status as a member of the World Trade Organization. Some European industry sectors—including steel and aluminum—worry that, once China is considered a market economy, the EU will not be able to impose tariffs against dumping of Chinese products on the EU market.  The communication was discussed in the European Council on 21 October (see the Council Conclusions here, pages 4 and 5).  The heads of government agreed that the EU needed “more robust protections”, but did not agree to act, as the Commission proposed, on the so-called “lesser duty rule”, which restricts the EU’s ability to impose the kind of high tariffs on dumped goods that the U.S. can levy.