EU (Finally) Gets Tough on Russia as War Breaks Out in Ukraine
Also — Due Diligence law, Data Act, and Data Transfers
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War in Ukraine Prompts Strategic U-Turn at Member State and EU Levels
On Thursday 24 February 2022, Russia launched a large-scale "special military operation" — a war — in Ukraine. As President Emmanuel Macron noted, the Russian invasion marked a turning point in European history. Europe's security architecture, its geopolitics, and the European project itself are all being redefined.
IN SHORT • In the days following the Russian invasion of Ukraine, the EU broke important foreign policy taboos and has arguably moved closer towards a ‘geopolitical’ Union. One of the important challenges the EU will have to face is The large number of migrants moving West from Ukraine — the UN estimates that 500,000 Ukrainians have already fled to neighbouring countries. Meanwhile, the EU intends to cut Russia off from the international financial system, and sanctions against Russia and its central bank have already caused the value of the ruble to plummet.
KIEV EU APPLICANT • On 28 February, Ukrainian President Volodymyr Zelensky signed a formal application for Ukraine to join the European Union, calling for a "special procedure" which would grant his country immediate membership. One day earlier, the President of the European Commission, Ursula von der Leyen, had come out in favour of Ukraine’s eventual accession to the Union. "They are one of us and we want them in", she said. Some Central European countries are also pushing for an accelerated accession process, but France and Germany are more circumspect. with German Foreign Minister Annalena Baerbock noting that "joining the EU is not something that can be done in a few months."
SANCTIONS • On the evening of 24 February – the day of the Russian invasion – European leaders met at a special meeting of the European Council. They agreed on further "restrictive measures" which would impose "massive and severe consequences" on Russia. The Ukrainian President Zelensky was unimpressed by the proposed package of sanctions, however. He demanded that Russia be excluded from the international banking system SWIFT, an initiative which Germany, Italy, Austria, and Cypriot had refused. German hesitations on SWIFT and Nord Stream 2 were clearly apparent during the weekend summitry in Brussels.
On 28 February, the European Council agreed upon a new and heavier set of sanctions. Among the sanctions are a ban on transactions with the Russian Central Bank, a freeze of the assets of some of Russia’s most prominent oligarchs, and the exclusion of "selected Russian banks" from SWIFT. The European leaders also decided to close their airspace and airports to Russian carriers.
The EU has almost forty sanctions regimes at its disposal. By unanimity, and on a proposal from the EU High Representative for Foreign Affairs, the Council of the European Union decides on the type of restrictive measures — such as asset freezes, visa bans, and sectoral sanctions — and approves the list of individuals or entities targeted by the sanctions. The vote results in a Decision under the Common Foreign and Security Policy (CFSP) which applies to Member States and a Regulation which applies directly throughout the Union.
The sanctions have the effect of prohibiting any EU citizen or entity registered in the EU from engaging in transactions with the listed foreign individuals or entities. Unlike embargoes, these targeted measures are intended to limit the effects on those not responsible for violations, but the economic consequences are nonetheless significant, since all EU companies must comply.
The EU was able to adopt new sanctions almost immediately following the Russian invasion because it could build upon the sanctions regime which it had put in place after Russia’s annexation of Crimea in 2014. Moreover, the long build-up which preceded the invasion gave Member States sufficient time for extensive coordination. Parallel to its "restrictive measures" against Russia, the EU continues to apply sanctions to Belarus.
LETHAL WEAPONS, TOTEM AND TABOO • The most remarkable measure announced by the EU on 28 February is the delivery of lethal weapons to Kiev for 450 million euros, via the European Peace Facility. The EU-level decision follows several Member States which bilaterally decided to send lethal weapons to Ukraine, including Germany. Thus, European funds will be used to arm Ukraine. This decisive breakthrough would probably not have been possible without the significant mobilisation of public opinion, the Ukrainian army's strong resistance to the Russian advance, and Germany's reversal on the issue of sanctions.
"Another taboo has fallen. The taboo that the European Union was not providing arms in a war. Yes, we are doing it. Because this war requires our engagement to support the Ukrainian army. We live unprecedented times, like we did when the pandemic arrived. We are facing the pest of the war, like in the Biblical times. This will be the first time in history that the EU will be providing lethal equipment to a third country.” — Josep Borrell, 28 February 2022
IN BERLIN, 180° • Although initially opposed to interference in the conflict between Russia and Ukraine, Berlin has decided to take unprecedented steps to push back against the Kremlin. The war in Ukraine has triggered a revolution in Germany's foreign policy, which has enabled the EU to adopt the ambitious measures announced on 28 February. Germany’s Foreign Minister Annalena Baerbock spoke on Sunday of a "180-degree turn". ”Perhaps it is the case that Germany is today leaving behind a form of special restraint in foreign and security policy”, she said.
Stressing the danger posed by Vladimir Putin to European security, Olaf Scholz announced in the Bundestag a series of measures to deal with the "historic turning point" that Germany is experiencing: arms deliveries to Ukraine, a defence budget of more than 2% of GDP, a special fund of 100 billion euros to modernise the military, two new LNG terminals, additional coal and gas reserves, accelerating the deployment of renewable energies, and new Bundeswehr deployments on NATO's eastern flank.
To reduce Germany’s dependence on Russian energy, Berlin has announced that it is considering extending the life of its last nuclear reactors, which are supposed to be shut down for good in December 2022. the Russian invasion of Ukraine has called into question Germany’s energy policy — which, until now, was marked by a strong anti-nuclear consensus.
STRATEGIC DEPENDENCIES • A possible energy scenario is the complete halt of Russian gas supplies to the EU. The solution cannot be to replace Russian gas imports with other suppliers, but instead so-called demand-side measures should be adopted in order to reduce the overall gas demand, according to a policy paper by Bruegel.
The EU should increase its renewable energy sources production capacity, while investing in green hydrogen Projects of European Common Interest. Africa and the Middle East will be key areas where to invest, as already advocated at the Commission level with the plan to open Southern gas pipelines in Israel, Cyprus and Egypt but also to create solar power plants in the Sahara desert.
Following these guidelines an effective energy diversification strategy would decrease EU dependency from Russia, support stability in the MENA region and at the same time help the EU reach its goal set by the EU Green Deal to reach carbon neutrality by 2050.
IN PARIS • France moved its embassy to the western city of Lviv on 28 February — and was one of the last European countries to do so. Until then, it had reinforced the security of the French embassy in Kiev with a contingent of GIGN soldiers.
On Saturday 26 February, Paris decided to deliver more military defence equipment to Kiev and announced its intention to increase efforts to combat disinformation on European territory. Since it holds the rotating presidency of the Council of the European Union, Paris has been able to focus debates on the situation in Ukraine during the informal meetings held over the past few days — and in particular in the sanctions committee. On Friday, it proposed to exclude Russia from the SWIFT system.
As a permanent member of the UN Security Council, France also voted in favour of a resolution condemning Russia’s aggression, which was finally rejected due to the Russian veto, although the wording of the text had already been softened by China, another permanent member of the Council.
IN WARSAW • Poland demonstrated its support for Ukraine. Polish citizens strongly support the Ukrainian war effort, and the Polish government is defending the Ukrainian position in the international community.
Poland is maintaining diplomatic flights with Ukraine, and provides logistical support for the delivery of arms, ammunition and humanitarian aid. It has also organised the reception of Ukrainian war refugees at its border. The Polish government, along with Latvia, Lithuania, and Germany, has been pushing the EU to ban Russia Today and Sputnik news, which are Kremlin-funded news channels.
Prime Minister Mateusz Morawiecki has argued that the EU should "double its defence spending in Europe". He also published an op-ed in the Financial Times on 25 February, urging the EU and NATO to adopt a tougher stance towards Russia. "Today, we are seeing that the price of European naivete over Russia is Ukrainian blood", he wrote.
IN BUDAPEST • With one month to go before the upcoming parliamentary elections - which are expected to be close - the Ukrainian crisis could play into Viktor Orbán's hands as he faces a major international conflict and a potential
Hungary has voted in favour of sanctions against Russia and for the delivery of lethal weapons to Ukraine, mobilised troops on the border with Ukraine, and announced that it would welcome refugees from Ukraine. The government estimates that up to 600,000 people could flee to Hungary.
On Monday, however, the Hungarian government announced that it would not allow shipments of lethal weapons to cross its territory. The opposition is taking the opportunity to highlight the close ties between the Kremlin and Viktor Orbán.
Commission Unveils Proposal for a Directive on Corporate Sustainability Due Diligence
On 23 February, the Commission unveiled its proposal for a Directive on corporate sustainability due diligence, which aims to ensure sustainable and responsible corporate behaviour throughout global value chains.
Companies that fall within the scope of the proposal would be forced to ‘prevent, end, or mitigate’ adverse impacts of their activities on human rights and the environment abroad. This means that these companies would have to survey subcontractors which are active in countries where human rights and the environment are not sufficiently protected. In order to comply with the directive, each company would be required to hire external auditors and to file annual reports of its due diligence efforts.
The proposal currently targets: (i) EU limited liability companies with at least 500 employees and a net worldwide turnover of 150 million euros, and (ii) limited liability companies operating in designated sectors with at least 250 employees and a net worldwide turnover of 40 million euros. round 13,000 European companies would be affected However, SMEs do not fall within its scope — ensuring that no disproportionate reporting burden is placed upon them.
In cases of non-compliance, Member State authorities can impose significant fines and victims can take legal action for damages which could have been avoided had appropriate due diligence measures been taken. This has been criticized by the Greens, who have argued that the burden of proof placed on victims of human rights violations will be too great for the new due diligence law to be effective.
The Commissioner for Justice, Didier Reynders, declared that the proposal will change the way companies conduct their business activities across the world, as Europe will no longer turn a blind eye to what happens across global value chains. Lara Wolters (S&D) added that no company should be able to hide behind suppliers at the other end of the world.
In recent years, some EU countries have already adopted national corporate due diligence laws, albeit to a limited extent. France led the way in 2017, when it incorporated a ‘devoir de vigilance’ into its Commercial code. That law was debated in the Assemblée nationale after the 2013 Rana Plaza collapse shined a spotlight on the unethical business practices of multinational companies.
The Commission’s proposal, however, will put corporate sustainability due diligence on the European agenda, as Member States and MEPs will have to discuss the possibility of incorporating the concept into Member States’ juridical orders.
Meanwhile, the Commission has also published its updated in-depth review of Europe’s strategic dependencies. Since the EU is heavily dependent on third-country suppliers for raw materials, semiconductors and digital technologies, observers will be particularly interested in the impact of the new corporate sustainability due diligence proposal on the provision of these products to EU companies.
EU to Harness Industrial Data with Data Act
On 23 February, the European Commission unveiled its proposal for the Data Act, a landmark piece of legislation on who can use and access the zettabytes of data generated in the EU. After introducing stringent legislation on the use of personal data — with the GDPR and the Data Governance Act — the EU now seeks to so-called ‘industrial’ or ‘non personal’ data
WHAT’S IN IT • The proposed Act has four main items. First, users of connected devices are to gain access to the data that they generate, opening a secondary market for user data which tends to be monopolised by manufacturers. Second, small and medium enterprises (SMEs) are to be better protected against abuse of contractual imbalances by dominant players in data sharing contracts. Third, the Act would introduce EU-wide rules for public authorities to access and use non-public data in case of emergencies. Fourth, it would increase portability rights — allowing customers to switch between different data-processing services.
CONTEXTO • Together with the Data Governance Act, the Data Act forms part of the EU’s “Strategy for Data” , which aims to further the integration of a digital single market and unlock the value created by data in the economy which is not captured by European companies and consumers. The stakes are high. The Commission underlines how using so far untapped data can help lower carbon emissions, thanks to better traffic congestion predictive capabilities.
SLAPPING UNCLE SAM • The Commission stresses that the Act “creates a fairer allocation of value by addressing situations where data is currently used exclusively by a few actors”. While Competition Commissioner Margrethe Vestager frames the Act in terms of increasing competition in data, Internal Market Commissioner Thierry Breton has displayed it as an assertion of the EU’s digital sovereignty.
To the US “fairer” does sound like a loss of control for US-based firms that currently have an edge in the internet-of-things (IoT) and harvest the data generated by the connected devices, from home appliance to industrial machinery Bloomberg’s Jillian Deutsch notes that non-EU companies are “unlikely to benefit from the easing of data transfers”, which would affect the likes of Google, Amazon, or Tesla.
EU-US Personal Data Transfers in the Spotlight Pending Irish Privacy Watchdog Decision
There has been much talk these last few weeks of a EU-US deal on a new equivalence decision on data transfers. The Irish Data Protection Commissioner (DPC) is currently reviewing a high-stakes contract governing Facebook’s parent company’s data transfers from the EU to the US. The DPC is meant to issue a decision in April.
IN CONTEXTO • Data transfers were deemed legal under equivalence decisions, which the European Commission took to authorise data transfers to the US based on the assumption that US rules sufficiently safeguarded digital rights. These equivalence decisions were struck down twice by the Court of Justice of the EU (CJEU) in 2015 and 2020.
In 2020, the EU’s top court deemed in the “Schrems II” decision that the EU-US Privacy Shield was not compatible with the level of protection required by EU law — as US authorities were able to access data too easily under national security grounds. The challenge was brought to the CJEU by digital-rights activist Max Schrems.
Without an equivalence decision, companies must rely on standard contracts to lawfully transfer data from the Old to the New Continent — what the Irish DPC is currently reviewing.
PRIVACY SHIELD 2.0 • US-based Big Tech companies have been lobbying for a new equivalence to be agreed on to put an end to the legal uncertainty facing transatlantic data transfers. Margrethe Vestager, the EU’s Competition Commissioner, was presented with questions on this topic during the Q&A session following the unveiling of the Commission’s proposal for a Data Act, as Natascha Lomas reported for TechCrunch.
Commissioner Vestager, whose portfolio includes making Europe fit for the Digital Age, said that a “Privacy Shield 2.0” is a “high priority” but “not easy”, during the press conference on the Commission’s proposal for a Data Act. The European Commission wants to avoid a “Schrems III” decision at all costs.
US companies are under increasing pressure from the EU Member States’ regulators on personal data transfers. The French privacy watchdog, CNIL, indicated on 10 February that Google Analytics’ service breached EU data protection law, after a complaint by None of Your Business (NOYB), a privacy-focused NGO founded by Max Schrems.
NEXT: TTC MEETING • Disagreements between the EU and the US have a dedicated forum, the Trade and Technology Council (TTC). The forum held its first meeting in Pittsburgh in September 2021 amidst a French push to sabotage the event after the AUKUS debacle. The TTC is due to meet next on 15-16 May 2022 in France, the EU Trade Commissioner Valdis Dombrovskis said on 21 February.
What we’ve been reading this week
The European Policy Centre and the Egmont Institute reflect on the Conference on the Future of Europe
At the European Council on Foreign Relations, Piotr Buras offers a strong critique of the rule of law mechanism
For the CEPS, Karel Lannoo reviews Europe’s new initiatives to combat corruption
Meanwhile, his colleague Stefano Micossi takes a look at different paths the European central banks could take to manage the sovereign debt they hold
Foreign policy: Roberta Maggi of the ECFR argues for a change of approach from Europe in Libya
Corentin Gorin of the EPC writes on how France views post-Merkel Germany’s role in Europe
Thanks to those who helped put this edition together — Lorenza Nava, Théo Larue, Adam Zagoni-Bogsch (welcome!), François Hemelsoet, Giovanni Medici-Tornaquinci, Briac de Charry, Maxence de la Rochère, Rogier Prins, Harry Higgins (welcome!), Agnès de Fortanier and Thomas Harbor.