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January 2016 Visa Bulletin Update

The Department of State’s (DOS) January 2016 Visa Bulletin showed minor movements in the employment-based visa categories. The most significant movement was in the Indian EB-2 category which advanced by another 8 months, to Feb. 1, 2008 (the December 2015 bulletin showed a 10 month jump). There was also movement in the Dates for Filing in the employment-based categories, except in both of the “All Chargeability Areas” and “Mexico” EB-3 and Other Workers categories, which moved from Sept. 1, 2015, to Jan. 1, 2016.

The January Visa Bulletin also advised about the upcoming, scheduled expiration of the immigrant investor pilot program (EB-5 Visas) on Dec. 11, 2015, unless Congress acts to extend these programs. The Visa Bulletin states that no I5 visas may be issued overseas, or final action taken on adjustment of status cases, after Dec. 11, 2015. The cut-off date for this category has been listed as “unavailable” for January. Congress is currently considering an extension of the I5 visa category, but there is no certainty when such legislative action may occur. If there is legislative action that extends this category for FY-2016, the cut-off dates would immediately become “current” for January, for all countries except China-mainland born I5.

Final Action Dates for Employment-Based Preference Cases

Dates for Filing of Employment-Based Visa Applications

Article By Patricia A. Elmas of Greenberg Traurig, LLP

UK Holiday Pay Inactivity – Inertia or Strategy?

We were in the hallowed legal portals of Farringdon’s Bleeding Heart Restaurant last week for a client dinner on the still vexed issue of holiday pay. “Hallowed legal portals”, because so far as I know, no other restaurant has been cited so frequently in the employment law reports as just the only place to go for a decent spot of covenant-busting and a little post-prandial breach of fiduciary duties. They also do a very good coffee.

We had to open with an acknowledgement – that despite the absolute nature of my recollection, Peter O’Toole had not said in the film Lawrence of Arabia that “doing nothing was generally best”. Apparently it was Anthony Quayle. Pressing on despite this setback, our dinner guests considered with the kind contribution of a senior member of the Engineering Employers Federation’s Employment Policy Team whether doing nothing could really remain a sensible holiday pay position at this stage, a full year after the EAT’s decision in Bear Scotland.

Despite the breadth of sectors represented, including retail, financial services, recruitment and advertising, there was a remarkable commonality of view. While it was of course sensible to be providing behind the scenes for some possible accrued holiday pay liability, none of our guest organisations had yet sought any negotiation or reached any agreement with staff representatives (unionised or not) about the inclusion of overtime or commissions in holiday pay calculations. Despite this inaction, only one of our attendees had had a Tribunal claim on the point. This is a function perhaps of the relatively limited quantum of most holiday pay claims per individual, a sum which will often be less than the Tribunal fees incurred in making the claim in the first place.

We floated the proposition that an employee’s entitlement to an allowance for commission or overtime in his holiday pay should depend upon his being able to show (at least on a balance of probabilities) that he would have earned that extra money had he not been on leave, i.e. that he had suffered some actual loss. Most of our attendees seemed willing to take that loss as a given based on recent average overtime or commissions rates. Where such extra earnings are pretty regular and pretty consistent, that might well be a sensible approach. However, the financial services attendee, being from a sector which pays fewer but larger supplementary sums above salary, could see some mileage in this argument. If such a lumpy payment fell within the reference period for the holiday pay calculation, it could seriously distort the figure and turn it into a number wholly unconnected with what the employee would actually have earned had he not been on leave. None of the cases or commentaries have yet mentioned this possibility (apart from the most throw-away line in the Acas Guidance http://www.acas.org.uk/holidaypay). Nonetheless, it will surely gain new legs as an idea if and when the Government confronts the reality of drafting legislation to define a “normal pay” formula which works equally well over the myriad different shapes and sizes of supplementary payment arrangements in the UK market.

Might some clarity on this be derived from Mr Cameron’s impending begging session in Europe? His original podium-thumping was about procuring material changes to the Working Time Directive as applicable to the UK, but his formal overture was watered down to a gripe about lessening employer red tape. The collective view around our table was that the EU will listen politely to Mr C and give him nothing. The more cynical among our guests (that is to say, all of them) considered that he would then introduce some “clarificatory” amendments to the Working Time Regulations which would make little or no actual impact on employers but could be presented to a puzzled electorate as an indication of the merits of his tough stance in Europe.

I asked our guests at the outset of the dinner what they wanted from it. Almost exclusively it was reassurance that they were not alone or acting foolishly in doing nothing about holiday pay at this stage. In cases where there are no unions, no pressing reputational issues and no easy means of determining what supplement to holiday pay would be appropriate anyway, it was reassurance which we were happy to give.

Article By David Whincup of Squire Patton Boggs (US) LLP

Russia’s New Advanced Development Territories Law: Far East Focus

An initiative to spur investment in this underdeveloped region.

Amid the ongoing loud noise surrounding the situation in Ukraine (and in Syria) and the related sanctions and counter-sanctions, a new Russian development initiative seems to have slipped under the radar. But it is worthy of note—particularly for potential investors in Russia’s Far East. This has all the more potential importance in the context of Russia’s recent pronounced political and economic pivot toward Asia. The Law on Advanced Development Territories (the ADT Law, or the Law), enacted in December 2014 and entered into force in spring 2015 (and the related simultaneously adopted acts that make corresponding amendments to the Tax Code and some 20 other laws) set out the “rules of the road” for these ADTs.

Russian President Vladimir Putin and other top officials at the Eastern Economic Forum in Vladivostok in September spotlighted this ADT program prominently. A number of new projects were announced at that forum or earlier, and most recently at an international forum in Harbin, China.

In a separate related development, in July, a so-called “Free Port of Vladivostok” was established within Vladivostok city and a few neighboring municipalities – which provides benefits and incentives to investors similar to the ADT Law, and with an enhanced exemption regime for customs clearance and immigration. The fiscal benefits of the Vladivostok free port come into force in January 2016, but a major Korean conglomerate is reported to be eyeing this opportunity.

Background

The ADT regime is somewhat similar to Russia’s existing Special Economic Zones (SEZ), which came into being under the 2005 Law on SEZs and some earlier regulations. These programs have had only mixed success. But the central focus of the new ADT regime is different: while SEZs have been aimed primarily at spearheading various industries (such as innovative technologies, ports, or recreational complexes), the ADTs are to address the general unevenness in development across Russia’s vast territory by incentivizing investment in more depressed areas—starting with the underpopulated and relatively neglected Far East.

As initially drafted, the ADT Law was to be confined to the Far Eastern Federal District alone. This geographical limit no longer applies so generally under the Law as enacted. But for the first three years, under special transitional provisions, it will apply only in the Far East and in certain sole-core-employer cities “where the social and economic situation is particularly drastic.”

The Law further directs the government to appoint a special authorized body (AB) charged with various ADT supervisory and planning functions. So far only the new Ministry of Eastern Development (established in 2012) has been appointed as such an AB—for the Far Eastern Federal District. For all practical purposes the Law will apply essentially in the Far East, at least initially. The Ministry has already adopted various implementing regulations envisaged under the Law. Further, Deputy Prime Minister Yury Trutnev, who is also the president’s plenipotentiary in the Far Eastern Federal District, has pledged strong support for the ADT program alongside other measures for development of Russia’s Far East.

As of September, the government has already approved the establishment of nine ADTs, including Komsomolsk (in the Khabarovsky Krai), Khabarovsk (covering several districts within Khabarovsk City and elsewhere), Nadezhdinskaya (in the Primorsky Krai), and some others in Kamchatka, Yakutia, and Amurskaya Oblast. The first specific ADT projects announced at the Vladivostok Forum and on other occasions (taking into account the most recent Harbin EXPO) include the following:

Construction of a bitumen plant by a Chinese-owned Singapore company together with Russia’s Independent Petroleum Co. (NNK) in the Khabarovsk ADT
An Australian coal company’s proposed investment into the transport infrastructure of the Beringovsky ADT in Chukotka
Recreational infrastructure facilities (including a golf club) to be financed and constructed by a Japanese company in Vladivostok
A proposed major agricultural enterprise investment by Russian interests at Mikhailovsky ADT in Primorsky Krai (the precise location is not yet identified)
German investors’ readiness to provide some 20 billion rubles to the Kamchatka ADT
A planned 50 billion rubles investment for infrastructure development in the Primorsky ADT
A coal-loading terminal to be constructed by Sakhatrans in Khabarovsky Krai (estimated investment of 30 billion rubles)
A truck-building plant (and dealership and service centers) project to be undertaken together by Chinese Sinotruk and the Far-Eastern Road and Construction Company in the Komsomolsk ADT

Government Decree

Under the Law, an ADT is created by a government decree for a term of 70 years. Such decrees are based on a proposal by the Authorized Body. This proposal, in turn, is supposed to be based on preliminary agreements with one or more prospective investors into the planned ADT. A special federal government commission will also play a role in ADT selection and formation.

The relevant government decree will set out the main ADT parameters, including its territorial limits (no overlap with an SEZ is allowed), types of commercial activities eligible for benefits to ADT residents (in contrast to SEZs, there are no economic sector limits for such activities are established in the Law), minimum investment and technology requirements, and a few other aspects. These decrees presumably will take into account the preliminary agreements with prospective investors mentioned above.

Tripartite Agreement

After the base government decree is adopted, the AB (again, for practical purposes, this is the Ministry of Eastern Development for now) and the relevant regional and municipal authorities are to enter into a tri-partite agreement to regulate various obligations and procedures for the ADT in question. This includes the regional and municipal authorities’ obligations on transferring of land plots and facilities into ownership by or lease to the management company (see immediately below on this point) or granting the management company the authority to manage such land plots and facilities, financing and operation of the infrastructure facilities, the conditions for granting property and land tax holidays to ADT residents (see more on tax and other exemptions below), and other aspects.

Management Company

An important player in an ADT’s actual functioning is its management company (MC). Under the Law, an MC is a 100% federally owned joint stock company that is designated as such by the government. An MC will have a broad range of powers, authority, and functions for its ADT(s). For example, an MC will (itself or by delegation to a subsidiary) do the following:

Act as an infrastructure construction customer (in Russian, zastroischik)
Ensure or organize the functioning of the ADT infrastructure
Take ownership or lease of federally or municipally owned land plots, buildings, and various infrastructure facilities (on certain conditions)
Facilitate connection into the utilities networks for ADT residents and service providers
Draft proposals for relevant amendments to municipal and other zoning plans
Organize the construction of roads and installation of infrastructure facilities
Provide various services to ADT residents

The government has already appointed a joint stock company Korporatiya Razvitiya Dalnego Vostoka (in English, Far East Development Corp.) as such an MC—again, with respect to the whole Far East District.

ADT “Residents”

To become an ADT resident, a commercial company (or individual entrepreneur) needs to file an application with the MC that includes a business plan and proposal for the types of activities to be performed and the level of investments and then enter into an activities performance agreement with the MC reflecting the investment obligations as well as the MC’s obligations. The Ministry of Eastern Development in its capacity as AB has already approved a template of such agreement following the ADT Law guidelines. Per the Law, once an ADT is established and running, there are limits to the grounds for an MC to reject an application and refuse to enter into a contract with a potential resident. The main (and quite general) recognized ground is inconsistency between the applicant’s proposal and the ADT’s particular parameters. It remains to be seen how the activity agreements will be negotiated in practice, as more experience is gathered for substantial new proposed investments.

ADT residents will be incentivized by an array of fiscal and administrative measures, including the following:

Exemption from or reduction of taxes on corporate profit, mineral extraction, and property and land
Customs free zone (if approved by the decree enacting the ADT)
Reduction of Social Security payments
A system of special protections and guarantees regarding state supervision (only “joint inspections” by various authorities, to be conducted per a schedule approved by the AB, etc.)
Exemption from foreign employee quota (if approved by the ADT’s supervisory council)
Reduction of educational and medical care administrative burdens (including admission of foreign-trained doctors and use of best foreign educational methods)

Some of these incentives are fairly similar to those applied to SEZs, including tax and customs holidays and state-inspection limitations.

Conclusion

The new ADT Law appears to open real new investment opportunities, primarily in the Far East. Yet one should be mindful of various restrictions in using this Law’s benefits—including that the potential resident has to be registered within the ADT territory and, if it is a commercial company, it may not have branches or other subdivisions outside of the ADT (sister companies are permitted). More preconditions apply to the associated tax benefits under the revised Tax Code. Time will tell how effective the ADT Law will be in attracting much-needed new investment to Russia’s Far East.

Article By Jonathan H. Hines & Alexander V. Marchenko of Morgan, Lewis & Bockius LLP
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Are UK-to-US employee data transfers sunk by ECJ’s torpedoing of Safe Harbor regime?

So there it is – in a tremendous boost for transatlantic relations, the European Court of Justice has decided that America is not to be trusted with the personal data of EU residents. That is not exactly the way the decision is phrased, of course, which (so far as relevant to UK HR) is more like this:

Under the Eighth Principle of the UK’s Data Protection Act (and all or most of its EU cousins) the personal data of your employees can be transferred outside the EU only where the recipient country ensures an adequate level of protection for the rights and freedoms of data subject.

Until now an EU employer has been able to rely in this respect on a US company’s registration with the Safe Harbor (sic) scheme, a series of commitments designed to replicate the safeguards of EU law for that data. As of this week, however, that reliance has been deemed misplaced – the ability and tendency of the US security agencies to access personal data held by US employers has been found to compromise those commitments beyond immediate repair. In addition, one of the EU “model clauses” which can legitimise international data transfers requires the US recipient to confirm that it is aware of no legislation which could compel it to disclose that personal data to third parties without the employee’s consent. New US laws enacted to boost homeland security mean that this can simply no longer be said. Therefore Safe Harbor has been comprehensively blown up and can no longer be used as automatic air-cover for employee data transfers to the US.

This creates two immediate questions for HR in the UK. First, what exposure do we have for past data transfers to the US on a basis which is now shown to be illegitimate? Second, what do we do about such transfers starting now?

Don’t panic! To make any meaningful challenge out of this issue, the UK employee would need to show some loss or damage arising out of that transfer. In other words, even if the data has been used in the US as the basis for a negative decision about him (dismissal or demotion or no bonus), the employee would need to show that that decision would have been more favourable to him if it had been taken by the same people based on the same data but physically within the EU. Clearly a pretty tough gig.

Second, all this case does is remove the presumption that Safe Harbor registrants are safe destinations – it does not prove that they are not, either now or historically. The question of adequacy of protection is assessed by reference to all the circumstances of the case, including the nature of the personal data sent, why it is sent to the US and what relevant codes of conduct and legislative protections exist there.

Last, Schedule 4 of the DPA disapplies the Eighth Principle where the data subject (the employee) has given his consent to the international transfer, or where the transfer is necessary for the entering or performance of the employment contract between the employee and the UK employer. It will rarely be the case that neither of these exceptions applies.

If you have not previously had complaints from your UK employees that their personal data has been misused/lost/damaged in the US, nothing in this decision makes that particularly likely now.

Still don’t panic.
However, do be aware that this case is likely to lead to stricter precautions being required to ensure that what is sent to the US is genuinely only the bare minimum.
On its face, Schedule 4 should allow most reasonable international transfers of employee data anyway, pretty much regardless of what level of protection is offered in the destination country. However, there is a strong body of opinion, especially in Continental Europe, that reliance on this provision alone is unsafe and that it is still appropriate for the EU employer to take specific steps (most usually, some form of data export agreement with its US parent) to satisfy itself that a reasonable level of protection for that data exists. It may also wish to be seen to reconsider how far those HR decisions need to be made in the US at all, and whether EU employee data could be kept on an EU-based server if that is not currently the case.
To the extent that employment contracts do not already include it, amend them to include an express consent to the transfer of relevant personal data to the US (but do note another possible avenue of attack much mulled-over in Europe, i.e. that consent in an employment contract is not freely given because the job hangs upon it). Last, be seen to prune the UK employee data you do hold in the US back to what is strictly necessary and get rid of stuff which is no longer (if it ever was) relevant to the performance of the employment contract.

Article By David Whincup of Squire Patton Boggs (US) LLP

EU Official Calls for Invalidation of EU–U.S. Safe Harbor Pact

A European Court of Justice (ECJ) advocate general, Yves Bot, has called for the European Union–U.S. Safe Harbor Agreement to be invalidated due to concerns over U.S. surveillance practices (press release here, opinion here). The ECJ has discretion to reject the recommendation, but such opinions are generally followed. A final decision on the issue is expected to be issued late this year or next year.

The issue arises out of the claims of an Austrian law student, Max Schrems, who challenged Facebook’s compliance with EU data privacy laws. (The case is Schrems v. (Irish) Data Protection Commissioner, ECJ C-362/14.) He claims that the Safe Harbor Framework fails to guarantee “adequate” protection of EU citizen data in light of the U.S. National Security Agency’s (NSA) surveillance activities. Although the Irish data protection authority rejected his claim, he appealed and the case was referred to the ECJ.

The European Data Protection Directive prohibits data of EU citizens from being transferred to third countries unless the privacy protections of the third countries are deemed adequate to protect EU citizens’ data. The U.S. and EU signed the Safe Harbor Framework in 2000, which permits companies self-certify to the U.S. Department of Commerce (DOC) annually that they abide by certain privacy principles when transferring data outside the EU. Companies must agree to provide clear data privacy and collection notices and offer opt-out mechanisms for EU consumers.

In 2013, former NSA contractor Edward Snowden began revealing large-scale interception and collection of data about U.S. and foreign citizens from companies and government sources around the globe. The revelations, which continue, have alarmed officials around the world, and already prompted the European Commission to urge more stringent oversight of data security mechanisms. The European Parliament voted in March 2014 to withdraw recognition from the Safe Harbor Framework. Apparently in response to the concern, the Federal Trade Commission (FTC) has taken action against over two dozen companies for failing to maintain Safe Harbor certifications while advertising compliance with the Framework, and in some cases claiming compliance without ever certifying in the first place. For more, see here (FTC urged to investigate companies), here (FTC settles with 13 companies in August 2015), and here (FTC settles with 14 companies in July 2014).

Advocate General Bot does not appear to have been mollified by the U.S. efforts, however. He determined that “the law and practice of the United States allow the large-scale collection of the personal data of citizens of the [EU,] which is transferred under the [S]afe [H]arbor scheme, without those citizens benefiting from effective judicial protection.” He concluded that this amounted to interference in violation of the right to privacy guaranteed under EU law, and that, notwithstanding the European Commission’s approval of the Safe Harbor Framework, EU member states have the authority to take measures to suspend data transfers between their countries and the U.S.

While the legal basis of that opinion may be questioned, and larger political realities regarding the ability to negotiate agreements between the EU and the U.S. are at play, if followed by the ECJ, this opinion would make it extremely difficult for companies to offer websites and services in the EU. This holds true even for many EU companies, including those that may have cloud infrastructures that store or process data in U.S. data centers. It could prompt a new round of negotiations by the U.S. and European Commission to address increased concerns in the EU about surveillance.

Congressional action already underway may help release some tension, with the House Judiciary Committee unanimously approving legislation that would give EU consumers a judicial right of action in the U.S. for violations of their privacy. This legislation was a key requirement of the EU in an agreement in principle that would allow the EU and U.S. to exchange data between law enforcement agencies during criminal and terrorism investigations.

Although the specific outcome of this case will not be known for months, the implications for many businesses are clear: confusion and continued change in the realms of privacy and data security, and uncertainty about the legal rules of the game. Increased fragmentation across the EU may result, with a concomitant need to keep abreast of varying requirements in more countries. Change and lack of harmonization is surely the new normal now.

Article By Sheila A. Millar, Tracy P. Marshall & Nathan A. Cardon of Keller and Heckman LLP

Switzerland Is the First Country to Lift Some Sanctions on Iran

Certain US sanctions on Iran may be lifted mid to late 2016 or even later.

On August 13, Switzerland became the first country to formally lift certain sanctions on Iran, following the announcement of the Iran nuclear deal this past July. Switzerland is not a party to the Iran nuclear deal.

The Swiss Federal Council made the decision, which is a seven-member executive council that constitutes the federal government of Switzerland and serves as the Swiss collective head of government and state. This action nullifies a ban on precious metals transactions with Iranian governmental bodies and the requirement to report trade in Iranian petrochemical products to the Swiss government. It also eliminates an obligation to report to the Swiss government the transport of Iranian crude oil and petroleum products and certain rules on insurance and reinsurance policies linked to such transactions. In the financial sector, threshold values for reporting and licensing obligations in relation to money transfers from and to Iranian nationals were increased tenfold.

These Swiss measures had already been suspended since January 2014, but by lifting them on an apparently more formal or permanent basis, the Swiss government patently appears to be sending a far larger political message to sanctions compliance personnel. The Swiss government’s announcement stated, in part, the following:

Today’s decision by the Federal Council underlines its support for the ongoing process to implement the nuclear agreement, and its confidence in the constructive intentions of the negotiating parties. The Federal Council also wishes to signal that Switzerland’s positioning with respect to Iran, which was developed and maintained over a number of years, should be used to promote a broad political and economic exchange with Iran. In recent decades, Switzerland has pursued a consistent, neutral and balanced policy with regard to Iran . . . . Should implementation of the agreement fail, the Federal Council reserves the right to reintroduce the lifted measures.

It seems clear that the Swiss Federal Council is signaling that Switzerland is eager to resume normal business with Iran. Meanwhile, however, US Department of State spokesman Mark Toner said US sanctions continue to remain in place and penalties would still apply to any country or company that violates them. He told reporters that the United States wasn’t informed in advance of the Swiss move to drop its sanctions before Iran has taken the promised steps to curb its nuclear program and before the United States, European Union, and United Nations have removed their penalties.

It is also important to remember that for now, US secondary Iran sanctions will continue to remain in effect against foreign companies for probably the next 12 months or until the implementation day, no matter the consequence of this Swiss Federal Council action.

Moreover, “US Persons” are prohibited from entering into executory contracts for Iran-related transactions until US sanctions are lifted after implementation day. The US Department of State has recently suggested that that day may fall in summer or autumn of 2016, depending if and whether the International Atomic Energy Agency can certify that Iran has taken the required steps under the Iran nuclear deal.

“US persons” means US nationals, US permanent resident aliens (“Green Card holders”), entities incorporated in the United States, individuals or entities in the United States, or entities established or maintained outside the United States that are owned or controlled by a US person. For a US person to sign such an executory contract before implementation day would be a dealing in property or an interest in property involving Iran or a Specially Designated National, which is prohibited by current US regulations as applicable to US persons. The current Iran sanctions regulations expressly state that such executory contracts are property or an interest in property because they involve “contracts of any nature whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or interests therein, present, future, or contingent.”

On the other hand, it appears that non–US persons (as defined above) that have no US nexus (e.g., not incorporated in the United States or owned or controlled by a US person), that do not act in or through the United States or a US person and that otherwise are not generally subject to US jurisdiction may enter into executory contracts with Iran without risk of exposure of an Office of Foreign Assets Control (OFAC) enforcement case for so doing. Even in these cases, potential non–US person investors in Iran are well advised to seek clearance from the relevant regulators that these contracts do not violate United Nations, European Union, or other non–US sanctions.

At this time, it is unclear to what extent entities established or maintained outside the United States that are owned or controlled by a “US person” will be able to engage in trade with Iran after implementation day occurs. OFAC has indicated that it will resolve this question in due course, and at that time, it will issue appropriate guidance.

ARTICLE BY Louis Rothberg & Margaret M. Gatti of Morgan, Lewis & Bockius LLP

Coming to America: Foreign Manufacturers Looking to Produce in the U.S.

There’s been buzz about Keer Group lately, the Chinese textile company that opened a cotton mill this year in South Carolina. China has long been seen as the global capital of textile manufacturing, due in part to their low production costs and seemingly endless supply of cheap labor. But Keer Group found the rising costs in China made it difficult to grow in its hometown of Hangzhou. Wages there have been steadily increasing, energy costs are rising, and shipping costs are growing higher. Textile operations in China are actually starting to become unprofitable. So production was moved to America. And Keer Group is not alone. JN Fibers Inc., also of China, is building a plant in South Carolina. Indian textile manufacturer, ShriVallabh Pittie Group, is building a factory in Georgia.

Why would textile companies from traditionally low cost countries move production to the U.S.? What’s the allure for these foreign companies? Isn’t it expensive to operate here as opposed to low wage countries like China and India? Well, despite the comparatively high wage rate in the U.S., several factors are at play to offset the cost of labor. Years of low employment mean that Americans are willing to work longer hours and for suppressed wages. The U.S. is also home to several right-to-work states where union representation is low and workers are not restricted to a single task but rather can set up, operate, and run multiple machines. But even with a wage gap between the U.S. and low wage countries, the gap is more than compensated for by other savings.

“Except for human labor, all other production factors are cheaper in the U.S.”

The U.S. is a political, economic, and infrastructural oasis in an uncertain world. America benefits from cheap, plentiful, and reliable energy ensuring production facilities can be kept running constantly. While textile companies in the past have looked to countries such as Bangladesh and India to keep production costs low, economic volatility resulting in unreliable energy sources are disrupting production. Many plants today are primarily automated, meaning companies rely on the constant energy supply. What good are cheap utilities when they aren’t stable?

The U.S. has also created incentives to keep costs down for foreign companies looking to relocate. Government at the local, state, and federal level have eagerly provided infrastructure grants, revenue bonds, and tax credits in order to bring back jobs to economically depressed areas. Additionally, trade agreements between the U.S. and other low cost countries provide the extra incentive of keeping shipping and logistical costs low. NAFTA has created duty free zones on imported textiles between the U.S. and several trade partners. And should the Trans-Pacific Partnership reach an agreement, companies with production in America can take advantage of an expanded pool of countries with tariff reductions, including Vietnam.

Just how difficult is it for a foreign company to establish operations in America? Not difficult at all. The U.S. Small Business Administration has provided excellent guidance on the basic steps needed get started.

Businesses in the U.S. are incorporated at the state level, first by registering with the state and then establishing a registered agent with a valid state address to receive legal documents on behalf of the company. Considerations for the foreign company include which state will be the most attractive in terms of readiness of labor force, land availability, and tax benefits.

International shipping of goods through the U.S. will be regulated at the federal level, requiring specific licenses and permits. The Department of Commerce’s Trade Information Center and the U.S. Customs and Border Protection provide useful information on U.S. importation and exportation procedures. Additional considerations include compliance with the Internal Revenue Service, starting by either obtaining an Employment Identification Number or an Individual Taxpayer Identification Number, depending upon the citizenship of the individual establishing the business. Trade licensing requirements, IRS compliance, and tax credits, including incentives available to businesses through a foreign tax treaty, are all important issues to consider, and if left with any questions, it is always best to consult with a qualified attorney.

There are numerous benefits for a foreign company to relocate manufacturing operations to the U.S., but there are also important considerations that should be taken into account. However, navigating the channels of regulations and requirements shouldn’t deter manufacturers from taking advantage of all of that come from setting up shop in America. Foreign companies are finding that operating in what were traditionally considered to be low cost countries are no longer profitable and are starting to look outside their borders. And if companies like Keer Group are any indication, for the first time in a long time manufacturing in America is not only a consideration, it’s a serious contender.

ARTICLE BY Ayako Hobbs & Sarah K. Rathke of Squire Patton Boggs (US) LLP

Negotiators Have Reached Deal with Iran – U.S. Persons Should Not Expect Quick Relief From Sanctions

On July 14, 2015, the five permanent members of the UN Security Council (China, France, Russia, the United Kingdom, and the United States) plus Germany (the “P5 + 1”) announced a Joint Comprehensive Plan of Action (JCPOA) with Iran intended to ensure that Iran’s nuclear program will be exclusively peaceful. The agreement builds on the JCPOA framework announced on April 2, 2015, and is intended to provide Iran with phased sanctions relief based on verification that Iran has implemented key nuclear commitments.

Under the JCPOA, Iran agrees to cap its uranium enrichment capability for 10 years and to accept international monitoring of its nuclear program. In exchange, the United States, European Union, and United Nations will relax sanctions on Iran in stages. Once international nuclear inspectors verify that Iran has implemented the agreed to nuclear-related restrictions, the United Nations will pass a new resolution that will terminate various resolutions currently in place. If, at any time, Iran is determined to be out of compliance with its obligations, those resolutions will “snapback” or be re-imposed against Iran. The EU further agreed to terminate its regulations implementing all nuclear-related economic and financial sanctions at the time the inspectors verify Iran is in compliance.

U.S. sanctions relief will initially be limited to the suspension of secondary sanctions that target the commercial activities of non-U.S. companies in key sectors of the Iranian economy, such as oil, gas and petrochemical industries, as well as companies in the shipping and shipbuilding and automotive sectors. In other words, the sanctions relief that was provided to non-U.S. persons earlier in the negotiations will continue. Eventually, these secondary sanctions may be eliminated (rather than suspended) but only if the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related measures described in the JCPOA.

It is anticipated that the United Nations Security Council will endorse the Agreement over the new few days. The JCPOA and its commitments will come into effect 90 days after the Security Council’s endorsement, which will be known as “Adoption Day.” Beginning on Adoption Day, the P5+1 and Iran will prepare for implementation of the agreement, but no sanctions relief will be granted until inspectors have verified Iran is in compliance with its commitments.

What changes, if any, will be made in primary U.S. sanctions, such as the Iranian Transactions and Sanctions Regulations (ITSR), is less certain. Under the Iran Nuclear Review Act, passed into law in May 2015, the president must transmit the agreement to Congress, which then has 60 days to review it. During Congress’ review period, the president may not waive, suspend, reduce, or provide relief from statutory sanctions or refrain from applying existing sanctions. In other words, there will be no sanctions relief for U.S. persons in the immediate future. If, as some members of Congress have threatened, Congress issues a joint resolution of disapproval, which the president in turn has threatened to veto, there is another waiting period during which the president may take no action to reduce sanctions.

Thus, the status quo will likely continue for quite some time, and from the perspective of U.S. primary sanctions – those that apply to U.S. individuals and entities, as well as entities owned or controlled by U.S. persons – no changes are imminent.

ARTICLE BY Joan Koenig & Mollie D. Sitkowski of Drinker Biddle & Reath LLP

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

In the first two parts of this series, we considered how the RO operates, possible plans to close the RO in 2016, and the potential impact of those plans upon the onshore wind industry. In this final post, we outline two possible legal avenues for challenge and redress by those who may be affected by the early closure of the RO: through the national courts and under international investment treaties.

The first possibility is to challenge the Government’s actions through the national courts. This route recently has been used by the solar industry, with mixed results. In 2012, the Supreme Court refused the Government’s appeal to cut solar feed-in-tariffs before the completion of a consultation on the matter. However, in November 2014, the High Court refused an application for judicial review against the Government’s decision to close the RO to ground and building mounted solar photovoltaic capacity above 5 megawatts in 2015 rather than 2017.

Affected investors could also consider commencing international arbitration proceedings under an investment treaty. If successful, an investor could obtain compensation for the loss of their investment as a result of measures introduced by the Government. However, this option would only be available to foreign investors from member States that have an investment treaty in place with the UK, and who have made a qualifying investment in the UK, as defined by the applicable treaty.

A number of European states, including Spain, are currently being sued by foreign investors under the Energy Charter Treaty as a result of changes to national solar subsidies. Marcus Trinick QC, representing Renewables UK, has warned Energy Minister Amber Rudd to “be aware of the dangers of state aid discrimination and look at what is happening in international energy arbitration across Europe. In such a position we could not afford not to fight, especially if action is taken to interfere retrospectively.”

Media reports suggest that, given the extent of industry opposition, DECC is delaying an announcement to allow for further refinement of the proposed measures and their impact, in order to reduce the scope for legal challenges. Marcus Trinick QC has emphasised the need for dialogue between the industry and the Government before action is taken, which could reduce the risk of legal challenges arising.

The message from industry representatives is clear: the early closure of the RO would be a major blow to the future of onshore wind in the UK, which could spark a legal battle with the UK Government. As Maf Smith, deputy chief executive of RenewableUK, has stated, “[t]he industry will fight against any attempts to bring in drastic and unfair changes utilising the full range of options open, including legal means if appropriate.”

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

ARTICLE BY William Lowery & Catherine Karia of Covington & Burling LLP

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

Part One of this series outlined the RO scheme and the expected announcement to close the RO earlier than anticipated. In this second post, we consider the potential impact of such measures upon the onshore wind industry.

Until the consultation with devolved authorities (Scotland and Northern Ireland) is completed, and detailed proposals are published, the timing and nature of the impact on the industry will be uncertain.

There are currently around 3,000 new turbines with a combined capacity of more than 7 gigawatts seeking planning permission, many of which would have been expecting to secure accreditation under the RO. Bloomberg Energy Finance has estimated that, if the RO closes to new generating capacity in 2016 and onshore wind was not eligible for public subsidy under the Contracts for Difference scheme, less than half the capacity of projects in advanced stages of planning would benefit from subsidies.

The majority of the planned projects are due to be located in Scotland. Given the apparent tension between the Scottish First Minister and Prime Minister over the future of onshore wind (referred to in our first post in this series), there is currently uncertainty as to whether or not the applicable RO in Scotland would close in 2016. This is an important consideration regarding the possible impact of any proposed measures.

It is unclear whether there would be a ‘grace period’ in relation to the changes, which could enable projects that already have planning permission to be included under the RO scheme, and closing the RO for those that do not. Ian Marchant, chairman of wind developer Infinis Energy, said: “The Government’s alleged plans to close down the Renewable Obligation-regime early for onshore wind beggar belief. . . . If the RO is terminated early without reasonable grace periods in place, not a single energy or large scale infrastructure project in the UK will be safe going forward.”

The potential impact of such measures is giving rise to considerable uncertainty and concern over the future of the onshore wind industry. In our final post in this series, we will consider what action could be taken by industry participants who may be affected by the early closure of the RO.

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

ARTICLE BY William Lowery & Catherine Karia

Covington & Burling LLP

Category: Global

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