Hello and welcome once more to the Pinsent Masons podcast, where we try to keep you up to date with the most important developments in global business law every second Tuesday. My name is Matthew Magee and I’m a journalist here at Pinsent Masons, and this week we examine what we know about the new EU political landscape now that there’s a new parliament and new Commission president – what is guiding Ursula von der Leyen’s agenda, and how can companies prepare? And we look at long-awaited electricity market reform in South Africa. But first, here is some business law news from around the world:
AI algorithm disclosure might be required in EU
Employers need to track UAE employment law changes
UK clothing firms must heed anti-greenwashing rules
Companies which use AI to make decisions with legal or other significant impacts on people may have to disclose the algorithms to the authorities, an adviser to the EU's highest court has suggested. Some rulings of the Court of Justice of the European Union are preceded by advice from an advocate general. The advice is not binding, but is influential. Advocate general Jean Richard de la Tour has published advice in a case involving the automated processing of people's data. Those people have rights to access data about them under EU law, including 'meaningful information about the logic involved' in automated decision making. De la Tour said that in some cases companies might have to disclose their entire algorithms, which are often trade secrets, to regulators or courts to aid decision making. Data protection expert Malcolm Dowden said that “The idea that trade secrets might need to be disclosed to data protection authorities for evaluation might well be regarded as a highly sensitive and controversial suggestion, as the evaluation of trade secrets is by no means a core activity or competence of data protection authorities.”
Employees in the United Arab Emirates (UAE) will have longer to bring a claim under reforms that have increased the statutory limitation period from one to two years from the termination of their employment. Employers should keep records for longer and should keep track of other changes to how employment disputes are managed in the UAE said one expert. Employment law expert Lujain Assaf said that employers should retain records relating to employee dismissal for a longer following this change, especially if the termination was contentious. Under the updated regime, the Ministry of Human Resources and Emiratisation will continue to use its power to resolve employment disputes that do not exceed AED 50,000 (approx. US$13,600) in value by issuing binding settlement decisions. The ministry now also has the power to issue binding decisions in disputes arising out of parties failing to comply with previously issued settlement agreements, regardless of the value of the claim. There are also changes to the appeal process.
UK fashion businesses should ensure awareness of and compliance with the Competition Market Authority’s (CMA) recently published anti ‘greenwashing’ guidance to help minimise their risk exposure under consumer protection law, one expert has said. UK regulation demands that businesses ensure that customers are able to make informed choices about products and services prior to purchase, avoiding making untrue or misleading green claims, known as ‘greenwashing’. The guidance draws on the conclusions from the CMA’s recent consumer protection investigation which led to three fashion businesses giving formal commitments to make certain changes to the way they made environmental claims. The CMA found that some claims were vague, lacked substantiation, or were potentially misleading. Consumer law expert Tadeusz Gielas said: it is important that businesses are aware of the CMA’s latest guidance to help minimise their risk exposure under UK consumer protection law.
Since elections in June the European Union has a new parliament, and a new president of its Commission, the policy setting executive arm of EU government. So now seemed to be a good time to look at what policies lie ahead for businesses. This matters profoundly to companies in or doing business with other companies in the EU, but also all around the world. On issues from data protection to cyber security to climate change mitigation the EU is fast becoming the world’s de-facto regulator. Big international companies that have to meet its high standards will then just try to get their business partners to meet them too, and the EU’s influence is magnified around the world. So what will it focus on in the coming years? Edinburgh based public policy expert Mark Ferguson said that its agenda is being largely set by a report commissioned by returning president Ursula von der Leyen from economist and former Italian prime minister Mario Draghi.
Mark Ferguson: The Draghi report revealed a really huge or the stark challenge that the EU faces in its attempt to become more competitive with its global comparator countries, the US and China really. The report outlines that growth in the EU has stagnated and it highlights that without a significant and coordinated approach and a lot of money this decline in the EU's economy is going to continue. But he identified three very broad areas in which the EU needs to address challenges that it faces. One could be broadly defined as digitalisation. You said that the industrial structure for new companies just isn't there to help them go and disrupt. The second area where he calls for further action is on decarbonisation and competitiveness. He presents decarbonisation as a tremendous opportunity for the EU, not something that should be turned away from by businesses or by the block itself. The third area of action that he sets out almost seeks to articulate the kind of shifting geopolitical stands that the world is facing just now. And the EU has recognised and Draghi port points out that the EU has become too dependent on too few suppliers and there's a need to increase its self-reliance in critical areas. It needs to invest in its own defence structures to increase security and all of that will tie in and support the economic agenda that he outlined in his paper.
Matthew Magee: So what will von der Leyen’s response be? We get a sense of it from a list of laws that she plans to try to get through Europe’s complicated, combative and political legislative system. There’s a Critical Medicines Act, a Biotech Act, new climate change laws, laws to accelerate decarbonisation; new rules promoting a circular economy; a new data union, new laws on design rights and on products derived from forced labour. What we don’t know in most cases is what these laws will actually do. But in some areas we have more information, Mark says.
Mark: Some of the legislation that we know that's coming back is things like the pharmaceutical legislation. The Biotech Act was trailed in September Ursula von der Leyen’s state of the Union speech. We know that that’s intention is to kind of help bring medicines to market a lot quicker and in that sense it ties in with the Critical Medicines Act in terms of bringing things back to the EU and ensuring a dependency on that. We know a lot about the climate act that will come forward and what that's going to do is enshrine the European Union's commitment to lower greenhouse gases by 90% from 1990 levels by 2040. Tying in with that you have things like the Industrial Decarbonisation Accelerator Act and a final one in the climate and sustainability space is the Circular Economy Act, and that's to create that market demand for secondary materials and a single market for waste. So, so much of it goes back to ensuring there's that single market focus throughout every aspect of the European Union's economy.
Matthew: Draghi’s report has had a profound influence on von der Leyen’s thinking about competitiveness, but is there something broader, something more connecting these legislative efforts? What aims or motivations lie behind these legislative priorities?
Mark: I suppose that the silver thread running throughout the policy agenda is von der Leyen’s outlook on the future of the European Union. Now, she views the next five years as an area of profound change, and as that, there needs to be significant action on European Society, on European security to address climate, climate risk and to help the European economy grow. This agenda will build on her first term, in which she brought forward the Green Deal but she also faced challenges such as the Pandemic and the Russian invasion of Ukraine. She oversaw a European Union that went through dramatic change. So what she sees now is almost the rebuilding of these core tenants of the European Union and driving forward to grow the economy again to ensure that European Society continues to flourish and to ensure that the EU is a global leader in taking climate action.
Matthew: One of the biggest obstacles to progress on her priorities will be the EU itself, but Mark says we shouldn’t underestimate its capacity to get things done.
Mark: At this point in the political process is really hard to determine how much will be achieved. The European Union is not a speedy mover because it's trying to take 27 different countries with 27 different domestic political challenges in the same direction. But I think generally when you look back at the previous session and the proposals that were contained in something like the Green Deal, there was a lot of legislation in that, a lot of activity needed to be delivered on and by in large they were very successful in pushing that legislation through the political process.
Matthew: The list of proposed legislation will help companies identify whether or not they’re likely to be affected. But because we don’t know what will be in these laws there’s not a lot of concrete action based on what's in the legislation that they can take now. But they can prepare for the future, says Mark.
Mark: A key thing for businesses to be mindful of is that we know much of what the headline agendas are going to be just now for the next nearly four and a half years of this term. What we don't have just now is the full text of what the legislation is going to look like and for businesses that presents a few challenges that they need to get on top of. One, they need to be on top of their horizon scanning. What information are businesses bringing in to understand the evolving political environment in the European Union. Second thing they need to do is understand who your new key stakeholders are going to be. Businesses want to get on top of their stakeholder management, identifying who they want to be talking about in terms of specific pieces of legislation that are going to impact their business going forward. And then finally knowing roughly what the policy agenda is, or knowing roughly what legislation is going to be put forward and engaging with those stakeholders, but clearly identifying what businesses want to see from new legislation.
Far reaching reforms of how electricity is distributed in South Africa are ambitious and could ensure more stable supply, lower prices and encourage economic and industrial development. The changes are likely to generate two kinds of business opportunity: for users of electricity, they can access power more cheaply and without the daily outages experienced until recently. Then for companies entering the market as aggregators and traders of power, they can connect generators with more customers than ever before, hopefully making more efficient use of any power that is generated, perhaps even increasing the amount of power that's generated because the distribution is wider and more reliable. But as we’ll hear, implementation is not simple and the timetable opaque, which is affecting investment. Johannesburg-based electricity market expert Emma Roberts outlined the problems that this wide-ranging reform is seeking to solve.
Emma Roberts: It's the first substantial amendment to the South African regulatory framework governing electricity since 2006. So its intention is to essentially overhaul and create significant reforms to South Africans electricity market from moving us away from a essentially a very monopolistic utility driven market into establishing a competitive electricity market, increasing investment in generation capacity and ensuring energy security. All residential consumers of electricity will receive their electricity directly from the utility, but more likely from one of the municipal distributors, who in turn purchase their energy from the state owned entity Eskom. I think, until recently Eskom supplied up to 97% of the country's electricity demand. There's already been discussions in the market about the need to introduce some kind of competition into the market to try and break, you know, the gatekeeper. You can’t have your generator also be the distributor, also be the transmitter, also be the person responsible for dispatching the energy, buying and selling. That inherently creates an uncompetitive market which drives up prices. And the need has become quite apparent in the fact that our, you know, our utility is asking for year on year electricity price increases of up to 33%.
Matthew: Reforms like this have been talked about for ten or fifteen years, and this piece of legislation The Electricity Regulation Amendment Act has been around since 2021, and Emma says that the passing of the law isn't the end of the regulatory story – much still needs to happen before things change on the ground.
Emma: The main, you know, things that need to happen is the transmission system operator needs to be established and licenced, so that's to enable the unbundling and the moving out of the transmission business into a complete separate entity. The development of a market code still needs to occur, so the market code will essentially govern the rules for how the competitive market will operate and how trading and open trading platforms, stay ahead trading, will work and then various licencing and regulations need to be passed by regulator Nersa.
Matthew: This reform has been so long in coming that the market has already started to respond. There are a number of independent power producers – or IPPs – generating power, and lots of it is solar, which is good during the day, and wind, which in South Africa is good in the mornings and evenings. So the reshaping of the market is unlikely to involve lots of large international companies coming in and building massive new generation or distribution infrastructure. It’s more likely to be about aggregators and traders distributing the power that’s already being generated differently, said Emma.
Emma: There were sort of what I'd call baby reforms under our existing legislation that then was intended at that time to create more competition by allowing generators to now start selling to private off takers. So there's already a market where you have generators selling to sort of your heavy industrial users and your private off takers, but there's only so many heavy industrial off takers that can do these one to one PPA's that can take 100 megawatts at a time. So what the benefit now is in opening up the markets completely is that you can now have this aggregation trading model which benefits both the generators, because now they're also getting a different customer base. So the generators now are able to sell to the off takers, so we'll see an increase in generation capacity because they have somewhere to sell the electrons to and the aggregators will be able to take advantage of being in a position to sell to many different customers and not have the limitation that they need to find one customer that will offtake the 400 megawatts, for example.
Matthew: It is this trading activity that will allow consumers to pick an energy supplier rather than buy from a former state monopoly, and allow businesses to enter power purchase deals that are more flexible and tailored to their needs. The overall impact is hoped to be more competition and a resulting decrease in prices and increase in service levels. Emma says that until temporary measures put in place six months ago she experienced daily power outages often lasting several hours – the problem is so endemic that citizens have an app that tells them what that day’s outages are going to be. But, she said, the long timescale for implementation for reform and the scale of the administrative job ahead for the South African government is affecting how companies are behaving now.
Emma: So I would say the biggest challenges that they will currently face is the lack of the implementing sort of the practical processes that are in place. So because there's no clarity around when exactly the market codes will be you to come into force what would be the underlying rules and regulations sort of underpinning that and how will those look? And how practically will trading and the implementation and the allocation of energy look means that the market is still forced into contracting on a more conservative basis. What that means inherently is the risk that you are able to assume under your contracting documents is still akin largely to what you would find in your ordinary PPS, your one to one simply because of the practical implementation. So we have practical challenges that aren't addressed through the regulations and the reform.
Matthew: Thanks for listening, and I hope you find this Podcast useful – if so please do review it, rate it, tell your friends, your family, your colleagues, your clients, your suppliers. It's all useful in helping us to find the right audience for the business law news and analysis we bring you here on the podcast every fortnight and at pinsentmasons.com every single day from our team of specialist journalists. And if you want that news and analysis in your inbox, you can sign up for tailored updates at pinsentmasons.com/newsletter. So until next time, goodbye. The Pinsent Masons Podcast was produced and presented by Matthew Magee for international professional services firm Pinsent Masons.
