GLOBAL HR: All Eyes on European Turbulence

August 29, 2017

Our global HR alliance continues to help our Member companies navigate developments on the global stage—chief among them, the ongoing saga of the UK's Brexit negotiations within the larger context of changes in the EU, and what they will mean for employers.  Below, Tom Hayes of BEERG provides special insight on these issues, while Amy Lau of APERG examines HR challenges in the Asia Pacific region. 
 
BEERG: Brexit at Full Steam Ahead Amid Great Uncertainty  As the European political year kicks-off again from September 1 the issue that will cause most concern for business will be the ongoing Brexit negotiations.  As things stand, the UK will be leaving the European Union at the end of March, 2019.  After the initial bravura of language such as "Brexit means Brexit" and "No deal is better than a bad deal," the more serious members of the UK government have come to realize that Brexit will hit the UK economy hard—very hard—and are desperately looking for ways to avoid the worst.  They now know that a comprehensive post-Brexit agreement between the EU and the UK will not be in place by March 2019 if only for the simple reason that EU law does not allow the EU to negotiate trade agreements with one of its own members, even if that member has said it is leaving.  A "transition agreement" for up to a three-year period after March 2019, during which everything would stay pretty much as it is now, while future arrangements are being negotiated, appears to be the emerging consensus position of the UK government.  On Sunday, August 27, the Labour Party, the lead opposition party, announced that it now backed a three to four-year transition, involving continuing membership of the single market and the customs union.  It also left open the possibility of continued membership of both as part of a long-term deal with the EU.  Labour's policy swerve will be welcomed by the "economic realists" on the government benches, even as it infuriates Brexit hardliners.  While a transition period appears sensible, the problem is that a transition has to be a transition from one place to another and the UK has still not set out clearly where it wants to go after it leaves the EU, though the move by Labour is a step in the right direction.  A flurry of UK position papers within the past few weeks talks of a "deep and special relationship" between the UK and the EU but the EU has not said if it is interested in such a "deep and special relationship."  Probably because the EU believes that what the UK means by a "deep and special relationship" is all the benefits that come from EU membership but without any of the commitments and costs involved.  
 
Can the UK Meet Its EU Financial Obligations?  But there is a significant issue that must be resolved before talks about a "deep and special relationships" can even begin.  The EU insists that the UK must meet the financial obligations it committed to as an EU member before initiating talks on future relationships call it a "break fee."  The UK appears to accept that a fee is payable but wants to use the payment as leverage in the future relationship talks.  So the two positions are thus: The EU says agree to the fee and future talks can begin, while the UK says open future talks and we can talk about the fee.  As of the time of writing there is nothing to suggest that the EU will back down.  It doesn’t need to.  It is five times bigger than the UK.  As we have constantly said when writing about Brexit, hope for the best but prepare for the worst.
 
European Economic Resurgence  Brexit aside, there is good news from Europe. The European economy is on the mend and growth has returned. In France, Emmanuel Macron, the newly elected president, is pushing through much-needed change to labor laws and collective bargaining structures. Final details will be published in the next week or so but press reports in France suggest that employer organizations are happy with what they are hearing.  As always, the devil will be in the details.  With Angela Merkel on course to win the upcoming German general election in September expect Macron's France and Merkel's Germany to work together to inject a new dynamism into the European Union—with the UK on the outside, looking in.  While Macron's popularity has taken a nosedive in recent weeks it won't concern him or his supporters unduly as elections are five years away and he will hope that if his reforms boost French growth the polls will move in this direction.
 
General Data Protection Regulation on the Horizon in Europe  Between now and May of 2018, all businesses within the European Union will need to take steps to prepare for the coming into force of the General Data Protection Regulation (GDPR).  Get it wrong and individual companies could be looking at fines of €20 million, or four percent of global revenues, whichever is the greater.  As the EU has shown over the past year, it is not afraid to hit companies with big fines.  Google has just been fined over €2 billion for alleged abuse of market dominance.  Being GDPR-ready should be near the top of every business's "to-do" list. 
 
APERG: Legislative Changes in China  A couple of legislative changes announced and implemented in China in recent months will significantly impact multinational companies operating in China and the development of labor activism.  
 
The first, which came into effect on January 1, 2017, mandates foreign NGOs to register in China, subjects them to close government scrutiny, and requires the sponsorship of a local government.  Additionally, it gives the police authority to inspect NGO office files, question their employees, and even to seal off their properties and other assets.  According to data from the end of 2016, there are roughly 7,000 NGOs operating in China.  As of late July, about 90 have registered thus far, with the vast majority being chambers of commerce, trade associations, or household names in the charity world, such as the Bill and Melinda Gates Foundation.  To date, no groups advocating human rights or workers' right have successfully registered.  Under this new law, any foreign NGOs that have not registered must file a record of their temporary activities.  However, the implication of filing this way is unclear, prompting some NGOs to simply halt their programs in China and suspend funding to their local partners as they wait for clarity. 
 
Second, a new law regarding personal data storage and transfer, issued by the Cyberspace Administration, came into effect on June 1, 2017.  The new law mandates that all employers intending to transfer employee data overseas, including Hong Kong, Taiwan, and Macau, must complete an annual assessment.  (This excludes employers deemed "network operators," who will be required to store PRC employee data in China.) Importantly, prior consent must be obtained from the affected individuals.  With the trend of the use of global databases and global/regional shared services, multinational companies operating in China that have been or will be transferring Chinese employee data outside the country will need to understand the implication of such a change to their operations and respond accordingly. 
 
Unionization Trends in Asia  International unions continue to make inroads into different parts of Asia: 
  • IndustriALL recently claimed credit for pressuring five Bangladesh garment suppliers to reinstate wrongfully dismissed workers, compensate 92 percent of those who were not reinstated for the loss of their job, and withdraw criminal charges aimed at several activists.  IndustriALL also organized eleven union leaders from eight companies in the Philippine pharmaceutical industry to agree that the ongoing consolidation in the industry underlines the need to demonstrate union power through closer collaborations.
  • While international unions traditionally do not easily penetrate China, a recent industrial action in a major joint venture in China involving Volkswagen opened the door for European Works Councils to show solidarity with the Chinese workforce.  Workers published a petition to the Volkswagen management in Germany and copied the Volkswagen European Works Council, basing their grievances on the global framework agreement "Charter on Temporary Work" signed by Volkswagen in 2012.  The works council responded by showing support to the Chinese workers in early August.  The case may determine whether pressure from a works council in Europe can indeed impact a joint-venture operation in China.