B&K Newsletter: Putin ad vitam

In today’s edition, we bring you to Russia (for once!) and we analyse critical votes of this week’s plenary session of the European Parliament. Enjoy!

Putin ad vitam

What in a normal country would be a significant event like a presidential election goes unnoticed in Russia, so much so that even many Western media seem to have forgotten about it.

Vladimir Putin is on course to win his fifth term as Russia’s president in elections on 17 March, which will keep him in power until at least 2030.

Russia’s longest-serving Kremlin tenant since Joseph Stalin, Putin, faces no serious competition in the election.

How can Putin run again? In 2020, he?changed?the constitution with a move that will potentially allow himself another two terms, taking him to 2036, when he would be 83.

After Alexey Navalny’s death, three other?candidates?will appear on the ballot, but none of them is contending against Putin’s power: Leonid Slutsky, leader of the ultranationalist Liberal Democratic Party of Russia; Nikolai Kharitonov for the Communist Party, and Vladislav Davankoc representing the New People. Polls in Russia show that none have more than 5% support.

Some may wonder why Putin needs elections if his mandate identifies with the Russian state power. First, Putin will likely use this election – and the consequent result - as an element of legitimacy, particularly regarding foreign leaders.

Secondly,??a va sans dire?that the vote will be weaponised as a piece of evidence that Russians support Putin’s war of aggression against Ukraine and his political stands against the US and NATO.

In terms of domestic policy, Putin wants to show to the world (before to his citizens) that the Russian economy can survive international?sanctions, even as Russia has increasingly been turned into a?war economy, with the pressure on the ruble eased by capital controls and by relying on?the Chinese monetary fuel?(Yes, even if it means exploding public debt).

To prove this, one of Putin’s proposals for the next term is to?increase?taxes to raise as much as 4 trillion rubles ($44 billion) to finance the war in Ukraine. The government may now raise personal income tax to 20% from 15% for those earning more than 5 million rubles and company taxation to 25% from 20%.

The Russian government is depleting its resources by increasing military spending and supporting businesses amidst the economic strain caused by extensive international sanctions. According to the Finance Ministry’s?data, nearly half of the national wealth fund's reserves were utilised by the end of last year. As of February, this year's federal budget was in deficit by 1.5 trillion rubles, with a projected deficit of 1.6 trillion rubles for 2024.

We hope that Vladimir Putin celebrates his bombastic election victory sparingly in this scenario.

A summary of this week’s EP plenary session

This week, the European Parliament gathered as usual in Strasburg for the plenary session. Being one of the last scheduled before June’s elections, there was quite a lot on the voting agenda.

Let’s try to go through the crucial ones.

On Tuesday, MEPs gave the green light to the?Cyber Resilience Act, a piece of legislation that aims to protect all digital products in the EU from cyber threats.

Critical products will be categorised based on their level of importance and cybersecurity risk, with the European Commission proposing and updating two separate lists. Those products posing a higher cybersecurity risk will undergo rigorous examination by a notified body, while others may undergo a less stringent conformity assessment process typically managed internally by manufacturers.

Additionally, Members of the European Parliament (MEPs) advocated for closer involvement of the European Union Agency for Cybersecurity (ENISA) in addressing vulnerabilities and incidents. Upon notification by the concerned member state, ENISA will receive information to assess the situation. If it identifies a systemic risk, ENISA will inform other member states to enable them to take necessary measures.

The Council must formally adopt the legislation before becoming law.

Another critical vote on that day regarded new rules to ensure the?energy efficiency of buildings. According to the text approved by the majority of MEPs, starting from 2030, all new constructions must achieve zero emissions, while those owned or used by public entities must attain this target by 2028. Member states will assess emissions considering the entire life cycle of a building, encompassing the production and disposal of construction materials.

For residential structures, member states must implement strategies to decrease average primary energy consumption by at least 16% by 2030 and between 20% and 22% by 2035.

Under the new directive, member states must renovate the least energy-efficient 16% of non-residential buildings by 2030, and by 2033, the bottom 26% must meet minimum energy performance standards.

Where technically and economically feasible, member states must progressively integrate solar installations in public and non-residential buildings, contingent on their size, and ensure all new residential buildings incorporate them by 2030.

Exemptions are previewed for agricultural and heritage buildings. At the same time, EU countries may decide also to exclude buildings protected for their exceptional architectural or historical merit, temporary buildings, and churches and places of worship.?

This piece of legislation did not come without criticism. During the?debate?before the voting session, MEPs opposing the directive questioned the feasibility and cost-effectiveness of achieving zero emissions for all new constructions by 2030 and for public buildings by 2028, arguing that the timeline is too aggressive and could impose significant financial burdens on both public and private sectors, potentially leading to higher construction costs or reduced affordability of housing.

It will be interesting to see how member states will implement the directive, knowing that each member state adopts a different energy mix to supplement buildings and also that geography, density and distribution of the population and the industrial agglomerates play a crucial role in determining the type of the buildings in a specific area.

Another disputed vote regarded new rules to reduce pollution from industry and large livestock farms. Under the new?Industrial Emissions Directive (IED), already approved by the Council, the new rules will make it mandatory to set the strictest achievable emissions levels for the sectors covered. Environmental performance targets will become obligatory for water consumption to combat water scarcity. For waste, resource efficiency, energy efficiency and raw material use, targets will be within a range and for new techniques, they will be indicative.?

The revised IED will also cover extractive industry installations (mines) and large installations manufacturing batteries.

Lawmakers have agreed to expand the scope of IED regulations to encompass pig farms with over 350 livestock units (LSU). However, farms employing extensive or organic methods, with significant outdoor access for their pigs throughout the year, will be exempted. Regarding poultry, the directive will apply to farms with more than 300 LSU for laying hens and over 280 LSU for broilers. For farms engaged in both pig and poultry farming, the threshold will be set at 380 LSU.

The Commission will evaluate by December 31, 2026, to determine whether further measures are necessary to address livestock farming emissions, including cattle ones. Additionally, a reciprocity clause will be implemented to ensure that producers outside the EU adhere to standards comparable to those of the EU when exporting to the EU market.

Implementing these new rules will likely impact businesses, particularly those operating in industrial and agricultural sectors: industrial installations and large livestock farms must invest in technologies and practices to meet the stricter emissions and environmental performance targets mandated by the revised directive. Compliance may require significant investments in pollution control equipment, waste management systems, and resource-efficient technologies, potentially increasing operating costs for affected businesses. Those businesses must also adapt their operations to comply with the new regulations, which may involve changes to production processes, waste management practices, and water consumption patterns. For example, industrial facilities may need to implement measures to reduce water usage and improve energy efficiency. In contrast, livestock farms may need to implement measures to mitigate emissions and reduce pollution from animal waste.?

Additionally, the inclusion of reciprocity clauses in the regulations may also affect businesses involved in international trade, particularly those exporting agricultural products to the EU. Producers outside the EU must meet similar environmental standards to continue exporting to the EU market, potentially requiring investments in pollution control and environmental management practices.

And finally, the European Parliament gave its green light to two “workhorse” pieces of legislation for this European Commission: the?Media Freedom Act?and the?Artificial Intelligence (AI) Act.

The newly passed Media Freedom Act mandates member states to uphold media independence, prohibiting any intervention in editorial decisions.

Under the legislation, authorities are barred from coercing journalists and editors into revealing their sources, employing detention, sanctions, office searches, or intrusive surveillance software on their electronic devices.

The Parliament introduced significant safeguards regarding spyware, allowing it only on a case-by-case basis, contingent upon authorisation by a judicial body investigating severe crimes punishable by imprisonment. Even in such instances, individuals subject to surveillance must be informed post-factum and retain the right to contest it in court.

To prevent public media from being utilised for political motives, appointing their heads and board members must adhere to transparent and nondiscriminatory procedures, ensuring sufficiently lengthy terms of service. Termination before the contractual conclusion is impermissible unless professional standards are no longer met.

Public media funding will be governed by transparent and objective protocols, with finances allocated sustainably and predictably.

In the interest of public awareness regarding media control and potential influences on reporting, all news outlets, regardless of size, must disclose ownership information in a national database, including any direct or indirect state ownership.

Media entities must disclose funds received from state advertising and financial support, including from non-EU nations. Allocation of public funds to media or online platforms will be based on public, proportionate, and non-discriminatory criteria. Transparency regarding state advertising expenditure will be maintained, detailing the annual total and per outlet amounts.

MEPs have included measures to prevent major online platforms such as Facebook, X (formerly Twitter), or Instagram from arbitrarily censoring or removing independent media content. Platforms must first distinguish independent media from non-independent sources, notifying media entities of content deletion or restriction intentions and providing a 24-hour window for response. Platforms may proceed with content removal or restriction only after receiving a reply (or in its absence) if it remains non-compliant with their terms.

Media outlets can appeal to an out-of-court dispute resolution body and seek an opinion from the European Board for Media Services, a newly proposed EU regulatory entity under the EMFA.?

With the AI Act, the European Union has adopted landmark legislation.

Negotiated with member states in December 2023, the regulation received approval from MEPs, garnering 523 votes in favour, with 46 against and 49 abstentions.

The Act's primary objective is safeguarding fundamental rights, democracy, the rule of law, and environmental sustainability from potentially high-risk AI applications, simultaneously promoting innovation and positioning Europe as a frontrunner. It establishes responsibilities for AI based on its assessed risks and impact levels.

The legislation prohibits specific AI applications deemed to threaten citizens' rights, including biometric categorisation systems based on sensitive characteristics and indiscriminate harvesting of facial images from online sources or CCTV footage to create facial recognition databases. Additionally, emotion recognition in workplace and educational settings, social scoring, predictive policing based solely on profiling or individual assessments, and AI designed to manipulate human behaviour or exploit vulnerabilities are prohibited.

Law enforcement agencies generally prohibit using biometric identification systems except in meticulously defined circumstances. "Real-time" biometric identification can only be deployed under strict conditions, such as time and location limitations, and subject to specific prior judicial or administrative authorisation. Examples may include targeted searches for missing persons or preventing terrorist activities. The post-event use of such systems is considered high-risk, necessitating judicial authorisation linked to criminal offences.

Stringent obligations are outlined for other high-risk AI systems due to their potential significant harm to health, safety, fundamental rights, the environment, democracy, and the rule of law. These include critical infrastructure, education, employment, essential private and public services, specific law enforcement systems, migration and border management, and justice and democratic processes. Such systems must assess and mitigate risks, maintain usage logs, ensure transparency and accuracy, and incorporate human oversight. Citizens retain the right to lodge complaints regarding AI systems and receive explanations concerning decisions influenced by high-risk AI systems affecting their rights.

General-purpose AI systems and their underlying models must adhere to transparency requirements, including compliance with EU copyright laws and publishing detailed training content summaries. More potent general-purpose AI models facing systemic risks will encounter additional scrutiny, such as model evaluations, risk assessments, risk mitigation measures, and incident reporting. Furthermore, artificial or manipulated media content, known as "deepfakes," must be conspicuously labelled.

National-level regulatory sandboxes and real-world testing are mandated to facilitate developing and training innovative AI accessible to SMEs and startups before market entry.

The law needs now to be formally endorsed by the Council. It will enter into force twenty days after its publication in the Official Journal and be fully applicable 24 months after it enters into force, except for bans on prohibited practises, which will apply six months after the entry into force date; codes of practise (nine months after entry into force); general-purpose AI rules including governance (12 months after entry into force); and obligations for high-risk systems (36 months).

The implications for businesses stemming from the AI Act adopted by the European Union are significant and wide-ranging. To mention a few of them:

Businesses using AI systems in the EU, particularly those categorised as high-risk, will need to ensure compliance with the regulations outlined in the AI Act. This includes conducting risk assessments, maintaining transparency, incorporating human oversight, and adhering to stringent obligations concerning health, safety, fundamental rights, the environment, democracy, and the rule of law. More potent general-purpose AI models facing systemic risks will encounter additional scrutiny, including model evaluations, risk assessments, risk mitigation measures, and incident reporting. Businesses will need to invest in robust evaluation processes to ensure compliance and mitigate risks effectively.

National-level regulatory sandboxes and real-world testing are mandated to facilitate the development and training of innovative AI accessible to SMEs and startups before market entry. This could create opportunities for businesses to innovate within a regulatory framework but may also impose additional barriers to entry and compliance costs.

European elections are fast approaching, but until June there will be plenty of legislation that needs to be approved. Stay connected with us to make sure to be up to date!?

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