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Global Policy Watch

Key Public Policy Developments Around the World From Covington & Burling LLP

Prospects and Challenges for Africa

Posted in Africa, Health Issues, International Strategy

The October 2014 Africa’s Pulse released by The World Bank confirms that economic growth in Sub-Saharan Africa continues to be strong.  The average growth in the region is projected to increase to 5.2 percent during 2015-16 (up from 4.6 percent in 2014) and to 5.3 percent in 2017.  Some markets and industries are looking to be more promising than others but certain regional challenges continue to present unknown variables.

The Markets. Although growth in the region generally remains favorable, the differing fortunes of the region’s largest economies has moderated that growth.  Economic activity in Nigeria remains robust with the growth strengthening from 6.2 percent in the first quarter to 6.5 percent in the second quarter.  Low-income countries — including Cote d’Ivoire, Ethiopia, Mozambique, and Tanzania — also enjoyed healthy economic growth.  In contrast, the economies of South Africa, Angola, and Ghana each experienced far more modest expansion. 

The Industries. The primary drivers of growth are significant public infrastructure investment (e.g., power, ports, and transportation), “a rebound in agriculture,” and the services sector (e.g., telecommunications, financial services, and tourism).  Importantly, the services sector has been “the big gainer” in the region’s economic transformation and presents “an important path” for economic diversification and accelerating poverty reduction.  However, weak global growth (and related factors) has resulted in a decrease in foreign direct investment, which is an important financing source for all of these industries.

Regional Challenges. The Ebola outbreak has ravaged economic activities in Guinea, Liberia, and Sierra Leone.  Initial estimates are that the combined output loss to the countries could total $359 million, which would translate to a 3 percent drop in the GDP growth of Sierra Leone and a halving of the GDP growth of both Guinea and Liberia.  This crisis must be addressed and the private sector should play a critical role.  Provided rapid control of further contagion, regional spillover is projected to be modest and limited to Ghana and Nigeria, which already has contained the outbreak.  However, a slower containment presents a far more dire scenario for the countries and the region.  Regional disruptions also may result from further intensification of the conflict in South Sudan and/or the Boko Haram insurgency in Nigeria.

Tackling Trade Barriers

Posted in International Strategy, Trade Agreements

Advances in our rules-based global trading system have been slow in recent years as efforts to establish new rules and assure compliance with existing rules have struggled.  Last week, I participated in a panel discussion of the Information Technology & Innovation Foundation’s (ITIF) new report, entitled “The Global Mercantalist Index: A New Approach to Ranking Nations’ Trade Policies”. The report catalogues a troubling increase in favoritism of domestic companies at the expense of foreign companies and in turn the global trading system.  It also further documents a trend highlighted last year by ITIF in its report “Localization Barriers to Trade: Threat to the Global Innovation Economy” and by the Peterson Institute for International Economics in its study entitled “Local Content Requirements: A Global Problem”.

Unfortunately, this growing trend is not offset by great advances in trade-liberalization.  Recent efforts to craft new trade rules at the World Trade Organization (WTO) have stalled, and many wonder whether the WTO will still be able to secure implementation of a December 2013 “Bali trade package” – a small undertaking compared to earlier efforts to revise more comprehensively our global trade rules as part of the Doha Development Agenda. 

Within this context, the ITIF’s reports calls for the creation of an annual “Global Mercantalist Index” that would rank countries based on a range of policies – such as forced technology transfer as a condition of market access, intellectual property (IP) theft, and restrictions on cross-border data flows – that threaten today’s global trading system.

Such a ranking could provide a useful snapshot of protectionist trends across a number of countries.  In that regard, this survey complements a variety of other important efforts to identify or quantify existing and emerging challenges, including, for example, the recently released U.S. International Trade Commission (USITC) study on digital trade barriers, the U.S. Chamber’s annual Global IP Index, and the Organization for Economic Cooperation and Development’s (OECD) Services Trade Restrictiveness Index. 

The report also provides a platform for discussing not just enforcement of existing trade rules but also what new trade rules and enforcement tools might be necessary to maintain fairness in the global trading system.  Not all localization barriers may be inconsistent with existing WTO rules.  However, existing rules offer a roadmap for negotiators.  As the U.S. pursues an ambitious trade agenda- including Trans-Pacific and Trans-Atlantic trade deals and an ambitious investment treaty with China – the ITIF and other recent reports provide important fodder for establishing new rules to promote fair and non-discriminatory treatment of foreign companies.  

The Bali trade package would have represented the first update to our global trading rules in 20 years.  As we face another WTO impasse, we should press forward with bilateral, regional and plurilateral trade agreements that can address the increasing web of trade barriers.  Meanwhile, the U.S. and its trading partners must vigorously enforce current trade rules that, as the reports highlighted above suggest, some of our trading partners may be flouting. 

Managing Political Polarization in Congress

Posted in Congressional Action

Few can dispute the dysfunction of recent Congresses.  The 112th Congress proved the least productive in modern history as measured by laws passed.  The dramatic federal government funding standoff in the 113th Congress culminated in a 16-day shutdown that drove congressional approval to its lowest level ever.  Yet despite these failures, a close look at recent Congresses demonstrates the remarkable ability of the institution to adapt and address internal challenges.

In an article in the Utah Law Review, I show how House of Representative Speaker John Boehner’s strategic use of the Hastert Rule allowed him successfully to navigate a treacherous political path of managing his divergent caucus, preserving his leadership position, and passing key legislation even when a majority of his caucus did not support it. 

The rise of the Tea Party and the ideological divisions within the Republican Party created challenging conditions for Speaker Boehner.  To balance the competing factions in the House Republican caucus, Speaker Boehner selectively used a political and procedural tool known as the Hastert Rule.  It provides that the Speaker will not schedule a bill for a floor vote unless a  majority of the majority caucus favors the legislation. 

Undoubtedly, the use of the Hastert Rule strengthened the hand of Tea Party members to influence legislation.  At the same time, selectively ignoring the Hastert Rule allowed Speaker Boehner to relieve some of the political pressure that the Tea Party members exerted in an effort to address critical public policy concerns and to preserve the future electoral viability of the Republican party.  

Speaker Boehner allowed five bills to pass without a majority of the Republican caucus in 2013 and 2014, the most since 2008.  The list of bills that merited special treatment is instructive.  Bills to fund the federal government, raise the debt ceiling, and provide emergency funding to respond to a natural disaster passed with predominantly Democratic votes.  Clearly, the need to safeguard the economy from substantial harm and protect his political party from significant missteps that could diminish their electoral changes in the future motivated the Speaker to schedule these bills for floor votes despite the need to override the Hastert Rule.  Speaker Boehner also dispensed with the Hastert Rule to pass the Violence Against Women Act (“VAWA”) Reauthorization.  In doing so, he was responding to the substantial gender gap that Republicans have faced in elections since 1990.  Passing VAWA was Speaker Boehner’s attempt to respond to a political weakness of his party. 

Political polarization in Congress, and particularly in the Republican Party, has heightened congressional dysfunction.  Speaker Boehner’s strategic use of the Hastert Rule allowed him to maneuver through this difficult period.  Understanding these dynamics helps us understand Congress now and in the future. 

Ebola Response Missing A Key Player

Posted in Africa, Health Issues

The Obama Administration has mobilized a number of government agencies to respond to the Ebola crisis in West Africa and to prevent its spread into the U.S. At the frontline of the Administration’s response is the Pentagon, the Department of Health and Human Services, the Center for Disease Control, the U.S. Agency for International development and, more recently, the Department of Transportation.

Conspicuously missing, however, is the Department of Commerce, which traditionally is the link to the U.S. private sector.

This omission is significant because U.S. companies are likely to get materials to the stricken countries of Liberia, Sierra Leone and Guinea more quickly than the Pentagon.  In the instances in which they operate locally, the companies provide a valuable source of information and delivery infrastructure.

For example, in mid-August, more than 20 leading medical companies shipped 40 tons of supplies and protective equipment to Liberia.  The airlift was coordinated  by the California-based NGO, Direct Relief, and facilitated by Fedex. Companies such as Pfizer, Teva, Merck, Kimberly-Clark and Mylan Laboratories contributed 2.3 million gloves, 65,000 masks and 185,000 tabs of antibiotics. As of September 20th, Direct Relief had coordinated 11 shipments of supplies.

Equally important is the Ebola Private Sector Mobilization Group (EPSMG) which is a network of more than 40 companies active in West Africa and, especially, Liberia, Guinea and Sierra Leone. Chaired by ArcelorMittal and including companies such as Chevron, Rio Tinto and BHP Billiton, the group seeks to provide a single access point for the private sector to help mobilize and coordinate a response.  The group’s first principal is to “be part of the region’s long-term economic and social recovery and development.” EPSMG has met with Dr. Margaret Chan, Director General of the World Health Organization, and the U.S. ambassador to Liberia, Deborah Malac, and engaged with organizations such as the UN Ebola Task Force, the World Bank and various NGOs.

The in-country private sector plays other important roles.  ArcelorMittal, which has a workforce of nearly 3000, provides health care for its workers and their families and uses its internal communications network to convey accurate and timely information about the epidemic.  Firestone Rubber, which has been in Liberia since 1926, detected in first case of Ebola on march 30th, according to NPR. Since then, the company went into crisis mode, built its own treatment center and developed a comprehensive response that effectively stopped the transmission of the virus among more than 80,000 employees and family members who live on the sprawling plantation.

Local companies such as the National Oil Company of Liberia and the Sierra Leone Produce Marketing Company have also made contributions to combatting the virus.

The importance of the private sector’s role in responding to health emergencies cannot be underestimated.  Companies such as Anglo-American, SABMiller and Ford Motor Company played critical roles in combatting the HIV/AIDS crisis in South Africa by making medicines and quality health care available to their employees and their families, and they continue to play this role.

The U.S. Chamber of Commerce and the Corporate Council on Africa are to be applauded for the role that they have played in helping to coordinate and publicize the U.S. private sector response to the Ebola crises.

The Obama Administration has effectively integrated the private sector into key development initiatives such as Power Africa and the New Alliance for Food Security and Nutrition, which is the private sector component of Feed the Future.  It would do well to establish a similar mechanism as part of its Ebola response. Controlling the spread of Ebola and the development of viable health care systems in the three affected countries will require the sustained engagement of governments, NGOs, international organizations and agencies and the private sector.  The sooner that all parties are able to coordinate their efforts the more likely this virus will be controlled.

Russian Response To Sanctions?

Posted in International Strategy, Russia

On October 8, the Russian Duma approved the first reading of a bill that would permit Russian citizens whose property is “unjustly” seized as a result of foreign court decisions to claim compensation from Russia’s treasury.  The bill further authorizes the Russian government to recoup the loss by seizing the property of the foreign state in question, including property that would otherwise be subject to sovereign immunity under Russian law.

Dubbed the “Rotenberg Villas” law by parts of the Russian press, the measure is rumored to have been pushed by Arkady Rotenberg, a wealthy businessman and longtime associate of President Putin, who has been placed on both the EU and US sanctions lists following the Russian interventions in Crimea and eastern Ukraine.  As a direct consequence of those sanctions, the Italian government has frozen Mr. Rotenberg’s assets in that country, which include villas and a hotel.

If the rumors are true, yesterday’s vote is a telling indication of Mr. Rotenberg’s influence.  While its critics have characterized the bill as a raid on the public coffers by the well-connected and wealthy, the Russian government voiced its support for the measure on September 25.  In the Duma yesterday, the bill passed by a margin of 233 to 202, with all 233 votes in favor coming from members of United Russia, the party led by Prime Minister Dmitry Medvedev.

At first blush, the bill’s implicit threat of government seizures of foreign state property appears to risk a further significant erosion in Russia’s economic relations with the West.  In reality, though, it is too early to tell where yesterday’s vote will lead.  The bill is subject to amendment before it receives its second reading and the Duma’s legal department has already indicated that many terms used in the bill will need clarification.  One such provision, which apparently has attracted little attention to date, confusingly limits the scope of application of the bill to foreign court decisions “on matters that should be reviewed by courts or commercial courts of the Russian Federation.”  And, even if the bill is eventually enacted into law, it remains to be seen how eager the Russian government will be to use the power it confers to seize foreign state property.  This is, nonetheless, an unfolding story that merits continuing close attention.        

Inversion Transactions Addressed in Treasury Notice

Posted in Congressional Action, International Strategy, Tax Reform

On Monday, September 22nd, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) published Notice 2014-52 (the “Notice”) announcing their intention to issue regulations that would address corporate inversion transactions. If issued in the form described in the Notice, the regulations would prevent certain narrow categories of inversions, including so-called “spinversions” and transactions involving a foreign company with predominantly passive assets. In most circumstances, however, the rules described in the Notice will only reduce, not eliminate, the tax benefits from an inversion. The precise impact of the rules on a particular proposed transaction will depend on the specific circumstances of the companies involved. The Notice states that its rules will apply retroactively to transactions that were completed on or after September 22, 2014, the date of the publication of the Notice.

In a corporate inversion, the ownership of a U.S. corporate group is restructured in a way that causes the U.S. group to become owned by a non-U.S. parent company. Inversions have a long history, beginning in the 1980s, and previously inspiring anti-inversion regulations in 1995 and legislation in 2004. Under the 2004 legislation, if the former shareholders of the U.S. company own 80 percent or more of the equity of the new foreign parent, the inversion is effectively disregarded, with the new parent being treated as a U.S. corporation for all U.S. income tax purposes. If the former shareholders of the U.S. group own 60 percent or more of the combined group (but less than 80 percent), the non-U.S. status of the new foreign parent is respected, but certain adverse tax rules apply. Although earlier inversions generally involved an internal restructuring of a single U.S. company that redomiciled its parent corporation outside the United States, the recent wave of inversions typically involve mergers of two companies, each with significant business operations, but which nonetheless fall between the 60 percent and 80 percent tests because significant ownership of the combined group is acquired by shareholders of the non-U.S. target company.

Although such inversions involve a significant business combination, they may also provide a number of tax advantages. The principal U.S. income tax benefits from these transactions include: (1) reducing the U.S. taxation of the group’s U.S. operations through the use of arrangements that result in the payment of interest (or other deductible expenses) to a foreign affiliate; (2) providing access to the U.S. group’s “deferred” foreign earnings; and (3) eliminating the residual U.S. taxation of the group’s future earnings from foreign operations.

The Notice seeks to nullify certain inversion transactions.  It also seeks to limit access to deferred foreign earnings.  On the other hand, the Notice does not alter the definition of a pure inversion, the statutory 80 percent ownership threshold remains the standard for nullifying an inversion except in the three narrow circumstances identified in the Notice.  Nor does it address the use of interest deductions to reduce the U.S. tax burden on the company’s U.S. operations, although it does state that Treasury and the IRS “expect to” issue additional guidance addressing inversion, including possibly the U.S. interest deduction, and that this guidance would apply to companies that inverted on or after September 22, 2014.

In sum, while the Treasury Notice is an important chapter in the ever-changing inversions narrative, it is not the end of the story.  The focus now turns to the effect of the Treasury Notice on the several publicly announced deals as well as the possibility of additional transactions in the coming months, and the impact of these developments on the possibility of further action by Congress or Treasury.

Opportunities Following U.S.-Africa Summit

Posted in Africa, International Strategy, Trade Agreements

Two months have passed since the first ever U.S.-African Leaders Summit.  It is now time to take stock of what was achieved and what comes next.

One of the most significant achievements of the Summit was the clear emphasis placed on trade and investment as a top priority in the U.S.-Africa relationship. A full-day was devoted to a business forum co-hosted by Commerce Secretary Penny Pritzker and former New York Mayor Michael Bloomberg. The forum, which drew nearly 300 public and private sector leaders focused on deepening the U.S. business community’s engagement in Africa across a range of sectors including consumer goods, finance and capital investment, information and communications technology, infrastructure, and power and energy.

With more than $33 billion dollars in deals, commitments and investments announced during and around the Summit, it is evident that there are significant opportunities for the private sector. Several policy developments from the Summit will be of particular interest to businesses seeking to realize these opportunities and to navigate the challenges of this expanding commerce.

At the Summit, both senior administration officials and members of congress committed to working together to achieve a “seamless renewal” and “long-term” extension of the African Growth and Opportunity Act (AGOA). A cornerstone of the U.S.-Africa commercial relationship, the preferential trade legislation is intended to incentivize African economies to open their markets to American investment. Currently set to expire on September 30, 2015, AGOA is critical to commercial interests on both sides of the continent; it has generated an increase of over 221% in U.S.-Africa trade, approximately 100,000 jobs in the U.S., and over one million direct and indirect jobs in Sub-Saharan Africa. Long-term renewal of AGOA is especially important because the size of investment needed to make a venture viable — particularly in the textile industry — requires a longer period of time to amortize. The sense of urgency conveyed about the need to renew and extend the legislation was welcomed by policymakers and investors alike.

Among the other developments, two are worth noting. The energy sector received considerable attention.  The White House announced a new goal of extending reliable sources of power to 60 million households and businesses across the continent through the Power Africa initiative. To date, the private sector has pledged to invest $26 billion in this project. These commitments are supported by the U.S. government, the Millennium Challenge Corporation, the World Bank, and the government of Sweden through advisory services, direct financing, grants, investment guarantees, loans and technical assistance. This doubling of the Initiative’s goals will create more opportunities for investors who are looking to participate in projects in Africa’s energy sector.

Also, USAID and the Gates Foundation are partnering with the Development Credit Authority to issue a non-sovereign backed municipal bond in Dakar, Senegal. This model, if successful, will generate new financing for infrastructure projects and services in Africa’s cities, where much of the continent’s future growth will occur, creating increased access to African markets for investors in the coming years.

In summary, the U.S.-Africa Leaders Summit set forth ambitious, but tangible, goals to accelerate the region’s economic development and to strengthen U.S.-Africa relations.  As a result of the Summit, business investment in Africa is likely to increase as companies seek new opportunities. 

China to Establish a Unified Real Property Registration System

Posted in China

The fact that China, one of the world’s most vibrant housing markets, lacks a nationwide property registration scheme may strike some as surprising, but this is now set to change following the publication in August of a draft regulation targeting the establishment of a national property registration scheme within the next three years. The measure will improve on China’s current system, where information is managed by different departments but is not shared internally. It will also help further President Xi Jinping’s on-going anti-corruption campaign by providing central level leaders with a mechanism to certify the property holdings of central and local level officials and ensure that no official has accumulated property holdings beyond his or her means.

The plan to establish a nationwide housing registration scheme was first announced following the Third Plenum of the 18th Central Committee of the CCP in November 2013. On August 15, 2014, the Legislative Affairs Office of the State Council published the Interim Regulation on Real Estate Registration (Draft for Public Comment) (“Consultation Paper”)to solicit public comments. This public comment period ended on September 15, 2014, and it is expected that a final version of the law will be passed by the end of this year.

The envisioned real property registration scheme would apply real property registration broadly to land, housing, forest, grassland, and maritime spaces.  It would be rolled out over the next three years, with an integrated management system for real-time information and queries to be established within four years. 

Once established, the nationwide scheme would deliver three primary benefits:

First, it would centralize the authority for collecting, maintaining, and managing real property registration records, thereby alleviating many of the problems currently found in China’s overlapping national and local registration schemes. At present China’s real property registration functions are spread out over multiple agencies, each in charge of properties under its own respective function (e.g., agriculture, fisheries). Under the Consultation Paper, the Real Property Registration Bureau under the Ministry of Land and Resources will be the only government agency in charge of real property registration. China’s present registration scheme also clashes vertically, with national laws permitting owners to register state-owned land at either the county, prefecture, or provincial-level governments. Under the Consultation Paper, local governments would be required to establish branch bureaus to handle local registration matters, but this information would be quickly shared with the national authorities. 

Second, a unified registration system would help central and local governments collect crucial data with respect to China’s national property market, including information such as gross sales, ownership patterns, and geographic allocation. A more detailed and accurate understanding of real property ownership will increase transparency nationwide, permitting the government to develop more targeted and efficient policies to regulate the national market. For the “average Zhou,” a national property registration scheme would also help to protect the rights of property owners and prospective purchasers, who would consequently have greater assurance that a given individual is the legitimate owner of a given plot or structure.

Finally, the establishment of a national registration scheme would likely help further President Xi Jinping’s on-going anti-corruption campaign in a number of ways. One example relates to the problem of corrupt government officials purchasing many homes in China, a phenomenon that is increasingly reported through Chinese news media. Perhaps most representative of this problem, and greater public scrutiny thereof, is the case of the so-called “house sister” Gong Aiai, a former banking official in Shaanxi province sentenced to three years in prison after it emerged she had falsified documents to amass dozens of properties in China. Through a national scheme requiring full disclosure of real property ownership, public officials would be strongly discouraged from owning multiple real properties. (Indeed, second-hand flash sales by Chinese officials are rumored to have spiked over the last year, as officials and Party members seek to unload excess homes in anticipation of possible investigations.) Such a registration system would also help uncover those who bought multiple houses with illegal earnings or who abused their power to acquire properties at below-market cost.

At a time of widespread regulatory stagnation in China, the comparatively fast progress on a nationwide property registration scheme suggests a strong degree of support from the central government leadership. And it further indicates the Chinese government’s desire to harness the power of data in its governance of Chinese society.

Business breathes a sigh of relief as Scotland votes “no”, but uncertainties remain

Posted in EU Law and Regulatory, International Strategy

On 18 September, Scotland voted “no” in a referendum on whether it should be an independent country.  The UK remains intact, the financial markets responded positively, and, according to David Cameron, the Queen “purred”.  Had the Scots chosen independence, difficult issues would require addressing. Among these are what currency would an independent Scotland use?  How and when could it join the EU

One set of thorny issues has been eliminated by this vote.  However three others have emerged with resulting uncertainty for companies doing business in the UK and the EU.

The first is that any further uncertainty over Scotland’s place in the UK will damage its economy.

The “no” campaign prevailed by a material margin, (55.3% for status quo, 44.7% for independence).  But the significant increase in support for independence (which stood at 28% in April 2011) is a victory of sorts for the independence movement.  Before the polls closed, the leader of the “yes” campaign said that the referendum was a “once in a generation opportunity”. A further referendum in the medium term seems unlikely, but cannot be ruled out entirely.  Potential open-ended uncertainty has been dubbed a “neverendum”.

Quebec, like Scotland, rejected independence from Canada in 1980 and again in 1995.  However, the narrowness of the result (especially the 1995 referendum which was won by 1%) contributed to prolonged constitutional and commercial uncertainty, damaging Quebec’s economy (Montreal’s share of the top 500 Canadian companies fell from 96 in 1990 to 75 in 2011).  Similar uncertainty would damage Scotland’s economy, with businesses, most likely in the financial services industry, choosing to relocate to England.  For now at least it’s “business as usual” for some of those who had made contingency plans to move head offices from Scotland to England.  However, that could quickly change in the relatively unlikely event of a further referendum.

The second is the pressure for greater regionalization of political authority across the UK and for a new constitutional settlement. 

In many ways, political power in the UK is highly centralised; the UK’s executive branch is pooled from members of the legislature.  And while the UK has a single national parliament and government, three of its constituent nations, Scotland, Wales and Northern Ireland, have regional assemblies and executive authorities, with jurisdiction on ‘devolved’ matters.  England is the only constituent nation with no devolution from the UK parliament.  This asymmetric regional devolution raises a constitutional question: why should a Scottish MP, sitting in the UK parliament, be permitted to vote on laws that only affect England; this is known as the West Lothian question.  In the final week of the Scottish referendum campaign, and facing a possible “yes” win, the leaders of the UK’s main political parties made a joint pledge to devolve yet further powers to Scotland in the event of a “no” vote.

Scotland’s success in obtaining new powers has added impetus to the West Lothian question and led to calls, particularly from England, but also from Wales and Northern Ireland, for similar devolution from the UK Parliament.  One possible outcome to the constitutional wrangling, is an English Parliament, another is for regional English assemblies.  Big cities in Britain, particularly in the North of England, are pushing for increased autonomy.    

While the shape of the constitutional settlement is difficult to predict, further political regionalization seems likely.  With assemblies more answerable to local electorates, the UK could see increased policy divergence within its borders and become a less unitary state.  In the U.S., businesses routinely deal with overlapping and sometimes conflicting regulatory approaches taken by the federal and state governments.  In the aftermath of the vote in Scotland and the promises made by politicians to defeat independence, the UK may be headed in the same direction.

More extensive devolution to regions within the UK will add complexity to doing businesses in the UK.  Differences in legislation between the UK and its constituent parts, will need careful analysis for businesses operating across multiple constituent nations. 

The third is that while the independence vote lost in Scotland, the process by which the referendum came about (Westminster provided it) and was conducted is likely to encourage similar movements in other EU countries.  A day after Scotland’s independence poll, the Parliament of Catalonia in Spain gave its leader the power to call an independence referendum, a move that the central government in Madrid denounced as illegal.  Catalan President, Artur Mas, said Scotland’s referendum had “shown the way” for Catalonian independence.   Like Catalonia, Spain’s Basque country already has a large degree of autonomy and has unsuccessfully lobbied Madrid for a referendum on independence repeatedly for the past 15 years. Many Flemish leaders in Belgium are arguing for greater autonomy.  There is sentiment in both the Padania region and Corsica for breakaway from Italy and France, respectively.  Extra powers for Corsica were narrowly rejected in a 2003 referendum.  The potential of other referenda in the EU may mean greater uncertainty for businesses declining in the region, particularly in Spain.

In conclusion, the Scottish vote made for high drama.  The curtain has come down on this act.  Many businesses have breathed a collective sigh of relief, but uncertainties remain. 

India is Open for Business

Posted in Asia, Trade Agreements

Prime Minister Modi’s visit to the United States, set to start in New York on Friday, September 26th, is pregnant with expectation — though a number wonder if the Prime Minister’s PR machine is in overdrive.  The Prime Minister’s visit is not just hype; it will be both symbolic and substantive.  Modi’s message to the United States:  “India is Open for Business.”  Modi’s primary objective:  boost the India-US annual bilateral trade above the current $150 billion.  Modi’s audience:  the U.S. business community.

Prime Minister Modi’s address to the United Nations General Assembly and his message to the India-American community at Madison Square Garden are equally important different reasons.  After 3+ years of missteps and meanderings by the GoI, the address at the U.N. offers the stage on which Modi reasserts India’s place on the global community.  The address at Madison Square Garden allows Modi to highlight the success and contributions of the India community to the U.S. and to affirm the unique bonds between India and the U.S.  In both instances, in different ways, Modi will drive his message of economic growth and development, effective governance, and the elimination of poverty. 

The launch of Modi’s “Make in India” campaign previews the message for the U.S. visit.  Modi rightfully understands that U.S. business wrestles with the Asia problematic, and he correctly plays to India’s strength of “being the only country in the world that has the power of democracy, demographic dividend and demand.” 

He also understands the need to restore trust in the government — a trust in consistent laws consistently and fairly applied.  To be sure, U.S. businesses will take a wait and see attitude, but it is noteworthy that the Prime Minister made this a point of public discourse.  Two weeks ago in New Delhi, on the sidelines of the Second Annual Covington and Tatva Legal Defense Industry event, the conversations that Indian business people had with me were filled with confidence in the Modi led government, particularly Modi’s ability to correct the glaring defects in the bureaucratic  morass.  Their conversations with me reflected ambitious expectations for the future.  We can wait and see, but we should not be surprised if success follows.

The ticket for admission?  FDI — “First Develop India.” The fact that the Prime Minister focuses on developing manufacturing in India should come as no surprise.  He rightfully understands that India’s economic success — and his political success — is linked to creating opportunities for employment in India and increasing the purchasing power of a broad base of Indian families.  And this will benefit U.S. industry as well.

So, who in the U.S. business community stands to benefit?  Many.  But it is noteworthy that Lockheed Martin’s Phil Shaw was included as a speaker at Modi’s “Make in India” event on Thursday — right up there with icons of India industry.  The Defense Industry opportunity is a win-win-win for India and the U.S. for it satisfies multiple requirements:  manufacturing in India; participating in a global supply chain; a significant market for U.S. defense companies; India’s security needs in a difficult neighborhood; to name a few.

The U.S. is an important strategic partner to India.  Prime Minister Modi’s message that “India is Open for Business” creates the opportunity both to strengthen the relationship and to address India’s needs and requirements.  It will be interesting to see how Modi elaborates on this message to his audience in India and the U.S. during his various meetings in New York and Washington, DC. 

CNN-IBN’s Anubha Bhosle talked to Indian-American entrepreneurs and Covington’s Ralph Voltmer about Indian Prime Minister Narendra Modi’s five-day visit to the United States and the impact of the visit on the corporate sector. To watch the interview, which took place at Covington & Burling’s Washington, D.C. headquarters click here: http://bit.ly/Ydwjyn