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Global Policy Watch

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

Africa’s Middle Class: Not Hype But Challenging To Get Right

Posted in Africa

The expanding middle class has been one of the cornerstones of the “Africa rising” narrative.  Discussion of that topic has been particularly lively over the past few weeks.  From a private sector perspective, this debate presents an interesting lesson about doing business in Africa’s consumer goods sector.

As an initial matter, it is important to keep in mind that there is no universally-used definition of middle class.  Although the phrase often is defined by an individual’s income, it also can be defined by other factors such as an individual’s wealth (i.e., savings or investments) or consumption (i.e., how much one spends).  For this reason, the African Development Bank’s use of income and purchasing power parities results in a prediction that the African middle class will reach half a billion people by 2030.  Yet, at the same time, Standard Bank’s use of South Africa’s Living Standard Measure results in a prediction that the African middle class in the eleven countries that combined account for half of sub-Saharan Africa’s total GDP (as well as over half of the total population) will reach 22 million people by 2030.  Despite the seemingly wide chasm between these two estimates, both the African Development Bank and Standard Bank are bullish on Africa’s burgeoning consumer market.

However, if a company is going to pursue opportunities in this market, then it first must appreciate just how diverse the African consumer market is.  Accenture has partitioned the market into five consumer segments: basic survivors, working families, rising strivers, cosmopolitan professionals, and the affluent.  Nielsen has partitioned the market into seven consumer segments: female conservatives, wannabe bachelors, evolving juniors, struggling traditionals, balanced seniors, trendy aspirants, and progressive affluents.  Whichever way a company chooses to splice the market, it is essential to identify the consumer segment(s) to which it wishes to sell and then tailor the products to suit the buying behaviors, needs and preferences of the chosen segment(s).  As with any other consumer market, price, brand loyalty, quality (and sometimes other factors) are all relevant considerations but each segment weighs these factors differently.  Equally as important is determining the supply chain and distribution network that best serves the chosen segment while still keeping transaction costs down.  In addition, advertising should be strategic with respect to both its content and its placement.  For example, recognizing that affordable and reliable Internet access is not a given across the continent, companies have begun to tailor their online advertising to pique consumers’ interests but also be compatible with potential access barriers.

So, no, there is no reason to give up on the African middle class nor the consumer class more generally.  However, in order to succeed in the market, it is essential to appreciate the diversity in the African consumer market, understand the African consumer segments which one wishes to engage, and then select and tailor the products and routes to market accordingly.

Reshuffle of Directors-General at European Commission

Posted in EU Law and Regulatory

As expected, today the European Commission announced the reshuffle of much of its senior management, moving 11 current Directors-General (i.e. the technocratic heads of the Commission’s 30+ departments, called “Directorates-General”) into new posts from September 1 onwards. The selection process began in March when Commissioners identified three senior managers they would like to see as their Director-General. Following this, President Juncker consulted the relevant Vice-Presidents.

Reminiscent of his Commission appointment criteria, President Juncker again emphasized the importance of improving the gender balance among senior management in the European Commission. Two women became Directors-General in the reshuffle (joining the existing two appointees) and the Commission pledged to increase the share of female managers to 40% by the end of Juncker’s mandate.

The most surprising move is Catherine Day’s departure from her post as Secretary General, as President Juncker allegedly wanted to keep her on for two more years. Further, the Directors-General Karl Friedrich Falkenberg of DG ENV, Robert Madelin of DG CNECT and Claus Sørensen of DG ECHO will be moving into positions (of “Hors Class Advisers”) that suggest they will supervise the activity of their successors. Also interesting is the creation of the DGs “Task Force for Strategic Issues related to the UK Referendum” and “Regulatory Scrutiny Board” within the Secretariat-General, which will be headed by outgoing FISMA Director-General Jonathan Faull and Deputy Secretary-General Marianne Klingbeil respectively.

Some Director-General positions were not addressed today, notably DG Justice, which is currently lead by the Acting Director-General Paraskevi Michou. Three Directors-General and 10 Deputy Directors-General will be announced in the near future.

Please see below a brief introduction to the new Directors-General taking over some key posts. 

Alexander ITALIANERnew Secretary-General Alexander Italianer is a Dutch economist who joined the Commission in 1985. Since 2010, Dr. Italianer has been Director-General of DG Competition. Previously, he worked for a number of years in the DG for Economic and Financial Affairs, and served in the cabinets of two Commission Presidents: Jacques Santer and Jose Manuel Barroso. He has also worked in the cabinets of Commissioners Günter Verheugen and Pavel Telička.
Daniel CALLEJA CRESPOnew Director-General of DG Environment (ENV) Daniel Calleja Crespo is a Spanish national who has worked at the European Commission for the last 29 years, initially at the Legal Service before switching to transport. In recent years, he has also been the Special Envoy for SMEs next to his position of Director-General of DG Internal Market, Industry, Entrepreneurship and SMEs (GROW). Mr. Calleja Crespo holds a degree in law and in business administration.
Lowri EVANSnew Director-General of DG Internal Market, Industry, Entrepreneurship and SMEs (GROW) Lowri Evans is a British qualified chartered accountant. After studying at Liverpool University, she worked for Deloitte for five years. She subsequently joined the European institutions, where she has accumulated 30 years of experience at the Commission, most of them at DG COMP (where she was the head of a merger unit, before becoming Deputy Director-General for mergers). She has also served as a member of Commissioner Flynn’s cabinet, a head of unit in DG Employment and Director-General of DG MARE.
Xavier PRATS MONNEnew Director-General of DG Health and Food Safety (SANTE) Xavier Prats Monne is a Spanish citizen with experience in employment policy, education, culture and sports at the European Commission. He also worked in DG RELEX (as it was) and as an Assistant European Commission Spokesman under Jacques Delors. His latest position was Director-General of DG Education and Culture. Mr. Prats Monne holds a degree in sociology, in development cooperation and in European studies.
Johannes LAITENBERGERnew Director-General of DG Competition (COMP) Johannes Laitenberger is a German citizen educated in Portugal and Germany. After starting his career in the private sector, first at a law firm, and then at an industry association, he was recruited by the General Secretariat of the Council of the European Union in 1996. He served under President Jose Manuel Barroso from 2004 and was appointed Head of Cabinet during Barroso’s second term. He is currently Deputy Director-General of the Commission’s Legal Service. 
Henrik HOLOLEI new Director-General of DG Mobility and Transport (MOVE) Henrik Hololei is an Estonian economist. Prior to joining the European Commission in 2004, he coordinated Estonia’s preparations for EU membership at the State Chancellery of the Republic of Estonia. He also served as Head of Cabinet for Commissioner Siim Kallas between 2004 and 2013. He is currently Deputy Secretary-General.
Olivier GUERSENTnew Director-General of DG Financial Stability, Financial Services and Capital Markets Union (FISMA) Olivier Guersent is a French national who graduated in 1984 from l’Ecole Nationale d’Administration in Bordeaux. After eight years in the French Administration he made the transition to the European Commission. During his carrier in Brussels he served in the staff of three different Commissioners focusing on competition and the internal market: Karel van Miert; Neelie Kroes; and Michel Barnier. He is currently Deputy Director-General of DG FISMA. 
Roberto VIOLAnew Director-General for DG Communications Networks, Content and Technology (CNECT)

 

Roberto Viola is an Italian citizen with a doctoral degree in electronic engineering. Before joining the Commission, Mr. Viola worked at the European Space Agency, responsible for the satellite telecommunications program. He then worked in AGCOM (Italian media and telecom regulator), rising to the position of Secretary-General in 2005. Mr. Viola joined the Commission as a Deputy Director-General at DG CNECT in 2012. 

Please follow this link to the Commission’s official announcement.

Africa’s Tripartite Agreement: Another Step toward Integration?

Posted in Africa

Considerable attention has been paid to the recent signing of the Tripartite Free Trade Agreement (TFTA) which will bind three of Africa’s regional economic communities (RECs) together into one large free trade market of 26 countries, accounting for nearly 60 percent of the continent’s GDP.  How significant the Agreement will prove to be lies in the (implementation) details.  The parties to the Agreement chose a path toward integration that involves a gradual phased approach whereby each REC develops its own framework and blueprint.  However, the three RECs — the East Africa Community (EAC), the Common Market for Eastern and Southern Africa (COMESA ) and the Southern African Development Community (SADC ) — are at very different levels of progress in this regard.

Although the EAC was (re-)formed only in 2000, this community of five nations has accomplished far more than its REC peers.  A few of the many accomplishments include the adoption of an external tariff, an expansion and improvement of the port infrastructure in Kenya and Tanzania, prioritization of regional transport systems, and the adoption of common sanitary and phytosanitary measures.

Moreover, the EAC also has focused on important, but less flashy, process and systems improvements, such as harmonization of customs procedures, one-stop border crossings, and a system that allows sharing of customs clearance information.  It is far from perfect, but the metrics show significant improvements, reducing the number of days of transit time from Mombasa to Kigali from twenty-one days to just six, for example.

In contrast, neither COMESA nor SADC has advanced its respective customs and trade agenda.  COMESA, for example, has to build consensus among nineteen African member states — from Egypt to Swaziland — while doing so in three major languages (i.e. Arabic, English, and French).  COMESA itself has recognized a “lagging behind” in meeting its regional commitments and is placing greater emphasis on monitoring implementation of policies on the part of member states.  For the EAC, which comprises five member states, implementation and monitoring of agreements is much more manageable.  SADC has made remarkable strides in regional integration through a competitive, interconnected power market, known as the South African Power Pool.  However, it too has run into many barriers in establishing a functional customs union.

Some trade experts have commented that African countries should spend less time on “unachievable” agreements and more resources on regional infrastructure.  Well, actually they need to do both: good roads and ports are meaningless if efficient clearance systems are not in place.  At a minimum, implementation of the TFTA should focus on harmonizing the three member RECs’ external tariffs, customs procedures and standards.  Introducing commonality and removing contradictions will be particularly important for Kenya and other countries that belong to two or more RECs.

The AU still has its sights set on signing a continent-wide free trade agreement (CFTA) by 2017.  EAC Secretary General Richard Sezibera, usually cautious and careful, was enthusiastic about its prospects saying, “all that’s left is bringing in [the Economic Community of West African States], which shouldn’t be difficult.” In the end it all comes down to implementation, and that implementation for the TFTA will fall upon the “Tripartite Task Force of the Secretariats.”  Whoever fills their ranks, they have an enormous task.

This post can also be found on Cov Africa, the firm’s blog on legal, regulatory, political and economic developments in Africa.

This Week in Congress – June 22, 2015

Posted in Congressional Action

The House and Senate will end this month on a high note, as they are expected to send trade promotion authority legislation to the President this week for signature.  The trade legislation is a top priority for President Obama and his Administration.  Both chambers have a busy week scheduled before they adjourn for the Independence Day recess next week.

The Senate returns Monday with votes expected on the nominations of Peter Neffenger to be Administrator of the Transportation Security Administration at the Department of Homeland Security and Daniel Elliott III to be a Member of the Surface Transportation Board.  Following these votes, the Senate will resume consideration of trade-related legislation, as passed by the House of Representatives last week.  The Senate had previously voted to approve jointly Trade Promotion Authority (TPA), which grants expedited congressional consideration of trade agreements, and Trade Adjustment Assistance (TAA), a program to assist domestic workers whose employment is affected by trade, in May.  The rule governing consideration of the bill in the House of Representatives allowed for separate votes on each portion of the bill, and the TAA provision was defeated.  As a result, the House last week passed the legislation as individual measures, sending the bills back to the Senate for further consideration.  Last week, Senate Majority Leader Mitch McConnell filed cloture on H. R. 2146, a bipartisan public-safety retirement bill with the House-passed TPA legislation attached.  A cloture vote on the TPA bill is expected as early as Tuesday morning.  If 60 votes are achieved on the cloture motion, up to 30 hours of post-cloture debate time would precede a simple majority vote on the “fast-track” trade legislation.  Following that vote, the Senate will proceed to a cloture vote on H. R. 1295, the Trade Preferences Extension Act with an amendment adding TAA and the Leveling the Playing Field Act.  A third bill, dealing with customs requirements, is also part of the trade package and will be considered by a Senate-House conference committee in order to resolve differences between the two versions of that bill.

Once the Senate has dispensed with the trade legislation, it is unclear what will be next on the agenda.  Democrats and Republicans are still locked in a stalemate over the Fiscal Year (FY) 2016 budget framework.  Last week, Senate Democrats successfully filibustered consideration of the FY 2016 Defense Appropriations bill and have pledged to block any other appropriations bills from floor consideration until the spending limits established by the 2011 sequester are raised.  With the support of President Obama, Democrats are hoping that their obstruction of the entire appropriations process and threat of a government shutdown will bring Republican leaders to the negotiating table.  So far, Republican leadership has not indicated a willingness to agree to a budget summit.

The authority for the Export-Import Bank, the federal export credit agency, will expire on June 30 with no prospect for consideration by the Senate of legislation to extend it before the chamber adjourns for the Independence Day holiday.  Although the votes exist in the Senate to renew the Bank’s authority, as demonstrated by a test vote during the Senate debate on the defense authorization bill, the Bank’s authority to issue new loans will expire.  The plan now among Bank supporters is to aim to include the renewal of the Bank’s charter in the must-pass highway funding bill both chambers will consider in July.  Because congressional Republicans have still not found a funding mechanism for a long-term highway bill, including the Bank’s renewal in that vehicle could garner Democratic support for the highway bill, which Democrats have otherwise said they would not support absent a long-term funding mechanism for transportation projects.

The House returns on Tuesday and tackles 14 suspensions.  The bulk of the bills to be considered under suspension of the rules come from the Homeland Security Committee and touch on a variety of issues at the Department of Homeland Security.  In addition, to the Homeland Security bills, the House will tackle a handful of other bills.  Most prominent among these is the bipartisan revision to the Toxic Substances Control Act.

Following consideration of the suspension bill, the House will take up H.R. 1190, sponsored by Rep. Phil Roe (R-TN) to repeal the controversial provision of the Affordable Care Act establishing the Independent Payment Advisory Board, a panel which makes recommendations on Medicare cuts.  The legislation had been scheduled for last week but was displaced by reconsideration of the trade bills.  The vote to repeal the IPAB comes as the U.S. Supreme Court is expected to issue a ruling in the next two weeks in the King v. Burwell case, regarding subsidies for health insurance under the Affordable Care Act.  If the Court strikes down the legality of subsidies for health insurance purchased through federal exchanges, Congress will have to deal with another highly contentious healthcare debate during July, when highway funding and the Export-Import Bank will also have to be addressed.

The House will then tackle H.R. 2042, the Ratepayer Protection Act, introduced by Rep. Ed Whitfield (R-KY).  This bill would allow for judicial review of any final ruling by the Environmental Protection Agency on carbon dioxide regulations for existing power plants, a highly contentious issue focused on the Administration’s effort to reduce greenhouse-gas emissions.

The House will complete the week and head into the Independence Day recess by considering the FY 2016 Interior and Environment appropriations bill, a $30 billion funding measure that would cut funding for the Environmental Protection Agency (EPA) by nine percent and include a number of policy riders aimed at preventing many of the agency’s policies from going into effect.  Passed in the House Appropriations Committee on June 16 on a party-line vote, the Interior and Environment bill has become one of the most controversial of the 12 annual appropriations bills because of the policy riders.  Among other things, this bill includes provisions that would bar EPA’s efforts to regulate greenhouse gas emissions from new and existing power plants, amend the designation for automatic Clean Water Act protection, prevent the listing of certain animals under the Endangered Species Act, and block funding for rule regulating hydraulic fracturing on federal lands.  These riders are all opposed by congressional Democrats and the Administration.

The House schedule also allows for consideration of trade-related legislation that it might need to consider to accompany TPA to the President’s desk for signature.

House and Senate Appropriations Committees continue their work on reporting out FY 2016 spending bills.  This week the Senate Appropriations Subcommittee on Transportation, Housing, and Urban Development and Subcommittee on Labor, Health and Human Services, and Education will markup their respective bills. The House Appropriations Committee will markup its FY 2016 Labor, Health and Human Services, and Education bill on Wednesday.

The Senate Foreign Relations Committee will hold a hearing on evaluating the key components of an international nuclear agreement with Iran on Thursday.  President Obama signed into law the Iran Nuclear Agreement Review Act of 2015, which provides Congress the authority to review of any international agreement on Iran’s nuclear program.  The deadline for the international negotiations is the end of the month and Committee Chairman Bob Corker (R-TN) last week wrote a letter to President Obama expressing concerns over reports of concessions that the United States and its allies are making in those negotiations.

The recent data breach at the Office of Personnel and Management that exposed the personal information of millions of active and retired federal employees remains the subject of congressional scrutiny this week.  The Senate Appropriations Subcommittee on Financial Services and General Government will hold a hearing on OPM data security on Tuesday.  The House Oversight and Government Reform Committee will hold its second hearing on the data breach on Wednesday.

Also on the hearing agenda this week will be proposals for federal transportation spending.  The current short-term surface transportation authorization expires in July, and lawmakers continue to struggle with finding bipartisan agreement on a long-term solution for funding shortfalls for the Highway Trust Fund.  Democrats are insisting on a long-term fix (though inclusion of the Export-Import Bank reauthorization may, as noted above, secure Democratic support for another short-term fix).  Last week, House Ways and Means Chairman Paul Ryan (R-WI) publicly ruled out any increase in the gas tax as a solution for HTF insolvency.  The Senate Finance Committee meets on Thursday to discuss state innovations in funding transportation infrastructure, while the House Ways and Means Subcommittee on Select Revenue Measures will hold a Wednesday hearing on the potential use of revenue from the repatriation of earnings as a source of highway funding.

A full schedule of congressional hearings for this week is included below:

Tuesday, June 23, 2015

House Committees

GSA Leasing in the Northeast
House Transportation and Infrastructure – Subcommittee on Economic Development, Public Buildings and Emergency Management
Subcommittee Panel Discussion
June 23, 11 a.m., Conference Rooms A/B, Sixth Floor, Jacob K. Javits Federal Office Building, 26 Federal Plaza, New York, N.Y.

VA Small Business Goals Reporting
House Veterans’ Affairs – Subcommittee on Oversight and Investigations; House Small Business – Subcommittee on Investigations, Oversight and Regulations
Committee Joint Hearing
4 p.m., 334 Cannon Bldg.

Senate Committees

OPM Data Security Review
Senate Appropriations – Subcommittee on Financial Services and General Government
Subcommittee Hearing
10:30 a.m., 124 Dirksen Bldg.

Fiscal 2016 Appropriations: Transportation-HUD
Senate Appropriations – Subcommittee on Transportation, Housing and Urban Development, and Related Agencies
Subcommittee Markup
10 a.m., 138 Dirksen Bldg.

National Flood Insurance Program
Senate Banking, Housing and Urban Affairs
Full Committee News Conference/Briefing
10 a.m., 538 Dirksen Bldg.

Regulatory Overhaul Costs
Senate Budget; Senate Homeland Security and Governmental Affairs
Committee Joint Hearing
10 a.m., G50 Dirksen Bldg.

Takata Air Bag Recall and Vehicle Safety Update
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., 253 Russell Bldg.

Carbon Regulation Impact on Energy Costs
Senate Environment and Public Works – Subcommittee on Clean Air and Nuclear Safety
Subcommittee Hearing
2 p.m., 406 Dirksen Bldg.

Ambassador Nominations
Senate Foreign Relations
Full Committee Confirmation Hearing
11 a.m., 419 Dirksen Bldg.

Fiscal 2016 Appropriations: Labor-HHS-Education
Senate Appropriations – Subcommittee on Labor, Health and Human Services, Education and Related Agencies
Subcommittee Markup
3 p.m., 138 Dirksen Bldg.

American Energy Export Opportunities
Senate Foreign Relations – Subcommittee on Multilateral International Development, Multilateral Institutions and International Economic, Energy and Environmental Policy
Subcommittee Hearing
2:45 p.m., 419 Dirksen Bldg.

 

Wednesday, June 24, 2015

House Committees

U.S. International Food Aid
House Agriculture
Full Committee Hearing
10 a.m., 1300 Longworth Bldg.

Fiscal 2016 Appropriations: Labor-HHS-Education
House Appropriations
Full Committee Markup
10:15 a.m., 2359 Rayburn Bldg.

Child Nutrition Assistance Compliance
House Education and the Workforce – Subcommittee on Early Childhood, Elementary and Secondary Education
Subcommittee Hearing
10 a.m., 2175 Rayburn Bldg.

Medicaid Demonstration Project Approval
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Syrian Refugee Admission
House Homeland Security – Subcommittee on Counterterrorism and Intelligence
Subcommittee Hearing
10 a.m., 311 Cannon Bldg.

BLM Wind and Solar Reclamation Bonds
House Natural Resources – Subcommittee on Oversight & Investigations
Subcommittee Oversight Hearing
10:30 a.m., 1324 Longworth Bldg.

OPM Data Breach
House Oversight and Government Reform
Full Committee Hearing
10 a.m., 2154 Rayburn Bldg.

EPA Clean-Power Plan Analysis
House Science, Space and Technology – Subcommittee on Energy; House Science, Space and Technology – Subcommittee on Environment
Committee Joint Hearing
10 a.m., 2318 Rayburn Bldg.

U.S. Train Control Implementation
House Transportation and Infrastructure – Subcommittee on Railroads, Pipelines and Hazardous Materials
Subcommittee Hearing
10 a.m., 2167 Rayburn Bldg.

Veterans Affairs Legislation
House Veterans’ Affairs – Subcommittee on Disability Assistance and Memorial Affairs
Subcommittee Hearing
2 p.m., 334 Cannon Bldg.

Health Law and Insurance Premiums
House Ways and Means – Subcommittee on Oversight
Subcommittee Hearing
10 a.m., 1100 Longworth Bldg.

Islamic State Assessment
House Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Hearing
2 p.m., 2118 Rayburn Bldg.

U.S. Financial Sector Security
House Financial Services
Full Committee Hearing
2 p.m., 2128 Rayburn Bldg.

Colombia and the FARC
House Foreign Affairs – Subcommittee on the Western Hemisphere
Subcommittee Hearing
3 p.m., 2172 Rayburn Bldg.

DHS Federal Cybersecurity Efforts
House Homeland Security – Subcommittee on Cybersecurity, Infrastructure Protection and Security Technologies
Subcommittee Hearing
2 p.m., 311 Cannon Bldg.

Puerto Rico Political and Economic Assessment
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Oversight Hearing
2 p.m., 1324 Longworth Bldg.

Rural Transportation Issues
House Transportation and Infrastructure – Subcommittee on Highways and Transit
Subcommittee Hearing
2 p.m., 2167 Rayburn Bldg.

Repatriation Tax and Highway Funding
House Ways and Means – Subcommittee on Select Revenue Measures
Subcommittee Hearing
2 p.m., 1100 Longworth Bldg.

Senate Committees

Flood Insurance Management
Senate Banking, Housing and Urban Affairs
Full Committee Hearing
10 a.m., 538 Dirksen Bldg.

Governmental Affairs Measures and Nominations
Senate Homeland Security and Governmental Affairs
Full Committee Markup
10 a.m., 342 Dirksen Bldg.

Native American Youth Suicide Prevention
Senate Indian Affairs
Full Committee Oversight Hearing
2:15 p.m., 628 Dirksen Bldg.

Work in Retirement
Senate Special Aging
Full Committee Hearing
2:15 p.m., 562 Dirksen Bldg.

Veterans Health Care and Benefits Legislation
Senate Veterans’ Affairs
Full Committee Markup
2:30 p.m., 418 Russell Bldg.

 

Thursday, June 25, 2015

House Committees

Welfare and Work Issues
House Agriculture – Subcommittee on Nutrition; House Ways and Means – Subcommittee on Human Resources
Committee Joint Hearing
10 a.m., 1100 Longworth Bldg.

Nuclear Deterrence Policy
House Armed Services
Full Committee Hearing
10 a.m., 2118 Rayburn Bldg.

Vehicle-to-Vehicle Communications
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Public Health Bills
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10:15 a.m., 2322 Rayburn Bldg.

CFPB Misconduct Allegations
House Financial Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10 a.m., 2128 Rayburn Bldg.

State Department and Religious Freedom Bills
House Foreign Affairs
Full Committee Markup
10 a.m., 2172 Rayburn Bldg.

Mineral Production Legislation
House Natural Resources – Subcommittee on Energy and Mineral Resources
Subcommittee Hearing
10:30 a.m., 1334 Longworth Bldg.

Water Use and Infrastructure Bills
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
10 a.m., 1324 Longworth Bldg.

IRS Inspector General Update
House Oversight and Government Reform
Full Committee Hearing
9 a.m., 2154 Rayburn Bldg.

National Science Foundation Employee Ethics Issues
House Science, Space and Technology – Subcommittee on Oversight; House Science, Space and Technology – Subcommittee on Research and Technology
Committee Joint Hearing
10 a.m., 2318 Rayburn Bldg.

GSA Proposed Transactional Data Rule
House Small Business – Subcommittee on Contracting and Workforce
Subcommittee Hearing
10 a.m., 2360 Rayburn Bldg.

VA Fiscal 2015 Budget Assessment
House Veterans’ Affairs
Full Committee Hearing
10:30 a.m., 334 Cannon Bldg.

Food Labeling Bills
House Agriculture – Subcommittee on Biotechnology, Horticulture and Research
Subcommittee Hearing
1:30 p.m., 1300 Longworth Bldg.

Defense Department Nuclear Enterprise Review
House Armed Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
2 p.m., 2212 Rayburn Bldg.

China and U.S. Universities
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

Criminal Justice Proposals
House Judiciary
Full Committee Panel Discussion
June 25 TBA, TBA

VA Major Lease Procurement
House Oversight and Government Reform – Subcommittee on National Security
Subcommittee Hearing
2 p.m., 2154 Rayburn Bldg.

Veterans Affairs Measures
House Veterans’ Affairs – Subcommittee on Economic Opportunity
Subcommittee Markup
2 p.m., 334 Cannon Bldg.

Senate Committees

COOL and Trade Retaliation
Senate Agriculture, Nutrition and Forestry
Full Committee Hearing
10 a.m., G50 Dirksen Bldg.

Transportation Infrastructure Financing
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Iran Nuclear Agreement
Senate Foreign Relations
Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Cybersecurity and OPM Data Breach
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
9:30 a.m., 342 Dirksen Bldg.

Veterans and Economic Opportunity Policy
Senate Small Business and Entrepreneurship
Full Committee Hearing
9:30 a.m., 428A Russell Bldg.

Impact of a Greek Default
Senate Banking, Housing and Urban Affairs – Subcommittee on National Security and International Trade and Finance
Subcommittee Hearing
1:30 p.m., 538 Dirksen Bldg.

 

Friday, June 26, 2015

House Committees

Public Shipyards and Navy Operations
House Armed Services – Subcommittee on Readiness
Subcommittee Hearing
8 a.m., 2212 Rayburn Bldg.

U.S. Space Security
House Armed Services – Subcommittee on Strategic Forces
Subcommittee Hearing
10:30 a.m., 2212 Rayburn Bldg.

Eminent Domain and Property Rights
House Judiciary – Subcommittee on the Constitution and Civil Justice
Subcommittee Hearing
9 a.m., 2141 Rayburn Bldg.

Astrobiology Outlook
House Science, Space and Technology
Full Committee Hearing
9 a.m., 2318 Rayburn Bldg.

Keeping TPP Hopes Alive

Posted in Congressional Action, Trade Agreements

Last week’s House vote on Trade Promotion Authority (TPA), which passed 219-211, was no doubt confusing to many of our trading partners.  While a majority of the House supported TPA, as a majority of the Senate had last month, the TPA bill was politically and procedurally linked to another bill that would assist workers harmed by trade.   Democratic opposition to the worker assistance bill, which was resoundingly defeated 126-302, was even more confusing to our trading partners since, in the Senate, this bill was a precondition for Democratic support for TPA.

The House has just thrown the President’s trade agenda a lifeline. After agreeing earlier today on a new rule that delinks TPA from the worker assistance bill, the House has again voted in favor of TPA 218-208. Since a majority in both the House (on two occasions) and the Senate have now voted for TPA, there is hope that the White House and Congressional leaders can figure out a way to get TPA to the President’s desk while assuring passage also of the worker assistance bill.

TPA’s passage is critical to achieving the Administration’s goal of completing negotiations on a trade deal known as the Trans-Pacific Partnership Agreement (TPP).  The twelve countries involved in TPP negotiations have patiently waited for the President to secure TPA so they could reach a final agreement with confidence that it would enjoy the procedural benefits of TPA, namely an expedited, up-or-down vote in the Congress.  Without TPA, it seems unlikely that our trading partners will be willing to put forward their best offers, let alone close the TPP agreement.  As with every trade negotiation, the most challenging issues facing TPP negotiators are left until the end.  The number of outstanding issues, however, are discreet enough that TPP negotiators believe they can close the agreement relatively soon after passage of TPA.

If the White House and Congressional leaders can now build upon today’s momentum and secure passage of TPA, our TPP trading partners will be patient a bit longer.  But without clarity and certainty, they may conclude that closing TPP will have to be left for the next President.

This Week in Congress – June 15, 2015

Posted in Congressional Action

This week the Senate is focused on national security issues.   It will attempt to complete work on the National Defense Authorization Act (NDAA) and begin consideration of the Fiscal Year (FY) 2016 defense appropriations bill.  On the other side of the Capitol, the House is expected to take action on a number of health care-related bills, even while Congress and the President await the Supreme Court’s impending ruling in King v. Burwell, regarding subsidies for health insurance under the Affordable Care Act.

The Senate is scheduled to return on Monday, with votes expected on two non-controversial nominations.  Following these votes, the Senate will resume consideration of the NDAA.  Majority Leader Mitch McConnell filed a  motion on Thursday to invoke cloture and cut off debate on the bill.  The cloture vote is expected on Tuesday morning.  Needing the support of 60 senators in order to be successful, the cloture vote is not guaranteed to pass easily on Tuesday, because Senate Democrats have pledged to block the bill over the inclusion of funds for Department of Defense activities that exceed the spending limits established by the 2011 sequester.  The NDAA provides an additional $38 billion in funding for the Pentagon through the Overseas Contingency Operations (OCO) account, an account for war-related expenses which is exempt from discretionary caps. Democrats call the move a budgeting gimmick and have tried unsuccessfully to alter the spending framework.  Last Tuesday the Senate rejected (46-51) an amendment offered by Senate Armed Services Committee Ranking Member Jack Reed (D-RI) to block the additional $38 billion in OCO funding until Congress lifts the sequester.  If cloture is invoked on Tuesday, the Senate will have 30 hours to complete work on the NDAA.   The amendment process moving forward is unclear, because more than 100 amendments have been filed to the bill, but bill managers do not seem to have an agreement in place on the amendments that will be considered.  Senate Armed Services Committee Chairman John McCain (R-AZ) indicated to reporters last week that the Senate will consider at least two amendments following the cloture vote on Tuesday.

The debate over defense funding and sequestration levels will continue after work on the NDAA is wrapped up.  Consideration of the FY 2016 Defense Appropriations bill is expected to be the next bill on the Senate agenda.  On Thursday, the Senate Appropriations Committee approved its version of the $576 billion defense spending bill.  While only three Democratic committee members opposed the bill at the markup, Democratic leaders have pledged to block any vote to begin considering the 2016 defense appropriations bill on the floor as long as it contains the OCO funds for the Department of Defense, while the other appropriations bills are capped at sequester levels.  Senate Minority Leader Harry Reid last week told reporters that a government shutdown is already looming if congressional Republicans do not negotiate a new budget framework for FY 2016 that lifts the spending caps.  President Obama has also threatened to veto the appropriations bills at their current levels.  So far, Republican leadership has not indicated a willingness to agree to a budget summit, but neither chamber would have the necessary votes to overcome a presidential veto on any of the appropriations bills.

Consideration of the Cybersecurity Information Sharing Act in the Senate is also possible later this week.  Majority Leader McConnell tried unsuccessfully to attach the measure as an amendment to the NDAA last week, but his effort was met with resistance from Senate Democrats who want to take up the bill independently and offer amendments.  The legislation would encourage greater sharing of cyber-threat information between the private sector and government by offering companies expanded liability protections.  The measure has bipartisan support, especially in light of the recent high-profile data breaches, and similar legislation passed the House of Representatives in April.

The House will return on Monday and consider several bills naming post offices and other federal facilities, along with a resolution calling on Iran to release the Americans it is holding.  The main legislative work starts on Tuesday, when the House tackles the Intelligence Authorization Act, which authorizes a variety of intelligence, cybersecurity, and anti-terrorism programs.  The legislation had been scheduled for last week but was displaced by Friday’s vote on the so-called “fast-track” trade legislation.  That legislation too is likely to return to the House floor early this week.  On Friday, two of the three elements of the bill were approved by the House in separate votes.  A third component of the bill, however, to reauthorize the Trade Adjustment Assistance program, was defeated.  Under the rule, however, all three elements of the bill had to be approved for the entire package to get adopted.  After the defeat of the TAA portion of the package, the Majority Leader moved to reconsider that vote, and the House is likely to take up that motion early in the week.

The House will spend the remainder of the week on healthcare-related legislation, including measures that would repeal two contentious provisions of the Affordable Care Act.  The first four of these health-care related bills will be considered under suspension of the rules.  The bigger debates will follow on the other two bills.  Reported out of the House Ways and Means Committee, the first bill would repeal the 2.3% excise tax on medical device manufacturers that was included in the Affordable Care Act as a revenue source to help pay for the law’s implementation.  A second bill would repeal the controversial  Independent Payment Advisory Board, a panel which makes recommendations on Medicare cuts. Other legislation up for consideration from the House Ways and Means Committee include proposals requiring more transparency at the Centers for Medicare and Medicaid Services (CMS) and promoting improvements to the Medicare Advantage program for seniors.

The House may also consider H. Con. Res. 55, a resolution directing the President to remove any U.S. troops deployed to Syria or Iraq after August 7, 2014, other than those troops required to protect U.S. facilities and personnel, from those two nations.  If it does come to the floor, the resolution is likely to prompt heated and partisan debate.

Appropriations mark-ups for FY 2016 continue in the House and Senate Appropriations Committees, even though there is uncertainty about spending levels and the process moving forward. The House Appropriations Committee is scheduled to markup its Interior and Environment spending bill on Tuesday.  Two Senate Appropriations subcommittees will consider their Interior and Environment and Homeland Security bills.  The House of Representatives has passed 6 of the 12 annual appropriations bills, while the Senate has yet to consider a single appropriations bill on the floor.  The full Senate Appropriations Committee has approved 5 of the 12 annual bills.

The House Oversight and Government Reform Committee meets on Tuesday for a hearing on the recent data breach at the Office of Personnel and Management that exposed the personal information of millions of active and retired federal employees.  The House Financial Services Subcommittee on Oversight and Investigations also meets on Tuesday for a hearing on global cybersecurity and cyber threats.

The surface transportation authorization and Highway Trust Fund financing remain at the forefront of congressional priorities because the current short-term surface transportation authorization adopted just prior to Memorial Day expires in July.  The House Ways and Means Committee is scheduled to meet on Wednesday to discuss long-term financing for the Highway Trust Fund, while the Senate Finance Committee will hold a hearing on Thursday on the challenges of highway funding, with former Department of Transportation Secretary Ray LaHood appearing before the committee as a witness.

A full schedule of congressional hearings for this week is included below:

Monday, June 15, 2015

Senate Committees

Iran Sanctions
Senate Foreign Relations
Full Committee Closed Briefing
5 p.m., S-116 Capitol Bldg.

TSA and Postal Service Nominations
Senate Homeland Security and Governmental Affairs
Full Committee Markup
5:30 p.m., S-216 Capitol Bldg.

Tuesday, June 16, 2015 

House Committees

Fiscal 2016 Appropriations: Interior-Environment
House Appropriations
Full Committee Markup
10:15 a.m., 2359 Rayburn Bldg.

Child Nutrition Assistance Rules and Regulations
House Education and the Workforce
Full Committee Hearing
10 a.m., 2175 Rayburn Bldg.

EPA’s Proposed Ozone Rule and Manufacturing Impact
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade; House Energy and Commerce – Subcommittee on Energy and Power
Committee Joint Hearing
10:15 a.m., 2322 Rayburn Bldg.

Mental Health Legislation
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Global Cybersecurity Issues
House Financial Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10 a.m., 2128 Rayburn Bldg.

U.S. Interests at the United Nations
House Foreign Affairs
Full Committee Hearing
10 a.m., 2172 Rayburn Bldg.

TSA Aviation Workforce Vetting
House Homeland Security – Subcommittee on Transportation Security
Subcommittee Hearing
10 a.m., 311 Cannon Bldg.

Federal Lands Bills
House Natural Resources – Subcommittee on Federal Lands
Subcommittee Hearing
10 a.m., 1324 Longworth Bldg.

Arctic Resources
House Natural Resources – Subcommittee on Energy and Mineral Resources
Subcommittee Oversight Hearing
10:30 a.m., 1334 Longworth Bldg.

OPM Data Breach
House Oversight and Government Reform
Full Committee Hearing
10 a.m., 2154 Rayburn Bldg.

Tribal Labor Sovereignty Act
House Education and the Workforce – Subcommittee on Health, Employment, Labor and Pensions
Subcommittee Hearing
2 p.m., 2175 Rayburn Bldg.

Public Safety Broadband Network Update
House Energy and Commerce – Subcommittee on Communications and Technology
Subcommittee Hearing
2 p.m., 2322 Rayburn Bldg.

Business Development and Investment
House Financial Services – Subcommittee on Capital Markets and Government Sponsored Enterprises
Subcommittee Hearing
2 p.m., 2128 Rayburn Bldg.

Fiscal 2016 Europe and Eurasia Budget Request
House Foreign Affairs – Subcommittee on Europe, Eurasia and Emerging Threats
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

Merger and Acquisition Regulatory Legislation
House Judiciary – Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Subcommittee Hearing
2 p.m., 2141 Rayburn Bldg.

International Shipping Competition
House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittee Hearing
2 p.m., 2154 Rayburn Bldg.

Genetically Engineered Human DNA
House Science, Space and Technology – Subcommittee on Research and Technology
Subcommittee Hearing
2 p.m., 2318 Rayburn Bldg.

Federal Government Real Estate Investment
House Transportation and Infrastructure – Subcommittee on Economic Development, Public Buildings and Emergency Management
Subcommittee Hearing
1 p.m., 2167 Rayburn Bldg.

Drug Interdiction in the Western Hemisphere
House Transportation and Infrastructure – Subcommittee on Coast Guard and Maritime Transportation
Subcommittee Hearing
2 p.m., 2253 Rayburn Bldg.

SSA Disability Benefits Management
House Ways and Means – Subcommittee on Social Security
Subcommittee Hearing
2 p.m., B-318 Rayburn Bldg.

Senate Committees 

Fiscal 2016 Appropriations: Homeland Security
Senate Appropriations – Subcommittee on Homeland Security
Subcommittee Markup
10:30 a.m., 138 Dirksen Bldg.

Energy Department Nominations
Senate Energy and Natural Resources
Full Committee Confirmation Hearing
10 a.m., 366 Dirksen Bldg.

Electronic Health Record User Experience
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Federal Real Property Overhaul
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Fiscal 2016 Appropriations: Interior-Environment
Senate Appropriations – Subcommittee on Interior, Environment and Related Agencies
Subcommittee Markup
2:30 p.m., 124 Dirksen Bldg.

Asia-Pacific Region Trade Issues
Senate Foreign Relations – Subcommittee on East Asia, the Pacific, and International Cybersecurity Policy
Subcommittee Hearing
2:30 p.m., 419 Dirksen Bldg.

Native American Economic Issues
Senate Indian Affairs
Full Committee Panel Discussion
2:45 p.m., 216 Hart Bldg.

Wednesday, June 17, 2015

House Committees

Smithsonian Institution Assessment
House Administration
Full Committee Hearing
10:30 a.m., 1310 Longworth Bldg.

Fiscal 2016 Appropriations: Labor-HHS-Education
House Appropriations – Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
Subcommittee Markup
9 a.m., 2358-C Rayburn Bldg.

Fiscal 2016 Appropriations: Financial Services
House Appropriations
Full Committee Markup
10 a.m., 2359 Rayburn Bldg.

Middle East Policy
House Armed Services
Full Committee Hearing
10 a.m., 2118 Rayburn Bldg.

Balanced Budget Issues
House Budget
Full Committee Hearing
10 a.m., 210 Cannon Bldg.

Financial Advice Access
House Education and the Workforce – Subcommittee on Health, Employment, Labor and Pensions
Subcommittee Hearing
10 a.m., 2175 Rayburn Bldg.

Financial Stability Oversight Council Report
House Financial Services
Full Committee Hearing
10 a.m., 2128 Rayburn Bldg.

Syria and Chemical Weapons
House Foreign Affairs
Full Committee Hearing
10 a.m., 2172 Rayburn Bldg.

Tribal Land Legislation
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Hearing
11 a.m., 1324 Longworth Bldg.

Drones and Commerce
House Oversight and Government Reform
Full Committee Hearing
9 a.m., 2154 Rayburn Bldg.

Energy Innovation Hubs
House Science, Space and Technology – Subcommittee on Energy
Subcommittee Oversight Hearing
10:30 a.m., 2318 Rayburn Bldg.

Small Business and Crude Oil Issues
House Small Business
Full Committee Hearing
11 a.m., 2360 Rayburn Bldg.

Highway Trust Fund Financing
House Ways and Means
Full Committee Hearing
10 a.m., 1100 Longworth Bldg.

U.S. Navy Surface Combatant Capacity
House Armed Services – Subcommittee on Seapower and Projection Forces
Subcommittee Hearing
2 p.m., 2212 Rayburn Bldg.

International Monetary Fund Assessment
House Financial Services – Subcommittee on Monetary Policy and Trade
Subcommittee Hearing
2 p.m., 2128 Rayburn Bldg.

China’s Economic and Military Growth
House Foreign Affairs – Subcommittee on Asia and the Pacific
Subcommittee Hearing
2 p.m., 2200 Rayburn Bldg.

Iran, North Korea and Syria Nonproliferation Act
House Foreign Affairs – Subcommittee on the Middle East and North Africa
Subcommittee Hearing
2 p.m., 2172 Rayburn Bldg.

Immigration Policy Executive Actions
House Oversight and Government Reform – Subcommittee on National Security; House Oversight and Government Reform – Subcommittee on Health Care, Benefits and Administrative Rules
Subcommittees Joint Hearing
2 p.m., 2154 Rayburn Bldg.

Senate Committees 

Federal Government Fiscal Challenges
Senate Budget
Full Committee Hearing
10 a.m., 608 Dirksen Bldg.

Consumer Product Safety Commission
Senate Commerce, Science and Transportation – Subcommittee on Consumer Protection, Product Safety, Insurance and Data Security
Subcommittee Oversight Hearing
10 a.m., 253 Russell Bldg.

Coal Ash Disposal Rule
Senate Environment and Public Works
Full Committee Oversight Hearing
9:30 a.m., 406 Dirksen Bldg.

Higher Education Reauthorization
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Economic and National Security Policy
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

USAID Administrator Nomination
Senate Foreign Relations
Full Committee Confirmation Hearing
2 p.m., 419 Dirksen Bldg.

GSA Inspector General
Senate Homeland Security and Governmental Affairs
Full Committee Confirmation Hearing
2 p.m., 342 Dirksen Bldg.

Capital Access Issues
Senate Indian Affairs
Full Committee Oversight Hearing
2:15 p.m., 628 Dirksen Bldg.

Joint Committees 

Federal Credit Programs
Joint Economic
Full Committee Hearing
10 a.m., 216 Hart Bldg.

Thursday, June 18, 2015

House Committees 

Optimized Fleet Response Plan
House Armed Services – Subcommittee on Readiness
Subcommittee Hearing
8 a.m., 2118 Rayburn Bldg.

Biotechnology Food Labeling Standards
House Energy and Commerce – Subcommittee on Health
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Cuba Property Rights Outlook
House Foreign Affairs – Subcommittee on the Western Hemisphere
Subcommittee Hearing
10 a.m., 2172 Rayburn Bldg.

Rapid DNA Act
House Judiciary – Subcommittee on Crime, Terrorism, Homeland Security and Investigations
Subcommittee Hearing
9 a.m., 2141 Rayburn Bldg.

Senate Committees 

Renewable Fuel Standard Program Management
Senate Homeland Security and Governmental Affairs – Subcommittee on Regulatory Affairs and Federal Management
Subcommittee Hearing
9:30 a.m., 342 Dirksen Bldg.

Future of Highway Funding
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Water Related Measures
Senate Energy and Natural Resources – Subcommittee on Water and Power
Subcommittee Hearing
2 p.m., 366 Dirksen Bldg.

Nigeria Sends Clear Signal of Getting Serious about Tax Enforcement

Posted in Africa

Over the past few years, Nigeria has reformed its transfer pricing regulations, introduced mechanisms to tackle tax evasion and pursued other revenue enhancing initiatives.  With revenue from petroleum taxes at its lowest point in fifteen years, the country is under even more pressure to increase its tax enforcement efforts.  At the same time, there have been reports alleging that the African continent loses over $50 billion every year to illicit financial flows has brought increasing attention to the need to strengthen the capacity of tax authorities in Nigeria and other countries.  Thus, it is a major development that the Nigerian government finally has ratified the Convention on Mutual Administrative Assistance in Tax Matters (“the Convention”).

The Convention is “the most comprehensive multilateral instrument available for all forms of tax cooperation to tackle tax evasion and avoidance.”  Under the Convention, States agree to provide administrative assistance — in the form of information exchange, recovery assistance and service of documents — to each other in tax matters.  (Where appropriate, this assistance may involve measures by judicial bodies.)  The Convention applies not only to income taxes but also taxes imposed by political subdivisions or local tax authorities, compulsory social security contributions, and other categories (e.g., property taxes, value added taxes, excise taxes).

As a party to the Convention, Nigeria now has access to the tax and other information that a revenue authority either has or can obtain in the over 60 countries that have ratified the Convention, a group that includes not only the majority of the G20 countries but also an increasing number of developing countries.  Nigeria can request this information or, with respect to certain categories of cases, enter into agreements for the information to be exchanged automatically.  In addition, there is a spontaneous exchange of information provision under which other States shall forward certain information without prior request from Nigeria.  This provision is triggered by a variety of circumstances, most of which pertain to situations where there may have been a tax loss to Nigeria.  Tax savings that may have resulted from “ within groups of enterprises” — in other words, from inappropriate transfer pricing — is one of these situations.

Nigeria also stands to benefit considerably from the enforcement support provided for by the Convention.  Upon a recovery assistance request from Nigeria, other States are obligated to “take the necessary steps to recover tax claims […] as if they were its own tax claims” unless they have made a reservation in respect of this provision.  Nigeria also can request other States to effect service of “documents, including those relating to judicial decisions” on its behalf.

Ratification of the Convention is a clear sign that Nigeria intends to pay far closer attention to the income-generating activities, and subsequent tax liabilities, of multinational corporations and other taxpayers.

This post can also be found on Cov Africa, the firm’s blog on legal, regulatory, political and economic developments in Africa.

MAT Tax Controversy Highlights Foreign Investment Challenges Faced by the Modi Administration

Posted in Asia, India, International Strategy

When Prime Minister Narendra Modi began his tenure at the helm of one of the world’s fastest growing economies, he made it a priority to attract foreign investors to continue India’s economic growth.  However, just one year after assuming office, Prime Minister Modi and his administration must confront the concerns of foreign investors, following the retroactive enforcement of the Minimum Alternative Tax (“MAT”) on foreign investors.

The MAT was established in 1988 and has served as a tax on book profits for domestic companies.  Foreign institutional investors (“FIIs”) began investing in the Indian market in 1993.  Though FIIs have been subjected to other taxes, it was widely believed that the MAT only applied to domestic entities.  In fact, the Authority for Advance Rulings, a tax body that issues determinations about foreign tax liability, concluded in 2010 that the MAT did not apply to companies without a permanent establishment in India.  This changed in 2012, when the same body contradicted its prior ruling, concluding for the first time that foreign investors were required to make MAT payments.

The issue lay dormant while the company against whom the ruling was issued sought an appeal.  Yet the MAT gained a renewed interest when the 2015 budget included an amendment that would exempt FII income from the MAT after April 1, 2015.  This amendment, in the view of tax authorities, necessarily implied that FIIs were responsible for MAT payments on book income earned prior to this date.  Hence, tax authorities issued close to 100 demands to FIIs in an effort to retroactively collect MAT payments that could amount to over $6 billion USD.

These notices caused concern among foreign investors, and resulted in FIIs pulling out close to 17,000 Crore ($3 billion USD) in the first two weeks of May.  While the long term economic impact of the MAT demand on India’s economy is unknown, credit rating agency Fitch has noted that it may cause foreign investors to “think twice” before investing in the future.  Though foreign investors are justifiably concerned about the tax demands, the Modi Administration’s response offers hope that future controversies of this nature can be avoided.

First, Revenue Secretary Shaktikanta Das reassured investors that FIIs from countries that have tax treaties with India may be exempt from the MAT.  Second, Finance Minister Arun Jaitley directly addressed foreign investors by authoring a column in the Financial Times, in order to assuage concerns over India’s tax policy.  Jaitley highlights the reforms adopted by the Modi Administration, such as clarifying rules on transfer pricing and introducing safe harbor provisions for investors.  Most notably, he distances the Modi administration from the Authority of Advance Rulings’ decisions, stating that this body was established prior to the current administration assuming office.

While much of the column may be viewed as a justification for the administration’s decision to respect the tax body’s decision to issue demand letters, Jaitley offered encouragement for investors by proposing the creation of a high level committee to explore solutions to provide tax certainty to investors.  This three-person committee officially formed in mid-May.  Chaired by former Chief Justice of the Delhi High Court A.P. Shah, the panel has scheduled meetings with various FIIs and industry associations in order to develop a comprehensive view of the MAT controversy.

The substantive impact of the panel remains to be seen, primarily because the MAT issue is still pending before the Supreme Court.  It is unclear how the panel’s recommendation will coexist with a subsequent Supreme Court ruling on the same issue.  Yet the manner in which the government has directly confronted the controversy and has provided FIIs the opportunity to present their positions to an independent panel provides hope that investors may experience greater transparency with regards to their tax liability in the future.

The United States and India Sign a 10-Year Defense Agreement and Set the Stage for Increased Defense Cooperation

Posted in Asia, Defense Issues, India, International Strategy

On June 3, 2015, U.S. Secretary of Defense Ashton Carter and Indian Defense Minister Manohar Parrikar signed a 10-year defense framework agreement during Secretary Carter’s 10-day trip to the Asia-Pacific region, which included a stop in India.  This framework agreement comes at a time when the United States and its allies are stepping up defense industrial ties in Asia as a counterweight to China’s military growth and assertion of sovereignty in the East and South Asia.  Strengthening U.S.-India relations has been a key part of the Obama Administration’s Asia policy and the renewed defense framework and other related developments took shape during President Obama’s January 2015 trip to New Delhi, where he was the Chief Guest for India’s 66th Republic Day celebrations.

The first U.S.-India defense framework agreement was signed in 2005 and outlined a number of areas for cooperation, “setting the U.S. and India on a path to increasingly broad, complex and strategic cooperation.”  In 2012, under then Deputy Secretary of Defense Ashton Carter, a new initiative—now known as the Defense Technology and Trade Initiative (DTTI)—was launched to further bi-lateral defense cooperation and trade through increasing the involvement and engagement of senior leadership from both sides.  The 2015 framework agreement recognizes DTTI and mentions co-development and co-production of defense articles and services, including technology—underscoring the priority on both sides to further defense ties in these areas.

According to a recent Pentagon press release, the renewed agreement “builds upon the previous framework and successes to guide the bilateral defense and strategic partnership for the next 10 years.  The agreement provides avenues for high level strategic discussions, continued exchanges between armed forces of both countries, and strengthening of defense capabilities.”  Supported by the framework and as part of DTTI, the U.S. and India have finalized agreements on two projects:  joint development of mobile electric hybrid power sources and next generation protective ensembles for soldiers operating in biohazard environments.  “This is just one more of the many signs of what a positive trajectory we continue to be on with the defense community here in India,” Carter recently said during a media event in New Delhi.

The innovative technologies resulting from increased U.S.-India collaboration could be produced by India’s growing industrial base, aligned with Prime Minister Modi’s “Make in India” policy.  Although the initial investment in the two DTTI projects is modest—with the U.S. and India each committing a total of $500,000 over two years for each project—the value of the collaboration is far greater when measured in terms of the strategic realignment the partnership signals, especially vis-à-vis concerns over the balance of power in the region.

Richard Fontaine, president of the Center for a New American Security, noted in a DefenseNews article that “[t]he two joint research projects, announced during the trip as part of the Defense Trade and Technology Initiative, are very small, but they are a start,” Fontaine said. “With hope, this will energize the DTTI, which so far has yielded few concrete benefits to the two sides.”  In addition, it is reported that India has offered to buy two intelligence, surveillance, target acquisition and reconnaissance (ISTAR) aircraft from the U.S. on a government-to-government basis.  Carter and Parikkar also reportedly agreed to expedite talks on cooperation with respect to jet engines and aircraft carriers.  Cooperation between the two countries is expected to increase under the renewed framework and the recent developments are a few examples of the types of cooperation and trade we will see between the two countries.

Given the recent developments in the U.S.-India defense and security relationship, Covington and Tatva Legal hosted the Third Annual India-U.S. Defense and Security Forum in New Delhi in May. The Forum brought together top executives of major U.S. and Indian companies involved in defense and the defense-related sectors, along with senior officials from both governments, thought leaders, and key industry participants, to engage in in-depth and action-oriented discussions on the impact of the policy changes, the new opportunities, and the existing challenges related to expanding the U.S.-India- defense sector relationship.  “Defense trade between India and the U.S. creates a win-win opportunity for India and U.S. companies, and our Forum will help corporate leaders learn more about the opportunities in technology and trade that will come over the next decade,” said Ralph Voltmer, chair of Covington’s India practice.

Cross-border trade and business relationships between U.S. and Indian companies are likely to grow in light of the renewed framework agreement and other policy changes and new priorities on both sides.  As such, companies doing business with and in India will need to be aware of changes in the legal and regulatory landscape.  To that end, the U.S. India Business Council will be hosting lawyers as part of the Indian National Bar Association (INBA) delegation at Covington’s Washington, D.C. office next week for discussions focused on recent legal developments in Foreign Account Tax Compliance (FACTA), corruption and off-shore accounts as well as developments, trends, and hot topics in cross-border mergers & acquisitions.

As We Were Saying, Tax Reform is Dead

Posted in Congressional Action, Tax Reform

Back in our January post, “Tax Reform is Dead!  Long Live Tax Reform!” we predicted that the President’s approach to tax reform as outlined in his State of the Union speech was so fundamentally incompatible with the approach of congressional Republicans that comprehensive tax reform legislation was highly unlikely to make meaningful headway during this Congress.

Last week, in a widely reported and commented-on interview with Morning Consult, Senate Majority Leader Mitch McConnell (R-KY) confirmed our earlier prediction.  In outlining the Senate’s upcoming schedule, Senator McConnell said “we’re certainly not going to be able to be doing big, comprehensive tax reform with this president.  The president is not interested in revenue neutrality, and he’s not interested in treating all taxpayers the same, so I don’t think we’ll get there on comprehensive.”

The White House swiftly responded saying that it still hoped to make progress on tax reform.  And it is important to note that Senator McConnell left the door open to progress on some aspects of tax reform.  He only slammed the door on comprehensive reform.  Thus, he did not foreclose reform of international taxation, which was the focus of comments this week by House Ways & Means Committee Chairman Paul Ryan (R-WI).

International tax reform has been in play for much of the year as a means to pay for a new, long-term highway-funding bill, although that approach has many opponents in Congress.  And, it is the one area in which there is impetus for reform on policy grounds as well — all sides agree it makes no sense to have a tax code that discourages American companies from repatriating foreign earnings.

Although the prospects for any significant tax reform legislation to move forward before the 2016 presidential election are very small, Congress continues to invest a great deal of time and effort on the issue.  The Senate Finance Committee chairman, Senator Orrin Hatch (R-UT), has established working groups to study different aspects of the tax system.  These working groups are scheduled to report back to the committee by June 26.  The House, too, is working on tax reform under Ways & Means Chairman Ryan.  As part of their efforts, the committees will project the effects of various proposals by computer modeling.

In light of the ongoing efforts by the committees of jurisdiction in each chamber, the point we made in our prior post and in our December 2014, “Tax Reform is Already on the Table,” remains true.  Comprehensive tax reform legislation may not get to the floor of the Senate or House between now and the 2016 presidential election, but decisions will be made during that period that, once made, become very difficult to change.  One reasons is that revenue-neutral formulations require that, for every change that potentially produces less revenue, a concomitant increase must be achieved elsewhere.  Anyone with any interest in the tax code, therefore, must be in the game now or risk being left behind when the inevitable eventually does occur and comprehensive tax reform is enacted.