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Global Policy Watch

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

AGOA moves forward: Reviewing last week’s reauthorization in the U.S. Senate

Posted in Africa, Congressional Action, Trade Agreements

On Thursday of last week and with a vote of 97-1, the U.S. Senate approved the “Trade Preferences Extension Act of 2015,” which includes reauthorization of the African Growth and Opportunity Act (AGOA). With this action, the Senate seeks to reaffirm the “centerpiece of trade relations between the United States and sub-Saharan Africa,” as well as enduring bipartisan consensus for stronger commercial ties with the region.

The legislation now goes to the U.S. House of Representatives. As this bill moves closer toward becoming a reality, it is important to review the specific changes that the Senate’s version of AGOA reauthorization entails for African beneficiaries and their counterpart in the U.S. Here, we briefly evaluate the key revisions of the program, broadly classified as the “good” and the “to be determined.” Importantly, opportunities still exist to modify AGOA reauthorization, and several amendments could strengthen the bill.

The “Good”

Long-term extension:  AGOA reauthorization extends the program until September 30, 2025—a 10-year time horizon, which crucially also includes continuation of the third-country fabric program for the same period. Together, these provisions stand as the longest extension the bill has ever received. Short-term extensions and an uncertain renewal process have been the largest obstacles to AGOA’s success. The Senate’s new reauthorization bill provides exactly the type of stability and predictability required for beneficiary countries to utilize AGOA more effectively and for companies to make long-term investment decisions in the continent.

Targeted and flexible eligibility reviews: The Senate’s version of the AGOA reauthorization provides increased flexibility with and advance warning for a country whose eligibility is in question. In addition to an annual review and request for public comment on whether beneficiary countries conform to the eligibility criteria, the president may now initiate “out-of-cycle” assessments. The president must also provide the country in question a 60-day warning if its preferences are to be withdrawn. Additionally, the U.S. government will have more flexibility in dealing with beneficiary countries not meeting the eligibility criteria. The Senate legislation provides for the “withdrawal, suspension, or limitation” of duty-free treatment. This gives the president a more targeted way to penalize violations. For example, if this new approach had been in place during Madagascar’s 2009 coup, which led to the country’s exclusion from AGOA from 2010-2014, the U.S. may have been able to preserve the several thousands of jobs that were lost (largely by women), while pursuing more focused actions against the interests of those perpetrating political instability.

A focus on agriculture and women: This AGOA renewal recognizes the critical role of the agricultural sector and specifically mandates support to “businesses and sectors that engage women farmers and entrepreneurs.” According to the World Bank, agriculture employs about 65 percent of the region’s overall labor force, with particularly significant incorporation of female workers. This hortatory language is important, but the Senate’s version of AGOA reauthorization also takes action to provide the type of technical assistance needed to help African agribusinesses gain access to U.S markets. In particular, the legislation lifts the cap on the number of countries that can receive American trade capacity-building support and urges the Department of Agriculture to increase the number of Foreign Agricultural Service personnel assigned to staff these important programs to 30. The Senate’s leadership on this issue is commendable, but the fulfillment of these provisions will ultimately hinge on the performance of the federal agencies involved in providing trade capacity building and, unfortunately, history is not the best guide. For many years, the U.S. Commerce Department’s Foreign Commercial Service on the African continent was understaffed, and this trend only recently changed under the leadership of Secretary Penny Pritzker.

Movement toward reciprocal trade agreements: AGOA provides unilateral access for African imports into the United States. While this continues to be a stimulus for economic development and U.S. investment, there is a need to begin to move to a more mutually beneficial trade relationship with Africa, especially as many African countries have initiated reciprocal trade preference programs (the Economic Partnership Agreements) with the European Union. Sub-Saharan Africa remains one of the only regions in the world where the United States lacks any type of comparable free trade agreement (FTA). The Senate legislation appropriately requires the Office of the U.S. Trade Representative (USTR) to report on plans for negotiating such agreements within a year and to notify Congress of any African country that has expressed an interest in an FTA. While this is very positive aspect of AGOA reauthorization, the USTR reports should be issued more frequently than every five years, as presently provided for in the Senate legislation.

Publishing utilization strategies: Despite success in key areas and important improvements, AGOA-eligible countries have struggled to utilize their preferential access to U.S. markets. The AGOA reauthorization seeks to address this issue by requiring participating countries to develop and publish “utilization strategies,” which designate the sectors in which each country believes it can be competitive and how it plans to take advantage of this potential. This is a welcome initiative. Not only will it give more focus and content to the annual AGOA forums, but it will provide businesses, from Africa and the U.S., more opportunities to engage governments on how to take advantage of the program. USTR is also required to submit an AGOA utilization report to Congress on a biennial basis. These new reports could support increases in the use of the program, especially if the private sector and civil society are actively involved in the discussion.

The “To Be Determined”

The role of South Africa: The ongoing dispute over U.S. poultry exports to South Africa has been one of the most significant obstacles to AGOA reauthorization. Lawmakers ultimately compromised over the issue by including a provision on the AGOA reauthorization that requires the president to commission a review of South Africa’s participation in the program within 30 days of the AGOA extension. In many respects, this is the best outcome given the others that reportedly were being considered, such as excluding South Africa altogether or extending the benefits for only three years. Given South Africa’s FTA with the EU and the growing number of U.S. companies filing complaints to USTR about barriers to accessing the South African market, Pretoria and Washington need to use this moment to forge a blueprint for a more mutually beneficial trade relationship.

Support for regional integration: AGOA reauthorization seeks to support Africa’s regional integration agenda through improved rules of origin provisions, but more could be done to back the region’s ambitious efforts to enact a continental free trade agreement by 2017. While many remain skeptical about the timeline for this initiative, leaders of the East African Community, the Southern African Development Community, and the Common Market for East and Southern Africa are expected to sign a “Tripartite Free Trade Area Agreement” on June 10, 2015, which will incorporate half of the African Union’s member countries overall, with a combined population of 600 million people and an integrated domestic product of almost $1 trillion. More integrated African economies could be a “game changer” for the region, and AGOA could still provide a better articulation of what the United States could do to support this process and align U.S. trade policy with the region’s goals.

Import sensitivities and tariff rate quotas: Perhaps the most impactful provision of an AGOA reauthorization would be to expand product eligibility for AGOA beneficiaries. Import-sensitive sectors like sugar and cotton are areas where Africa could gain the most in terms of expanded trade with the U.S. In fact, in August of last year, USTR identified 316 specific tariff lines as priorities for possible inclusion in an AGOA renewal, but this call to action does not seem to have resonated in Congress yet. A 2013 brief from our colleagues at the Brookings Institution concludes that full duty-free, quota-free access to U.S. markets would increase African exports by $72.5 million, while costing the U.S. only $9.6 million. A similar Brookings brief highlights many areas where more could be done in terms of allocating additional quotas for agricultural exports to AGOA-eligible countries. As feasible, legislators could still consider these areas as measures to improve AGOA.

Next steps

The Senate’s move to reauthorize AGOA is a major milestone for the program, but it is still far from certain that bill will ultimately pass. There are indications that the House of Representatives will move to vote on the Trade Promotion Authority before AGOA, leaving the bill in a somewhat precarious position leading up to President Obama’s trip to Kenya in July. In the interim period, most proponents of the program will likely continue to concentrate their energies on urging Congress to take quick action. While the focus on AGOA continues, U.S. legislators have taken other important actions to improve U.S. investment policy in Africa. Last Thursday, Senator Richard Durbin (D-IL) filed an amendment to the Senate’s version of the Trade Promotion Authority, which would require the president to establish a strategy to increase U.S. exports to the region. This amendment builds on Senator Durbin’s previous bill, “Increasing American Jobs through Greater Exports to Africa Act of 2012,” (with parallel action taken in the House by Representative Chris Smith (R-NJ)), which also called for a “Special Africa Export Strategy Coordinator” to be placed in the White House and act as a principal lead on implementation of efforts to support U.S.-Africa trade. The American legislators who voted overwhelmingly to support AGOA last week should take a serious look at this amendment as they consider the TPA before the Memorial Day recess.

Note: This piece originally appeared on the Brookings Africa Growth Initiative’s blog Africa in Focus.

Going to Kenya is an important undertaking, Mr. President

Posted in Africa

Dear Mr. President:

Recently, the distinguished Harvard professor, Robert Rotberg, made the argument that your planned visit to Kenya in July is a “dumb” idea.

I couldn’t disagree more, and here is why:

One of Professor Rotberg’s central points is that your visit will exacerbate ethnic tensions in the country, as your father was a Luo, and Luos largely backed President Kenyatta’s opponents in the 2012 elections.

This is a misreading of Kenyan politics. While there are ethnic rivalries in Kenya, as in many African countries, the country is increasingly defined by its multi-ethnic private sector. In fact, in the 2013 elections, the private sector undertook an aggressive and comprehensive peace-building campaign that contributed significantly to a fair and free outcome. Given that you are going to Kenya to participate in the 2015 Global Entrepreneurship Summit, the first time it will be held in sub-Saharan Africa, your visit will be an important boost to Kenya’s private sector and its contributions to the country’s development.

Professor Rotberg is also critical of the fact that you will be hosted by President Uhuru Kenyatta, who was indicted by the International Criminal Court (ICC) for allegations of crimes related to the 2007 elections. While the ICC indictment is a serious matter, you already hosted Kenya’s leader, along with 50 other African heads of state at the White House last August during the Africa Leaders Summit. Reciprocating the visit does not break new diplomatic ground. More importantly, your inclusive approach to summit participation was an important turning point for U.S.-African relations. We need to engage virtually all African governments on issues where we both agree and disagree—and specifically engage on contentious ones such as human rights, press freedoms, and transparency. You should not pull back from this approach.

Rotburg also argues that, since Kenya is “wildly corrupt,” your visit there will only undermine the United States’ efforts to promote the rule of law worldwide. True, 36 of the continent’s 54 countries, including Kenya, are ranked in the bottom half of Transparency International’s Corruption Perceptions Index 2014. Thus, by this reasoning, the U.S. engagement on the continent would be quite limited indeed. Moreover, it also follows that your two visits to Myanmar—which ranks lower than Kenya on TI’s index—should have been avoided.

There is no question that corruption is a significant problem in Africa, especially in undermining inclusive economic growth and discouraging U.S investors. However, exporting American business practices to the continent contributes to combating the scourge of corruption, as the vast majority of American countries comply with the Foreign Corrupt Practices Act. African leadership and a commitment to transparency and accountability in all sectors is the most important response to fighting corruption, and the U.S. can contribute to this effort.  This will be an important message to convey at the Global Entrepreneurship Summit.

Perhaps most salient are Rotberg’s concerns about your security, given al-Shabab’s siege on the Westgate mall in 2013, and, most recently, the atrocious attacks at the University of Garissa. While your security is paramount, we must have confidence in the ability of U.S. security officials, working with their Kenyan counterparts, to lock down and secure the venues where you will be speaking. Anything less would be a victory for those who rely on terror to advance their objectives.

Where I agree with Professor Rotberg is in his encouragement for you to visit other African countries (although, again, not at the expense of Kenya). Nigeria is also deserving of a visit given General Buhari’s impressive electoral victory last month, and President Jonathan’s concession to Buhari. Ethiopia is an increasingly important partner on a range of security and commercial issues and would benefit from a visit. Hopefully an address to the African Union, based in Addis Ababa, is on your agenda before you leave office. Your participation in a summit of the International Conference on Great Lakes would be valuable in achieving a resolution to one of the continent’s most protracted conflicts in the eastern Congo.

Professor Rotberg is a long-time, dedicated Africanist as well as a friend and colleague. Yet, he does not seem to appreciate the historic aspect of your visit to Kenya.

In fact, Mr. President, the parallels between your visit to Kenya and President Kennedy’s visit to Ireland in June 1963 are unmistakable. At the time, Ireland had not quite been independent 40 years. Kenya has been independent just over 50 years. Ireland was a poor country in the early 1960s, a generation away from its era as a Celtic Tiger that, unfortunately, was short-lived. Kenya is poised for economic growth above 6 percent for the next several years, but only ranks 147 out of 187 countries in the 2014 U.N. Human Development Index. And both countries deeply value their relationship with the U.S.

For President Kennedy, the first Catholic to become president of the United States, his visit to Ireland was a true homecoming and a chance to revitalize the bonds between the U.S. and Ireland as well as all Irish in the diaspora. Indeed, President Kennedy described his visit to the predominantly Catholic Irish Republic as “the best four days of my life.” In President Kennedy, the Irish saw their future.

The same will be true for you, Mr. President. Your visit will inevitably strengthen and elevate a part of the world that has been overlooked by the U.S. for too long. And, in you, virtually every Kenyan, and many Africans across the continent, will see a link to and future with the United States, given your strong family ties to the nation. The reality is that many in Africa and the United States have been waiting for this visit since the day you were inaugurated. Given our competitive and challenging world, and Africa’s emerging importance in it, your visit to Kenya is quite significant. Safe travels.

 

Note: This piece originally appeared on the Brookings Africa Growth Initiative’s blog Africa in Focus.

 

India’s Investment Treaties – Will the Government Reject a Core Standard of Investment Protection?

Posted in Asia, India

Almost all of the more than 3,000 bilateral investment treaties (BITs) in existence offer foreign investors the protection of “fair and equitable treatment” under international law.  India’s new draft model BIT does not.  In place of the well-established standard of protection, which has been interpreted and applied in hundreds of prior investment arbitrations, the model BIT offers limited protection only against “denial[s] of justice,” “un-remedied and egregious violations of due process,” and “manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment.”

India’s omission of the fair and equitable treatment standard of protection is just one of a number of reasons for concern with India’s model BIT, several of which — including the exclusion of protection against arbitrary taxation and severe limitations on the protection of intellectual property — we anticipated and discussed in a prior post.  The exclusion of fair and equitable treatment may be more nuanced, but it is of no less importance to foreign investors in India — as well as companies based in India that are expanding abroad.

India’s proposed substitute standard is narrow and confusing — taken literally, “continuous” and “unjustified . . . coercion or harassment” would not be actionable, unless it was also “outrageous.”  The substitution of the fair and equitable treatment standard with this impractical test would have real world consequences.  The fair and equitable treatment standard operates as a key safeguard against host government conduct that is arbitrary or discriminatory.

Case after case demonstrates that the risk of such conduct is very real, and that it can take many forms.  In one well-known example, a Dutch investor in the Czech Republic was punished for closing a factory by having its export quotas slashed.  In another, a company operating the water system in an Argentinian city faced a political campaign where residents were urged not to pay their water bills, and where the company was prevented from enforcing its debts in local courts.  These are not the sorts of actions that a country aiming to be “open for business” should seek to protect.

India’s draft model BIT is not law.  It is merely a statement of policy generated by an office within India’s Finance Ministry and it is yet to be formally endorsed by the Cabinet.  India’s finance minister recently commented in the Financial Times that, in part because of the actions of a bureaucracy resistant to reforms, India has “not been entirely successful in convincing investors of the fairness of [its] tax system.”  He pledged that his government would not let India’s tax administration “lag behind.”  The cabinet must also stand up to bureaucratic resistance here, including by rejecting the draft model BIT as the basis for planned negotiations of a BIT with the United States. 

Doing so will no doubt be politically fraught.  But it is short-sighted to table a text that significantly scales back internationally-accepted investment protections.  While other countries, particularly the United States, have sought to provide guidance on the contours of the fair and equitable treatment standard — the U.S. Model BIT does this in an annex — such guidance should not give way to a narrowing of the standard in a way that diminishes substantive protections.

The India draft as it now stands sends a signal that India is not serious about deepening its trade and investment relationship with the United States through the conclusion of a planned India-U.S. BIT.  The failure to include important investment protections in India’s BITs harms not just foreign investors in India, but also Indian companies investing abroad.  Indian outbound investment stood at $30 billion last year, and Indian companies and investors are increasingly taking an interest in capital-intensive projects that are susceptible to long-term political and regulatory risks.  As India’s Export-Import bank pointed out just last year, a “good investment treaty programme for an emerging economy like India should not only be designed for attracting inward FDI [Foreign Direct Investment] but should also account for outward FDI from that economy.”

India should propose a model BIT for the long-term that provides both Indian outbound investors and inbound investors of strategic partners with core investment protections that foster growth. 

This Week in Congress — May 18, 2015

Posted in Congressional Action

Both chambers are in session this week with the Memorial Day recess period staring them in the face.  But there will be a great deal of work to get done before senators and representatives can head home.

The Senate returns on Monday to resume consideration of the Trade Promotion Authority (TPA) bill.  Last week, despite having failed in its first attempt to get on the bill, the Senate worked out an arrangement under which it was able to move forward.  As part of the deal, the Senate last week approved a bill to renew certain expiring trade preferences for certain developing countries and to reauthorize the Customs and Border Protection agency and make revisions to its enforcement authorities.

This week, the heavy lifting on TPA is on the agenda.  Majority Leader Mitch McConnell has promised an open amendment process, and amendments are already pending to the bill.  The Senate aims to pass the bill this week.  The legislation reflects bipartisan compromise of the kind that was in short supply recent years in the Senate.  There is broad Republican support for TPA and expanding U.S. trade with foreign nations.  Many Democrats are skeptical of expanding trade opportunities, but the bill also includes an extension of the Trade Adjustment Act, which provides assistance to U.S. workers displaced by the effects of imported goods and enjoys broad Democratic support.

With a large majority of Republicans, some Democrats, and the President supporting the bill, adoption is widely expected this week.  Challenges remain for the bill in the House of Representatives.  The bill is considered essential by proponents of expanded trade because its enactment is a prerequisite to the successful conclusion of the negotiations on the Trans-Pacific Partnership agreement, a priority of the President’s.

Once the Senate completes action on the TPA, it must still act to extend two expiring laws.  Both the current federal highway-funding authorization and the bulk metadata-collection authority under Section 215 of the USA PATRIOT Act expire at the end of the month.

Last week, Leader McConnell began the Rule 14 process, which enables the Senate to act on legislation that has not been considered by a committee, on a bill to extend the highway-funding authority for two months.  Congress has been struggling to find a means to pay for infrastructure financing for several years now and has been unable to come to a compromise resolution to permit the long-term extension of highway funding.  With a week to go before the current authority expires, Congress still has no long-term solution available for consideration.  A short-term fix is required, especially as the country enters prime road construction and maintenance time of summer.  Expect the House to act first on a short-term extension and for the Senate to clear it promptly once it receives the bill from the House.

The surveillance authority presents a more complicated picture.  Last week, the House passed by a 338-88 vote the USA Freedom Act, to renew certain national security surveillance programs, but to terminate bulk metadata collection and enhance transparency of various surveillance programs.  The Senate companion enjoys broad support among Democrats and a few Republicans, but the bill is unlikely to command 60 votes.  Most Republicans support a straight renewal of the existing surveillance authorities with no change.  That approach also cannot command 60 votes in the Senate.  Leader McConnell has started the Rule 14 process on the House-passed bill and on a two-month extension of the existing authorities.  Neither bill is likely to be able to overcome a 60-vote threshold.  Then, it becomes a bit of a game of chicken as to which side blinks first.  One thing to bear in mind is that the existing authority expires on June 1, the day the Senate returns.  It is possible the Senate will stall on moving forward and consideration of the issue resumes when the Senate returns from its Memorial Day break on June 1.  If it does that but does not pass the House-passed bill that day and instead passes a different bill, the current authorities will expire that same day.

The House also returns to work on Monday.  First up are a number of bills dealing with veterans issues.  Also on the suspension calendar for Monday is a Coast Guard authorization bill and the Justice for Victims of Trafficking bill that was stalled for so long in the Senate over an abortion-funding issue, before Democrats finally allowed the bill to move forward.

On Tuesday, the House will consider the FY16 Legislative Branch Appropriations bill and a short-term extension of the expiring highway-funding authorities noted above.

The main theme for legislative activity in the House this week is innovation and “building a 21st century economy.”  On Tuesday, a number of these bills will be considered under suspension of the rules.  These include H.R. 874, the American Super Computing Leadership Act, to authorize the Energy Department to develop the next generation of high-performance computing facilities; H.R. 1162, the Science Prize Competition Act, to promote partnerships between agencies and private organizations on scientific prize competitions; H.R. 1119, the Research and Development Efficiency Act to create a working group to streamline the regulatory burden on research; H.R. 1156, the International Science and Technology Cooperation Act to facilitate coordination of international science and technology partnerships; H.R. 1561, the Weather Research and Forecasting Innovation Act, to improve weather forecasting; and H.R. 1158, the DOE Law Modernization and Technology Transfer Act, to foster better collaboration between the National Laboratories and the private sector.

On Wednesday, the House will consider, subject to a rule, H.R. 880, the American Research and Competitiveness Act, another of congressional Republicans’ proposals to make permanent existing tax deductions and credits, in this instance the popular research and development tax credit; and H.R. 1806, the America Competes Reauthorization Act, to reform federal science agencies and promote basic science research.  On Thursday, the House will consider, subject to a rule, H.R. 2262, the SPACE Act, sponsored by the Majority Leader, Rep. Kevin McCarthy, reported last week by the Science Committee, to update and reform the Commercial Space Launch Act and promote further commercial engagement in space.

And, if the Senate is able to pass a bill different than the USA Freedom Act and send it to the House next week, the House would need to try to consider that as well.

Committees in both chambers have an active hearing and markup schedule for this week as well.  On Tuesday, both chambers’ Judiciary Committees are looking at related issues, with the House looking generally at policing issues and the Senate looking more specifically at body cameras for law enforcement.  Also on Tuesday, a subcommittee of the House Financial Services Committee is examining cybersecurity in the financial sector.  On Wednesday, the Senate Foreign Relations Committee will hold a hearing on U.S.-Cuba relations.  It is the first congressional look at the President’s recent effort to engage with Cuba.  On Thursday, the Senate Commerce Committee will hold a confirmation hearing for Vice Admiral Peter Neffenger to be the Administrator of the Transportation Security Administration.

Among expected committee markups, the House Judiciary Committee is reportedly aiming to mark up H.R. 9, the Innovation Act, the patent-litigation reform bill, on Wednesday.  The bill is identical to legislation that the House passed last Congress by a very wide margin, but it then failed to advance in the Senate.  This year, senators have introduced a competing version of the legislation.  Committee staff is engaging in discussions about making modifications to the bill for a markup, which could be delayed if the discussions are fruitful.

The Senate Banking Committee intends to mark up the Financial Regulatory Improvement Act, a bill to revise portions of the Dodd-Frank law enacted in the wake of the 2008 financial crisis by relieving some of the regulatory burden imposed by that law on smaller banks.  The Administration has expressed its opposition to the bill, and some Democratic members of the Banking Committee have noted concerns with some of its provisions.

A complete list of hearings and committee activities in both chambers follows.

Tuesday, May 19, 2015 

House Committees 

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

Electric Energy Measure
House Energy and Commerce – Subcommittee on Energy and Power
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

CPSC Oversight
House Energy and Commerce – Subcommittee on Commerce, Manufacturing and Trade
Subcommittee Hearing
10:15 a.m., 2322 Rayburn Bldg.

Rural Housing Oversight
House Financial Services – Subcommittee on Housing and Insurance
Subcommittee Hearing
10 a.m., 2200 Rayburn Bldg.

Trade Promotion Agencies
House Foreign Affairs – Subcommittee on Terrorism, Nonproliferation, and Trade
Subcommittee Hearing
10 a.m., 2172 Rayburn Bldg.

DHS Science and Technology Directorate
House Homeland Security – Subcommittee on Cybersecurity, Infrastructure Protection and Security Technologies
Subcommittee Hearing
10 a.m., 311 Cannon Bldg.

Oversight: Monitoring the Activities of the Justice Department’s Civil, Tax and Environment and Natural Resources Divisions and the U.S. Trustee Program
House Judiciary
Full Committee Hearing
10 a.m., 2141 Rayburn Bldg.

Sage Grouse Management
House Natural Resources
Full Committee Hearing
10 a.m., 1324 Longworth Bldg.

Oversight Legislation
House Oversight and Government Reform
Full Committee Markup
10 a.m., 2154 Rayburn Bldg.

SBA Capital Access Programs
House Small Business – Subcommittee on Economic Growth, Tax and Capital Access
Subcommittee Hearing
10 a.m., 2360 Rayburn Bldg.

Pacific Northwest Earthquake Preparedness
House Transportation and Infrastructure – Subcommittee on Economic Development, Public Buildings and Emergency Management
Subcommittee Hearing
10 a.m., 2167 Rayburn Bldg.

Medicare Competition and Access Issues
House Ways and Means – Subcommittee on Health
Subcommittee Hearing
10 a.m., 1100 Longworth Bldg.

Financial Sector Cybersecurity
House Financial Services – Subcommittee on Financial Institutions and Consumer Credit
Subcommittee Hearing
1 p.m., 2175 Rayburn Bldg.

U.S.-Hungary Relations
House Foreign Affairs – Subcommittee on Europe, Eurasia and Emerging Threats
Subcommittee Hearing
2 p.m., 2200 Rayburn Bldg.

DOJ Program Oversight
House Judiciary – Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Subcommittee Hearing
1 p.m., 2141 Rayburn Bldg.

Senate Committees

Fiscal 2016 Appropriations: Military Construction-VA
Senate Appropriations – Subcommittee on Military Construction, Veterans Affairs and Related Agencies
Subcommittee Markup
10:30 a.m., 124 Dirksen Bldg.

Congressional Budget Office Oversight
Senate Budget
Full Committee Hearing
10:30 a.m., 608 Dirksen Bldg.

FAA Reauthorization: Air Traffic Control
Senate Commerce, Science and Transportation
Full Committee Hearing
10 a.m., 253 Russell Bldg.

Energy Supply Measures
Senate Energy and Natural Resources
Full Committee Hearing
10 a.m., 366 Dirksen Bldg.

Federal Water Quality
Senate Environment and Public Works – Subcommittee on Fisheries, Wildlife and Water
Subcommittee Hearing
10 a.m., 406 Dirksen Bldg.

Foster Care Group Homes
Senate Finance
Full Committee Hearing
10 a.m., 215 Dirksen Bldg.

Extremism in the Middle East
Senate Foreign Relations
Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Fiscal 2016 Appropriations: Energy-Water
Senate Appropriations – Subcommittee on Energy and Water Development
Subcommittee Markup
2:30 p.m., 138 Dirksen Bldg.

Foreign Relations Nominations
Senate Foreign Relations
Full Committee Confirmation Hearing
2:45 p.m., 419 Dirksen Bldg.

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

Body Cameras for Law Enforcement
Senate Judiciary – Subcommittee on Crime and Terrorism
Subcommittee Hearing
2:30 p.m., 226 Dirksen Bldg.

Intelligence Issues
Senate Select Intelligence
Full Committee Other Event
2:30 p.m., 219 Hart Bldg.

Impact of Environmental Regulations
Senate Small Business and Entrepreneurship
Full Committee Hearing
2 p.m., 428A Russell Bldg.

Wednesday, May 20, 2015

House Committees

Fiscal 2016 Appropriations: Defense
House Appropriations – Subcommittee on Defense
Subcommittee Markup
9:30 a.m., H-140 Capitol Bldg.

Fiscal 2016 Appropriations: Commerce-Justice-Science
House Appropriations
Full Committee Markup
10:30 a.m., 2359 Rayburn Bldg.

Committee Measures and Nominations
Senate Commerce, Science and Transportation
Full Committee Markup
10:30 a.m., 253 Russell Bldg.

Workers’ Compensation and Federal Employees
House Education and the Workforce – Subcommittee on Workforce Protections
Subcommittee Hearing
10 a.m., 2175 Rayburn Bldg.

U.S.-Egypt Relations
House Foreign Affairs – Subcommittee on the Middle East and North Africa
Subcommittee Hearing
10 a.m., 2172 Rayburn Bldg.

Recreational Outdoor Sports Regulations
House Natural Resources – Subcommittee on Federal Lands; House Natural Resources – Subcommittee on Water, Power and Oceans
Committee Joint Hearing
9:30 a.m., 1324 Longworth Bldg.

National Energy Security Corridors Act
House Natural Resources – Subcommittee on Energy and Mineral Resources
Subcommittee Hearing
10 a.m., 1334 Longworth Bldg.

Commercial Weather Data
House Science, Space and Technology – Subcommittee on Environment
Subcommittee Hearing
10 a.m., 2318 Rayburn Bldg.

Small Business and Global Commerce
House Small Business
Full Committee Hearing
11 a.m., 2360 Rayburn Bldg.

Veterans Service Organizations Legislative Issues
Senate Veterans’ Affairs; House Veterans’ Affairs
Committee Joint Hearing
10 a.m., 216 Hart Bldg.

Health Care Law Implementation Issues
House Ways and Means – Subcommittee on Oversight
Subcommittee Hearing
10 a.m., 1100 Longworth Bldg.

Capitol Police Issues
House Administration
Full Committee Hearing
2 p.m., 1310 Longworth Bldg.

SNAP Assessment
House Agriculture – Subcommittee on Nutrition
Subcommittee Hearing
1:30 p.m., 1300 Longworth Bldg.

Rwanda Update
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
2 p.m., 2200 Rayburn Bldg.

Nepal Solidarity Resolution
House Foreign Affairs – Subcommittee on Asia and the Pacific
Subcommittee Markup
2 p.m., 2172 Rayburn Bldg.

Nepal Earthquake Response
House Foreign Affairs – Subcommittee on Asia and the Pacific
Subcommittee Hearing
2:15 p.m., 2172 Rayburn Bldg.

Electricity Reliability and Forest Protection
House Natural Resources – Subcommittee on Water, Power and Oceans
Subcommittee Hearing
1:30 p.m., 1324 Longworth Bldg.

Stream Protection Rule and States
House Natural Resources – Subcommittee on Oversight & Investigations
Subcommittee Oversight Hearing
2 p.m., 1334 Longworth Bldg.

Senate Committees

EPA Advisory Panel Oversight
Senate Environment and Public Works – Subcommittee on Superfund, Waste Management and Regulatory Oversight
Subcommittee Oversight Hearing
9:30 a.m., 406 Dirksen Bldg.

U.S.-Cuba Relations
Senate Foreign Relations
Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Higher Education Act Reauthorization: Institutional Risk-Sharing
Senate Health, Education, Labor and Pensions
Full Committee Hearing
10 a.m., 430 Dirksen Bldg.

Federal Civil Service Revisions
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
10 a.m., 342 Dirksen Bldg.

Veterans Service Organizations Legislative Issues
Senate Veterans’ Affairs; House Veterans’ Affairs
Committee Joint Hearing
10 a.m., 216 Hart Bldg.

Fishery Management and Data Collection
Senate Commerce, Science and Transportation – Subcommittee on Oceans, Atmosphere, Fisheries and Coast Guard
Subcommittee Hearing
2:30 p.m., 253 Russell Bldg.

Foreign Relations Nominations
Senate Foreign Relations
Full Committee Confirmation Hearing
2:30 p.m., 419 Dirksen Bldg.

Native American Water Rights Settlements
Senate Indian Affairs
Full Committee Oversight Hearing
2:15 p.m., 628 Dirksen Bldg.

Sexual Assault and Human Rights
Senate Judiciary – Subcommittee on the Constitution
Subcommittee Hearing
2:30 p.m., 226 Dirksen Bldg.

Hospital Observation Stay Issues
Senate Special Aging
Full Committee Hearing
2:15 p.m., 562 Dirksen Bldg.

Thursday, May 21, 2015

House Committees

Quadrennial Energy Review and Legislation
House Energy and Commerce – Subcommittee on Energy and Power
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Opioid Abuse Issues
House Energy and Commerce – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10:15 a.m., 2322 Rayburn Bldg.

Terrorism, Crime and Corruption
House Financial Services
Full Committee Hearing
10 a.m., 2128 Rayburn Bldg.

Women’s Rights and International Communications Bills
House Foreign Affairs
Full Committee Markup
9:30 a.m., 2172 Rayburn Bldg.

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

Vehicle Fleet Procurement Issues
House Oversight and Government Reform – Subcommittee on Government Operations
Subcommittee Hearing
10 a.m., 2247 Rayburn Bldg.

Veterans Affairs Measures
House Veterans’ Affairs
Full Committee Markup
9 a.m., 334 Cannon Bldg.

Senate Committees

Agriculture Measures and Nomination
Senate Agriculture, Nutrition and Forestry
Full Committee Markup
10 a.m., 328A Russell Bldg.

Regulatory Legislation
Senate Banking, Housing and Urban Affairs
Full Committee Markup
10 a.m., 538 Dirksen Bldg.

TSA Nomination
Senate Commerce, Science and Transportation
Full Committee Confirmation Hearing
10 a.m., 253 Russell Bldg.

U.S. Fiscal Policies
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
9:30 a.m., 342 Dirksen Bldg.

Judiciary Issues
Senate Judiciary
Full Committee Business Meeting
10 a.m., 226 Dirksen Bldg.

Public Lands, Forests and Mining Bills
Senate Energy and Natural Resources – Subcommittee on Public Lands, Forests and Mining
Subcommittee Hearing
2:30 p.m., TBA

Intelligence Issues
Senate Select Intelligence
Full Committee Other Event
May 21, 2:30 p.m., 219 Hart Bldg.

Revamping India’s Bankruptcy Laws: A Way Out of India’s Bad Debt Problem

Posted in Asia, India

Despite recent improvements in India’s economic stability, the hangover from India’s credit fueled boom isn’t over yet.  Estimates of the percentage of bank loans that are “impaired” — where repayment of the loan is classified as doubtful — run as high as 9%.  Following the global financial crisis in 2008 and 2009, India joined countries around the world in rapidly pumping money into the financial system to prevent a prolonged global recession. The strategy of cheaper and more available money, much of it flowing through India’s banks, succeeded and resulted in the country’s growth.  However, overreliance on interest-rate sensitive bank loans, slowing global GDP growth rates, and uncertain domestic economic policies exposed the vulnerabilities of India’s banks.  Bad debts and missed loan repayments started to pile up quickly.  The consequences of shortcomings in the insolvency process are far-reaching since bad debts can create difficulty in extending new loans even in good economic times.

The Indian government has undertaken some important steps to address the bad debt problem.  India’s Finance Ministry within the newly elected Modi administration shifted away from its historical tendency to recapitalize India’s public sector banks with taxpayer money.  Instead, it has publicly favored selling equity stakes in public sector banks to private investors in order to repair bank balance sheets.  The India’s Reserve Bank (RBI) has also recently instituted requirements that India’s banks replace their traditional ad-hoc approach to resolving non-repayment with a standardized system for classification and information sharing about perennial defaulters.  Such measures reflect a growing recognition amongst Indian policymakers that the extent of the bad debt problem can no longer be ignored.

Nevertheless, these measures are not enough.  In order to make meaningful strides in settling bad debts, and to prevent their re-occurrence in subsequent economic downturns, policymakers will need to address two key obstacles — chronic backlogs in India’s judicial system and the lack of a cohesive bankruptcy code in India.

India currently has no consistent framework for dealing with bankruptcies.  Companies in different industries face varying degrees of legal and government supervision in the liquidation process.  In many instances, supervised debt restructuring occurs only when companies face imminent crisis.  Further compounding this problem is the fact that court delays in India can cause bankruptcy proceedings to take years.  According to a well-publicized report written by current RBI governor Raghuram Rajan, the average time taken to close a business in India is 10 years, compared with 1.7 years in China.  This report also highlights abysmally low asset recovery rates in India—12% at the end of a bankruptcy process compared with China’s 36%.  

There’s no doubt that the Indian government recognizes that bad debt can impair the country’s long term growth.  What remains to be seen is whether the Modi administration will undertake initiatives to create an organized bankruptcy code, one that does not fall victim to India’s judicial backlog.  The signs are encouraging.  The Bankruptcy Law Reform Committee, a committee recently constituted by the Finance Ministry, released a report recommending drastic changes to current laws and laying out a clear roadmap for implementation. The report uses definitive language to describe the limitations and inconsistencies of the current bankruptcy framework, and its recommendations borrow heavily from best practices in the US, Sweden, and the UK.  The report’s proposals, if implemented, could herald a new era in how India’s economy resolves bad debts.

Focus on Infrastructure

Posted in Uncategorized

Infrastructure Week is underway in Washington, DC, and across the country, highlighting the importance of investing in and modernizing America’s aging infrastructure.  The emphasis is on the essential role infrastructure plays in our economy.

Covington & Burling, together with Common Good, the Bipartisan Policy Center, and the National Association of Manufacturers, co-hosted an event on Tuesday bringing together experts to discuss the infrastructure approval process, and ways to improve or reform the current system to increase efficiency. The half-day forum presented new perspectives and a conversation on why an overhaul is needed. Boosting the economy and improving environmental outcomes can move in tandem but current structures and regulatory barriers prevent such paradigm shifts. The forum also included a presentation of best practices from other countries and opportunities created by consolidating decision-marking and early consideration of environmental impacts.  Philip Howard, founder of the Common Good and partner at Covington & Burling, convened the event, acknowledging on Tuesday that “No one designed the system we have now- it just grew.” The forum’s goal was to explore bold proposals for simplifying, accelerating, and improving the infrastructure approval process. Red tape must be cut if America wants to reap all the benefits of new infrastructure projects—enhanced competitiveness, millions of jobs, and a greener environmental footprint.

Deputy Secretary of Transportation Victor Mendez was the keynote speaker, remarking on the new Department of Transportation (DOT) “Beyond Traffic” survey that accounts for current infrastructure and transportation needs and forecasts future trends.  The most recent survey, Beyond Traffic: Trends and Choices 2045, predicts a population increase of 70 million people by 2045 and demographic shifts across the country.  Mr. Mendez acknowledged that our current infrastructure will not be able to sustain that growth.  He stated that our infrastructure will not get better by itself.  He believes we can improve the current system to provide for more efficiencies, starting with the passage of a long-term surface transportation authorization from Congress.  Should Congress continue to pass only short-term fixes, Mr. Mendez believes infrastructure stakeholders and the American public should begin considering mechanisms to keep innovation occurring outside of legislative action.

The first panel, moderated by Covington & Burling’s Gary Guzy, brought together international and domestic experts to discuss how the U.S. infrastructure approval system compares to that of other countries.  Nick Malyshev, head of the Regulatory Policy Division at OECD, observed that while the U.S. has a great system for instituting laws and regulations, we could do a much better job of evaluating the regulations in place.  He and the other panelists, John Porcari of Parsons Brinckerhoff and Shawn Denstedt of Osler, Hoskin & Harcourt (Canada), discussed how Canada, Australia, and many European Union countries are light years ahead of the United States in terms of their regulatory framework and approval processes.  Mr. Denstedt discussed how Canada in particular revamped its environmental review process in 2012 to make it more consistent and timely and the outcomes more predictable.  All of the panelists remarked on how the convoluted approval process, not necessarily the substance of projects, is dragging down the infrastructure system here in the United States, and how there must be better coordination between federal and state entities to reduce overlap and inconsistencies.

A second panel discussed the environmental review process and the devolution of the National Environmental Policy Act (NEPA).  While the original intent of the act was to balance interests and understand the consequences of different choices in infrastructure projects, panelists remarked on how the process has become cumbersome, with overlapping oversight authority and review processes that have resulted in delays, escalation of costs, and an overall burden on the American economy.  Attendees were reminded that the law was only 7 pages when enacted in 1970; several panelists commented that it is time to go back to the law’s original intent.  There was also a consensus among panelists that there needs to be more of an evidence-based discussion around environmental review.  There is little analytical data on NEPA policy, but a better model could exist that is based on metrics and outcomes that can better inform decisions.  Covington & Burling’s Don Elliott discussed the judicial review process under NEPA, which he said has become a process for stopping projects, rather than facilitating how a project gets done.  One fix he noted was for preliminary injunctions to be done away with and for CEQ to issue guidelines for judicial standing.

The final panel discussed the challenges and bright spots in the current permitting process.  Joann Papageorgis of the Port Authority of New York and New Jersey discussed the Bayonne Bridge navigational clearance project as an example of how complicated the review process can be and how inefficiencies can be solved.  This project in particular required approximately 50 permits from 20 different agencies.  They found the complicated regulatory review contained multiple duplicative regulatory processes and conflicting federal requirements.  She outlined several strategies and recommendations based on the experience of this project, many of which were echoed by the other panelists, including how important it is to enforce early coordination and synchronization between agencies, and to work on a schedule.  Shoshanna Lew from DOT agreed there is no reason certain processes cannot happen simultaneously, and multiple agencies could participate as part of the same review, rather than duplicating it multiple times.

There was broad consensus across these three panels and participants that all parties should work toward permanent solutions that increase efficiencies, improve outcomes, and balance interests to advance our infrastructure systems and meet the current and future demands of our country.

The Antitrust Agencies’ Comments on the Patent System

Posted in Intellectual Property Protection

The Department of Justice and the Federal Trade Commission provided comments (“DOJ/FTC Comments”) last week that highlighted the role of the patent system in promoting “competition, innovation, and consumer welfare.”

The DOJ/FTC Comments were submitted as part of the U.S. Patent and Trademark Office (“PTO”) Enhanced Quality Initiative.  The PTO’s Initiative, launched in February, demonstrates a clear recognition that high quality patents, with clearly defined claims, are fundamental to ensuring that the patent system achieve the constitutional imperative to promote the useful arts.

The DOJ/FTC Comments are noteworthy because the intersection of patent and antitrust law is one of tremendous interest in Congress, the courts, and in academia.  The DOJ/FTC Comments buttress the understanding that the patent system promotes dynamic efficiency, and thereby enhances consumer welfare—which is ultimately the objective of competition law.  The DOJ/FTC Comments note that “[p]atents encourage investments in innovation.”

Clear guidance about the scope of any form of property, however, is needed to give notice to others about what may trespass on that property.  Many of the concerns with the patent system being discussed in Congress these days—both by patent owners and those accused of infringement—stem from a lack of clarity about what the patent does and does not cover.  This lack of clarity can lead to unwarranted infringement suits and can also serve as the basis to challenge the validity of a patent.  Ultimately, as the DOJ/FTC Comments explain, “when issued patents provide certainty regarding their validity and the scope of their claims, . . . [they] facilitate market transactions benefiting competition.”

In the midst of a heated legislative debate, the merits of the underlying patent system can sometimes be overlooked.  The DOJ/FTC Comments should help bring back into focus the value of the patent system to our economy.

India’s Changing Insurance Market

Posted in Asia, India

Growth in India’s insurance market has been hampered by a lack of capital, and also a lack of consumer demand.  The two problems are related: with the market still dominated by large, government-linked companies, insurance products have not always been effectively promoted by stakeholders. This in turn has left individuals and small businesses unaware of available products and the benefits of purchasing them.

Thirteen years after the last major change to India’s insurance laws, the current government is seeking to address these issues with its new Insurance Laws (Amendment) Bill 2015 (the “Bill”). The Bill—which was passed by the Indian Parliament on March 12, 2015—not only consolidates the existing legislation, but includes a number of significant changes relevant to foreign investors.

First, the government intends to increase the permitted level of foreign equity in insurance companies from 26% to 49%.  Also, and unlike the existing legislation, the Bill no longer requires foreign investors holding less than 26% of the equity in an insurance company to register and receive prior approval of their investment. While foreign investors will not be able to buy controlling stakes in Indian insurers, these reforms could nonetheless allow multinational insurers to increase their presence in the Indian market.

Further, the Bill permits insurance companies to raise capital using preferred shares and other equity and securities instruments, as specified by the Regulatory Development Authority of India (“IRDA”).  Foreign reinsurance companies are also permitted to engage in business directly in India through the establishment of a local branches and registration of those branches with the IRDA.

The Bill should have a noticeable impact on the Indian insurance market, allowing companies that have previously been on the periphery of the market to rethink their strategy. As reported by the Wall Street Journal, analysts anticipate a surge of between $1 billion and $3 billion of fresh foreign investment in the Indian market. Experts also predict that global reinsurance companies such as Berkshire Hathaway Inc. and Lloyd’s of London will set up branches in India; and companies such as Allianz and Standard Life PLC, which already operate in India, will increase their stakes in their local insurance operations.

The importance of the Bill is well illustrated by the recent earthquake affecting Nepal and parts of India. Reports of the damage so far are estimated between $1 billion and $10 billion, yet it is unclear how much of this will be recoverable through insurance companies. As Swiss Re recently reported, despite Asia suffering losses of $52 billion in 2014 from natural catastrophes and man-made disasters, only 10% of these losses were covered by insurance. With the Bill expected to receive formal assent soon, giving international insurance and re-insurance companies an opportunity to grow in India, the percentage of recovery in future years may present a different story.

This Week in Congress – May 11, 2015

Posted in Congressional Action

The House returns this week from a district work period, set to focus on legislation related to law enforcement, defense and national security matters, while the Senate will begin debate on trade promotion authority.

The House will begin the week on Tuesday by completing consideration of H.R. 1732, the Regulatory Integrity Protection Act of 2015, a bill to prevent implementation of the so-called “Waters of the United States”  (WOTUS) regulation that would bring within the jurisdiction of the Army Corps of Engineers a much wider array of property deemed to be wetlands under federal authority than under current regulation.  The bill will be sent to the President for signature after House passage.

Members are then scheduled to consider several suspensions related to fallen law enforcement and public safety officials.  S. 665, the Rafael Ramos and Wenjian Liu National Blue Alert Act of 2015, will assist with the establishment of a nationwide Blue Alert system to apprehend violent criminals who have injured or killed police officers.  This bill is named in honor of two New York City Police Detectives who were assassinated while sitting in their police patrol car in December 2014.  H.R. 606, Don’t Tax Our Fallen Public Safety Heroes Act, would amend the IRS Code to exempt death benefits paid to surviving dependents of public servants who died in the line of duty from being considered taxable gross income. H.R. 723, the Fallen Heroes Flag Act of 2015, would provide Capitol-flown flags to the immediate family of fire fighters, law enforcement officers, and other public safety officers who are killed in the line of duty.  Also related to law enforcement and public safety officials is H.R. 2146, which would allow federal law enforcement officers and firefighters to access money in their Thrift Savings Plan accounts without the 10 percent tax penalty when they are eligible to retire.

From Wednesday through the remainder of the week, a bulk of legislative activity is expected to be focused on H.R. 1735, the Fiscal Year 2016 National Defense Authorization Act, which is the annual congressional budget authorization for defense activities.  Reported out of the House Armed Services Committee (HASC) on April 30, by a vote of 60-2, the bill contains $612 billion in funding levels and major policy changes and renewals.  While the bill does not actually spend any money, it provides authorization for funding levels for later appropriations bills.  The White House has not gone so far as to issue a veto threat but has stated that it does not support the bill in its current form.  Controversy has already erupted over an amendment adopted during HASC markup regarding illegal immigrants and may threaten Republican support necessary for final passage.  Rep. Ruben Gallego (D-AZ) secured enough committee votes to approve his amendment that would encourage the Secretary of Defense to consider allowing illegal immigrants granted executive amnesty to serve in the military.  While the provision would have no force of law, 25 House conservatives have threatened to withdraw support for the entire bill because they view the provision as support for an amnesty for illegal immigrants.

After taking action on the NDAA, the House will then move to consider H.R. 36, the Pain-Capable Unborn Child Protection Act.  The bill would prohibit most abortions after 20 weeks of pregnancy.  This bill was scheduled for consideration by the House in January but pulled from the floor before a vote could take place due to a revolt from members of the Republican caucus, many of them women.  The opposition stemmed from language that would permit an exception for victims of rape and incest to have a late-term abortion if they reported the assault to law enforcement authorities.  The reporting requirement was removed from the bill and replaced with a provision that allows the victims to have a late-term abortion if the doctor has ensured the individual has received counseling or medical treatment at least 48 hours before the procedure.

Another item on the House agenda is H.R. 2048, the USA Freedom Act, which would make reforms to surveillance programs. The legislation would end the NSA’s bulk collection of Americans’ communications records, which was largely thought to have been authorized under Section 215 of the USA PATRIOT Act.  The bill also aims to increase transparency and accountability in government surveillance programs.  The bill was reported out of the House Judiciary Committee 25-2, and a companion bill has been introduced in the Senate.  While there is bipartisan support for reform, some lawmakers, including Senate Majority Leader Mitch McConnell, support the program and have called for  clean extension of the current authorization.  Complicating that notion is a decision last Thursday by the U.S. Court of Appeals for the Second Circuit, which ruled that the NSA bulk collection of phone records is illegal.  The panel unanimously ruled that Section 215 of the USA PATRIOT Act does not authorize the bulk collection of phone records.  In the majority ruling, the judges noted the current legislative debate surrounding the program as well as the looming June 1 expiration date of the program, unless extended by congressional action.

Should the House work through this already ambitious agenda, there is potential for the consideration of H.R. 1191, the Iran Nuclear Agreement Review Act of 2015, which passed the Senate last Thursday 98-1.  The bill ensures a congressional role in the review of any international agreement on Iran’s nuclear program.  The bill would require the President to submit any such agreement to Congress within five days of its conclusion and would prohibit the Administration from lifting any sanctions on Iran for a set amount of time while Congress reviews the agreement.  During this period, Congress could approve, disapprove or take no action on the agreement.  Enactment of a joint resolution of disapproval (which would be subject to a presidential veto) within the review period would block the President from implementing relief from U.S. sanctions.  The language of H.R. 1191 remains unchanged from the version unanimously reported out of the Senate Foreign Relations Committee on April 14, because no amendments were agreed to during Senate debate.

On the Senate side this week, senators will begin consideration of the Hatch-Wyden trade promotion authority (TPA) legislation, which allows for trade deals negotiated by the Administration to be submitted to Congress for a straight up-or-down vote within a limited period of time.  Last Wednesday, Majority Leader Mitch McConnell filed a motion to proceed to the legislative vehicle for the “fast-track” legislation, H.R. 1314, and then filed a cloture motion on the motion to proceed.  Press reports indicate that President Obama has been lobbying Democratic members over the last two weeks to encourage their support of the “fast-track” legislation because a majority of Democrats have come out in opposition.  Minority Leader Harry Reid, a vociferous opponent of TPA, has been trying to derail Senate consideration of the bill by lobbying his colleagues to block the measure until the Senate considers two other pressing items: an extension of the surface transportation authorization (which expires May 31) and the USA Freedom Act, the bill to reform and extend intelligence surveillance authorities.  Passage of TPA is seen as critical for the Obama Administration to expedite the conclusion of the Trans-Pacific Partnership (TPP) agreement, which would liberalize trade among 12 countries.  Japan and other TPP countries have expressed reluctance to close TPP without TPA’s procedural protections and expedited process.  The TPA measure includes other trade-related provisions, which include the Africa Growth and Opportunity Act and the more controversial Trade Adjustment Assistance program (TAA), which provides assistance to U.S. workers whose jobs are affected by international trade.  While an amendment is likely from Republicans to strike the extension of TAA, if such an amendment were to succeed, Democratic support for the TPA bill would likely evaporate, so expect event most opponents of TAA to oppose an amendment to remove it from the bill.

Before adjourning for the Memorial Day recess, scheduled for the week of May 25, in addition to renewing the expiring surveillance authorities, both chambers will need to act on the impending expiration of the authorities under the Highway Trust Fund, most likely through the passage of a short-term extension.  As noted above, the current authorization for surface transportation and infrastructure funding expires May 31st.

This week the Senate Armed Services Subcommittees will continue to markup their version of the FY 2016 NDAA.  The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing on the Dodd-Frank Act.  The House Appropriations Committee will take up its fourth appropriations bill of the year when it holds a markup the FY 2016 Transportation, Housing and Urban Development spending measure on Wednesday.

A  full list of congressional hearings scheduled this week are listed below:

Monday, May 11, 2015

Senate Committees

Fiscal 2016 Defense Authorization: Airland
Senate Armed Services – Subcommittee on Airland
Subcommittee Markup
2:30 p.m., 222 Russell Bldg.

U.S.-China Civil Nuclear Agreement
Senate Foreign Relations
Full Committee Closed Hearing
6 p.m., 219 Hart Bldg.

Tuesday, May 12, 2015

Senate Committees

Fiscal 2016 Appropriations: Financial Services
Senate Appropriations – Subcommittee on Financial Services and General Government
Subcommittee Hearing
10:30 a.m., 138 Dirksen Bldg.

Fiscal 2016 Defense Authorization: Seapower
Senate Armed Services – Subcommittee on Seapower
Subcommittee Markup
9:30 a.m., 222 Russell Bldg.

Fiscal 2016 Defense Authorization: Strategic Forces
Senate Armed Services – Subcommittee on Strategic Forces
Subcommittee Markup
11 a.m., 222 Russell Bldg.

American Mineral Security Act
Senate Energy and Natural Resources
Full Committee Hearing
10 a.m., 366 Dirksen Bldg.

Fiscal 2016 Defense Authorization: Readiness and Management Support
Senate Armed Services – Subcommittee on Readiness and Management Support
Subcommittee Markup
2 p.m., 106 Dirksen Bldg.

Fiscal 2016 Defense Authorization: Emerging Threats and Capabilities
Senate Armed Services – Subcommittee on Emerging Threats and Capabilities
Subcommittee Markup
3:30 p.m., 106 Dirksen Bldg.

Fiscal 2016 Defense Authorization: Personnel
Senate Armed Services – Subcommittee on Personnel
Subcommittee Markup
5:30 p.m., 106 Dirksen Bldg.

Civil Nuclear Agreement with China
Senate Foreign Relations
Full Committee Hearing
2:30 p.m., 419 Dirksen Bldg.

Veterans Choice Program
Senate Veterans’ Affairs
Full Committee Hearing
2:30 p.m., 418 Russell Bldg.

Wednesday, May 13, 2015

House Committees

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

Hydropower and Natural Gas Pipelines
House Energy and Commerce – Subcommittee on Energy and Power
Subcommittee Hearing
10 a.m., 2123 Rayburn Bldg.

Dodd-Frank Act Oversight
House Financial Services – Subcommittee on Oversight and Investigations
Subcommittee Hearing
9:30 a.m., HVC-210 Capitol Visitor Center

ISIS and Religious Minorities
House Foreign Affairs
Full Committee Hearing
10 a.m., 2172 Rayburn Bldg.

Internet Domain Name Operations
House Judiciary – Subcommittee on Courts, Intellectual Property and the Internet
Subcommittee Hearing
10 a.m., 2141 Rayburn Bldg.

Airport Security Issues
House Oversight and Government Reform
Full Committee Hearing
10 a.m., 2154 Rayburn Bldg.

White House Greenhouse Gas Emission Targets
House Natural Resources
Full Committee Oversight Hearing
10 a.m., 1324 Longworth Bldg.

Nuclear Energy Issues
House Science, Space and Technology – Subcommittee on Energy
Subcommittee Hearing
10 a.m., 2318 Rayburn Bldg.

Peer-to-Peer Lending Issues
House Small Business
Full Committee Hearing
11 a.m., 2360 Rayburn Bldg.

Rail Regulatory Issues
House Transportation and Infrastructure – Subcommittee on Railroads, Pipelines and Hazardous Materials
Subcommittee Hearing
10 a.m., 2167 Rayburn Bldg.

Veterans Choice Program
House Veterans’ Affairs
Full Committee Hearing
10 a.m., 334 Cannon Bldg.

Internet Domain Oversight
House Energy and Commerce – Subcommittee on Communications and Technology
Subcommittee Hearing
2 p.m., 2322 Rayburn Bldg.

Capital Formation and Regulatory Issues
House Financial Services – Subcommittee on Capital Markets and Government Sponsored Enterprises
Subcommittee Hearing
2 p.m., HVC-210 Capitol Visitor Center

EMP Preparedness Assessment
House Oversight and Government Reform – Subcommittee on National Security; Subcommittee on National Security
Subcommittees Joint Hearing
2 p.m., 2154 Rayburn Bldg.

Senate Committees

Fiscal 2016 Appropriations: Interior-Environment
Senate Appropriations – Subcommittee on Interior, Environment and Related Agencies
Subcommittee Hearing
10 a.m., 124 Dirksen Bldg.

Fiscal 2016 Defense Authorization
Senate Armed Services
Full Committee Markup
9:30 a.m., 222 Russell Bldg.

Border Fencing and Technology
Senate Homeland Security and Governmental Affairs
Full Committee Hearing
2 p.m., 342 Dirksen Bldg.

Educational Opportunities for Native American Children and New Mexico Land Bill
Senate Indian Affairs
Full Committee Oversight Hearing and Markup
2:15 p.m., 628 Dirksen Bldg.

Benefits Legislation
Senate Veterans’ Affairs
Full Committee Hearing
3 p.m., 418 Russell Bldg.

Thursday, May 14, 2015

House Committees

Native American Education Management
House Education and the Workforce
Full Committee Hearing
10:30 a.m., 2175 Rayburn Bldg.

National Forest Fire Protection Issues
House Natural Resources – Subcommittee on Federal Lands
Subcommittee Hearing
9:30 a.m., 1324 Longworth Bldg.

Mining Regulation Legislation
House Natural Resources – Subcommittee on Energy and Mineral Resources
Subcommittee Hearing
10 a.m., 1334 Longworth Bldg.

D.C. Opportunity Scholarship Program
House Oversight and Government Reform
Full Committee Field Hearing
9:30 a.m., Archbishop Carroll High School, 4300 Harewood Rd. NE

Coast Guard Acquisitions
House Transportation and Infrastructure – Subcommittee on Coast Guard and Maritime Transportation
Subcommittee Hearing
10:30 a.m., 2253 Rayburn Bldg.

VA Purchase Card Program Management
House Veterans’ Affairs – Subcommittee on Oversight and Investigations
Subcommittee Hearing
10:30 a.m., 334 Cannon Bldg.

Energy Production in the Western Hemisphere
House Foreign Affairs – Subcommittee on the Western Hemisphere
Subcommittee Hearing
2 p.m., 2200 Rayburn Bldg.

Human Rights and Terrorism Legislation
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Markup
2 p.m., 2172 Rayburn Bldg.

Sex Trafficking Victims
House Foreign Affairs – Subcommittee on Africa, Global Health, Global Human Rights and International Organizations
Subcommittee Hearing
2:30 p.m., 2172 Rayburn Bldg.

Trust Land Acquisition Standards
House Natural Resources – Subcommittee on Indian, Insular and Alaska Native Affairs
Subcommittee Oversight Hearing
2 p.m., 1334 Longworth Bldg.

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

Senate Committees

CFTC and Market Liquidity
Senate Agriculture, Nutrition and Forestry
Full Committee Hearing
10 a.m., 106 Dirksen Bldg.

Fiscal 2016 Appropriations: Labor-HHS-Education
Senate Appropriations – Subcommittee on Labor, Health and Human Services, Education and Related Agencies
Subcommittee Hearing
10 a.m., 124 Dirksen Bldg.

Fiscal 2016 Defense Authorization
Senate Armed Services
Full Committee Markup
9:30 a.m., 222 Russell Bldg.

Global Cyber Behavior
Senate Foreign Relations – Subcommittee on East Asia, the Pacific, and International Cybersecurity Policy
Subcommittee Hearing
10 a.m., 419 Dirksen Bldg.

Friday, May 15, 2015

House Committees

Antitrust Enforcement Oversight
House Judiciary – Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Subcommittee Hearing
9 a.m., 2141 Rayburn Bldg.

VA Staffing Issues
House Veterans’ Affairs – Subcommittee on Health
Subcommittee Hearing
May 15, 9:45 a.m., 334 Cannon Bldg.

Health Legislation
House Veterans’ Affairs – Subcommittee on Health
Subcommittee Markup
May 15, 9:45 a.m., 334 Cannon Bldg.

Senate Committees

Fiscal 2016 Defense Authorization
Senate Armed Services
Full Committee Markup
9:30 a.m., 222 Russell Bldg.

Anatomy of a Nigerian Oil Scandal: Audit of National Oil Company Fuels Momentum for Sectoral Reform

Posted in Africa

After months of speculation and mounting pressure, it’s finally here: the government of Nigeria has released the long-awaited PricewaterhouseCoopers (PwC) forensic audit of the Nigerian National Petroleum Corporation (NNPC), the country’s national oil company. It’s not often that the release of a highly technical accounting report makes the headlines—much less grabs the attention of millions—but this isn’t just any audit, either. The allegations that the report examines cost the central bank governor of Nigeria his job, and may even have played a role in unseating President Goodluck Jonathan this past March.

A little background is in order. In late 2013, then-Central Bank Governor Lamido Sanusi accused NNPC of failing to remit tens of billions in oil revenue to the Nigerian treasury—revenue sorely needed for the country’s macroeconomic stability. President Jonathan brushed off the claims and rapidly sacked Sanusi. This move was widely condemned, especially given Sanusi’s track record on combating corruption and in steering the country through its 2009 banking crisis. To quell growing public outcry, the government commissioned PwC in June 2014 to carry out a forensic audit of the state oil company. PwC submitted its final report in February 2015, but the Jonathan administration had until now chosen not to make it public, releasing only a one-page summary. The government fended off calls to release the full audit report, with Petroleum Minister Diezani Allison-Maduekwe claiming the report would not be released so as not to politicize the elections. Regardless, Major General Muhammadu Buhari handily defeated the incumbent president in late March, capitalizing on the electorate’s frustration with the Boko Haram insurgency and the perceived rampant corruption plaguing Nigeria—and still, the report was not released. Finally, after President-Elect Buhari stated last week that his administration would make the report public when he took power, President Jonathan relented and released the full audit on April 27.

The now-public report provides a bleak depiction of NNPC’s operations, and even then does not reveal the full picture. PwC was blocked from accessing the data and people it needed to conduct a full audit, and so, in an unusual move, the accounting firm warned that it could not vouch for the reliability of its report, which was not conducted in line with generally accepted auditing standards and is not to be relied upon. Overall, however, PwC’s main conclusions are in line with Sanusi’s allegations of at least serious mismanagement. (The audit does not mention the role of corruption in getting the NNPC to these dire straits, but many Nigerians believe corruption is an endemic problem in the institution.) The audit found that NNPC owed at least $1.48 billion to the treasury  as a result of accounting and computation errors. The report also cautions in uncharacteristically strong language that NNPC had been given a “blank cheque to spend money without limit or control,” warning that its operations are unsustainable and need to be urgently remedied. Over the January 2012 to July 2013 period covered by the audit, nearly half of the oil proceeds went to covering NNPC’s operational costs and on kerosene and oil subsidies; these latter subsidies, while nominally pro-poor, have long been seen as a wealth transfer to kerosene retailers instead. With oil prices tumbling dramatically over the last year, PwC warns that if the state oil company continues on the same spending trajectory, it would be unable to cover its own costs, much less remit anything to government coffers.

While PwC’s report is proving to be political poison for President Jonathan’s administration—most recently with the Minister of Finance distancing herself from the audit—it further strengthens President-Elect Buhari’s mandate to reform the oil sector. The Major General has indicated his priorities upon taking office on May 29 would be to end fuel subsidies, crack down on corruption, and reform the NNPC, while tax reform for the oil sector would take a back seat. The incoming Buhari administration may also provide the necessary momentum to get the long-pending and controversial Petroleum Industry Bill passed, which would establish a fiscal, legal, and regulatory framework for the sector. International oil companies have been keenly watching the taxation provisions of the pending bill. Uncertainty over the taxation of the sector has allegedly caused billions of dollars of foreign investment to be withheld, and Buhari’s signaling that oil taxation will not be a policy priority is likely to only increase this uncertainty. But one thing is clear: Buhari is inheriting a petroleum sector in crisis, and the effectiveness with which the President-Elect tackles the problem will determine not just the trajectory of the Nigerian oil industry for years to come, but the success of his administration as well.

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