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Global Policy Watch

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

UK General Election — A question of immigration?

Posted in EU Law and Regulatory

The UK’s next General Election will be on 7 May 2015, and with neither the Conservatives nor Labour having a clear lead in the opinion polls, the outcome is difficult to predict (see our earlier post on this topic).  Ordinarily, the economy is the key battleground topic for General Elections, but recent polls suggest that immigration will also be a crucial topic.  In particular, polling by YouGov showed immigration as the most important issue for the electorate between May to December 2014, save for on three occasions when tied with the economy (see item 4 of here).  This blog post considers the issue of immigration in the context of the 2015 General Election, and how this issue is inextricably linked with the UK’s relationship with the European Union. 

Attitudes about immigration are complex, influenced by various factors including the individuals polled and the type of immigration considered.  For example, attitudes toward high-skilled migrants are generally more positive than toward low-skilled labour migrants, extended family members and asylum seekers (see link).  Contrasting asylum seekers with economic immigrants demonstrates how very different migrant types can become exaggerated as an electoral issue.  Refugees comprise only a small element of overall migration.  In the year ending June 2014, total net migration to the UK was 260,000.  In the same period, there were 23,479 asylum applications, with 13,861 initial decisions made (i.e., pre any appeal process), granting asylum to just 5,066 individuals.   

However, polls illustrate that immigration is generally unpopular with the UK public; many survey respondents believe there are too many migrants in the UK, that immigration should be reduced, and that legal restrictions on immigration should be tighter.  The UK government’s stated aim is to reduce net migration to below 100,000 before the next election, which seems to be an impossible objective with net migration standing at 260,000 three months before the election.   

With the election approaching, the immigration issue is being hotly debated.  Numerous commentators, including Prime Minister David Cameron, have claimed that immigration is a “drain” on public services (affecting healthcare, and school places). A high profile recent study by University College London revealed a complex picture, with migrants from EEA and A10 countries[1] who arrived since 2000, making a net contribution of almost £20bn to UK public finances between 2001 and 2011.  Non-European immigrants’ net contribution, over the same period was likewise positive, at about £5bn.  In contrast, the net fiscal contribution of the UK-born population was negative, amounting to a cost of almost £617 billion.  Migrants also tend to be younger and more economically active than UK counterparts.  The head of the UK’s Office for Budget Responsibility reported that migration is beneficial for the UK economy.  For many voters, immigration is not solely a question of economics.  There are concerns relating to impact on culture and the community…factors that are more difficult to measure empirically. 

Politically and legally, the question of immigration is inextricably linked to the UK’s relationship with the European Union.  One of the cornerstones of the EU is the right to freedom of movement of EU Member State nationals, enshrined in the EU treaties.  This right operates in parallel with the other three basic freedoms: freedom of goods, capital and services.  In short, the UK is unable to control levels of immigration without also addressing intra-EU migration, which is subject to these rules.  Parts of the Conservative party are arguing for changing these rules, but Germany, the EU’s economic powerhouse, has said that the principle of EU freedom of movement is “non-negotiable” 

The Conservative manoeuvring on immigration and EU-rule changes is partly in response to the rise of the UK Independence Party (UKIP), which campaigns most heavily on reducing immigration and securing Britain’s exit from the EU, and has been eating into Conservative support.  Perhaps recognising the challenge in changing the principle of free movement of EU-citizens, the Conservatives have also advocated reducing benefit-entitlement for EU-migrants. Consistent with this theme, Foreign Secretary Philip Hammond recently said that Britain is “wide open to abuse” from migrants looking to “freeload”.  

Over three months remain until the General Election, and a week is a long time in politics, but on present indications, immigration will be a significant electoral issue.   

[1] Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia and Romania.

Increased Investment in India?

Posted in Asia

One of the items at the top of President Obama’s agenda in India this week is the long-delayed U.S.-India bilateral investment treaty (BIT).  Such a treaty was proposed by the President during his 2010 visit to India, but the proposal got little traction with the prior government.  It is likely to do better with the current Indian administration: progress on a treaty would add momentum to Prime Minister Modi’s campaign for long-term investment in Indian manufacturing and infrastructure and it would complement attempts by his government to roll back tax and other policies that have deterred investment in the recent past.

While the negotiations will likely take many months or years to bear fruit, an important signal of the Indian government’s intentions will come within the next few weeks.  With at least six investment treaty arbitrations pending against India, an office within India’s Ministry of Finance has reportedly proposed a new “model” for India’s BITs to the cabinet for its approval.  The text of the proposed model BIT has not been released publicly, but reports suggest that it reflects a substantial weakening of protections precisely in the areas of greatest concern to foreign investors.  In particular, the proposal is said to:

  • Exclude taxation measures from challenge before arbitral tribunals.  (India’s unpredictable enforcement of anti-avoidance and transfer pricing provisions in its tax code has been a frequent point of grievance and is the basis of an ongoing arbitration brought by Vodafone, as well as a second threatened action by Nokia.)
  •  Disclaim liability for treaty violations where the judiciary or local governments are at fault.  (This change would take direct aim at a recent arbitral decision, White Industries v. Union of India, where an investor was awarded damages as a result of the Indian courts’ decade-long delay in enforcement of a commercial arbitration award against a state-owned company.  Under well-established principles of international law, a state is internationally responsible for the actions of all of its branches, organs and subdivisions.)
  • Impose further restrictions on the ability to bring claims for the taking of intellectual property.  (More specifically, the proposed model BIT may entirely exclude compulsory licensing from challenge, a change that would be particularly concerning for innovative pharmaceutical firms that have faced a long history of hostility in India.  While many BITs permit compulsory licensing of intellectual property, they frequently permit such licenses to be challenged by intellectual property owners as inconsistent with the conditions placed on compulsory licensing in the WTO’s TRIPS agreement.)

Each of these proposed changes would substantially increase the challenges involved in negotiating a text acceptable to both the U.S. and Indian governments, not least because they would conflict directly with provisions in the U.S.’s own recently revised model BIT.  The cabinet’s willingness to moderate or reject such proposals would go a long way toward demonstrating its commitment to concluding a treaty with the U.S.


This Week in Congress – January 26

Posted in Congressional Action

January is Human Trafficking Awareness Month and, as such, the U.S. House of Representatives will start this week by considering today and Tuesday a dozen bills under suspension of the rules to combat human trafficking and improve services for victims of what is widely regarded as a modern-day form of slavery.   When these suspension bills are concluded, the House will take up legislation, H.R.351, the LNG Permitting Certainty and Transparency Act, to expedite the permitting process for exports of liquefied natural gas (the Senate Energy Committee is holding a hearing on the Senate version of this bill on Thursday).

The House will then turn to its major legislative work of the week when it tackles H.R. 399, the Secure Our Borders First Act of 2015, a controversial border security bill introduced by Homeland Security Committee Chairman Michael McCaul.  The bill would require the Secretary of Homeland Security to gain operational control of the U.S.-Mexico border within five years and would require the creation of additional fencing and roads.  The bill is controversial with Democrats, but it has also generated opposition from immigration hawks in the Republican Conference for not being tough enough.  After last week’s revolt among some Republicans forced the House to pull the late-term abortion bill and replace it with the bill to ban federal funding of abortions, Republicans have to get the border security bill across the finish line successfully, even in the face of grumbling from some of its members.

In the Senate, Majority Leader Mitch McConnell filed a cloture motion on Friday on S. 1, the Keystone XL Pipeline Act.  That motion will ripen this week and the Senate is expected to invoke cloture  and then complete action on the legislation.  Last week, the Senate worked through 15 amendments to the bill last week, exceeding already the number of votes taken on amendments during the entire 113th Congress.

After completing action on S. 1, we think it is likely the Senate will move to consider H.R. 240, the 2015 Homeland Security Appropriations bill, which passed the House on January 14, 2015, by a vote of 236-191.  The bill provides roughly $40 billion in discretionary funding for DHS, but also contains an amendment that blocks any of the funds from being used to carry out President Obama’s new immigration and deportation policy announced in an executive order last November.  The current funding mechanism for DHS expires on February 27, 2015.

In the wake of the State of the Union address last week, congressional committees are moving towards their regular pace of activities, as is evident by the number of hearings and markups scheduled for the week.  The major event in committee this week is the Senate Judiciary Committee’s hearings on Wednesday and Thursday to consider the nomination of Loretta Lynch to replace Eric Holder as U.S. Attorney General.  On Thursday, the Senate Banking Committee will follow up its Tuesday hearing on Iran sanctions to mark up the Nuclear Weapon Free Iran Act of 2015, legislation strongly opposed by the President but with bipartisan congressional support.

In addition to the Senate Judiciary Committee confirmation hearings, a list of other key Congressional hearings this week is included below:

Tuesday January 27th

House Budget – CBO Budget and Economic Forecast
Full Committee Hearing, 10:30 a.m., 210 Cannon Bldg.

House Energy and Commerce Subcommittee on Commerce, Manufacturing and Trade – Data Breach Legislative Issues
Subcommittee Hearing, 10 a.m., 2123 Rayburn Bldg.

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

House Financial Services – Sustainable Housing Finance
Full Committee Hearing, 10 a.m., 345 Cannon Bldg.

House Foreign Affairs – Iran Nuclear Negotiations
Full Committee Hearing, 10 a.m., 2172 Rayburn Bldg.

House Judiciary Committee – Markup of H.R. ___, “The Small Business Regulatory Flexibility Improvements Act of 2015”
Full Committee Business Meeting, 11 a.m., 2141 Rayburn Bldg.

House Science, Space and Technology – Organizational Meeting
Full Committee Business Meeting, 11 a.m., 2318 Rayburn Bldg.

House Transportation and Infrastructure Organizational Meeting and Markup of Oversight Plan
Full Committee Business Meeting, 10 a.m., 2167 Rayburn Bldg.

House Transportation and Infrastructure Subcommittee on Economic Development, Public Buildings and Emergency Management – Disaster Recovery Issues
Subcommittee Hearing, 10:30 a.m., 2167 Rayburn Bldg.

House Veterans’ Affairs – Veterans’ Affairs Legislation
Full Committee Hearing, 10:30 a.m., 334 Cannon Bldg.

House Select Committee on Benghazi Attack – Benghazi Events
Full Committee Hearing, 10:30 a.m., HVC-210 Capitol Visitor Center

House Veterans’ Affairs Subcommittee on Economic Opportunity – Transition Assistance Program
Subcommittee Hearing, 2 p.m., 334 Cannon Bldg.

House Science, Space and Technology Subcommittee on Research and Technology – Cybersecurity Issues
Subcommittee Hearing, 2 p.m., 2318 Rayburn Bldg.

House Foreign Affairs Subcommittee on Terrorism, Nonproliferation, and Trade – Terrorism and Social Media
Subcommittee Hearing, 2 p.m., 2172 Rayburn Bldg.

House Foreign Affairs Subcommittee on Africa, Global Health, Global Human Rights and International Organizations – U.S.-Nigeria Policy
Subcommittee Hearing 2 p.m., 2200 Rayburn Bldg.

House Oversight and Government Reform Organizational Meeting
Full Committee Business Meeting, 2 p.m., 2154 Rayburn Bldg.

House Ways and Means – U.S. Trade Policy
Full Committee Hearing, 2 p.m., HVC-210 Capitol Visitor Center

Senate Banking, Housing and Urban Affairs – Iran Sanctions
Full Committee Hearing, 10 a.m., 538 Dirksen Bldg.

Senate Health, Education, Labor and Pensions – No Child Left Behind and Teachers
Full Committee Hearing,  10 a.m., 430 Dirksen Bldg.

Wednesday, January 28th

House Armed Services – DoD Technological Logistics
Full Committee Hearing, 10 a.m., 2118 Rayburn Bldg.

House Natural Resources Organizational Meeting
Full Committee Business Meeting, 9:45 a.m., 1324 Longworth Bldg.

House Science, Space and Technology Subcommittee on Energy – U.S. Technology Leadership
Subcommittee Hearing, 9 a.m., 2318 Rayburn Bldg.

House Veterans’ Affairs Subcommittee on Health – VA Health Care Assessment
Subcommittee Hearing, 10 a.m., 334 Cannon Bldg.

Senate Armed Services – Budget Control Act and Sequestration
Full Committee Hearing, 9:30 a.m., 106 Dirksen Bldg.

Senate Budget – CBO Budget and Economic Forecast
Full Committee Hearing, 10 a.m., 608 Dirksen Bldg.

Senate Foreign Relations – U.S. Leadership and Global Security
Full Committee Hearing, 10 a.m., 419 Dirksen Bldg.

Senate HELP Organizational Meeting and Markup of S.192, Older Americans Act Reauthorization Act of 2015, and S. ______, Strengthening Education Through Research Act
Full Committee Business Meeting, 9:30 a.m., 430 Dirksen Bldg.

Senate Agriculture, Nutrition and Forestry Organizational Meeting
Full Committee Business Meeting, 4 p.m., 328A Russell Bldg.

Senate Special Aging – Financial Exploitation of Seniors
Full Committee Hearing, 2:15 p.m., 562 Dirksen Bldg.

Senate Homeland Security and Governmental Affairs – Cyber Attacks and Information Sharing
Full Committee Hearing, 2:30 p.m., 342 Dirksen Bldg.

Senate Indian Affairs Organizational Meeting and Oversight Hearing – Indian Country Priorities
Full Committee Business Meeting, 2:30 p.m., 628 Dirksen Bldg.

Thursday, January 29th

Senate Armed Services – U.S. National Security Strategy
Full Committee Hearing, 9:30 a.m., G-50 Dirksen Bldg.

Senate Banking, Housing and Urban Affairs – Nuclear Weapon Free Iran Act of 2015
Full Committee Markup, 10 a.m., 538 Dirksen Bldg.

Senate Energy and Natural Resources – LNG Permitting Certainty and Transparency Act
Full Committee Hearing, 10 a.m., 366 Dirksen Bldg.

Senate Health, Education, Labor and Pensions – Employer Wellness Programs
Full Committee Hearing, 10 a.m., 430 Dirksen Bldg.


Kaitlyn McClure, Covington & Burling LLP Policy Advisor, co-authored this post.

Latin America in 2015: A Year of Challenges and Opportunities

Posted in South and Central America

As the new year begins, numerous Latin American issues have moved to the center stage, including Venezuela, Argentina, Mexico, and Cuba.  To gain some insights into what lies ahead for our southern neighbors, Global Policy Watch (GPW) spoke with Dr. Arturo Valenzuela, former Assistant Secretary of State for Western Hemisphere Affairs.

GPW:  Dr. Valenzuela, what do you see as the most significant factors which will influence developments in Latin America in 2015?

Dr. Valenzuela:  At this point, both the political and economic situations in the Latin American countries are driven by two primary factors.  The first is the decline in the rate of growth in China which has affected commodity and other exports to China.  These include minerals as well as soybeans and other items.  The second major factor is the significant decline in oil prices.  This decline is having a huge impact throughout Latin America and is affecting the prospects of growth in many countries. 

GPW:  Which countries will be particularly affected by the drop in oil prices?

Dr. Valenzuela:  The biggest adverse impact will be felt by Venezuela and Ecuador because those countries are significant oil producers.  Venezuela is being hit particularly hard because that country does not have a strong manufacturing base and must import most of the products it consumes.  This has led to high inflation, currently running at 60-65%. 

Argentina will also be adversely affected by the decline in oil prices because Argentina had the prospect of foreign investment to assist in developing its shale gas and potentially a large new oil field.  It was hoped that this increased investment would help jump start the Argentine economy.  However, 2015 is likely to see a decline in investment.  At the same time, Argentina is also suffering from a reduction in its foreign exports of soybeans.

GPW:  Which countries in Latin America will benefit from the plunge in oil prices?

Dr. Valenzuela:  Those which depend upon oil imports.  As the price of oil has declined, it makes their manufacturing exports more attractive in price.  Among these countries are Chile and Mexico.  Chile, because it is an oil importer.  This benefit for Chile is particularly important in the short term because that country’s exports of copper to China have declined. 

Though Mexico is a significant oil producer, that country will be less affected by the decline in the price of oil because it has a broad manufacturing base and the cost of its raw materials will be reduced. 

GPW:  Dr. Valenzuela, in other contexts, you have spoken about a trend about toward two blocs of South American countries, an Atlantic and a Pacific bloc.  Could you please amplify this development?

Dr. Valenzuela:  The countries in the Atlantic, which include, Brazil, Argentina, Uruguay, Paraguay, and Venezuela, have made an effort at economic integration with the formation of their Mercosur group.  These countries have formed what essentially is a customs union in an effort to maintain a high level of protectionism.  Their efforts at integration, while loose, have not been very successful. 

In contrast, the countries in the Pacific, which include Chile, Peru, Mexico, and Colombia have focused on reducing tariffs and have entered into significant free trade agreements with a number of other countries throughout the world.  This approach has led to expanding economies in these Pacific countries, in contrast to declining growth for the Mercosur countries.

GPW:  Venezuela seems to be in a tailspin with its economic problems.  Do you think the leadership can turn the country around?

Dr. Valenzuela:  Venezuela faces the most critical economic situation in all of Latin America.  Not only have oil prices declined, but its production has declined as well.  These factors have produced considerable disinvestment in the country.  Venezuela’s economy depends upon oil at approximately $80 per barrel, and current prices are well below that. Moreover, Venezuela has engaged at petro diplomacy by selling inexpensive oil to Cuba and other Caribbean countries.

Venezuela entered into large loan agreements with China by which Venezuela exported oil to China in return for these loans.  It is now likely that Venezuela might default on these loans and the question becomes whether the Chinese would bail out Venezuela.  This country’s economic situation is particularly difficult because it essentially imports almost all the materials and products which it needs, and with the decline in currency these imports have gotten much more expensive.

GPW:  We have been hearing for some time that Argentina will improve its economic and political fortunes.  Do you believe that 2015 will be the year that Argentina will move closer to achieving its potential?

Dr. Valenzuela:  The drop in oil prices and exports have led to inflationary pressures within the country.  Currently there is low economic growth in Argentina and there is a shortage of dollars for imports.  These factors make the current economic situation difficult.  On the other hand, there is the prospect for political change because a presidential election will take place in 2015 and President Kirchner cannot run for reelection.  Some in Argentina believe that the current president and administration are not doing enough to turn around the economic situation.  The country may move in a different direction in this election, and that means there is the prospect for improvement.

GPW:  Chile has been an outstanding economic performer in recent years. Do you think that this will continue?

Dr. Valenzuela:  Chile benefits from very responsible macroeconomic policies which have permitted the country to increase its reserves.  It has also benefited from a sound political system characterized by the rule of law.

2015 will pose a challenge for Chile because it is a huge copper producer and the price of copper has declined considerably as have Chile’s exports to China, which was a major customer for that country.  On the other hand, Chile has considerable exports in other sectors such as agriculture and wines.  Those other exports, along with the country’s economic policies, should continue to produce growth in the coming year, although the growth rate this year should be less than it was last year.

GPW:  Dr. Valenzuela, you have been quoted extensively in the media about President Obama’s new Cuban policy.  How quickly do you see Cuba becoming a market for American companies?

Dr. Valenzuela:  I believe that it will take some time before there is full scale American investment.  The changes rolled out by the Obama Administration in terms of travel and investment have been modest.  Large scale significant economic change will require Congressional action to modify existing laws. Over the long haul, I believe there will be more investment by U.S. companies in Cuba.  However, I do not expect this to occur in the short term. 

There will also be a focus by the American government on the human rights situation in Cuba.  The hope is that this situation can improve if Cuba is not isolated economically.  Whether this will occur or not remains to be seen. 

GPW:  Could you comment on some of the challenges facing Mexico?

Dr. Valenzuela:  Mexico has come through one of the great transitions in the last several decades.  It had been a one party state like some eastern European countries.  On the other hand, it did not have the military coups which characterized many countries in Latin America.

Beginning in the 1980s, Mexico liberalized its economy and became a much more competitive multiparty democracy.  The North American Free Trade Agreement (NAFTA) has made a huge difference for Mexico.  The country has gone from doing $50 billion worth of trade with the U.S. to $600 billion.  And Mexico has become the third or fourth largest trading partner with the U.S.

At the same time, Mexico faces some political challenges.  These include making sure that the rule of law is applied throughout the country and strengthening its political institutions. 

GPW:  Overall, Dr. Valenzuela, how do you see the prospects for Latin American for 2015?

Dr. Valenzuela:  I am strongly bullish about the prospects for economic growth in the region.  To start with, the opportunity for foreign business to invest is huge.   Brazil is the fifth largest economy in the world; and the combined economies of Mexico, Peru, Colombia, and Chile equal Brazil’s.  There are 650 million people in Latin America—over twice the population of the U.S.

To be sure, there are some political challenges facing different Latin American countries.  However, on the whole there has been sea change toward democratic rule and away from military dictatorships generally.  The region has established strong nation states. It is not suffering from the ethnic conflicts which are affecting other nations in the world, for example, separatist movements in Catalonia and in Scotland. 

It will be important for the Latin American countries to continue to strengthen their institutions and to permit the growing middle class to achieve its economic potential.

For businesses seeking to expand, Latin America presents a unique opportunity.  This is true not only for American companies but others throughout the world.

No Business As Usual in Davos

Posted in Energy Law, Environmental Law, EU Law and Regulatory, Health Issues

This year, titans of business, government and society face a near tidal wave of anxiety-provoking events and trends in “The New Global Context” they will discuss this week.  Rather than upbeat discussions of start-ups and breakthroughs, they will confront some of the world’s most intractable issues just as global events highlight the failure of sufficient vision, creativity and cooperation to prevent catastrophes large and small.  And while the United States may be feeling mildly triumphant about its economic resurgence, globally, the State of the Union is volatile, uncertain and fragile, not strong.  Among the negative “disrupters” commanding attention from the world’s best and brightest are: 

Climate change — while not a new topic at Davos, there is a greater sense now that we are running out of time and options.  Last year was the world’s hottest (according to NASA) and rife with “weather events.”  Sea levels have risen faster than expected for nearly 20 years.  A January Science [1]report finds that even as sea levels rise, sea life and all marine ecosystems have been badly damaged by human activity (though less than ecosystems on land) and a real likelihood of a “major extinction event.”  Scientists now cite a loss of global environmental “carrying capacity” and the risk that we are approaching several “tipping points.”  Apparently, even Pope Francis is fed up, and plans an encyclical on the matter before November negotiations in Paris. 

Pandemics — Ebola is slowing for now, but deadly microbial “superbugs” are still mutating to be resistant to the best medicines we now have.  Jim O’Neill (former Goldman Sachs chief economist) chaired a just-released report for the UK-government report that finds that failure to combat antimicrobial resistance (AMR) will cut global GDP by up to $100 trillion, and kill an additional 10 million people worldwide, by 2050.  WHO Director General Chan, government leaders and medical experts warn that unless we accelerate globally development and proper use of diagnostics, new medicines and infection prevention measures, common diseases will become untreatable and standard medical procedures too dangerous to use. The lack of awareness as to the dangers of current overuse and wrong use of antibiotics, and of the need for vigorous infection prevention, is profound — in both developed and developing countries.  R&D costs are very high and incentives still too low to revitalize the pipeline of new medicines, despite progress in several developed-country markets, where capacity and science-based industries exist.  Global understanding and cooperation will be essential to winning this battle.  

Inequality and Social Fragility — While global poverty has fallen dramatically in the last 20 years, middle class wages are stagnating and inequality (economic and political) is rising in much of the world — both developed and developing.  This undermines the view both within and between countries and regions that participatory, market-based economies and democratic governance can deliver better lives for the majority. Worry about this will make for strange bedfellows in Davos.  Oxfam International executive director Winnie Byanyima (Davos 2015 co-chair) and Bill Gates will join Larry Summers, IMF’s LaGarde, OECD Chief Gurria, Mohammed El Erian and unexpected others in arguing passionately for a policy agenda (e.g. higher wages, global tax reform, infrastructure investment, access to education and “inclusive growth”) to address inequality.  China’s slowdown, Europe’s doldrums and Japan’s inability to re-capture its “Japan Inc.” vibrancy overshadows good news, such as Africa’s faster growth.  Worse, economic pain and social frustration encourage interest groups and countries to protect vigorously their piece of the economic pie, rather than to cooperate to grow it, e.g. via trade and investment efforts.  

Geopolitical instability — Major transitions and challenges to political and economic leadership are today occurring in every region of the world.  The whole world (and those in Davos) is watching to see how the Greek elections affect Europe’s unity, what Swiss Central Bank head Thomas Jordan has to say, and whether Mario Draghi and the European Central Bank can get agreement on Thursday for stimulus that might also buy time for the European Union to mend the cracks in its economic and financial architecture.  China’s economic slowdown places a laser focus on Beijing’s effort to reconcile its political system with market disciplines while addressing its own growing inequality and popular frustrations.  Many countries in the broader Middle East and North Africa are in a state of political upheaval and transition and the rise of the Islamic State has heightened fears of “failed states” and of the inability of pluralistic, national governments to provide order and deliver basic services.  Old tensions are finding new outlets even as old enemies  recognize new shared interests.  Energy markets (already rocked by U.S. shale oil) have been directly impacted, with big winners and losers (including the dynamics involving Russia, the Ukraine and Europe).   The recent attacks in Paris will give France’s President  Hollande, UK’s David Cameron, Germany’s Angela Merkel and Italy’s Matteo Renzi plenty to talk about in addition to QE, energy and European unity.  Leaders from Egypt, Jordan, Iraq and Kurdistan will also be in Davos along with Ukraine’s President Poroshenko and US Secretary John Kerry.     

Oil and GeopoliticsThe fast and dramatic drop by some 50 percent in oil prices represents a massive, short-term wealth transfer in the hundreds of billions of dollars from oil producers (including Russia, Venezuela, Iran, Saudi Arabia, Nigeria) to others that import oil  and/or subsidize energy domestically (e.g. Europe, Japan, the US, Morocco, Egypt, Jordan, Tunisia).   The gain is estimated at some $230 billion over one year to US consumers and energy dependent industries alone.

While there are many game-changing positive discoveries and trends that could be discussed in Davos, this year the focus will be on critical challenges and risks.  Today’s situation tests the capacity of even those at Davos to help explain how — to those who are frightened, frustrated and disaffected  – governments, rule of law and economic and social systems and institutions can meet these challenges with popular participation and support.  But along with justifiable hand-wringing, expect those at Davos to surface some very smart ideas for how to get that done.  Perhaps next year we can figure out how to “crowd-source” new approaches and solutions.      

[1] http://www.sciencemag.org/content/347/6219/1255641

Tax Reform is Dead! Long live Tax Reform!

Posted in Congressional Action, Tax Reform

As we noted in our December 15, 2014 post “Tax Reform is Already on the Table,” “[g]iven the politics at play with a Republican controlled Congress and a Democratic administration, it is easy to expect tax reform will go nowhere.”  Nonetheless, we noted the likelihood “that there will be a strong push by both parties to overhaul the nation’s antiquated tax structure.”

Whatever prospect existed for collaboration between the Republican Congress and the Democratic President came to a sudden collapse over the weekend, as the President and his team outlined the proposal that will be included in the State of the Union address to be given tonight.

Over the weekend, the President sought to seize the initiative by announcing he will propose steep increases in taxes on the wealthy and on large financial institutions.  He will propose an increase in the capital gains tax rate.  He will also propose ending the “step-up” in basis for capital assets that are bequeathed through a decedent’s estate.  For large financial institutions, he would impose a fee on excessive leverage.

The President also plans to propose increases in the child income-tax break and the earned income tax credit for low-income workers.  He will also propose a second-earner tax credit for low-income households.

Congressional Republicans reacted swiftly and vehemently against the President’s overall proposals, which would raise significant amounts of money.

Observers have been skeptical all along of the ability to enact tax reform under President Obama because of the deep split between the parties over whether tax reform should be revenue neutral, as most Republicans insist, or not, as the President and most Democrats want to see.

With his State of the Union plan, the President has reasserted his opposition to revenue neutrality and has spelled out how much more in tax revenue he wants to get and spend.  Although some Republicans might have been willing to support an increase in revenues, that support was generally contingent on the added revenue being used to pay down the debt and not for increased or new spending, as the President intends.

These stark differences on taxes between the two parties, which were already evident, suggest that positions are hardening even further and that, as a result, there is no realistic prospect that tax reform legislation will be enacted during the 114th Congress.  Nonetheless, as we noted in our December 2014 post, the fact that legislation is unlikely to be enacted does not mean that nothing will happen on tax reform.  Indeed, the gauntlet the President has thrown down may well prompt congressional Republicans to push forward on tax reform to clarify the differences between the two parties over the issue and crystalize the debate in advance of 2016. 

In order to do so, Republicans in Congress will have to develop, introduce, and advance legislation.  Even if doomed to failure, the decisions made as those bills are put together will likely form the underpinnings of any eventual, successful tax reform legislation. 

Hearkening back to the point we made in December, companies and individuals who care about tax reform will need more than ever to be part of the dialogue on Capitol Hill.  The pay-off for such engagement may not come soon, but the harm from not engaging now is certain to occur and will be long-lasting.


This Week in Congress – January 19, 2015

Posted in Congressional Action

The main event on Capitol Hill this week is tonight when President Obama will deliver the State of the Union address, in which he will raise many divisive issues for Congress, including a defense of his November 2014 executive action on immigration, which expanded the Administration’s deferred action policy for persons in the country illegally.  In advance of the speech, the White House has made clear that the President will seek to lay out a robust liberal agenda to confront the new Republican majority in Congress.  Given that majority, the President’s speech cannot be intended to be a meaningful outline of his policy priorities but is instead the first salvo in the 2016 presidential election, as he clearly means to draw very sharp lines of distinction between the two parties.  In addition to reacting to the President’s remarks, both chambers will be considering some contentious legislation of their own.

The Senate returns to work today at 10 a.m. and will resume consideration of S. 1, the Keystone XL Pipeline Act.  Floor activity will be focused on moving some of the amendments that have been filed to S. 1.  More than 50 amendments have been filed so far, but it remains unclear how many will actually come to a vote.  Many of the amendments are “sense of the Senate” resolutions, which do not result in particular action being taken, but would put the Senate on record on issues of climate change and global warming.  Four amendments are teed up for the initial votes on the legislation.  These are an amendment by Senator Ed Markey to require that the oil transferred through the Keystone pipeline reduce U.S. dependence on middle eastern oil; a bipartisan energy efficiency proposal offered by Senators Rob Portman and Jeanne Shaheen; a domestic-content proposal by Senator Al Franken; and the proposed substitute amendment offered by Energy Committee Chairman Lisa Murkowski.  Roll call votes on amendments to S. 1 are expected to begin on Tuesday afternoon and take place throughout the remainder of the week.  A final vote on S.1 could occur before the chamber adjourns on Friday.  Next in line for the Senate once it completes action on the Keystone pipeline bill will be the House-passed appropriations bill for the Department of Homeland Security.

The House returns today at noon to consider a resolution condemning the recent terrorist attacks in Paris.  On Wednesday, the chamber will take up H.R. 161, the Natural Gas Pipeline Permitting Reform Act, sponsored by Rep. Mike Pompeo, under a rule.  The bill would expedite the federal review process for natural gas pipeline permit applications by establishing a 12-month deadline for the Federal Energy Regulatory Commission to approve such applications.  A previous version of the bill passed the House 252-165 in 2013, but did not move in the U.S. Senate.  Even if the legislation passes both chambers this time, the White House has already issued a veto threat.

On Thursday, the House will consider H.R. 36, the Pain-Capable Unborn Child Protection Act, sponsored by Rep. Trent Franks, also under a rule.  This bill would prohibit women from terminating a pregnancy after the 20th week.  A previous iteration of the legislation passed the House in June 2013 on a vote of 228-196, but was not considered by the U.S. Senate.  New Senate Majority Leader Mitch McConnell has pledged to bring the bill to a vote in the Senate this Congress.  House consideration of H.R. 36 on Thursday coincides with the annual National Right to Life March in Washington, D.C., on the anniversary of the 1973 Roe v. Wade decision.

In addition to the floor schedules, a number of key hearings in both chambers is expected this week as committees get down to business.  These hearings are:

January 20th

Senate Banking, Housing and Urban Affairs – Iran Sanctions
Full Committee Hearing, 10 a.m., 538 Dirksen Bldg.

January 21st

House Energy and Commerce Subcommittee on Communications and Technology – Protecting the Internet and Consumers Through Congressional Action (net neutrality) — see also Senate Commerce hearing in the afternoon
10 a.m., 2123 Rayburn Bldg.

House Energy and Commerce Subcommittee on Health – Medicare Sustainable Growth Rate Formula
10:15 a.m., 2322 Rayburn Bldg.

House Transportation and Infrastructure – FAA Regulatory Certification Process
Full Committee Hearing, 10 a.m., 2167 Rayburn Bldg.

House Veterans’ Affairs – VA Construction Management Issues
Full Committee Hearing, 10:30 a.m., 334 Cannon Bldg.

House Science, Space and Technology – Unmanned Aerial Systems Issues
Full Committee Hearing, 2:30 p.m., 2318 Rayburn Bldg.

Senate Armed Services – U.S. National Security Strategy (with former National Security Advisors Brent Scowcroft and Zbigniew Brzezinski testifying)
Full Committee Hearing, 9:30 a.m., 216 Hart Bldg.

Senate Health, Education, Labor and Pensions – No Child Left Behind
Full Committee Hearing, 10 a.m., 430 Dirksen Bldg.

Senate Judiciary – Nominations: Michelle Lee, To Be Under Secretary Of Commerce For Intellectual Property And Director Of The United States Patent And Trademark Office; and Daniel Marti, To Be Intellectual Property                            Enforcement Coordinator
Full Committee Confirmation Hearing, 2:30 p.m., 226 Dirksen Bldg.

Senate Commerce, Science and Transportation – Protecting the Internet and Consumers Through Congressional Action (net neutrality) — see also House Energy & Commerce hearing in morning
Full Committee Hearing, 2:30 p.m., 253 Russell Bldg.

January 22nd

House Energy and Commerce Subcommittee on Environment and the Economy – EPA Coal Ash Rule
10 a.m., 2123 Rayburn Bldg.

House Veterans’ Affairs Subcommittee on Disability Assistance and Memorial Affairs – Veterans Claims and Appeals System
10:30 a.m., 334 Cannon Bldg.

Senate Health, Education, Labor and Pensions – Job-Based Health Insurance
Full Committee Hearing, 10 a.m., 430 Dirksen Bldg.


Kaitlyn McClure, Covington & Burling LLP Policy Advisor, co-authored this post.


FAA Grants CNN Permission to Test Drones in News Gathering

Posted in Drones

The Federal Aviation Administration will allow CNN to test the use of drones in news gathering under a research agreement that will study how drones can be used safely and effectively by news organizations.

While the FAA has granted limited exemptions for commercial drone use in controlled settings, such as film sets, the agency has been less open to the use of drones in more fluid situations, such as breaking news events.  The FAA has issued several warning letters to TV stations and journalism schools that have used drones to cover news stories.

The agreement announced on January 12, 2015, between the FAA, CNN, and the Georgia Tech Research Institute will come as a promising development for news organizations that have argued that certain types of news gathering — such as weather and traffic coverage — will be made safer and more cost-effective with drones.  The FAA will use data collected from its agreement with CNN to develop a framework to safely integrate drones into news gathering.

Many important details of the agreement, including the agreement itself, were not released.  It is unknown if the drone operators will be required to be licensed pilots and if the footage obtained will be used on the air or only for test purposes.  (Exemptions the FAA provided to several film production companies last year required each drone operator to possess a private pilot certificate and a third-class medical certificate, and also required a visual observer for each flight, as well as a schedule of filming to be submitted three days in advance — requirements that would not be workable in breaking news situations.)

“Our aim is to get beyond hobby-grade equipment and to establish what options are available and workable to produce high quality video journalism using various types of UAVs and camera setups,” CNN Senior Vice President David Vigilante said in a statement. “Our hope is that these efforts contribute to the development of a vibrant ecosystem where operators of various types and sizes can safely operate in the US airspace.”

FAA Administrator Michael Huerta, who has been under pressure from Congress to more rapidly integrate drones into the national airspace, said: “Unmanned aircraft offer news organizations significant opportunities.  We hope this agreement with CNN and the work we are doing with other news organizations and associations will help safely integrate unmanned newsgathering technology and operating procedures into the National Airspace System.”

Some news organizations have argued that they have a First Amendment right to deploy drones in news gathering.  However, the National Transportation Safety Board, in ruling in November 2014 that the FAA has statutory authority to regulate small unmanned aircraft systems (UAS) under 55 pounds, stated that such constitutional issues were “outside the scope” of its review.

CNN is the first news organization to receive permission from the FAA to use drones in news gathering.  Many others would be interested in drone use, however.  News organizations have stated that reports on traffic, hurricanes, wildfires and crop yields, among other stories, could be presented more safely and cost-effectively with the use of drones.

The FAA was expected to release a notice of proposed rulemaking on the use of small UAS by the end of last year, but the agency has not yet taken that first step toward reaching a final set of regulations.  Meanwhile, the FAA has received 214 applications for drone use exemptions and has granted 14 exemptions to date.

This Week in Congress – January 12, 2015

Posted in Congressional Action

After their first full week in the 114th Congress, members of the U.S. House and U.S. Senate return on Monday for a second week of legislative business focused on energy, the economy, and an appropriations measure that will focus debate on immigration issues, especially the President’s executive action of last year to benefit those in the country illegally.

The Senate will convene on Monday and resume consideration of S. 1, the Keystone XL Pipeline Act.  At 5:30 p.m., senators will vote on the motion to invoke cloture on the motion to proceed to S.1.  If the motion is agreed to, the Senate is expected to spend the balance of the week debating this bill and a number of amendments are expected to be offered.  Last Friday, the House of Representatives voted 266-153 to approve its bill to authorize the Keystone XL pipeline despite the threat of a presidential veto.

The House will convene on Monday to consider two bills under suspension of the rules (these are typically non-controversial bills requiring a two-thirds majority for passage).  Its real legislative work begins Tuesday.

On Monday afternoon the Rules Committee will determine the rules for House consideration of the bills that will consume the balance of the week: H.R. 37, Promoting Job Creation and Reducing Small Business Burdens Act, a bill that was defeated under a suspension vote last week and will return under a rule, meaning it will only require a simple majority for passage rather than a two-thirds majority; and H.R. 185, Regulatory Accountability Act of 2015, a bill that would make the first significant amendments to the Administrative Procedure Act since its enactment in 1946; the House has passed this bill in each of the last two Congresses, but the Democratic Senate never considered it, so the fact that it is coming up so early in the new Congress is an early sign of the possible impact of the new Republican control of the Senate.

Once these bills are disposed of, the House is expected to consider the 2015 Homeland Security Appropriations bill, which was unveiled by the House Appropriations Committee on Friday afternoon.  Due to President Obama’s November 2014 executive action on immigration, which expanded the Administration’s deferred action policy for persons in the country illegally, the Department of Homeland Security, which is responsible for handling immigration issues (it oversees Immigration and Customs Enforcement, Citizenship and Immigration Services, and Customs and Border Protection) was the only agency that did not receive funding for the entire fiscal year in the omnibus appropriations bill approved in December by Congress and signed by the President.  Under that bill, funding for DHS expires on February 27.  The bill will fund DHS through the end of the fiscal year.  Floor debate on this bill is expected to become highly contentious, as Republicans plan to offer an amendment challenging the President’s executive action on immigration.  The issue is likely to create a difficult and twisted path forward for the bill.

In addition to these expected agendas in each chamber, a schedule of key hearings in both chambers this week is listed below (note that former Secretary of State Henry Kissinger will be testifying at each of the two Senate hearings):

Tuesday January 13, 2015

House Ways and Means
U.S. Economic Activity, Full Committee Hearing
10 a.m., HVC-210 Capitol Visitor Center 

Senate Foreign Relations
U.S. Leadership and Global Security, Full Committee Hearing
10 a.m., 419 Dirksen Bldg.

Kaitlyn McClure, Covington & Burling LLP Policy Advisor, co-authored this post.

FAA Grants Drone Exemptions for Real Estate, Agricultural Use

Posted in Drones

The Federal Aviation Administration this week granted exemptions for the use of drones by a real estate firm in Arizona and a crop monitoring company in Washington state, further loosening the agency’s strict ban on the commercial use of unmanned aircraft systems (UAS).

The exemption granted to Douglas Trudeau of Tierra Antigua Realty in Tuscon, Ariz., marks the first time the FAA has permitted a real estate company to use drones to photograph houses for sale.  Trudeau applied to use a Phantom 2 Vision + quadcopter, with a maximum gross weight of about 3 pounds, for real estate photography.  Trudeau plans to attach a GoPro 3+ camera to the drone.

The FAA also granted an exemption to Advanced Aviation Solutions in Spokane, Wash., which plans to use a 1.5-pound fixed-wing eBee Ag drone, equipped with a still camera, to make photographic measurements of farm fields and determine the health of crops.

The FAA placed a number of conditions on use of the drones, including that each operation must have a pilot and an observer, and the pilot must have at least an FAA private pilot certificate and a current medical certificate.  Significantly, the FAA did not require a commercial pilot certificate, finding that the additional skills necessary to obtain a commercial certificate “would not correlate to the airmanship skills necessary” for the proposed drone operations.  The drone must also remain within the line of sight at all times.

Including this week’s exemptions, the FAA has now granted 14 drone use exemptions to 13 companies.  Exemptions have been awarded to film and production companies and for aerial surveying, monitoring construction sites, and inspecting oil rigs.  But the agency has many more exemption applications that it has not yet acted on.  The FAA stated that as of January 6, 2015, it has received 214 requests for exemptions from commercial entities, a number that has been continually increasing.  The significant backlog shows the challenges that are inherent in the FAA’s current approach of authorizing commercial drone operations on an individualized basis.  Moreover, the authorizations issued by the FAA could easily be converted into a generally applicable rule that would have broad benefit to the many businesses interested in using drones commercially.  It’s likely that the FAA will do something just like that when it eventually issues its proposed rules for drones.

Indeed, the FAA has been under pressure to move more swiftly in integrating UAS into the national airspace.  At a hearing of the House Committee on Transportation and Infrastructure last month, members urged the FAA to “move forward to ensure progress and competitiveness” but not “at the expense of safety.”

The FAA was expected to release a notice of proposed rulemaking on the use of small UAS (those under 55 pounds) by the end of last year, but the agency has still not taken that critical first step toward reaching a final set of regulations.  At the current pace, a final rule on small commercial UAS use may not come until late 2016 or early 2017, according to testimony from Gerald Dillingham of the GAO at last month’s House hearing.